-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U5QcEfdXliMtC+uwJZ5uoC4r2MFfJ6vnTZfxW8yGxN3Nm/Unbiw7/bhP3HSSZEh6 3xrGF/mLKmydlNmauBXNlg== 0000891618-97-001486.txt : 19970401 0000891618-97-001486.hdr.sgml : 19970401 ACCESSION NUMBER: 0000891618-97-001486 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAERE CORP CENTRAL INDEX KEY: 0000854916 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942250509 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-18090 FILM NUMBER: 97568434 BUSINESS ADDRESS: STREET 1: 100 C00PER CT CITY: LOS GATOS STATE: CA ZIP: 95030 BUSINESS PHONE: 4083957000 MAIL ADDRESS: STREET 1: 100 COOPER COURT CITY: LOS GATOS STATE: CA ZIP: 95030 10-K405 1 FORM 10-K405 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC. 20549 FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-18090 ------------------------ CAERE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN THE CHARTER:) DELAWARE 94-2250509 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 COOPER COURT, LOS GATOS, CALIFORNIA 95030 (ADDRESS OF PRINCIPAL OFFICES) ------------------------ REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 395-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $0.001 PAR VALUE PREFERRED SHARE PURCHASE RIGHTS 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 or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on March 1, 1997, as reported by Nasdaq, was approximately $130,813,536. The number of shares of the Registrant's Common Stock outstanding as of March 1, 1997, was 12,692,097. DOCUMENTS INCORPORATED BY REFERENCE (1) Definitive proxy statement filed with the Securities and Exchange Commission relating to the Company's 1997 Annual Meeting of Stockholders to be held May 13, 1997 (Part III of Form 10-K). (2) Portions of the Annual Report to Stockholders for the fiscal year ended December 31, 1996 (Parts II and IV of Form 10-K). ================================================================================ 2 PART I ITEM 1. BUSINESS. Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Item 1, the section entitled "Risk Factors" and Item 7. Caere(R) Corporation ("Caere" or the "Company") designs, develops, manufactures, and markets optical character recognition (OCR) software and hardware for converting scanned and faxed images into computer usable text, as well as desktop forms and information management products. For many applications, the Company's products provide a low cost accurate alternative to manual data entry, which is slow, tedious, and error prone. In December 1996, Caere acquired Recognita Rt. ("Recognita"), a Hungarian corporation that provides OCR products. The acquisition was accounted for using the purchase method of accounting, and, accordingly, the operating results of Recognita are included in the consolidated results of the Company since the date of acquisition. TRANSITION OF BUSINESS MODEL During 1996, Caere continued the transition of its business model due to the changing dynamics of the marketplace. In the past, OCR was primarily a "niche" market characterized by relatively high prices and low unit volumes. Driven by the increased power of personal computers, new scanner products with lower prices, continuing improvements in OCR accuracy, and the education of the marketplace, scanning and OCR solutions continue to reach the mainstream. In the fourth quarter of 1994, Caere began to "bundle" versions of its OmniPage(R), OmniPage Limited Edition(TM), and WordScan(R) software recognition products with scanner products from various manufacturers. The Company's objective in bundling its software products with scanners was to expand the overall market for OCR software by providing a larger number of scanner purchasers with experience in the advantages of optical character recognition. "Light" versions -- with limited capabilities -- are now bundled with most scanners being sold. This aggressive seeding of the growing base of scanner owners has greatly expanded the number of Caere product users. The success of this business model, compared to Caere's former model of selling its software primarily at higher prices with lower unit volumes, will depend upon a decision by a significant proportion of customers who first receive OCR software in a bundled form to upgrade to a newer or more fully featured version of the Company's software. Such an upgrade is typically sold at a substantially lower price than the price of a fully featured non-upgrade product. The Company shipped more than 2,100,000 bundled units in 1996, compared to approximately 1,200,000 bundled units in 1995. The "bundle and upgrade" business model resulted in increased revenues and gross margin from software products in 1996 compared to 1995, and an increase of 67% in unit sales of combined software products for the same comparison periods. The Company believes that bundles and upgrades will become a larger portion of its total revenues and unit sales in the future. There can be no assurance that Caere's continued transition to the "bundle and upgrade" business model will be successful and provide sufficient increases in unit volume in the future to offset reduced per-unit revenue and gross margin. In addition, customers using the bundled products may defer or forego the purchase of Caere's more fully featured versions of OmniPage and WordScan products if they find that the bundled products satisfy their recognition needs. 1 3 PRODUCTS The Company offers a product line designed to accommodate the diversity of information and data entry requirements. Caere's products fall into two general categories: (1) SOFTWARE: Software products for the information management market that offer a range of OCR, forms, and document management products that provide personal computer users tools to manage, intelligently and efficiently, the documents, images, forms and faxes that cross their desktops. (2) HARDWARE: Hardware products for the data capture market, which include bar code scanners and OCR readers for transaction processing applications such as high-volume data entry and check verification. Customers of these products include retail establishments, government agencies, banks, utility companies, and other organizations. Additionally, the Millennium Series(R) provides both hardware and software solutions for high-volume commercial OCR applications. Caere's products can be used with a range of computer systems, such as IBM, IBM-compatible, and Apple Macintosh personal computers. Each product is designed to accomplish the same overall goal: to improve the speed, accuracy, and simplicity of information management. SOFTWARE PRODUCTS OmniPage Professional(R) Caere's flagship product, OmniPage Professional for Windows and Windows 95, is a customizable, fully featured page recognition solution for power users. OmniPage Pro(R) is designed for the text handling professional who needs more than basic OCR capabilities. OmniPage Pro is an OCR product that allows the user to recognize, edit, and save complex documents containing text and images in their original, full page formats. Using Caere's True Page(R)technology, the user can edit graphics contained on a recognized page simply by clicking on the image. OmniPage Pro utilizes a combination of technologies, including neural networks, linguistic analysis, character experts, and grayscale data to improve accuracy on degraded documents. OmniPage Professional for Macintosh includes all of the features found in OmniPage Pro for Windows. It also offers many advanced System 7 capabilities, including support of Publish, which allow users to scan a document once and electronically publish it to subscribers on a network. The program also supports Apple Events, which allows other software programs to access OmniPage Pro. OmniPage Limited Edition OmniPage Limited Edition is a limited feature version of OmniPage that allows an end user to perform OCR on a scanned document and save the document to a file. OmniPage Limited Edition is bundled with most scanners offered by the Company's scanner partners. The product is designed to allow the scanner purchaser to experience the advantages of optical character recognition in order to encourage the purchaser to upgrade to a fully featured product. OmniPage Direct(TM) Rounding out the OmniPage product family is OmniPage Direct, a lower-cost, easy to use version of OmniPage that scans text directly into a word processing or spreadsheet program. OmniPage Direct offers direct access and input capabilities from both Windows and Macintosh software, reducing the complexity of scanning text and numbers into other applications. WordScan Plus WordScan Plus, developed by Calera, is a full-featured and accurate page recognition product that integrates with the most popular products being used in Windows. Features like OLE 2.0 support, drag and drop recognition capability, and a Chameleon Toolbar(TM) that automatically takes on the look and feel of the 2 4 user's office suite enable WordScan Plus to benefit from popular Windows programs. WordScan Plus directly integrates with all leading office suites, word processors, electronic mail systems, and facsimile applications. Recognita Plus(R) Recognita Plus, developed by Recognita, is a leading, full-featured, multilingual, and font-independent OCR software product that integrates with most popular word processing, desktop publishing, and spreadsheet applications available for Windows. Recognita Plus includes Self Assertion Technology(TM), which provides improved character recognition using a two-step reading process. Recognita Plus also provides OCR training for use on severely degraded documents or stylized typefaces. The product can also recognize text in more than 100 languages with the addition of its Language Enhancement(TM) Package. PageKeeper(R) PageKeeper, a document management software solution, incorporates leading technology such as "weighted relevance searching" and "document similarity" as it examines the content of the documents under review. PageKeeper takes information from a local hard disk, network, or scanner and creates a supercompressed database of both text and images. PageKeeper incorporates the OmniPage AnyFont(R) recognition capability to convert scanned documents into computerliterate files automatically. Because PageKeeper stores both text and images, users can electronically file documents in their original format. Magazine articles with charts and graphs, datasheets with illustrations, or letters with signatures can be stored using minimal disk space. PageKeeper automatically indexes the database, eliminating the need to manually index or assign keywords to the information. It presents the results of search requests in the order of relevance to original search requests using its weighted relevance retrieval feature. OmniForm(R) OmniForm converts paper forms to electronic forms with the click of a button. OmniForm creates an electronic version using some of Caere's OCR technologies by simply scanning or faxing documents into a computer. OmniForm users also can design their own forms, complete with fonts, graphics, and logos, using the custom toolset and Form Assistant(TM). In addition, OmniForm allows for efficient completion and processing of forms by accepting input, performing calculations, validating entries and creating databases which can be searched, sorted, imported, and exported to popular database applications. OmniForm Internet Publisher(TM) OmniForm Internet Publisher is the first paper-to-electronics forms solution for intranets and the Internet. The product converts existing paper forms to electronic versions, retaining and recognizing the various form elements on the form, bridging the gap between the paper world and the electronic world. The product allows users to save the forms to a variety of Web-ready formats incorporating such form intelligence as field validation and calculations, so that companies can collect and distribute data-associated business transactions such as invoices, purchase orders, expense reports, or questionnaires. License of Technology In addition to the application products described above, Caere continues to license its OCR technology to a broad range of computer equipment manufacturers, systems integrators, and developers for inclusion as components in more complex end user products, including document management and retrieval systems, forms processing systems, resume screening systems, and standalone systems. 3 5 The chart below shows system requirements and suggested retail price for the Company's significant software products. SELECTED SOFTWARE PRODUCTS
PRODUCT SYSTEM REQUIREMENTS SUGGESTED RETAIL PRICE* - ---------------------------- -------------------------------------------- ----------------------- OmniPage Pro - Windows 80386 or above based personal computer, 8 MB RAM, 20 MB disk space, Microsoft Windows 3.1 or later $ 695 OmniPage Pro - Mac Macintosh computer with 68020 processor or above, 8 MB RAM, 8 MB disk space, System 7.0 or above $ 695 OmniPage Pro - Windows 80386 or above based personal computer, 8 MB Retail Upgrade RAM, 20 MB disk space, Microsoft Windows 3.1 or later $ 129** OmniPage Pro - Mac Macintosh computer with 68020 processor or Retail Upgrade above, 8 MB RAM, 8 MB disk space, System 7.0 or above $ 149** WordScan Plus - Windows 80386 or above based personal computer, 4 MB RAM, 13 MB disk space, Microsoft Windows 3.1 or later $ 595 Recognita Plus - Windows 80386 or above based personal computer, 4 MB RAM, 10 MB disk space, Microsoft Windows 3.1 or later $ 695 Recognita Plus - Windows 80386 or above based personal computer, 4 MB Retail Upgrade RAM, 10 MB disk space, Microsoft Windows 3.1 or later $ 199** PageKeeper Personal(TM) - 80386 or above based personal computer, 8 MB Windows RAM, 15 MB disk space, Microsoft Windows 3.1 or later $ 195 OmniForm - Windows 80386 or above based personal computer, 8 MB RAM, 8 MB disk space, Microsoft Windows 3.1 or later $ 349 OmniForm - Mac Power Macintosh or Macintosh computer with 68020 processor or above, 12 MB RAM, 10 MB disk space, System 7.1 or above $ 199 OmniForm Internet Publisher 80486 or above based personal computer, 12 MB RAM, 8 MB disk space, Microsoft Windows 95 or NT 4.0 or later $ 895
- --------------- * Suggested Retail Price as of March 1, 1997. ** Estimated Retail Price as of March 1, 1997. Note: All Caere products support a wide range of output file formats and scanners. Output file formats include, but are not limited to: WordPerfect, Microsoft Word for Windows, Lotus 1-2-3, and Microsoft Excel. Supported scanners include, but are not limited to: Hewlett Packard, Microtek, Epson, Apple, Canon, and Fujitsu. 4 6 PAGE RECOGNITION PROCESS The process by which Caere's recognition products recognize text involves converting the electronic output of a scanner into computer usable files through a series of complex software algorithms. The electronic image produced by the scanner is comprised of white or black picture elements (pixels), usually 90,000 pixels per square inch, each rendered to the computer as a 0 or a 1, representing either a white or a black pixel. Before the application of recognition products such as OmniPage, a scanner's electronic output could be displayed and manipulated only as an image on a computer's monitor; the computer did not recognize that image as a data file usable in an application program such as a word processor or spreadsheet. The graphic below illustrates the process by which scanned text or numeric data is converted into computer usable form by the Company's OmniPage, WordScan, and Recognita products. [ARTWORK HERE] Caere's products recognize an image in two steps. First, they analyze the image of the page to determine which parts are text and numeric data and determine the structure of the page layout. Tables, columns, and paragraphs are identified and located. They then examine and identify the characters and produce a file of the character data contained in words, including page formatting information such as tables, columns, paragraphs, spacing, bold, italics, and underlines that are necessary to allow manipulation of the data as a text file. OmniPage Pro employs a combination of technologies, referred to as Caere's 3D OCR(TM) and AnyFont technologies, to achieve the highest degree of accuracy on many different types of documents. OmniPage Pro is the first OCR product to utilize grayscale information to analyze characters the way a human eye does. Character experts view certain character attributes like a closed loop or crossed downward stroke to identify the unique set of features inherent in each character. Neural networks have been developed on powerful mainframe computers to "learn" what makes up one character versus another, a methodology known as "feature recognition." Caere's page recognition products analyze each character image according to proprietary algorithms. Feature recognition enables the OmniPage products to provide the AnyFont capability that recognizes text in almost any type style and size. 5 7 HARDWARE PRODUCTS OCR Systems Caere has produced high-quality handheld and slot-reader OCR systems since 1977. This line of data capture OCR systems reads single lines of characters. These desktop systems --consisting of an input device, such as a wand, slotreader or motorized slot-reader, a controller, and an interface cable-- are designed for transaction processing applications that do not require variable font recognition technology, but demand extremely high accuracy. Common applications involve entering customer account numbers or data from billing documents into a computer. Caere's systems accelerate transaction processing, while reducing operator fatigue and key entry errors. Caere's 800 Series Combo Reader, which works with a wide variety of computers, integrates OCR, bar code, and magnetic stripe reading capabilities in a single unit. This provides cost-effective and versatile functionality for a wide range of applications in remittance processing, banking, and point-of-sale environments. The 800 Series is also widely used by government organizations, post offices, and the public utility industry. The U.S. Government, for example, creates military rosters by reading social security numbers, post offices scan certified mail article numbers, and Caere's electric, gas, and telephone utility customers use the 800 Series to accelerate payment processing. In 1996, Caere introduced the Model 1200 Travel Document Reader(TM), a product designed specifically to read passports, identity cards, and other machine readable travel documents that meet certain industry standards. The Travel Document Reader employs Caere's exclusive Quadratic Neural Network(TM) OCR technology, which improves recognition accuracy by plotting dozens of properties of each character on a multidimensional map. Adding a 32-bit microprocessor and programmable Flash memory, the Travel Document Reader offers accuracy, speed, and program flexibility in a compact package. Caere's 1500 Series Document Processor has all the capabilities of the 800 Series, but processes documents in batches at a rate of over 3,000 per hour. It is the smallest desktop reader/sorter of its type, with many features only found on high-end machines. Historically, a significant portion of Caere's OCR data capture business has been the result of original equipment manufacturer (OEM) sales; that is, sales to firms that purchase Caere's OCR data capture technology and then integrate it into their own products. Bar Code Systems Bar code readers recognize documents printed with series of vertical bars and spaces that represent data. They are used in high-volume transaction processing applications, such as point-of-sale operations, where human readability of data is not necessary. Bar code systems tolerate lower-quality media than limited-font OCR systems, and are typically less expensive than OCR systems. Caere's bar code product line, introduced in 1983, includes both stand-alone decoders that can be attached externally to personal computers, and internal board-level decoders used in personal computers for cost and space savings. Caere bar code products cater to the higher-end of the market with feature-rich decoders and one of the industry's first five-year warranties. Caere's decoders are used in manufacturing, retail point of sale, inventory, asset tracking, and a myriad of applications where value added resellers need more functionality from bar code readers than just decoding. Caere's Easy-Scanner(TM) 1000 and 2000 Series bar code systems are decoder/wedges that can accommodate several input devices and connect easily to keyboard ports for simple interfacing to over 350 different types of computers and terminals. With three input ports, these decoder/wedges can accept input from a bar code wand, CCD, laser, badge reader, or magnetic stripe reader and/or serial data from portable data terminals and scales. Any data received can be filtered for acceptance, then transmitted, re-formatted, or rejected to fit the host application with over 90 built-in data editing commands. The Easy-Scanner also features multiple output ports to accommodate a variety of interfaces such as RS-232, parallel, and over 350 keyboard wedge protocols. 6 8 The Model 1731 Integrated Laser, one of the most versatile and effective bar code scanners on the market today, combines most of Caere's interfacing and data editing features with a high-performance handheld laser scanner from PSC, Inc., a leading bar code laser manufacturer. M/Series II OCR Accelerator Board An OCR accelerator board available for Windows 3.1x and Windows 95 PC users. Supported by the M/Series Professional application software and through Caere's Professional Developer's Kit 6.1, the M/Series II OCR Accelerator Board converts images into text at throughput rates of up to 750 pages per hour or three times faster than the previous board from Caere. For even faster throughput, multiple M/Series II OCR Accelerator Boards can be run in parallel in the same PC. The M/Series II OCR Accelerator Board includes the new M/Text OCR Engine, which reduces errors by as much as 50 percent from previous releases. M/Series Professional OCR Server for Windows NT A software application that runs on a Windows NT Server and/or workstation and manages M/Series Professional scan, zone, edit and export functions from Windows 3.1x and Windows 95 clients on a network. Rapid image to text conversion (OCR) is performed on the server, using highly accurate single or multiple M/Text OCR software engines. M/Series Professional Software-Windows 3.1 and Windows 95 Available for use with the M/Series II OCR Accelerator Board, the M/Series Professional software allows users on a network to simultaneously capture documents, zone fields or templates, edit text created by the OCR process and export files to popular output file formats. Professional Developer's Kit 6.1 Available as a set of DLLs, VBXs and OCXs for Microsoft Visual Basic and Microsoft Visual C/C++ developers, the Professional Developer's Kit 6.1 uses a similar API to previous Caere/Calera Developer's Kits, allowing programmers commonality in function calls from previous releases. New features supported in the 6.1 release include the ability to get character choices and recognition confidence level values. Also included with the Professional Developer's Kit 6.1 is a copy of the new M/Text OCR engine, with support for 13 different languages. The kit contains both 16-bit and 32-bit libraries. Visual Developer's Kit 6.1 A subset of the Professional Developer's Kit 6.1, the Visual Developer's Kit contains the VBXs and OCXs for developers who program in the Microsoft Visual Basic environment. 7 9 The chart below shows typical applications, features, available interfaces, and input devices for selected Caere OCR and bar code transaction processing products.
AVAILABLE PRODUCTS TYPICAL APPLICATIONS FEATURES INTERFACES INPUT DEVICES - --------------------- --------------------------- ------------------ ------------------ -------------- OCR 800 Series OCR/Bar Point of sale Reads the Apple Macintosh Handheld wand Code Combo, 1500 Remittance processing following fonts: AT&T Fixed slot Series Document Document control OCR-A Full Burroughs Fixed mount Processor Manufacturing applications Alphanumeric DEC CCD scanner Hospitals OCR-A Eurobanking IBM Magnetic Banking OCR-B ECMA11 IBM PC and stripe Government OCR-B Eurobanking compatibles Bar code pen Office file tracking E13B (MICR) ITT Badge reader Postal PostNET Etc. (over 350) Most one- dimensional bar code symbologies Dual-track magnetic stripe Fully user programmable BAR CODE 1000 Series, Manufacturing applications Reads and Apple Macintosh Wand 1700 Series, Inventory control autodiscriminates AT&T Slot 2000 Series Work-in-process tracking the following DEC Laser scanner Shop floor control symbologies: Code IBM CCD scanner Warehousing 39, Code 128, IBM PC and Magnetic Point of sale Codabar, compatibles stripe Hospital health industry Interleaved 2 of ITT Badge reader Video cassette rental 5, UPC, EAN and Memorex Government MSI Plessey NCR Document tracking Fully user UNISYS programmable Wyse Dual-track Etc. (over 300) Magnetic stripe
DISTRIBUTION AND SUPPORT Domestically, the Company markets its software products through distributors, including Ingram Micro, Merisel, Tech Data, computer superstores such as Best Buy, CompUSA, Computer City, and Egghead, mail order houses including PC Connection, MicroWarehouse, and Computer Discount Warehouse, and office superstores such as OfficeMax and Office Depot. Caere also markets its software products directly to end user customers by outsourcing telemarketing and order fulfillment services to Softbank Services Group. High-speed and integrator products are primarily sold through Law Cypress Distributing Company, which works with the Company to serve value-added resellers and systems integrators of imaging products. Sales of software products to Ingram Micro represented approximately 28%, 22%, and 23% of the Company's net revenues during 1996, 1995, and 1994, respectively. Sales of software products through Softbank Services Group represented approximately 15%, 9%, and 2% of the Company's net revenues during 1996, 1995, and 1994, respectively. Should either of these customers have a significant change in its quarterly buying pattern or its financial condition, the Company could experience a material adverse impact on its business and financial results. In addition, there are increasing numbers of companies competing for access to distribution channels, and distributors and retailers often carry competing products. Retailers of Caere's products typically have a limited amount of shelf space and promotional resources for which there is intense competition. There can be no assurance that distributors and retailers will continue to provide the Company's products with adequate levels of shelf space and promotional support. Failure to do so would have a material adverse effect on the Company's results of operations. 8 10 The Company markets its transaction processing OCR and bar code products primarily through independent distributors, value-added resellers ("VARs"), and hardware OEMs. The Company's agreements with OEMs typically grant an OEM the right to distribute the Company's products with the OEMs' microcomputers and other data collection equipment. VARs purchase the Company's products and incorporate them into systems integrated with the products of other manufacturers. Internationally, the Company's products are sold through distributors. At December 31, 1996, the Company had distributors servicing Western and Eastern Europe, Canada, Australia, New Zealand, South Korea, Mexico, and Japan. The Company's international revenues are subject to certain risks, such as export controls, import restrictions, and other governmental regulations. The Company is not currently affected adversely by such controls or regulations and is not aware of pending changes in export regulations that would adversely affect its international business or its ability to collect foreign receivables. International revenues in 1996, 1995, and 1994 were approximately $16,391,000, $15,154,000, and $18,125,000, respectively. In most cases, the Company bills its international customers in U.S. dollars; therefore, such revenues are not subject to foreign currency fluctuations. However, fluctuations in exchange rates could affect demand for the Company's products by causing their prices to be out of line with products priced in the local currency. The Company's international revenues are subject to certain risks, such as export controls, import restrictions, longer payment cycles, greater difficulties in accounts receivable collections, and the requirement of complying with a wide variety of foreign laws. Although Caere has not previously experienced any difficulties under foreign law in exporting its products to other countries, there can be no assurance that the Company will not experience such difficulties in foreign countries in the future. Any such difficulties would have a material adverse effect on the Company's international sales. The Company is not currently affected adversely by such controls or regulations and is not aware of pending changes in export regulations that would adversely affect its international business or its ability to collect foreign receivables. The Company's agreements with its distributors generally provide for a limited right of return, with the distributor receiving full credit for the product's purchase price, less any discounts, against a purchase order of equal or greater value. The Company monitors its returns and records provisions for estimated returns as shipments are made. During 1996, 1995, and 1994, returns represented 3.2%, 3.7%, and 4.3% of revenues, respectively. Although Caere believes that it provides adequate allowances for returns, there can be no assurance that actual returns will not exceed the Company's allowances. Any product returns in excess of recorded allowances could result in a material adverse effect on operating results of the Company. The Company has a domestic sales and support staff of 50 employees located throughout the United States. During 1992, the Company established a European sales office, Caere GmbH, in Munich, Germany. In December 1996, the Company acquired Recognita Rt., a Hungarian provider of OCR and forms software solutions. Domestically, information management customers who register with the Company currently receive limited hotline technical support and product information at no cost. Additional technical support services are available on a "fee for support" basis thereafter. Outside of the U.S., information management customers currently receive technical support from a variety of Caere partners on a non-fee basis. The Company warrants to end users that software disks are free from media defects for three months. OCR and bar code hardware customers receive free telephone support, including assistance with installation, programming, and trouble shooting. OCR hardware products are warranted for one year, while bar code hardware products are warranted for between one and five years. In addition, the Company provides hardware customers with spare parts and repair services. OCR and bar code hardware customers also may purchase annual service contracts under which the Company performs service work as needed for the duration of the service contract. COMPETITION The information management market is highly competitive and subject to rapid change along with constant pressure to reduce prices. The Company believes that the principal competitive factors in the software products market include accuracy, ease of understanding and use, product reliability, tolerance for poor media, product features and functions, price/performance characteristics, brand recognition, and quality of product support. Caere's competition within the microcomputer software industry ranges from large 9 11 corporations to small independent software vendors. Caere also expects to encounter continued competition both from established companies and from new companies that are now developing, or may develop, competing products. Competition in the software products market can be grouped into the following categories: The OmniPage, WordScan, and Recognita families of page recognition products contend with competition in two markets. First, several companies offer packaged OCR application programs through the retail distribution channel. These include Xerox Imaging Systems and several small independent software vendors. The Company faces significant price competition in the retail channel. The second competitive market for the OmniPage family of recognition products is the OEM and reseller market in which companies license OCR technology to incorporate into different application software products or "bundle" the technology with related hardware products such as scanners or fax modems. Competitors include Xerox Imaging Systems and several small independent software vendors. The Company experiences significant price competition in the OEM market and expects this to continue. In addition, the "bundled" OCR products themselves present competition to the Company's fully featured shrinkwrap product. PageKeeper has several direct competitors offering competing products in the growing desktop document management market. These competing products include, but are not limited to, PaperPort Deluxe by Visioneer, Paper Master by Documagix, and Pagis by Xerox Imaging Systems. With decreasing scanner prices driving affordable scanning solutions into the mainstream, Caere expects to face increasing competition in this product category from a variety of software developers in the future. OmniForm competes against various products in the electronic forms market. In the forms creation segment, where OmniForm's technology takes an existing paper form and converts it into an electronic version, OmniForm has no competition. In the forms design and print segment of the electronic forms market, OmniForm competes with products such as Form Tool Gold by IMSI. In the form filling and submit segment of the electronic forms market, OmniForm competes with products including JetForm and FormFlow by JetForm. And finally, in the Internet/intranet publish and submit segment of he electronic forms market, OmniForm competes only with JetForm by JetForm. The Company believes that the principal competitive factors in the hardware products market include accuracy, tolerance for poor media, product features and functions, and reliability. Price is also an important factor in the bar code market. The major competition in the OCR segment of the Company's hardware business is Siemens CGK. In the bar code segment of the hardware business there are numerous competitors, including Symbol Technologies. Many of the Company's competitors have substantially greater financial, marketing, recruiting and training resources than the Company. There can be no assurance that the Company will be successful in competing in the information management market. PRODUCT DEVELOPMENT The development and enhancement of the Company's OCR and desktop document management products have historically absorbed and are expected to continue to consume the greatest part of the Company's development effort. The Company believes that it must continue to upgrade and enhance its existing products to ensure that its products remain competitive. Certain products sold by the Company through its Caere Affiliate Publishing(TM) (CAP) program are developed by and remain the property of third parties. Caere maintains exclusive rights to market those products for the term of the license agreement in exchange for a royalty. Currently, OmniForm is the only Caere product being sold through the CAP program. During 1996, 1995, and 1994, research and product development expenses were approximately $7,069,000, $7,915,000, and $9,072,000, respectively. In addition to internal product development, the Company incorporates software produced by other companies into its products. All such incorporation or use is pursuant to licensing agreements. See also "Product Protection." There can be no assurance that the 10 12 research and development expenses incurred will not exceed development budgets or that new products will achieve market acceptance and generate sales sufficient to offset development costs. There also can be no assurance that such license agreements for incorporated third party software will continue to be available to the Company on acceptable terms. From time to time, the Company has experienced delays in product development and "debugging" efforts, and could experience such delays in the future. Significant delays in developing, completing, or shipping new or enhanced products could materially adversely affect the Company's financial results. Furthermore, as the Company's products become more complex, development cycles become longer and more expensive. There can be no assurance that the Company will be able to respond effectively to technological changes or new product announcements by others, or that the Company's product development efforts will be successful. INVESTMENT IN ZYLAB INTERNATIONAL, INC. In November, 1995, Caere invested $2.4 million for a 19.9% ownership stake in ZyLAB International, Inc. ("ZyLAB") with an option to purchase the remaining 81.1%. ZyLAB is a developer of full text indexing and retrieval software that simplifies the process of searching large volumes of information from a variety of sources. Due to ZyLAB's failure to achieve its business plan, Caere recorded a one-time charge of $2,616,000 to write-down its investment in ZyLAB in 1996. BACKLOG The majority of the Company's net revenues in a particular quarter has typically resulted from orders booked in that quarter. The Company considers backlog to be orders received and due to be filled within six months. Orders included in backlog typically may be canceled or rescheduled by customers without significant penalty. The Company's backlog at December 31, 1996, was approximately $694,000, as compared to backlog at December 31, 1995, of approximately $449,000. Backlog primarily represents orders for the Company's hardware products, which represented approximately 16% of net revenues during each of 1996 and 1995. There is typically little or no backlog for the Company's software products, as these products ship as soon as orders are received. Backlog as of any particular date should not be relied upon as indicative of the Company's net revenues for any future period. MANUFACTURING AND SUPPLIERS The Company's manufacturing operations for its OCR and bar code business products and its M/Series Professional Card Systems consist of final assembly, test, burn in, and quality control for its systems, subassemblies, and components. Components for products are procured by the Company and then supplied to third party contractors. Many of these components are tested and burned in prior to delivery to contractors to reduce failure rates. Major subassemblies such as printed circuit boards are contracted to third parties for assembly and initial testing. Most of the components used in the manufacture of the Company's products are available from multiple sources of supply. Certain components used in the manufacture of the Company's OCR products are currently available only from a single source. Although the Company generally maintains a several-month inventory level of these components, failure of a single-source supplier to deliver required quantities of such materials could materially and adversely affect the Company's operating results. The Company believes that, if necessary, it could develop alternative sources of supply for these components and parts, or re-engineer the products. However, any delays in developing such alternative sources of supply or in the re-engineering of the products could have a material adverse effect on the Company's results of operations. 11 13 PRODUCT PROTECTION The Company relies upon proprietary technology, trade secrets, know-how, continuing technological innovations and licensing opportunities to maintain its competitive position. The Company attempts to protect its technology and trade secrets with patents, copyrights, trade secret laws, technical measures and non- disclosure agreements. The Company's policy is to file patent and copyright applications to protect technology, inventions and improvements that are important to the development of its business. The Company has been issued a series of patents which directly relate to its products. Assurance cannot be given, however, that any patents issued to the Company will not be challenged, invalidated or circumvented or that the rights granted by the patents will provide competitive advantages to the Company. In order to protect its ownership rights in its software products, the Company licenses such products to OEMs and resellers on a non-exclusive basis with contractual restrictions on reproduction, distribution and transferability. In addition, the Company generally licenses its software in object code form only. The Company licenses its software products to end users by use of a "shrink-wrap" customer license that restricts the end user to personal use of the product. Despite these contractual restrictions, it may be possible for competitors or users to illegally copy the software or obtain information which the Company regards as proprietary. The Company also relies on trade secrets and proprietary know-how. The Company has been, and will continue to be, required to disclose its trade secrets and proprietary know-how to employees and consultants. Although the Company seeks to protect its trade secrets and proprietary know how by entering into confidentiality agreements with such persons, there can be no assurance that these agreements will not be breached, that the Company would have an adequate remedy for any breach, or that the Company's trade secrets will not otherwise become known or be independently discovered by competitors. Because of technological developments in the industry in which the Company markets its products, it is possible that certain of the Company's products may infringe third party proprietary rights. From time to time the Company has received, and in the future may receive, notices of claims of infringement. In response to these claims, the Company may have to obtain licenses for an allegedly infringing product or stop selling such product and be liable for damages. However, there can be no assurance that any required licenses or rights could be obtained on commercially reasonable terms. In addition, Caere has developed products in the past that incorporate technology based on licenses received from third parties. The Company's ability to continue to develop and commercialize its products will be affected by its ability to renew existing technology licenses and to obtain technology licenses from third parties in the future. There can be no assurance that the Company will be able to renew its current licenses or obtain any necessary licenses in the future. The failure to renew existing licenses or to obtain any licenses that may be required in the future could have a material adverse effect on the Company. Policing unauthorized use of technology is difficult, especially in the software industry. Software piracy can be expected to be a persistent problem for the software industry for the foreseeable future. Such piracy can be particularly egregious in international markets in which the Company distributes its products. The Company believes that, due to the rapid pace of technological change in the industry, factors such as knowledge, ability, frequent product enhancements, timeliness and quality of product support and the experience of the Company's employees are more significant as a means to protect the Company's competitiveness than patent, copyright and trade secret protection. EMPLOYEES As of December 31, 1996, Caere employed 272 people. None of the Company's employees is represented by a labor union. The Company has experienced no work stoppages and believes that its employee relations are good. The Company has utilized the services of consultants, third-party developers, and other vendors extensively in its sales, development, and manufacturing activities. 12 14 Competition in the recruiting of personnel in the computer and data recognition industry is intense. The Company believes that its future success will depend in part on its continued ability to hire and retain qualified management, marketing, technical employees, and independent contractors. There can be no assurance that the Company will be able to attract and retain enough qualified employees. Caere does not carry any key person life insurance with respect to any of its personnel. RISK FACTORS Fluctuating Revenues and Operating Results Caere's revenues and operating results have fluctuated in the past and the Company's future revenues and operating results are likely to do so in the future, particularly on a quarterly basis. Caere's experience has been that a disproportionately large percentage of shipments has occurred in the third month of each fiscal quarter and that shipments tend to be concentrated in the latter half of that month. Backlog early in a quarter is not generally large enough to assure that Caere will meet its revenue target for any particular quarter. A shortfall in shipments at the end of any particular quarter may cause the results for that quarter to fall significantly short of anticipated levels. The Company's quarterly operating results may continue to fluctuate due to numerous other factors. Some of these factors include the demand for the Company's products, seasonality, customer order deferrals in anticipation of new versions of the Company's products, the introduction of new products and product enhancements by the Company or its competitors, including the effects of filling the distribution channels following such introductions and of potential delays in availability of announced or anticipated products, price changes by the Company or its competitors, product sales mix, timing of acquisitions and associated costs, and timing of significant marketing and sales promotions. Lack of Product Revenue Diversification Caere derived approximately 72% of sales in 1996 and 69% of sales in 1995 from the OmniPage and WordScan line of products. Caere expects that these software products will continue to account for a majority of the Company's sales in the future. A decline in demand for these products as a result of competition, technological change or other factors would have a material adverse effect on the Company's results of operations. Mature Markets for Certain OCR Products For fiscal years ended December 31, 1996, 1995, and 1994, Caere derived approximately 14%, 23% and 15%, respectively, of its net revenues from sales of its transaction processing OCR and bar code products. The market for both of these sets of products is relatively mature and may not be subject to growth or expansion by the Company in the future. There can be no assurance that Caere's hardware-based transaction processing products will continue to be a significant source of net revenues for the Company. Possible Volatility of Caere Stock Price The market prices for Caere's Common Stock have fluctuated widely in the past. The management of Caere believes that such fluctuations may have been caused by announcements of new products, quarterly fluctuations in the results of operations, and other factors including, but not limited to, changes in conditions of the personal computer industry in general. Stock markets have experienced extreme price volatility in recent years. This volatility has had a substantial effect on the market prices of securities issued by Caere and other high technology companies, often for reasons unrelated to the operating performance of the specific companies. Caere anticipates that the market price for its Common Stock may continue to be volatile. Such future stock price volatility for Caere Common Stock may provoke the initiation of securities litigation, which may divert substantial management resources and have an adverse effect on Caere and its results of operations. 13 15 Effect of Antitakeover Provisions of Delaware Law and Caere's Charter Documents Caere is a corporation organized under the laws of the state of Delaware. Certain provisions of the Delaware Law and the charter documents of Caere may have the effect of delaying, deferring or preventing changes in control or management of Caere. Caere is subject to the provisions of Section 203 of the Delaware Law, which has the effect of restricting changes in control of a company. In addition, Caere's Board of Directors is divided into three separate classes. In addition, Caere's Board has the authority to issue up to 2,000,000 shares of Preferred Stock and to fix the rights, preferences, privileges and restrictions, including voting rights, of such shares without any further vote or action by its stockholders. Caere also has a Preferred Share Purchase Rights Plan. The antitakeover protections of Delaware Law, the Caere charter documents, and the Preferred Share Purchase Rights Plan could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, a majority of the outstanding stock of the Company. ITEM 2. PROPERTIES. The Company's principal administrative, marketing, manufacturing, and product development facilities consist of approximately 56,000 square feet in two buildings in Los Gatos, California. The Company occupies this space under a lease agreement that expires in 2002. In addition, the Company leases office and storage space in four locations in the United States for use by its regional field sales and support staff. Caere GmbH also leases office space in Munich, Germany, for its operations, while Recognita leases office space in Budapest, Hungary. The Company believes that its existing facilities are adequate for its needs for at least the next twelve months. ITEM 3. LEGAL PROCEEDINGS. The Company is involved in certain claims arising in the normal course of business. The extent to which these matters will be pursued by the claimants or the eventual outcome is not presently determinable. However, Company management, after review and consultation with the Company's counsel, believes that the ultimate resolution of these matters will not have a material adverse effect on its consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Incorporated by reference to the section of the Company's 1996 Annual Report to Stockholders entitled "Quarterly Results of Operations," page 31. ITEM 6. SELECTED FINANCIAL DATA. Incorporated by reference to the section of the Company's 1996 Annual Report to Stockholders entitled "Financial Highlights," on the inside front cover. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Incorporated by reference to the section of the Company's 1996 Annual Report to Stockholders entitled "Management's Discussion and Analysis," pages 12 through 17. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Incorporated by reference to the sections of the Company's 1996 Annual Report to Stockholders entitled "Financial Statements," pages 18 through 32. 14 16 Supplementary data for the year ending December 31, 1995, is as follows: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
1995, QUARTER ENDED YEAR ------------------------------------------- ENDED MAR 31 JUN 30 SEP 30 DEC 31 DEC 31 ------- ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues............................. $12,224 $13,172 $13,057 $13,486 $51,939 Gross margin............................. 8,530 8,976 8,680 8,669 34,855 Earnings before income taxes............. 665 811 1,075 269 2,820 Net earnings............................. 499 756 914 228 2,397 Net earnings per share................... $ .04 $ .06 $ .07 $ .02 $ .18 Shares used in per share calculations.... 13,688 13,385 13,608 13,456 13,538 Common stock price per share: High................................... $ 18.13 $ 10.06 $ 12.75 $ 10.50 $ 18.13 Low.................................... 9.25 8.00 8.50 7.13 7.13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Incorporated by reference to the sections of the Company's definitive proxy statement for the 1997 Annual Meeting of Stockholders to be held May 13, 1997, entitled "Election of Director" and "Management." ITEM 11. EXECUTIVE COMPENSATION. Incorporated by reference to the sections of the Company's definitive proxy statement for the 1997 Annual Meeting of Stockholders entitled "Executive Compensation" and "Compensation of Directors." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Incorporated by reference to the section of the Company's definitive proxy statement for the 1997 Annual Meeting of Stockholders entitled "Security Ownership of Management and Principal Stockholders." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Incorporated by reference to the section of the Company's definitive proxy statement for the 1997 Annual Meeting of Stockholders entitled "Executive Compensation," "Compensation of Directors," "Stock Option Grants and Exercises," and "Certain Transactions." 15 17 PART IV ITEM 14. BITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A) 1. INDEX TO FINANCIAL STATEMENTS The following documents are incorporated in Part II of this Annual Report by reference to the 1996 Annual Report to Stockholders:
ANNUAL REPORT TO STOCKHOLDERS ----------------- Consolidated Balance Sheets as of December 31, 1996 and 1995..................................................... Page 18 Consolidated Statements of Earnings for each of the years in the three-year period ended December 31, 1996......... Page 19 Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 1996..................................................... Page 20 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1996......... Page 21 Notes to Consolidated Financial Statements................. Pages 22-31 Independent Auditors' Report............................... Page 32
With the exception of the information expressly incorporated by reference into Items 5, 6, 7, and 8 of this Annual Report, the 1996 Annual Report to Stockholders, attached as Exhibit 13.1, is not deemed filed as part of this report. 2. FINANCIAL STATEMENT SCHEDULES The following financial statement schedule is filed as a part of this Annual Report and should be read in conjunction with the Financial Statements: Schedule II -- Valuation and Qualifying Accounts All other schedules are omitted because they are not required, or not applicable, or because the required information is included in the 1996 Annual Report to Stockholders, filed as Exhibit 13.1. 3. EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ---------------------------------------------------------------------------------- 2.1 Agreement and Plan of Reorganization dated as of October 14, 1994, between the Company and Calera Recognition Systems, Inc. 3.1 Certificate of Incorporation of the Company (exhibit 3.4)(1) 3.2 (i) Certificate of Amendment filed with the Delaware Secretary of State October 13, 1994(5) 3.3 (ii) Agreement of Merger between the Caere Acquisition Corporation and Calera Recognition Systems, Inc. as filed with the California Secretary of State December 20, 1994(1) (Exhibit 3.5)(5) 3.4 By-laws of the Company 4.1 Reference is made to Exhibits 3.1 and 3.2 *10.1 1981 Incentive Stock Option Plan, as amended, and related form of incentive stock option agreement *10.2 1981 Supplemental Stock Option Plan, as amended, and related form of supplemental stock option agreement 10.3 Lease Agreement for 100 Cooper Court, dated November 27, 1991 between the Company and Vasona Business Park(6)
16 18
EXHIBIT NUMBER DESCRIPTION - ------- ---------------------------------------------------------------------------------- 10.4 Lease Agreement for 104 Cooper Court, dated November 27, 1991 between the Company and Vasona Business Park(6) 10.5 Form of Indemnity Agreement between the Company and its officers and directors (exhibit 10.12)(1) *10.6 Employee Stock Purchase Plan *10.7 1992 Officer Bonus Plan (exhibit 10.9)(3) *10.8 1992 Non-Employee Directors' Stock Option Plan 10.9 Preferred Share Purchase Rights Plan (exhibit 1)(2) *10.10 Executive Compensation and Benefits Continuation Agreement, Robert G. Teresi, dated December 28, 1994. (4) 11.1 Statement regarding computation of net earnings (loss) per share 13.1 1996 Annual Report to Stockholders 21.1 Subsidiaries of the Company Consent of KPMG Peat Marwick LLP 24.1 Power of Attorney. Reference is made to the signature page 27 Financial Data Schedule
- --------------- * Management contract or compensatory plan or arrangement. (1) Incorporated by reference to the corresponding or indicated exhibit to the Company's Registration Statement on Form S-1, as amended (File No. 33-30842). (2) Incorporated by reference to the indicated exhibit in the Company's Form 8-K Current Report filed on April 18, 1991. (3) Incorporated by reference to the corresponding or indicated exhibit to the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1991. (4) Incorporated by reference to Caere's Registration Statement on Form S-4 (File No. 33-85840). (5) Incorporated by reference to the corresponding or indicated exhibit to the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1994. (6) Incorporated by reference to the corresponding or indicated exhibit to the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1995. (B) REPORTS ON FORM 8-K. None. 17 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAERE CORPORATION Dated: March 25, 1997 By: /s/ BLANCHE M. SUTTER ------------------------------------ Blanche M. Sutter Executive Vice President, Chief Financial Officer and Secretary POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert G. Teresi and Blanche M. Sutter, or either of them, his attorney in fact, each with the power of substitution, for him or her, in any and all capacities, to sign any amendments to this Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys in fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------------------------- ------------------------------- --------------- /s/ ROBERT G. TERESI Chairman of the Board, Chief March 25, 1997 - --------------------------------------------- Executive Officer (Principal Robert G. Teresi Executive Officer) /s/ JAMES K. DUTTON Director March 25, 1997 - --------------------------------------------- James K. Dutton /s/ ROBERT J. FRANKENBERG Director March 25, 1997 - --------------------------------------------- Robert J. Frankenberg /s/ FREDERICK W. ZUCKERMAN Director March 25, 1997 - --------------------------------------------- Frederick W. Zuckerman /s/ BLANCHE M. SUTTER Executive Vice President, Chief March 25, 1997 - --------------------------------------------- Financial Officer and Secretary Blanche M. Sutter (Principal Financial and Accounting Officer)
18 20 INDEPENDENT AUDITOR'S REPORT The Board of Directors Caere Corporation: Under date of January 28, 1997, we reported on the consolidated balance sheets of Caere Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, incorporated by reference in the annual report on Form 10-K for the year ended December 31, 1996. In connection with our audit of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule in the Form 10-K as listed in the index under Item 14(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audit. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP San Jose, California January 28, 1997 19 21 SCHEDULE II CAERE CORPORATION VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 1996 (IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED BALANCE AT BEGINNING COSTS AND TO OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - --------------------------------------------- ----------- ---------- ---------- ---------- ---------- YEAR ENDED DECEMBER 31, 1994 Allowance for returns, coop advertising, and other customer credits..................... $ 1,763 $2,831 $ -- $2,321 $2,273 ====== ====== === ====== ====== Accumulated amortization of software development costs.......................... $ 2,068 $ 662 $ -- $ -- $2,730 ====== ====== === ====== ====== YEAR ENDED DECEMBER 31, 1995 Allowance for returns, coop advertising, and other customer credits..................... $ 2,273 $1,828 $ -- $2,399 $1,702 ====== ====== === ====== ====== Accumulated amortization of software development costs.......................... $ 2,730 $ 683 $ -- $ -- $3,413 ====== ====== === ====== ====== YEAR ENDED DECEMBER 31, 1996 Allowance for returns, coop advertising, and other customer credits..................... $ 1,702 $1,578 $ -- $1,765 $1,515 ====== ====== === ====== ====== Accumulated amortization of software development costs.......................... $ 3,413 $ 734 $ -- $ -- $4,147 ====== ====== === ====== ======
20 22 CAERE CORPORATION INDEX OF EXHIBITS
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBERED PAGE - ------- -------------------------------------------------------------- ------------------ 2.1 Agreement and Plan of Reorganization dated as of October 14, (4) 1994, between the Company and Calera Recognition Systems, Inc. 3.1 Certificate of Incorporation of the Company (1)(exhibit 3.4) 3.2 Certificate of Amendment filed with the Delaware Secretary of (5) State October 13, 1994 3.3 Agreement of Merger between the Caere Acquisition Corporation (5) and Calera Recognition Systems, Inc. as filed with the California Secretary of State December 20, 1994 3.4 By-laws of the Company 4.1 Reference is made to Exhibits 3.1 and 3.2 *10.1 1981 Incentive Stock Option Plan, as amended, and related form of incentive stock option agreement *10.2 1981 Supplemental Stock Option Plan, as amended, and related form of supplemental stock option agreement 10.3 Lease Agreement for 100 Cooper Court, dated November 27, 1991 (6) between the Company and Vasona Business Park 10.4 Lease Agreement for 104 Cooper Court, dated November 27, 1991 (6) between the Company and Vasona Business Park 10.5 Form of Indemnity Agreement between the Company and its (1)(exhibit 10.12) officers and directors *10.6 Employee Stock Purchase Plan *10.7 1992 Officer Bonus Plan (3)(exhibit 10.9) *10.8 1992 Non-Employee Directors' Stock Option Plan 10.9 Preferred Share Purchase Rights Plan (2)(exhibit 1) *10.10 Executive Compensation and Benefits Continuation Agreement, (5) Robert G. Teresi, dated December 28, 1994. 11.1 Statement regarding computation of net earnings (loss) per share 13.1 1996 Annual Report to Stockholders 21.1 Subsidiaries of the Company 23.1 Consent of KPMG Peat Marwick LLP 24.1 Power of Attorney. Reference is made to the signature page 27 Financial Data Schedule
- --------------- * Management contract or compensatory plan or arrangement. (1) Incorporated by reference to the corresponding or indicated exhibit to the Company's Registration Statement on Form S-1, as amended (File No. 33-30842). (2) Incorporated by reference to the indicated exhibit in the Company's Form 8-K Current Report filed on April 18, 1991. (3) Incorporated by reference to the corresponding or indicated exhibit to the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1991. (4) Incorporated by reference to Caere's Registration Statement on Form S-4 (File No. 33-85840). (5) Incorporated by reference to the corresponding or indicated exhibit to the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1994. (6) Incorporated by reference to the corresponding or indicated exhibit to the Company's Form 10-K Annual Report for the fiscal year ended December 31, 1995. 21 EX-3.4 2 BY-LAWS OF THE COMPANY 1 EXHIBIT 3.4 AMENDED BYLAWS OF CAERE CORPORATION (A DELAWARE CORPORATION) 2 TABLE OF CONTENTS ----------------- Page ---- ARTICLE I - Offices....................................................................... 1 Section 1. Registered Office................................................ 1 Section 2. Other Offices.................................................... 1 ARTICLE II - Corporate Seal................................................................ 1 Section 3 Corporate Seal................................................... 1 ARTICLE III - Stockholders' Meetings........................................................ 1 Section 4 Place of Meetings................................................ 1 Section 5. Annual Meeting................................................... 2 Section 6. Special Meetings................................................. 3 Section 7. Notice of Meetings............................................... 4 Section 8. Quorum........................................................... 4 Section 9. Adjournment and Notice of Adjourned Meetings..................... 5 Section 10. Voting Rights.................................................... 5 Section 11. Joint Owners of Stock............................................ 5 Section 12. List of Stockholders............................................. 6 Section 13. Action Without Meeting........................................... 6 Section 14. Organization..................................................... 6 ARTICLE IV - Directors...................................................................... 7 Section 15. Number and Term of Office........................................ 7 Section 16. Powers........................................................... 7 Section 17. Classes of Directors............................................. 7 Section 18. Newly Created Directorships and Vacancies........................ 7 Section 19. Resignation...................................................... 8 Section 20. Removal.......................................................... 8 Section 21. Meetings......................................................... 8 Section 22. Quorum and Voting................................................ 9 Section 23. Action Without Meeting........................................... 9 Section 24. Fees and Compensation............................................ 10 Section 25. Committees....................................................... 10 Section 26. Organization..................................................... 11 ARTICLE V - Officers........................................................................ 11 Section 27. Officers Designated.............................................. 11 Section 28. Tenure and Duties of Officers.................................... 12
i. 3 Section 29. Delegation of Authority.......................................... 13 Section 30. Resignations..................................................... 13 Section 31. Removal.......................................................... 13 ARTICLE VI - Execution of Corporate Instruments and Voting of Securities Owned by the Corporation........................................................... 14 Section 32. Execution of Corporate Instruments............................... 14 Section 33. Voting of Securities Owned by the Corporation.................... 14 ARTICLE VII - Shares of Stock............................................................... 15 Section 34. Form and Execution of Certificates............................... 15 Section 35. Lost Certificates................................................ 15 Section 36. Transfers........................................................ 16 Section 37. Fixing Record Dates.............................................. 16 Section 38. Registered Stockholders.......................................... 16 ARTICLE VIII - Other Securities of the Corporation.......................................... 17 Section 39. Execution of Other Securities.................................... 17 ARTICLE IX - Dividends...................................................................... 17 Section 40. Declaration of Dividends......................................... 17 Section 41. Dividend Reserve................................................. 17 ARTICLE X - Fiscal Year..................................................................... 18 Section 42. Fiscal Year...................................................... 18 ARTICLE XI - Indemnification................................................................ 18 Section 43. Indemnification of Directors, Officers, Employees and Other Agents................................................. 18 ARTICLE XII - Notices....................................................................... 21 Section 44. Notices.......................................................... 21 ARTICLE XIII - Amendments................................................................... 22 Section 45. Amendments....................................................... 22 ARTICLE XIV - Loans to Officers............................................................. 23 Section 46. Loans to Officers................................................ 23
ii. 4 AMENDED BYLAWS OF CAERE CORPORATION (A DELAWARE CORPORATION) ARTICLE I Offices Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be in the City of Dover, County of Kent. (Del. Code Ann., tit. 8, ss. 131) Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business in Los Gatos, California, at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. (Del. Code Ann., tit. 8, ss.122(8)) ARTICLE II Corporate Seal Section 3. Corporate Seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, "Corporate Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE III Stockholders' Meetings Section 4. Place of Meetings. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, ss. 211(a)) 1. 5 Section 5. Annual Meeting. (a) The annual meeting of the stockholders of the corporation, for the purpose of election of Directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. (Del. Code Ann., tit. 8, ss. 211(b)) (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not later than the close of business on the sixtieth (60th) day prior to the first anniversary of the preceding year's annual meeting of stockholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or, in the event public announcement of the date of such annual meeting is first made by the corporation fewer than seventy (70) days prior to the date of such annual meeting, the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the corporation. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business, and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders' meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. (Del. Code Ann., tit. 8: ss.211(b)) 2. 6 (c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote in the election of Directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 5. Such stockholder's notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a Director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a Director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 5. At the request of the Board of Directors, any person nominated by a stockholder for election as a Director shall furnish to the Secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a Director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting and the defective nomination shall be disregarded. (Del. Code Ann., tit. 8, ss.ss. 212, 214). (d) For purposes of this Section 5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. Section 6. Special Meetings. (a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board, (ii) the Chief Executive Officer, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption), and shall be held at such place, on such date, and at such time as they or he shall fix. 3. 7 (b) If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting. Upon the Board of Directors' determination of the time and the place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws, that a meeting will be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the receipt of the request. If the notice is not given within sixty (60) days after the receipt of the request, the person or persons requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. Section 7. Notice of Meetings. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. (Del. Code Ann., tit. 8, ss.ss. 222, 229) Section 8. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the votes cast, excluding abstentions, at any meeting at which a quorum is present shall be valid and binding upon the corporation; provided, however, that Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of Directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, a majority of the 4. 8 outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of Directors) of the votes cast, including abstentions, by the holders of such class or classes or series shall be the act of such class or classes or series. (Del. Code Ann., tit. 8, ss. 216) Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes, excluding abstentions. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. (Del. Code Ann., tit. 8, ss. 222(c)) Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Except as may be otherwise provided in the Certificate of Incorporation or these Bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. Every person entitled to vote shall have the right to do so either in person or by an agent or agents authorized by a proxy executed by such person or his duly authorized agent, granted in accordance with Delaware law, which proxy shall be filed with the Secretary at or before the meeting at which it is to be used. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. All elections of Directors shall be by written ballot, unless otherwise provided in the Certificate of Incorporation. (Del. Code Ann., tit. 8, ss.ss. 211(e), 212(b)) Section 11. Joint Owners of Stock. (a) If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the General Corporation Law of Delaware, Section 217(b). If the instrument filed with the Secretary shows that any such 5. 9 tenancy is held in unequal interests, a majority or even-split for the purpose of this subsection (c) shall be a majority or even-split in interest. (Del. Code Ann., tit. 8, ss. 217(b)) (b) Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the corporation he has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. (Del. Code Ann., tit. 8, ss. 217(a)). Section 12. List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present. (Del. Code Ann., tit. 8, ss. 219(a)) Section 13. Action Without Meeting. No action shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with these Bylaws, and no action shall be taken by the stockholders by written consent. Section 14. Organization. (a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the Chief Executive Office, or if the Chief Executive Officer is absent, the President, or, if the President is absent, the most senior Vice President present, or in the absence of any such officer, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. (b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted 6. 10 to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless, and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE IV Directors Section 15. Number and Term of Office. The authorized number of directors of the corporation shall be fixed from time to time by the Board of Directors either by a resolution or a bylaw duly adopted by the Board of Directors. The number of directors presently authorized is four (4). Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. No reduction of the authorized number of Directors shall have the effect of removing any Director before the Director's term of office expires, unless such removal is made pursuant to the provisions of Section 20 hereof. (Del. Code Ann., tit. 8, ss.ss. 141(b), 211(b), (c)) Section 16. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation (Del. Code Ann., tit. 8, ss. 141(a)) Section 17. Classes of Directors. The Board of Directors shall be divided into three classes: Class I, Class II and Class III. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. Each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting at which the director was elected; provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 1990; each initial director in Class II shall hold office until the annual meeting of stockholders in 1991; and each initial director in Class III shall hold office until the annual meeting of stockholders in 1992. Notwithstanding the foregoing provisions of this section, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (Del. Code Ann., tit. 8, ss.141(d)) Section 18. Newly Created Directorships and Vacancies. Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled either (i) by the affirmative vote of the holders of a majority of the voting power of the then outstanding shares of the Company's capital stock; or (ii) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the authorized Board of Directors. Any director elected in accordance with the preceding sentence 7. 11 shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. Section 19. Resignation. Any Director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more Directors shall resign from the Board of Directors, effective at a future date, a majority of the Directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8, ss.ss. 141(b), 223(d)) Section 20. Removal. Any director, or the entire Board of Directors, may be removed from office, (a) with cause by the affirmative vote of the holders of a majority of the voting power of all of the then-outstanding shares of the Company's capital stock, voting together as a single class; or (b) without cause, by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of the Company's capital stock. (Del. Code Ann., tit. 8, ss. 141(k)) Section 21. Meetings. (a) Annual Meetings. The annual meeting of the Board of Directors shall be held immediately after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (b) Regular Meetings. Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 hereof. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been determined by the Board of Directors. (Del. Code Ann., tit. 8, ss. 141(g)) (c) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the Chief Executive Officer or a majority of the Directors. (Del. Code Ann., tit. 8, ss. 141(g)) (d) Telephone Meetings. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar 8. 12 communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (Del. Code Ann., tit. 8, ss. 141(i)) (e) Notice of Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be given orally or in writing, by telephone, facsimile, telegraph or telex, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any Director by attendance thereat, except when the Director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. (Del. Code Ann., tit. 8, ss. 229) (f) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum is present and if, either before or after the meeting, each of the Directors not present signs a written waiver of notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8, ss. 229) All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. Section 22. Quorum and Voting. (a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of Directors fixed from time to time in accordance with Section 15 hereof, but not less than one (1), a quorum of the Board of Directors shall consist of a majority of the exact number of Directors fixed from time to time in accordance with Section 15 of these Bylaws, but not less than one (1); provided, however, at any meeting whether a quorum be present or otherwise, a majority of the Directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (Del. Code Ann., tit. 8, ss. 141(b)) (b) At each meeting of the Board of Directors at which a quorum is present all questions and business shall be determined by a vote of a majority of the Directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8, ss. 141(b)) Section 23. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all 9. 13 members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. (Del. Code Ann., tit. 8, ss. 141(f)) Section 24. Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. (Del. Code Ann., tit. 8, ss. 141(h)) Section 25. Committees. (a) Executive Committee. The Board of Directors may by resolution passed by a majority of the whole Board of Directors, appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and specifically granted by the Board of Directors, shall have and may exercise when the Board of Directors is not in session all powers of the Board of Directors in the management of the business and affairs of the corporation, including, without limitation, the power and authority to declare a dividend or to authorize the issuance of stock, except such committee shall not have the power or authority to amend the Certificate of Incorporation, to adopt an agreement of merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, to recommend to the stockholders of the corporation a dissolution of the corporation or a revocation of a dissolution or to amend these Bylaws. (Del. Code Ann., tit. 8, ss. 141(c)) (b) Other Committees. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors, and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall such committee have the powers denied to the Executive Committee in these Bylaws. (Del. Code Ann., tit. 8, ss. 141(c)) (c) Term. The members of all committees of the Board of Directors shall serve a one (1) year term. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Section 25, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the 10. 14 committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (Del. Code Ann., tit. 8, ss.141(c)) (d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any Director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any Director by attendance thereat, except when the Director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8, ss.ss. 141(c), 229) Section 26. Organization. At every meeting of the Directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the Chief Executive Officer, or if the Chief Executive Officer is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the Directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. ARTICLE V Officers Section 27. Officers Designated. The officers of the corporation shall be, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one 11. 15 person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. (Del. Code Ann., tit. 8, ss.ss. 122(5), 142(a), (b)) Section 28. Tenure and Duties of Officers. (a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (Del. Code Ann., tit. 8, ss. 141(b), (e)) (b) Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28. (Del. Code Ann., tit. 8, ss. 142(a)) (c) Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (Del. Code Ann., tit. 8, ss. 142(a)) (d) Duties of Vice Presidents. The Vice Presidents, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, ss. 142(a)) (e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors, and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders, and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such 12. 16 other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, ss. 142(a)) (f) Duties of Chief Financial Officer or Treasurer. The Chief Financial Officer or Treasurer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer or Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer or Treasurer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any Assistant Treasurer or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer or Treasurer in the absence or disability of the Chief Financial Officer or Treasurer, and each Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (Del. Code Ann., tit. 8, ss. 142(a)) Section 29. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof. Section 30. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.(Del. Code Ann., tit. 8, ss. 142(b)) Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the Directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors. 13. 17 ARTICLE VI Execution of Corporate Instruments and Voting of Securities Owned by the Corporation Section 32. Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. (Del. Code Ann., tit. 8, ss.ss. 103(a), 142(a), 158) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board of Directors, or the President or any Vice President, and by the Secretary or Chief Financial Officer or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. (Del. Code Ann., tit. 8, ss.ss. 103(a), 142(a), 158) All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. (Del. Code Ann., tit. 8, ss.ss. 103(a), 142(a), 158). Section 33. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the President, or any Vice President. (Del. Code Ann., tit. 8, ss. 123) 14. 18 ARTICLE VII Shares of Stock Section 34. Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical. (Del. Code Ann., tit. 8, ss. 158) Section 35. Lost Certificates. A new certificate or certificates may be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. (Del. Code Ann., tit. 8, ss. 167) 15. 19 Section 36. Transfers. (a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (Del. Code Ann., tit. 8, ss. 201, tit. 6, ss. 8-401(1)) (b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit. 8, ss. 160 (a)) Section 37. Fixing Record Dates. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. (Del. Code Ann., tit. 8, ss. 213) Section 38. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. (Del. Code Ann., tit. 8, ss.ss. 213(a), 219) 16. 20 ARTICLE VIII Other Securities of the Corporation Section 39. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 33), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE IX Dividends Section 40. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. (Del. Code Ann., tit. 8, ss.ss. 170, 173) Section 41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. (Del. Code Ann., tit. 8, ss. 171) 17. 21 ARTICLE X Fiscal Year Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of directors. ARTICLE XI Indemnification Section 43. Indemnification of Directors, Officers, Employees and Other Agents. (a) Directors and Executive Officers. The corporation shall indemnify its Directors and executive officers to the fullest extent not prohibited by the Delaware General Corporation Law; provided, however, that the corporation may limit the extent of such indemnification by individual contracts with its Directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any Director or executive officer in connection with any proceeding (or part thereof) initiated by such person or any proceeding by such person against the corporation or its Directors, officers, employees or other agents unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law, or (iv) such indemnification is required to be made under subsection (d). (b) Other Officers, Employees and Other Agents. The corporation shall have power to indemnify its other officers, employees and other agents as set forth in the Delaware General Corporation Law. (c) Expenses. The corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by any Director or executive officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (d) of this Bylaw, no advance shall be made by the corporation if a determination is reasonably and promptly made (1) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to the proceeding, or (2) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith 18. 22 or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. (d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to Directors and executive officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the Director or executive officer. Any right to indemnification or advances granted by this Bylaw to a Director or executive officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its Directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law. (f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a Director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) Insurance. To the fullest extent permitted by the Delaware General Corporation Law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw. (h) Amendments. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged 19. 23 occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (i) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each Director and executive officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law. (j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply: (1) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (2) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (3) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (4) References to a "director," "executive officer," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (5) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries 20. 24 of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Bylaw. ARTICLE XII Notices Section 44. Notices. (a) Notice to Stockholders. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8, ss. 222) (b) Notice to Directors. Any notice required to be given to any Director may be given by the method stated in subsection (a), or by facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such Director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such Director. (c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or Director or Directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall, in the absence of fraud, be prima facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, ss. 222) (d) Time Notices Deemed Given. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission. (e) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all Directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (f) Failure to Receive Notice. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any Director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such Director to receive such notice. 21. 25 (g) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. (h) Notice to Person with Undeliverable Address. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve month period, have been mailed addressed to such person at his address as shown on the records of the Corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph. (Del. Code Ann, tit. 8, ss. 230 ) ARTICLE XIII Amendments Section 45. Amendments. Except as otherwise set forth in paragraph (i) of Section 43 of these Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted by the stockholders entitled to vote. The Board of Directors shall also have the power to adopt, amend or repeal these Bylaws (including, without limitation, the amendment of any Bylaw setting forth the number of Directors which shall constitute the whole Board of Directors). (Del. Code Ann., tit. 8, ss.ss. 109(a), 122(6)) 22. 26 ARTICLE XIV Loans to Officers Section 46. Loans to Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this Section 46 shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. (Del. Code Ann., tit. 8, ss. 143) 23. EX-10.1 3 1981 INCENTIVE STOCK OPTION PLAN 1 EXHIBIT 10.1 CAERE CORPORATION 1981 INCENTIVE STOCK OPTION PLAN Adopted December 17, 1981 Approved by the Shareholders February 24, 1982 Amended July 12, 1983 Amendment Approved by the Shareholders September 21, 1983 Amended June 25, 1985 Amendment Approved by the Shareholders June 24, 1986 Amended October 21, 1986 and February 17, 1987 Amendments Approved by the Shareholders October 20, 1987 Amended April 19, 1989 Amendment Approved by the Stockholders September 26, 1989 Amended February 15, 1990 Amendment Approved by the Stockholders May 3, 1990 Amended February 27, 1992 Amendment Approved by the Stockholders May 5, 1992 Amended February 18, 1993 Amendment Approved by the Stockholders May 4, 1993 Amended February 10, 1994 Amendment Approved by the Stockholders May 25, 1994 Amended October 14, 1994 Amendment Approved by the Stockholders December 20, 1994 Amended February 21, 1996 Amendment Approved by the Stockholders May 14, 1996 Amended August 19, 1996 1. PURPOSE. (a) The purpose of the Plan is to provide a means by which selected key employees of Caere Corporation (the "Company") and its Affiliates, as defined in subparagraph l(b), may be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of persons now holding key positions, to secure and retain the services of persons capable of filling such 1. 2 positions, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the options issued under the Plan be incentive stock options as that term is used in Section 422 of the Code. 2. ADMINISTRATION. (a) The Plan shall be administered by the Board of Directors (the "Board") of the Company unless and until the Board delegates administration to a committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted options; when and how the option shall be granted; the provisions of each option granted (which need not be identical), including the time or times during the term of each option within which all or portions of such option may be exercised; and the number of shares for which an option shall be granted to each such person. (2) To construe and interpret the Plan and options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any option agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. 2. 3 (3) To amend the Plan as provided in paragraph 10. (4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to a committee composed of one (1) or more members of the Board, all of the members of which committee may (but need not) be, in the discretion of the Board, non-employee directors and/or outside directors, as defined by the provisions of subparagraphs 2(d) and 2(e), respectively. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee of two or more outside directors any of the administrative powers the committee is authorized to exercise, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Additionally, prior to the date of the first registration of an equity security of the Company under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and notwithstanding anything to the contrary contained herein, the Board may delegate administration of the Plan to any person or persons and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. (d) The term "non-employee director," as used in this Plan, shall mean a director who either (i) is not a current employee or officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any capacity other than as a director (except for an 3. 4 amount as to which disclosure would not be required under Item 404(a) of Regulation S-K ("Regulation S-K") promulgated pursuant to the Securities Act of 1933 (the "Securities Act"), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (e) The term "outside director," as used in this Plan, shall mean a director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. 3. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of paragraph 9 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate three million five hundred ninety-five thousand (3,595,000) shares of the Company's common stock; provided, however, that such aggregate number of shares shall be reduced to reflect the number of shares of the Company's common stock that have been sold 4. 5 pursuant to, or may be sold pursuant to outstanding options granted under, the Company's 1981 Supplemental Stock Option Plan to the same extent as if such sales had been made or options had been granted pursuant to this Plan. If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. (c) An option may be granted to an eligible person under the Plan only if the aggregate fair market value (determined at the time the option is granted) of the stock with respect to which incentive stock options (as defined in the Code) granted after 1986 are exercisable for the first time by such optionee during any calendar year under all incentive stock option plans of the Company and its Affiliates does not exceed one hundred thousand dollars ($100,000). Should it be determined that an option granted under the Plan exceeds such maximum for any reason other than the failure of a good faith attempt to value the stock subject to the option, such option shall be considered a nonstatutory stock option to the extent, but only to the extent, of such excess; provided, however, that should it be determined that an entire option or any portion thereof does not qualify for treatment as an incentive stock option by reason of exceeding such maximum, such option or the applicable portion shall be considered a nonstatutory stock option. (d) Subject to the provisions of paragraph 9 relating to adjustments upon changes in stock, no person shall be eligible to be granted in any calendar year options under this Plan covering more than an aggregate of three hundred thousand (300,000) shares of the Company's 5. 6 common stock, when combined with options granted in the same calendar year under the Company's 1981 Supplemental Stock Option Plan. Shares subject to an option that is canceled shall continue to be counted against the maximum number of shares that may be covered by options granted to a person pursuant to this subparagraph 3(c). If an option is amended, exchanged or otherwise altered in a manner that results in a reduction of the exercise price, such transaction shall be deemed to be a cancellation of the original option and the grant of a new option for purposes of this subparagraph. In such event, both the original option and the new option shall be counted in the applicable year against the maximum limitation specified by this subparagraph in accordance with regulations promulgated under Section 162(m) of the Code. 4. ELIGIBILITY. (a) Options may be granted only to key employees (including officers) of the Company or its Affiliates. A director of the Company shall not be eligible for the benefits of the Plan unless such director is also a key employee (including an officer) of the Company or any Affiliate. (b) No person shall be eligible for the grant of an option under the Plan if, at the time of grant, such person owns (or is deemed to own pursuant to the attribution rules of Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the option price is at least one hundred ten percent (110%) of the fair market value of such stock at the date of grant and the term of the option does not exceed five (5) years from the date of grant. 6. 7 5. OPTION PROVISIONS. Each option shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The provisions of separate options need not be identical, but each option shall include (through incorporation of provisions hereof by reference in the option or otherwise) the substance of each of the following provisions: (a) The term of any option shall not be greater than ten (10) years from the date it was granted. (b) The exercise price of each option shall be not less than one hundred percent (100%) of the fair market value of the stock subject to the option on the date the option is granted. (c) The purchase price of stock acquired pursuant to an option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the option is exercised, or (ii) at the discretion of the Board or the Committee, either at the time of grant or exercise of the option (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the option is granted or to whom the option is transferred pursuant to subparagraph 5(d), or (C) in any other form of legal consideration that may be acceptable to the Board or Committee in their discretion. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment 7. 8 as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) An option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the option is granted only by such person. Notwithstanding the foregoing, the person to whom an option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the optionee, shall thereafter be entitled to exercise the option. (e) The total number of shares of stock subject to an option may, but need not, be allotted in periodic installments (which may, but need not, be equal). From time to time during each of such installment periods, the option may be exercised with respect to some or all of the shares allotted to that period, and/or with respect to some or all of the shares allotted to any prior period as to which the option was not fully exercised. During the remainder of the term of the option (if its term extends beyond the end of the installment periods), the option may be exercised from time to time with respect to any shares then remaining subject to the option. The provisions of this subparagraph 5(e) are subject to any option provisions governing the minimum number of shares as to which an option may be exercised. (f) The Company may require any optionee, or any person to whom an option is transferred under subparagraph 5(d), as a condition of exercising any such option: (1) to give written assurances satisfactory to the Company as to the optionee's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business 8. 9 matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the option; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. (g) An option shall terminate three (3) months after termination of the optionee's employment with the Company or an Affiliate, unless (i) the termination of employment of the optionee is due to such person's permanent and total disability, within the meaning of Section 422(c)(6) of the Code, in which case the option may, but need not, provide that it may be exercised at any time within one (l) year following such termination of employment; or (ii) the optionee dies while in the employ of the Company or an Affiliate, or within not more than three (3) months after termination of such employment, in which case the option may, but need not, provide that it may be exercised at any time within eighteen (18) months following the death of the optionee by the person or persons to whom the optionee's rights under such option pass by will or by the laws of descent and distribution; or (iii) the option by its terms specifies either (a) that it shall terminate sooner than three (3) months after termination of the optionee's employment, or (b) that it may be exercised more than three (3) months after termination of the 9. 10 optionee's employment with the Company or an Affiliate. This subparagraph 5(g) shall not be construed to extend the term of any option or to permit anyone to exercise the option after expiration of its term, nor shall it be construed to increase the number of shares as to which any option is exercisable from the amount exercisable on the date of termination of the optionee's employment. (h) The option may, but need not, include a provision whereby the optionee may elect at any time during the term of his or her employment with the Company or any Affiliate to exercise the option as to any part or all of the shares subject to the option prior to the stated vesting date of the option or of any installment or installments specified in the option. Any shares so purchased from any unvested installment or option may be subject to a repurchase right in favor of the Company or to any other restriction the Board or the Committee determines to be appropriate. (i) To the extent provided by the terms of an option, the optionee may satisfy any federal, state or local tax withholding obligation relating to the exercise of such option by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold from the shares of the common stock otherwise issuable to the participant as a result of the exercise of the stock option a number of shares having a fair market value less than or equal to the amount of the withholding tax obligation; or (3) delivering to the Company owned and unencumbered shares of the common stock having a fair market value less than or equal to the amount of the withholding tax obligation. 10. 11 6. COVENANTS OF THE COMPANY. (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan or any stock issued or issuable pursuant to any such option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options unless and until such authority is obtained. 7. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 8. MISCELLANEOUS. (a) The Board or the Committee shall have the power to accelerate the time during which an option may be exercised, or the time during which an option or any portion thereof will vest pursuant to subparagraph 5(e), notwithstanding the provisions in the option stating the time during which it may be exercised or the time during which it will vest. 11. 12 (b) Neither an optionee nor any person to whom an option is transferred under subparagraph 5(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms. (c) Throughout the term of any option granted pursuant to the Plan, the Company shall make available to the holder of such option, not later than one hundred twenty (120) days after the close of each of the Company's fiscal years during the option term, upon request, such financial and other information regarding the Company as comprises the annual report to the shareholders of the Company provided for in the bylaws of the Company. (d) Nothing in the Plan or any instrument executed or option granted pursuant thereto shall confer upon any eligible employee or optionee any right to continue in the employ of the Company or any Affiliate or shall affect the right of the Company or any Affiliate to terminate the employment of any eligible employee or optionee with or without cause. 9. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), appropriate adjustments will be made in the class(es) and maximum number of shares subject to the Plan pursuant to subparagraph 3(a), the class(es) and maximum number of shares that may be subject to options pursuant to subparagraph 3(d) and the class(es) and number of shares and price per share of stock subject to outstanding options. 12. 13 (b) In the event of: (l) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged then, at the sole discretion of the Board to the extent permitted by law, (i) any surviving corporation shall assume options outstanding under the Plan or substitute similar options for those outstanding under the Plan, (ii) the time during which options outstanding under the Plan may be exercised shall be accelerated and the options terminated if not exercised prior to such event, or (iii) options outstanding under the Plan shall continue in full force and effect. 10. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 9 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for options under the Plan; (ii) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code); or 13. 14 (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3 promulgated under the Exchange Act. (b) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide optionees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee incentive stock options and/or to bring the Plan and/or options granted under it into compliance therewith. (c) Rights and obligations under any option granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the option was granted and (ii) such person consents in writing. (d) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. 11. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on January 31, 2000. No options may be granted under the Plan while the Plan is suspended or after it is terminated. 14. 15 (b) Rights and obligations under any option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the option was granted. 12. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no options granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. 15. EX-10.2 4 1981 SUPPLEMENTAL STOCK OPTION PLAN 1 EXHIBIT 10.20 CAERE CORPORATION 1981 SUPPLEMENTAL STOCK OPTION PLAN Adopted December 17, 1981 Approved by the Shareholders February 24, 1982 Amended June 25, 1985 Amended October 21, 1986 Amendment Approved by the Shareholders October 20, 1987 Amended April 19, 1989 Amendment Approved by the Stockholders September 26, 1989 Amended February 15, 1990 Amendment Approved by the Stockholders May 3, 1990 Amended February 27, 1992 Amendment Approved by the Stockholders May 5, 1992 Amended February 18, 1993 Amendment Approved by the Stockholders May 4, 1993 Amended February 10, 1994 Amendment Approved by the Stockholders May 25, 1994 Amended October 14, 1994 Amendment Approved by the Stockholders December 20, 1994 Amended February 21, 1996 Amendment Approved by the Stockholders May 14, 1996 Amended August 19, 1996 1. PURPOSE. (a) The purpose of the Plan is to provide a means by which selected key employees and directors of and consultants to Caere Corporation, a California corporation (the "Company"), and its affiliates, as defined in subparagraph 1(b), may be given an opportunity to purchase stock of the Company. (b) The word "affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of persons now holding key positions, to secure and retain the services of persons capable of filling such 1. 2 positions, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the options issued under the Plan not be incentive stock options as that term is used in Section 422 of the Code. 2. ADMINISTRATION. (a) The Plan shall be administered by the Board of Directors (the "Board") of the Company unless and until the Board delegates administration to a committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted options; when and how the option shall be granted; the provisions of each option granted (which need not be identical), including the time or times during the term of each option within which all or portions of such option may be exercised; and the number of shares for which an option shall be granted to each such person. (2) To construe and interpret the Plan and options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any option agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan as provided in paragraph 10. 2. 3 (4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to a committee composed of one (1) or more members of the Board, all of the members of which committee may (but need not) be, in the discretion of the Board, non-employee directors and/or outside directors, as defined by the provisions of subparagraphs 2(d) and 2(e), respectively. If administration is delegated to a committee, the committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee of two or more outside directors any of the administrative powers the committee is authorized to exercise, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the committee at any time and revest in the Board the administration of the Plan. (d) The term "non-employee director," as used in this Plan, shall mean a director who either (i) is not a current employee or officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any capacity other than as a director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K ("Regulation S-K") promulgated pursuant to the Securities Act of 1933 (the "Securities Act"), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 3. 4 (e) The term "outside director," as used in this Plan, shall mean a director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. 3. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of paragraph 9 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate three million five hundred ninety-five thousand (3,595,000) shares of the Company's common stock; provided, however, that such aggregate number of shares shall be reduced to reflect the number of shares of the Company's common stock that have been sold pursuant to, or may be sold pursuant to outstanding options granted under, the Company's 1981 Incentive Stock Option Plan to the same extent as if such sales had been made or options had been granted pursuant to this Plan. If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. 5 (c) Subject to the provisions of paragraph 9 relating to adjustments upon changes in stock, no person shall be eligible to be granted in any calendar year options under this Plan covering more than an aggregate of three hundred thousand (300,000) shares of the Company's common stock, when combined with options granted in the same calendar year under the Company's 1981 Incentive Stock Option Plan. Shares subject to an option that is canceled shall continue to be counted against the maximum number of shares that may be covered by options granted to a person pursuant to this subparagraph 3(c). If an option is amended, exchanged or otherwise altered in a manner that results in a reduction of the exercise price, such transaction shall be deemed to be a cancellation of the original option and the grant of a new option for purposes of this subparagraph. In such event, both the original option and the new option shall be counted in the applicable year against the maximum limitation specified by this subparagraph in accordance with regulations promulgated under Section 162(m) of the Code. 4. ELIGIBILITY. Options may be granted only to key employees (including officers), directors of or consultants to the Company or its affiliates. 5. OPTION PROVISIONS. Each option shall be in such form and shall contain such terms and conditions as the Board or the committee shall deem appropriate. The provisions of separate options need not be identical, but each option shall include (through incorporation of provisions hereof by reference in the option or otherwise) the substance of each of the following provisions: (a) The term of any option shall not be greater than ten (10) years from the date it was granted. 5. 6 (b) The exercise price of each option shall be not less than eighty-five percent (85%) of the fair market value of the stock subject to the option on the date the option is granted. (c) The purchase price of stock acquired pursuant to an option shall be paid, as specified in the option, either (i) in cash at the time the option is exercised, or (ii) at the discretion of the Board or the committee, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the option is granted or to whom the option is transferred pursuant to subparagraph 5(d), or (C) in any other form of legal consideration that may be acceptable to the Board or the committee in their discretion, either at the time of grant or exercise of the option. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) An option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the option is granted only by such person, unless otherwise specified in the option, in which case the option may be transferred upon such terms and conditions as are set forth in the option, as the Board or the committee shall determine in its discretion, including (without limitation) pursuant to a "domestic relations order" within the meaning of such rules, regulations or interpretations of the Securities and Exchange Commission as are applicable for purposes of Section 16 of the Exchange Act. Notwithstanding the foregoing, the person to whom an option is granted may, 6. 7 by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the optionee, shall thereafter be entitled to exercise the option. (e) The total number of shares of stock subject to an option may, but need not, be allotted in periodic installments (which may, but need not, be equal). From time to time during each of such installment periods, the option may be exercised with respect to some or all of the shares allotted to that period, and/or with respect to some or all of the shares allotted to any prior period as to which the option was not fully exercised. During the remainder of the term of the option (if its term extends beyond the end of the installment periods), the option may be exercised from time to time with respect to any shares then remaining subject to the option. The provisions of this subparagraph 5(e) are subject to any option provisions governing the minimum number of shares as to which an option may be exercised. (f) The Company may require any optionee, or any person to whom an option is transferred under subparagraph 5(d), as a condition of exercising any such option to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account not with any present intention of selling or otherwise distributing the stock. The requirement of providing written assurances and any assurances given pursuant to the requirement, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then currently effective registration statement under the Securities Act, or (ii) a determination is made by counsel for the Company that such written assurances are not required in the circumstances under the then applicable federal securities laws. 7. 8 (g) An option shall terminate three (3) months after termination of the optionee's employment with the Company or an affiliate, unless (i) the termination of employment of the optionee is due to such person's permanent and total disability, within the meaning of Section 422(c)(6) of the Code, in which case the option may, but need not, provide that it may be exercised at any time within one (l) year following such termination of employment; or (ii) the optionee dies while in the employ of the Company or an affiliate, or within not more than three (3) months after termination of such employment, in which case the option may, but need not, provide that it may be exercised at any time within eighteen (18) months following the death of the optionee by the person or persons to whom the optionee's rights under such option pass by will or by the laws of descent and distribution; or (iii) the option by its terms specifies either (a) that it shall terminate sooner than three (3) months after termination of the optionee's employment, or (b) that it may be exercised more than three (3) months after termination of the optionee's employment with the Company or an affiliate. This subparagraph 5(g) shall not be construed to extend the term of any option or to permit anyone to exercise the option after expiration of its term, nor shall it be construed to increase the number of shares as to which any option is exercisable from the amount exercisable on the date of termination of the optionee's employment. (h) The option may, but need not, include a provision whereby the optionee may elect at any time during the term of his or her employment with the Company or any affiliate to exercise the option as to any part or all of the shares subject to the option prior to the stated vesting date of the option or of any installment or installments specified in the option. Any shares so purchased from any unvested installment or option may be subject to a repurchase right 8. 9 in favor of the Company or to any other restriction the Board or the committee determines to be appropriate. (i) To the extent provided by the terms of an option, the optionee may satisfy any federal, state or local tax withholding obligation relating to the exercise of such option by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold from the shares of the common stock otherwise issuable to the participant as a result of the exercise of the stock option a number of shares having a fair market value less than or equal to the amount of the withholding tax obligation; or (3) delivering to the Company owned and unencumbered shares of the common stock having a fair market value less than or equal to the amount of the withholding tax obligation. 6. COVENANTS OF THE COMPANY. (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan or any stock issued or issuable pursuant to any such option. If the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options unless and until such authority is obtained. 9. 10 7. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 8. MISCELLANEOUS. (a) The Board or the committee shall have the power to accelerate the time during which an option may be exercised, or the time during which an option or any portion thereof will vest pursuant to subparagraph 5(e), notwithstanding the provisions in the option stating the time during which it may be exercised. (b) Neither an optionee nor any person to whom an option is transferred under subparagraph 5(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms. 9. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), appropriate adjustments will be made in the class(es) and maximum number of shares subject to the Plan pursuant to subparagraph 3(a), the class(es) and maximum number of shares that may be subject to options pursuant to subparagraph 3(c) and the class(es) and number of shares and price per share of stock subject to outstanding options. (b) In the event of: (l) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in 10. 11 which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged then, at the sole discretion of the Board to the extent permitted by law, (i) any surviving corporation shall either assume options outstanding under the Plan or substitute similar options for those outstanding under the Plan, (ii) the time during which options outstanding under the Plan may be exercised shall be accelerated and the options terminated if not exercised prior to such event, or (iii) options outstanding under the Plan shall continue in full force and effect. 10. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 9 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for options under the Plan; or (ii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to comply with the requirements of Rule 16b-3 promulgated under the Exchange Act. (b) Rights and obligations under any option granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan, except with the consent of the person to whom the option was granted. 11. 12 (c) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. 11. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on January 31, 2000. No options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the option was granted. 12. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no options granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. 12. 13 EX-10.6 5 EMPLOYEE STOCK PURCHASE PLAN 1 CAERE CORPORATION EMPLOYEE STOCK PURCHASE PLAN ---------------------------- Adopted February 15, 1990 Approved by the Stockholders May 3, 1990 Amended December 9, 1993 Amendment Approved by the Stockholders May 25, 1994 Amended December 4, 1995 Amendment Approved by the Stockholders January 23, 1996 Amended August 19, 1996 Amended February 13, 1997 1. PURPOSE. (a) The purpose of the Plan is to provide a means by which employees of Caere Corporation, a Delaware corporation (the "Company"), and its Affiliates, as defined in subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 425(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the rights to purchase stock of the Company granted under the Plan be considered options issued under an "employee stock purchase plan" as that term is defined in Section 423(b) of the Code. 1. 2 2. ADMINISTRATION. (a) The Plan shall be administered by the Board of Directors (the "Board") of the Company unless and until the Board delegates administration to a Committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine when and how rights to purchase stock of the Company shall be granted and the provisions of each offering of such rights (which need not be identical). (ii) To designate from time to time which Affiliates of the Company shall be eligible to participate in the Plan. (iii) To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iv) To amend the Plan as provided in paragraph 13. (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to a Committee composed of one (1) or more members of the Board (the "Committee"), all of the members of 2. 3 which Committee may (but need not) be, in the discretion of the Board, "non-employee directors" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of paragraph 12 relating to adjustments upon changes in stock, the stock that may be sold pursuant to rights granted under the Plan shall not exceed in the aggregate one million (1,000,000) shares of the Company's common stock (the "Common Stock"). If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. GRANT OF RIGHTS; OFFERING. The Board or the Committee may from time to time grant or provide for the grant of rights to purchase Common Stock of the Company under the Plan to eligible employees (an "Offering") on a date or dates (the "Offering Date(s)") selected by the Board or the Committee. Each Offering shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. If an employee has more than one right outstanding 3. 4 under the Plan, unless he or she otherwise indicates in agreements or notices delivered hereunder: (1) each agreement or notice delivered by that employee will be deemed to apply to all of his or her rights under the Plan, and (2) a right with a lower exercise price (or an earlier-granted right, if two rights have identical exercise prices), will be exercised to the fullest possible extent before a right with a higher exercise price (or a later-granted right, if two rights have identical exercise prices) will be exercised. The provisions of separate Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the Offering or otherwise) the substance of the provisions contained in paragraphs 5 through 8, inclusive. 5. ELIGIBILITY. (a) Rights may be granted only to employees of the Company or, as the Board or the Committee may designate as provided in subparagraph 2(b), to employees of any Affiliate of the Company. Except as provided in subparagraph 5(b), an employee of the Company or any Affiliate shall not be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee has been in the employ of the Company or any Affiliate for such continuous period preceding such grant as the Board or the Committee may require, but in no event shall the required period of continuous employment be equal to or greater than two (2) years. In addition, unless otherwise determined by the Board or the Committee and set forth in the terms of the applicable Offering, no employee of the Company or any Affiliate shall be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee's customary employment with the Company or such Affiliate is at least twenty (20) hours per week and at least five (5) months per calendar year. 4. 5 (b) The Board or the Committee may provide that each person who, during the course of an Offering, first becomes an eligible employee of the Company or designated Affiliate will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an eligible employee or occurs thereafter, receive a right under that Offering, which right shall thereafter be deemed to be a part of that Offering. Such right shall have the same characteristics as any rights originally granted under that Offering, as described herein, except that: (i) the date on which such right is granted shall be the "Offering Date" of such right for all purposes, including determination of the exercise price of such right; (ii) the Purchase Period (as defined below) for such right shall begin on its Offering Date and end coincident with the end of such Offering; and (iii) the Board or the Committee may provide that if such person first becomes an eligible employee within a specified period of time before the end of the Purchase Period (as defined below) for such Offering, he or she will not receive any right under that Offering. (c) No employee shall be eligible for the grant of any rights under the Plan if, immediately after any such rights are granted, such employee owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subparagraph 5(c), the rules of Section 425(d) of the Code shall apply in determining the stock ownership of any employee, and stock which such employee may purchase under all outstanding rights and options shall be treated as stock owned by such employee. 5. 6 (d) An eligible employee may be granted rights under the Plan only if such rights, together with any other rights granted under "employee stock purchase plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit such employee's rights to purchase stock of the Company or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars ($25,000) of fair market value of such stock (determined at the time such rights are granted) for each calendar year in which such rights are outstanding at any time. (e) Officers of the Company shall be eligible to participate in Offerings under the Plan, provided, however, that the Board may provide in an Offering that officers who are highly compensated employees within the meaning of Section 423(b)(4)(D) of the Code shall not be eligible to participate. 6. RIGHTS; PURCHASE PRICE. (a) On each Offering Date, each eligible employee, pursuant to an Offering made under the Plan, shall be granted the right to purchase the number of shares of Common Stock of the Company purchasable with up to fifteen percent (15%) of such employee's Earnings (as defined in Section 7(a)) during the period which begins on the Offering Date (or such later date as the Board determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no more than twenty-seven (27) months after the Offering Date (the "Purchase Period"). In connection with each Offering made under the Plan, the Board or the Committee shall specify a maximum number of shares which may be purchased by any employee as well as a maximum aggregate number of shares which may be purchased by all eligible employees pursuant to such Offering. In addition, in connection with each Offering 6. 7 which contains more than one Exercise Date (as defined in the Offering), the Board or the Committee may specify a maximum aggregate number of shares which may be purchased by all eligible employees on any given Exercise Date under the Offering. If the aggregate purchase of shares upon exercise of rights granted under the Offering would exceed any such maximum aggregate number, the Board or the Committee shall make a pro rata allocation of the shares available in as nearly a uniform manner as shall be practicable and as it shall deem to be equitable. (b) The purchase price of stock acquired pursuant to rights granted under the Plan shall be not less than the lesser of: (i) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Offering Date; or (ii) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the date of purchase. 7. PARTICIPATION; WITHDRAWAL; TERMINATION. (a) An eligible employee may become a participant in an Offering by delivering a participation agreement to the Company within the time specified in the Offering, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to fifteen percent (15%) of such employee's Earnings during the Purchase Period. "Earnings" is defined as the total compensation paid to an employee, including all salary, wages (including amounts elected to be deferred by the employee, that would otherwise have been paid, under any cash or deferred arrangement established by the Company), overtime pay, commissions, bonuses, and other remuneration paid directly to the employee, but excluding 7. 8 profit sharing, the cost of employee benefits paid for by the Company, education or tuition reimbursements, imputed income arising under any Company group insurance or benefit program, traveling expenses, business and moving expense reimbursements, income received in connection with stock options, contributions made by the Company under any employee benefit plan, and similar items of compensation. The payroll deductions made for each participant shall be credited to an account for such participant under the Plan and shall be deposited with the general funds of the Company. A participant may reduce, increase or begin such payroll deductions after the beginning of any Purchase Period only as provided for in the Offering. A participant may make additional payments into his or her account only if specifically provided for in the Offering and only if the participant has not had the maximum amount withheld during the Purchase Period. (b) At any time during a Purchase Period a participant may withdraw from the Offering and terminate his or her payroll deductions under the Plan by delivering to the Company a notice of withdrawal in such form as the Company provides. Such withdrawal may be elected at any time prior to the end of the Purchase Period, subject to the terms of the Offering. Upon such withdrawal from the Offering by a participant, the Company shall distribute to such participant all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the participant) under the Offering, without interest, and such participant's interest in that Offering shall be automatically terminated. A participant's withdrawal from an Offering will have no effect upon such participant's eligibility to participate in any other Offerings under the Plan but such participant 8. 9 will be required to deliver a new participation agreement in order to participate in subsequent Offerings under the Plan. (c) Rights granted pursuant to any Offering under the Plan shall terminate immediately upon cessation of any participating employee's employment with the Company or an Affiliate, for any reason, and the Company shall distribute to such terminated employee all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the terminated employee), under the Offering, without interest. (d) Rights granted under the Plan shall not be transferable, other than by will or the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom such rights are granted only by such person. 8. EXERCISE. (a) On each exercise date, as defined in the relevant Offering (an "Exercise Date"), each participant's accumulated payroll deductions (without any increase for interest) will be applied to the purchase of whole shares of stock of the Company, up to the maximum number of shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be issued upon the exercise of rights granted under the Plan. The amount, if any, of accumulated payroll deductions remaining in each participant's account after the purchase of shares which is less than the amount required to purchase one share of stock on the final Exercise Date of an Offering shall be held in each such participant's account for the purchase of shares under the next Offering under the Plan, unless such participant withdraws from such next Offering, as provided in subparagraph 7(b), or is not eligible to participate in such Offering, as provided in paragraph 5, in which case such 9. 10 amount shall be distributed to the participant after said final Exercise Date, without interest. The amount, if any, of accumulated payroll deductions remaining in any participant's account after the purchase of shares which is equal to the amount required to purchase whole shares of stock on the final Exercise Date of an Offering shall be distributed in full to the participant after such Exercise Date, without interest. (b) No rights granted under the Plan may be exercised to any extent unless the Plan (including rights granted thereunder) is covered by an effective registration statement pursuant to the Securities Act of 1933, as amended (the "Securities Act"). If on an Exercise Date of any Offering hereunder the Plan is not so registered, no rights granted under the Plan or any Offering shall be exercised on said Exercise Date and all payroll deductions accumulated during the purchase period (reduced to the extent, if any, such deductions have been used to acquire stock) shall be distributed to the participants, without interest. 9. COVENANTS OF THE COMPANY. (a) During the terms of the rights granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such rights. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such rights unless and until such authority is obtained. 10. 11 10. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to rights granted under the Plan shall constitute general funds of the Company. 11. RIGHTS AS A STOCKHOLDER. A participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to rights granted under the Plan unless and until certificates representing such shares shall have been issued. 12. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any rights granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding rights will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding rights. (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then, as determined by the Board in its sole discretion (i) any 11. 12 surviving corporation may assume outstanding rights or substitute similar rights for those under the Plan, (ii) such rights may continue in full force and effect, or (iii) participants' accumulated payroll deductions may be used to purchase Common Stock immediately prior to the transaction described above and the participants' rights under the ongoing Offering terminated. 13. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for rights under the Plan; (ii) Modify the provisions as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code); or (iii) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3 promulgated under the Exchange Act. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee stock purchase plans and/or to bring the Plan and/or rights granted under it into compliance therewith. 12. 13 (b) Rights and obligations under any rights granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan, except with the consent of the person to whom such rights were granted. 14. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No rights may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any rights granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom such rights were granted. 15. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no rights granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company. 13. EX-10.8 6 1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN 1 EXHIBIT 10.8 CAERE CORPORATION 1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN Adopted on February 27, 1992 Approved by the Stockholders May 5, 1992 Amended by the Board of Directors August 25, 1994 Amended by the Board of Directors March 2, 1995 Approved by the Stockholders May 5, 1995 Amended by the Board of Directors February 21, 1996 Approved by the Stockholders May 14, 1996 Amended August 19, 1996 1. PURPOSE. (a) The purpose of the 1992 Non-Employee Directors' Stock Option Plan (the "Plan") is to provide a means by which each director of Caere Corporation, a Delaware corporation (the "Company"), who is not otherwise an employee of the Company or of any Affiliate of the Company (each such person being hereafter referred to as a "Non-Employee Director") will be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of persons now serving as Non-Employee Directors of the Company, to secure and retain the services of persons capable of serving in such capacity, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the options issued under the Plan not be incentive stock options as that term is used in Section 422 of the Code. 1. 2 2. ADMINISTRATION. (a) The Plan shall be administered by the Board of Directors of the Company (the "Board") unless and until the Board delegates administration to a committee, as provided in subparagraph 2(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To construe and interpret the Plan and options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any option agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (2) To amend the Plan as provided in paragraph 11. (3) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to a committee composed of one (1) or more members of the Board (the "Committee"), all of the members of which Committee may (but need not) be, in the discretion of the Board, "non-employee directors" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the 2. 3 Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of paragraph 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate Two Hundred Thirty Thousand (230,000) shares of the Company's common stock. If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. ELIGIBILITY. Options shall be granted only to Non-Employee Directors of the Company. 5. NON-DISCRETIONARY GRANTS. (a) Each person who is, after March 2, 1996 (the "Amendment Effective Date"), elected for the first time to be a Non-Employee Director of the Company shall, upon the date of his or her initial election to be a Non-Employee Director by the Board or stockholders of the Company, be automatically granted an option to purchase Thirty Thousand (30,000) shares of common stock of the Company on the terms and conditions set forth herein. Thereafter, so long as any such person remains a Non-Employee Director of the Company and the Plan remains in effect, he or she shall, on each three-year anniversary of such initial grant, be automatically 3. 4 granted an option to purchase Thirty Thousand (30,000) shares of common stock of the Company on the terms and conditions set forth herein. (b) Each person who is, as of the Amendment Effective Date, a Non-Employee Director of the Company shall, on each three-year anniversary of such person's receipt of an option grant covering shares of common stock of the Company that most recently preceded the Amendment Effective Date (the "Preceding Option"), be automatically granted an option to purchase Thirty Thousand (30,000) shares of common stock of the Company on the terms and conditions set forth herein. (c) Each person who is, on the Amendment Effective Date, a Non-Employee Director of the Company shall, on the Amendment Effective Date, be automatically granted an option to purchase, on the terms and conditions set forth herein, the number of shares of common stock of the Company (rounded to the nearest whole share) determined by multiplying Three Thousand Three Hundred Thirty-Three (3,333) shares by a fraction (which may exceed one), the numerator of which is the number of days remaining, as of the Amendment Effective Date, until the third anniversary of such person's receipt of his or her Preceding Option and the denominator of which is 365. 6. OPTION PROVISIONS. Each option (including options outstanding on the Amendment Effective Date) shall contain the following terms and conditions, to the extent applicable: (a) No option shall be exercisable after the expiration of ten (10) years from the date it was granted. 4. 5 (b) The exercise price of each option shall be one hundred percent (100%) of the fair market value of the stock subject to such option on the date such option is granted. (c) The purchase price of stock acquired pursuant to an option shall be paid, to the extent permitted by applicable statutes and regulations, either (1) in cash at the time the option is exercised, or (2) by delivery to the Company of shares of common stock of the Company that have been held for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the fair market value on the date of exercise, or (3) by a combination of such methods of payment. (d) An option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the option is granted only by such person or by his or her guardian or legal representative, unless otherwise specified in the option, in which case the option may be transferred upon such terms and conditions as are set forth in the option, as the Board or the Committee shall determine in its discretion, including (without limitation) pursuant to a "domestic relations order" within the meaning of such rules, regulations or interpretations of the Securities and Exchange Commission as are applicable for purposes of Section 16 of the Exchange Act. Notwithstanding the foregoing, the person to whom an option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the optionee, shall thereafter be entitled to exercise the option. (e) Except as otherwise provided in this subparagraph 6(e), an option shall vest with respect to each optionee in three (3) equal annual installments commencing on the date one year after the date of grant of the option, provided that the optionee has, during the entire one year 5. 6 period prior to such vesting date, continuously served as a Non-Employee Director of the Company whereupon such option shall become fully exercisable in accordance with its terms with respect to that portion of the shares represented by that installment. Notwithstanding the foregoing: (1) An option granted on the Amendment Effective Date pursuant to subparagraph 5(c) shall vest, subject to the service conditions specified above, on the third anniversary of the optionee's Preceding Option as to 3,333 shares and on the second anniversary of the optionee's Preceding Option as to the remaining balance of the shares in excess of 3,333. (2) In the event of the voluntary resignation from the Board of Directors or the death of a Non-Employee Director, his or her options shall vest in full and shall be exercisable in their entirety, provided that the optionee has, during the entire five-year period prior to such voluntary resignation or death, continuously served as a Non-Employee Director of the Company. (f) The Company may require any optionee, or any person to whom an option is transferred under subparagraph 6(d), as a condition of exercising any such option: (1) to give written assurances satisfactory to the Company as to the optionee's knowledge and experience in financial and business matters; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then-currently-effective registration statement under the Securities Act of 1933, as amended (the 6. 7 "Securities Act"), or (ii), as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then-applicable securities laws. (g) Notwithstanding anything to the contrary contained herein, an option may not be exercised unless the shares issuable upon exercise of such option are then registered under the Securities Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. 7. COVENANTS OF THE COMPANY. (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan, or any stock issued or issuable pursuant to any such option. If the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options. 7. 8 8. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 9. MISCELLANEOUS. (a) Neither an optionee nor any person to whom an option is transferred under subparagraph 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms. (b) Nothing in the Plan or in any instrument executed pursuant thereto shall confer upon any Non-Employee Director any right to continue in the service of the Company or any Affiliate or shall affect any right of the Company, its Board or stockholders or any Affiliate to terminate the service of any Non-Employee Director with or without cause. (c) No Non-Employee Director, individually or as a member of a group, and no beneficiary or other person claiming under or through him or her, shall have any right, title or interest in or to any option reserved for the purposes of the Plan except as to such shares of common stock, if any, as shall have been reserved for him or her pursuant to an option granted to him or her. (d) In connection with each option made pursuant to the Plan, it shall be a condition precedent to the Company's obligation to issue or transfer shares to a Non-Employee Director, or an affiliate of such Non-Employee Director, or to evidence the removal of any restrictions on transfer, that such Non-Employee Director make arrangements satisfactory to the Company 8. 9 to insure that the amount of any federal or other withholding tax required to be withheld with respect to such sale or transfer, or such removal or lapse, is made available to the Company for timely payment of such tax. 10. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding options will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding options. (b) In the event of: (1) a dissolution or liquidation of the Company or sale of all or substantially all of the assets of the Company; (2) a reorganization, merger or consolidation with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the Combined Voting Power (as defined below) of the reorganized, merged or consolidated company's then outstanding voting securities; (3) the acquisition (other than from the Company) by any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (excluding for this purpose, the Company or its Affiliates, or any employee benefit plan of the Company or its Affiliates), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (i) the then 9. 10 outstanding shares of common stock of the Company or (ii) the Combined Voting Power; or (4) individuals who, as of the Amendment Effective Date constitute the Board (the "Incumbent Board") ceasing for any reason to constitute at least a majority of the Board, then the time during which such options may be exercised shall be automatically accelerated and such options shall be exercisable in their entirety immediately prior to such event. In addition, in the case of a dissolution or liquidation of the Company, or a reorganization, merger or consolidation in which the Company is not the surviving corporation or in which more than fifty percent (50%) of the shares of the Company's common stock outstanding immediately preceding such transaction are converted into other property (whether in the form of securities, cash or otherwise), at the sole discretion of the Board and to the extent permitted by applicable law, any surviving corporation may elect to assume such options outstanding under the Plan or may substitute similar options for those outstanding under the Plan, and any options outstanding hereunder will terminate if not exercised or assumed prior to such event. For purposes of this subparagraph 10(b), "Combined Voting Power" means the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors; and any person who becomes a director subsequent to the Amendment Effective Date whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used 10. 11 in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be considered as though such person were a member of the Incumbent Board. 11. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan. Except as provided in paragraph 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (1) Increase the number of shares reserved for options under the Plan; (2) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to comply with the requirements of Rule 16b-3 promulgated under the Exchange Act); or (3) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to comply with the requirements of Rule 16b-3 promulgated under the Exchange Act. (b) Rights and obligations under any option granted before any amendment of the Plan shall not be altered or impaired by such amendment of the Plan unless (i) the Company requests the consent of the person to whom the option was granted and (ii) such person consents in writing. 11. 12 12. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on February 27, 2002. No options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the option was granted. 13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE. (a) The Plan shall become effective upon adoption by the Board of Directors, subject to the condition subsequent that the Plan is approved by the stockholders of the Company. (b) No option granted under the Plan shall be exercised or exercisable unless and until the condition of subparagraph 13(a) above has been met. 12. EX-11.1 7 STATEMENT RE: NET EARNINGS (LOSS) PER SHARE 1 EXHIBIT 11.1 CAERE CORPORATION STATEMENT REGARDING COMPUTATION OF NET EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31 ----------------------- 1996 1995 1994 ---- ---- ---- Net earnings $ 396 $ 2,397 $ 2,384 ============== =============== =============== Shares used in per share computation: Weighted average common shares outstanding 13,120 13,172 12,649 Common stock equivalents 199 366 487 -------------- --------------- --------------- 13,319 13,538 13,136 ============== =============== =============== Primary earnings per share $ 0.03 $ 0.18 $ 0.18 ============== =============== ===============
EX-13.1 8 1996 ANNUAL REPORT TO STOCKHOLDERS 1 EXHIBIT 13.1 Caere Corporation Annual Report 1996 Financial Highlights In thousands, except per share Years ended December 31: 1996 1995 1994 1993 1992 Net revenues $54,528 51,939 $59,130 48,264 $57,093 Earnings (loss) before income taxes 496 2,820 3,984 (1,701) 8,965 Net earnings 396 2,397 2,384 352 4,774 Earnings ( loss) per share before cumulative effect of change in accounting principle .03 .18 .18 (.05) .36 Net earnings per share $ .03 $ .18 $ .18 $ .03 $ .36 Weighted average shares outstanding 13,319 13,538 13,136 12,639 13,318 As of December 31: Cash and short-term investments $44,290 $47,765 $51,099 $39,325 $40,977 Working capital 49,793 52,650 53,729 46,552 47,340 Total assets 3,154 69,298 67,902 58,684 63,001 Total stockholders' equity 55,748 62,028 57,753 51,620 54,430
2 Management's Discussion & Analysis 0verview In addition to historical information, the statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations include "forward looking" statements and are subject to risks and uncertainties. The actual future results of Caere Corporation (the Company) could differ materially from those projected in any forward looking statement. Some factors that could cause future actual results to differ materially from the Company's recent results or any projections in any forward looking statement are listed below in the sections entitled "Gross Margins," "Certain Trends," "Liquidity and Capital Resources," and other statements set forth below, as well as in the section entitled "Risk Factors" in the Company's report on Form 10-K for its fiscal year ended December 31, 1996. Except as may be required by law, the Company assumes no obligation to update the forward looking statements or such factors. On December 18, 1996, the Company acquired Recognita Rt. (Recognita), a developer of recognition and forms software located in Budapest, Hungary. Under the terms of the acquisition agreement, the Company paid $3 million cash for all of the shares of Recognita. The acquisition was accounted for using the purchase method, and, accordingly, the operating results of Recognita are included in the consolidated results of the Company since the date of acquisition. In connection with this transaction, a charge to operations of $4.4 million for acquired in-process research and development was recorded during the Company's fourth quarter of 1996. See Note 8 of Notes to the Consolidated Financial Statements. Results Of Operations The following table presents, for the periods indicated, the percentage relationship certain items in the Consolidated Statements of Earnings bear to net revenues:
Percentage of net revenues Percentage change 1995 1994 Year ended December 31, 1996 1995 1994 to 1996 to 1995 ---- ---- ---- --------- ------- Net revenues 100% 100% 10% 5% (12)% Cost of revenues 30 33 31 (4) (7) ---- ---- ---- ----- ---- Gross margin 70 67 69 9 (15) ---- ---- ---- ----- ---- Research and development 13 15 15 (11) (13) Selling, general and administrative 48 48 44 5 (4) Merger related costs -- 3 5 (94) (57) In-process research and development 8 -- -- 100 -- ---- ---- ---- ----- ---- Operating earnings (loss) 1 1 5 (36) (75) Interest income 5 4 2 25 57 Write-down of investment in ZyLAB International (5) -- -- (100) -- Earnings before income taxes 1 5 7 (82) (29) Income tax expense -- -- 3 (76) (74) ---- ---- ---- ----- ---- Net earnings 1% 5% 4% (83)% -- %
3 Net Revenues In fiscal 1996, the second full year of the Company's "bundle and upgrade" strategy, net revenues increased 5 percent over net revenues in 1995. Net revenues had declined 12 percent from 1994 to 1995 as the Company seeded the expanding market for scanners with very low priced, fewer featured optical character recognition (OCR) products by bundling those products with the products of its scanner manufacturer partners. The objective of the strategy is to expose more customers to the benefits of the Company's OCR technology and then "upgrade" those customers to fully-featured products. During 1996, that strategy resulted in unit sales of OmniPage Professional(R) upgrade products' increasing 137 percent over 1995, offsetting a 34 percent decline in unit sales of non-upgrade OCR products during the same period. The following chart summarizes net revenues, cost of revenues, and gross margins for the Company's products categorized between software and hardware. Software products consist of the OmniPage, WordScan, OmniForm, and PageKeeper lines of products. Hardware products consist of transaction processing OCR and bar code products, the M/Series line of production OCR, and in 1994, the OmniScan(R) handheld scanner product. Business Line Analysis
1996 1995 1994 ---- ---- ---- Software Hardware Software Hardware Software Hardware In thousands Products Products Combined Product Products Combined Product Products Combined -------- -------- -------- ------- -------- -------- ------- -------- -------- Net revenues $ 45,797 $ 8,731 $ 54,528 $ 41,653 $ 10,286 $ 51,939 $ 45,089 $ 14,041 $ 59,130 Cost of revenues 12,798 3,675 16,473 12,989 4,095 17,084 11,716 6,579 18,295 ------ ----- ------ ------ ----- ------ ------ ----- ------ revenues $ 32,999 $ 5,056 $ 38,055 $ 28,664 $ 6,191 $ 34,855 $ 33,373 $ 7,462 $ 40,835 Gross margin % 72.1% 57.9% 69.8% 68.8% 60.2% 67.1% 74.0% 53.1% 69.1% ------ ------ ------ ------ ------ ------ ------ ------ ------
Net revenues for software products increased 10% during 1996, to $45,797,000 from $41,653,000 in 1995, due to increasing shipments of OCR upgrade products, as well as increasing shipments of OmniForm products, which began shipping in the second quarter of 1995. Net revenues of OmniPage Professional upgrade products increased over 119 percent in 1996, while net revenues of non-upgrade, fully-featured OCR products declined 24 percent over the same period. In 1995, the first full year of operation under the bundle and upgrade strategy, net revenues of software products decreased eight percent from 1994, as a 42 percent decline in sales of non-upgrade, fully-featured products outweighed the 144 percent increase in lower priced OmniPage Professional upgrade products during that year. Net revenues for hardware products decreased 15% to $8,731,000 in 1996, compared to $10,286,000 in 1995. The decrease was primarily attributable to a decline in shipments of maturing M/Series hardware products designed for high-volume OCR applications, as well as a decrease in shipments of transaction processing automated data entry products. Increasing memory and microprocessor power on today's typical PC are helping to close the gap between the "hardware" solution to high-volume OCR needs provided by the M/Series and "software only" solutions. Over time, our M/Series hardware products may evolve into software-only solutions as increasing computing power continues to be adopted. The fluctuation in revenues from automated data entry products is typical of historical sales patterns in that line of business. The periodic award of large sales contracts tends to make revenues in the automated data entry line difficult to predict, and such fluctuations in net revenues are expected to continue. Net revenues for hardware products decreased 27% to $10,286,000 in 1995, compared to $14,041,000 in 1994. This decrease was caused by the elimination of the OmniScan handheld scanner from the product line, lower net revenues associated with transaction processing OCR/bar code products, and lower unit sales of M/Series products. International sales (outside the United States) increased eight percent during 1996, and represented 30% of net revenues during the year, compared to 29% in 1995 and 31% in 1994. International sales totaled $16,391,000 in 1996, $15,154,000 in 1995, and $18,125,000 in 1994. The increase in software upgrade revenues, resulting from a full year of operation under the bundle and upgrade model, is the primary reason for the increase in export sales in 1996. During 1995, international sales declined 16 percent from 1994 as the transition to the bundle and upgrade strategy was made during that year. 4 Gross Margins Gross margins for software products improved from 68.8% in 1995 to 72.1% in 1996 due to manufacturing efficiencies derived from increased unit shipments of upgrade products as well as a reduction in software media costs. Also, in the latter portion of fiscal 1996, the Company shifted the cost of manufacturing its bundled products to certain of the Company's bundling partners. Under such agreements, rather than selling manufactured product to such partners at prices approximating cost, the Company allows such bundling customers to produce their own requirements with a minimal royalty. This transition has the effect of reducing the Company's revenues by amounts nearly equal to the reduction in associated cost of revenues for such bundled product, resulting in an improvement in the overall gross margin percentage for software products. This type of arrangement with bundling partners is expected to continue in 1997. During 1995, gross margins for software products declined to 68.8% from 74.0% in 1994, due to product mix changes resulting from the bundle and upgrade strategy. In 1995, the first full year of this new business model, increased unit volumes of both bundle and upgrade products carrying much lower margins than non-upgrade products resulted in lower overall gross margins for software products in that year. Gross margins for hardware products decreased to 57.9% in 1996 from 60.2% in 1995 due to a reduction in absorption of fixed manufacturing overhead as a result of lower unit shipments of both M/Series and automated data entry products. In 1995, gross margins for hardware products increased to 60.2% from 53.1% in 1994, due to the discontinuance of sales of the OmniScan product, which had significantly lower gross margins than the Company's other hardware based products. The primary factor affecting gross margins in the future is likely to be shifts in product mix between fully-priced non-upgrade software, bundled software, and upgrade products, as well as overall shifts in product mix between software and hardware products. In addition, the microcomputer software market has been subject to rapid changes, including significant price competition, which can be expected to continue. Future technology or market changes may cause certain products to become obsolete rapidly, necessitating increased inventory write- offs or reserves and a corresponding decrease in gross margins. Operating Expenses Research and development (R&D) expenses decreased 11% to $7,069,000 in 1996 from $7,915,000 in 1995. As a percentage of revenue, 1996 R&D expense declined to 13% of net revenues from 15% in 1995. The decrease in spending from 1995 to 1996 was primarily the result of synergies created by the merger with Calera(R) Recognition Systems late in 1994. From 1994 to 1995, R&D expenses decreased 13% from $9,072,000 to $7,915,000, respectively. As a percentage of revenue, 1995 R&D expense was consistent with 1994 at 15% in each year. The decrease in spending from 1994 to 1995 was also a result of synergies created by the merger with Calera. The Company is committed to providing continued enhancements to current products as well as developing new technologies for the future. This commitment resulted in the Company's continuing to invest heavily in R&D during 1996. In accordance with Statement of Financial Accounting Standards No. 86, the Company capitalized $561,000 of software development costs during 1996, compared to $614,000 in 1995 and $481,000 during 1994. Amortization of capitalized software development costs was $734,000 in 1996, compared to $683,000 in 1995 and $662,000 during 1994. Selling, general and administrative (SG&A) expenses increased 5% in 1996 to $26,103,000 from $24,892,000 in 1995. The increase in SG&A spending was primarily the result of higher service and support costs resulting from the Company's high volume unit sales and growing customer base, as well as increased promotional costs related to the OmniForm product line. As a percentage of revenue, 1996 SG&A expense remained consistent with 1995 at 48% of revenue in each year. From 1994 to 1995, SG&A expenses decreased 4% from $25,897,000 to $24,892,000, respectively. The decrease in SG&A spending was a result of the elimination of duplicative facilities and reduction in personnel due to synergies from the Calera acquisition. As a percentage of revenue, SG&A increased to 48% of revenue in 1995 from 44% in 1994. This increase is primarily attributable to a decline in overall net revenues. The Company expects that SG&A expense may increase in dollar terms in 1997, as efforts to expand sales and marketing activities continue in the OCR, forms, and desktop document management areas. In fiscal 1996, the Company recorded a $90,000 charge for additional merger related costs associated with its 1995 proposed merger with ViewStar Corporation. In 1995, merger related costs totaled 5 $1,387,000. Of this amount, $297,000 was related to the 1994 Calera acquisition. This charge included additional severance payments, legal, and other transaction costs, offset partially by savings resulting from an early buyout of a duplicative facilities lease. The remaining $1,090,000 in merger related costs in 1995 were associated with the proposed ViewStar merger. This amount included direct costs for investment bankers, accountants, attorneys, and financial printing related to the transaction prior to its termination. During 1994, the Company incurred $3,254,000 of merger related costs as a result of the acquisition of Calera. At that time, the charge included approximately $1,236,000 of direct transaction costs, with the balance reflecting costs to integrate the two companies such as elimination of redundant information systems, severance and outplacement of terminated employees, and cancellation of certain contractual arrangements. In connection with the acquisition of Recognita in December 1996, as discussed in Note 8 of Notes to the Consolidated Financial Statements, a charge to operations of $4,373,000 was recorded for in-process research and development during the Company's fourth fiscal quarter. In-process research and development represents the present value of the estimated cash flow expected to be generated by Recognita- related technology, which at the acquisition date had not yet reached the point of technological feasibility and did not have an alternative future use. Interest income increased by 25% in 1996 to $2,692,000 from $2,159,000 in 1995. This increase is primarily attributable to higher average cash and short-term investment balances in 1996, as well as generally higher interest rates on the Company's investment securities, in addition to a shift from tax-free investments to taxable securities carrying higher rates of interest. During 1995, interest income increased by 57% to $2,159,000 from $1,372,000 in 1994. This increase was also attributable to generally higher interest rates on the Company's short- term investments together with the shift to taxable securities carrying higher rates of interest during the latter part of the year. In the fourth quarter of 1996, the Company recorded a one-time charge of $2,616,000 to write-down its investment in ZyLAB International, due to ZyLAB's failure to achieve its business plan. The effective income tax rate for the Company during 1996 was 20%, primarily due to increased utilization of net operating loss carryforwards reducing taxable income and use of the Company's foreign sales corporation. Both the in-process research and development charge as well as the write-down of the ZyLAB investment were not deductible for tax purposes in 1996. Based on the Company's earnings history, a reduction in the valuation allowance for deferred tax assets was made in 1996, increasing such deferred tax assets and reducing the current year's tax expense. During 1995, the effective income tax rate was 15%, primarily due to the tax exempt nature of a majority of the Company's interest income and the use of its foreign sales corporation. Additionally, none of the Company's then $22,600,000 net operating loss carryforward was utilized in 1995 due to taxable income limitations. In future years, depending on profitability, the Company may be able to utilize approximately $2,700,000 of net operating loss carryforwards per year. Certain Trends The Company's future operating results may be affected by various uncertain trends and factors which are beyond the Company's control. These include, but are not limited to, adverse changes in general economic conditions, rising costs, or the occasional unavailability of needed components. The industry is characterized by rapid changes in the technologies affecting optical character recognition, forms, and desktop document management. In addition, the industry has also become increasingly competitive, and, accordingly, the Company's results may also be adversely affected by the actions of existing or future competitors, including their development of new technologies, their introduction of new products, and the reduction of prices by such competitors to gain or retain market share. Late in 1994, the Company began to bundle limited functionality versions of its OmniPage and WordScan software recognition software with products from various scanner manufacturers. The Company's objective in bundling its software products with scanners was to expand the overall market for OCR software by providing a larger number of scanner purchasers with experience in the advantages of optical character recognition. The success of this model, compared to Caere's former model of selling its software primarily into niche markets at higher unit prices and lower unit volumes, depends upon the Company's maintaining or expanding its existing relationships with scanner manufacturers and on a significant proportion of customers who first receive OCR software in a bundled product deciding to 6 upgrade to a newer or more fully featured version of the software. Such an upgrade is typically sold at a substantially lower price than non- upgrade fully featured products. Bundled products incorporating OmniPage and WordScan began shipping in significant quantities in the fourth quarter of 1994. Because of the lower per-unit revenue to the Company that results from the combined sale of a bundled product plus an upgrade, compared to the sale of a non-upgrade fully featured version of the software, the "bundle and upgrade" program resulted in decreased revenues from software recognition products during 1995, despite an increase of 111% in unit sales for the year. After another full year of operation under this selling strategy in 1996, net revenues of software products showed an increase over 1995 of 10%, primarily resulting from the 119% increase in revenues of OmniPage Professional upgrade products during the year. Unit sales volume of upgrade products increased 137% from 1995 to 1996. However, there can be no assurance that Caere's transition to the "bundle and upgrade" business model will be successful and provide sufficient increases in unit volume in the future to offset reduced per-unit revenue. In addition, customers using the bundled product may defer or forego purchase of the Company's more fully featured versions of OmniPage and WordScan products if they find that the bundled products satisfy their recognition needs. A significant portion of the Company's net revenues is attributable to sales through the distribution channel. The Company's future operating results are dependent to a certain extent on its ability to maintain its existing relationships with such distributors. The Company's future earnings and stock price could be subject to significant volatility, particularly on a quarterly basis. The Company's revenues and earnings are unpredictable until the end of each quarter due to the Company's shipment patterns. As is common in the software industry, the Company's experience has been that a disproportionately large percentage of shipments has occurred in the third month of each fiscal quarter, and shipments tend to be concentrated in the latter half of that month. Because the Company's backlog early in a quarter is not generally large enough to assure that it will meet its revenue targets for any particular quarter, quarterly results are difficult to predict until the end of the quarter. A shortfall in shipments at the end of any particular quarter may cause the results for that quarter to fall significantly short of anticipated levels. Due to analysts' expectations of continued growth, any such shortfall in earnings could have a very significant adverse effect on the trading price of the Company's common stock in any given period. As a result of the foregoing factors and other factors which may arise in the future, the market price of the Company's common stock may be subject to significant fluctuations over a short period of time. These fluctuations may be due to factors specific to the Company, to changes in analysts' earnings estimates, or to factors affecting the computer industry or the securities markets in general. Liquidity And Capital Resources Caere's financial position remains strong at December 31, 1996. Working capital decreased to $49,793,000 from $52,650,000 at December 31, 1995. This decrease is related to the Company's repurchase of its common stock. In accordance with its approved share repurchase program, the Company used $9,233,000 to repurchase 1,000,000 shares during the third quarter of 1996. The Company has no long-term debt. The Company's cash and short-term investments totaled $44,290,000 at December 31, 1996. The Company believes that current cash balances and internally generated funds will be sufficient to meet its cash requirements through 1997. Caere generated cash from operations of $5,627,000, $3,181,000, and $9,697,000 during the years ended December 31, 1996, 1995, and 1994, respectively. In each year, uses of cash included modest expenditures for capital outlays and other investments. In 1996, a share repurchase program used $9,233,000, while in 1995 the Company invested $2,616,000 in ZyLAB International. Over the past three years, growth of cash and short-term investment balances was reduced by increased corporate merger and acquisition activity. The Company offers credit terms to qualifying customers and also sells on a prepaid, credit card, and cash-on-delivery basis. With respect to credit sales, the Company attempts to control its bad debt exposure through monitoring of customers' creditworthiness and, where practicable, through participation in credit associations that provide credit rating information about its customers. The Company has also purchased credit insurance for certain key accounts to reduce the potential for catastrophic losses. 7 Consolidated Balance Sheets December 31, In thousands, except share and per share data 1996 1995 ---- ---- Assets Current assets: Cash and cash equivalents $ 11,663 $ 10,664 Short-term investments 32,627 37,101 Receivables 6,888 6,180 Income tax receivable -- 1,109 Inventories 2,779 2,077 Deferred income taxes 2,474 1,659 Other current assets 768 766 Total current assets 57,199 59,556 -------- -------- Property and equipment, net 4,742 5,639 Other assets 1,213 4,103 -------- -------- $ 63,154 $ 69,298 ======== ======== Liabilities and stockholders' equity Current liabilities: Accounts payable $ 3,481 $ 2,944 Accrued expenses 3,925 3,032 Accrued merger related costs -- 930 -------- -------- Total current liabilities 7,406 6,906 Deferred income taxes -- 364 Commitments and contingencies Stockholders' equity: Preferred stock, $.001 par value. authorized 2,000,000 shares; none issued or outstanding -- -- Common stock, $.001 par value. authorized 30,000,000 shares; issued and outstanding 12,630,584 and 13,283,224 shares 13 13 Additional paid-in capital 55,399 62,075 Retained earnings (deficit) 336 (60) -------- -------- Total stockholders' equity 55,748 62,028 -------- -------- $ 63,154 $ 69,298 ======== ========
See accompanying Notes to the Consolidated Financial Statements. 8 Consolidated Statements Of Earnings
Years Ended December 31, In thousands, except per share data 1996 1995 1994 ---- ---- ---- Net revenues $ 54,528 $ 51,939 $ 59,130 Cost of revenues 16,473 17,084 18,295 ------- ------- ------- 38,055 34,855 40,835 ------- ------- ------- Operating expenses: Research and development 7,069 7,915 9,072 Selling, general and administrative 26,103 24,892 25,897 Merger related costs 90 1,387 3,254 In-process research and development 4,373 -- -- ------- ------- ------- 37,635 34,194 38,223 ------- ------- ------- Operating earnings 420 661 2,612 Interest income 2,692 2,159 1,372 Write-down of investment in ZyLAB International (2,616) -- -- ------- ------- ------- Earnings before income taxes 496 2,820 3,984 Income tax expense 100 423 1,600 ------- ------- ------- Net earnings $ 396 $ 2,397 $ 2,384 ======= ======= ======= Earnings per share $ .03 $ .18 $ .18 ======= ======= ======= Shares used in per share calculation 13,319 13,538 13,136 ======= ======= =======
See accompanying Notes to the Consolidated Financial Statements. 9 Consolidated Statements Of Stockholders' Equity
Notes Common stock Additional receivable Retained Total ------------ paid-in from earnings stockholders' In thousands, except share data Shares Amount capital stockholders (deficit) equity ------ ------ ------- ------------ --------- --------- Balances at December 31, 1993 12,543,041 $ 13 $ 56,448 $ -- $ (4,841) $ 51,620 Repurchase of stock (19,916) -- (311) -- -- (311) Exercise of stock options 265,993 -- 1,956 -- -- 1,956 Issued in exchange for notes 125,109 -- 400 (400) -- -- receivable Issued pursuant to stock purchase plan 57,192 -- 395 -- -- 395 Reissuance of treasury stock to public 75,000 -- 1,104 -- -- 1,104 Tax benefit associated with exercise of stock options -- -- 605 -- -- 605 Net earnings -- -- -- -- 2,384 2,384 --------- ----- -------- ------ ------ -------- Balances at December 31, 1994 13,046,419 13 60,597 (400) (2,457) 57,753 Exercise of stock options 182,823 -- 914 -- -- 914 Collection of notes receivable -- -- -- 400 -- 400 Issued pursuant to stock purchase plan 69,778 -- 569 -- -- 569 Repurchase of stock (15,796) -- (64) -- -- (64) Tax benefit associated with exercise of stock options -- -- 110 -- -- 110 Other -- -- (51) -- -- (51) Net earnings -- -- -- -- 2,397 2,397 --------- ----- -------- ------ ------ -------- Balances at December 31, 1995 13,283,224 13 62,075 -- (60) 62,028 Repurchase of stock (1,000,000) -- (9,233) -- -- (9,233) Exercise of stock options 240,438 -- 1,560 -- -- 1,560 Issued pursuant to stock purchase plan 106,922 -- 650 -- -- 650 Tax benefit associated with exercise of stock options -- -- 296 -- -- 296 Other -- -- 51 -- -- 51 Net earnings -- -- -- -- 396 396 --------- ----- -------- ------ ------ -------- Balances at December 31, 1996 12,630,584 $ 13 $ 55,399 $ -- $ 336 $ 55,748 ========== ==== ======== ====== ====== ========
See accompanying Notes to the Consolidated Financial Statements. 10 Consolidated Statements Of Cash Flows
Years Ended December 31, In thousands 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net earnings $ 396 $ 2,397 $ 2,384 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 2,689 2,317 1,939 Merger related costs (930) (1,337) 2,467 Write-down of investment in ZyLAB International 2,616 -- -- Amortization of capitalized software development costs 734 683 662 Deferred income taxes (1,301) 691 (705) Changes in operating assets and liabilities: Receivables (708) (140) 1,722 Income tax receivable 1,109 (1,109) 1,002 Inventories (702) 478 (687) Other current assets (2) (18) 10 Accounts payable 537 (136) 515 Accrued expenses 1,189 (645) 388 ------- ------- -------- Net cash provided by operating activities 5,627 3,181 9,697 ------- ------- -------- Cash flows from investing activities: Short-term investments, net 4,474 9,952 (28,450) Capital expenditures (1,460) (3,925) (1,362) Capitalized software development costs (561) (614) (481) Investment in ZyLAB International -- (2,616) -- Other assets (109) (838) 171 ------- ------- -------- Net cash provided by (used for) investing activities 2,344 1,959 (30,122) ------- ------- -------- Cash flows from financing activities: Proceeds from issuances of common stock 2,261 1,529 3,749 Repayment of short-term borrowings -- (400) -- Collection of notes receivable from stockholders -- 400 -- Repurchase of common stock (9,233) -- -- ------- ------- -------- Net cash provided by (used for) financing activities (6,972) 1,529 3,749 ------- ------- -------- Net change in cash and cash equivalents 999 6,669 (16,676) Cash and cash equivalents at beginning of year 10,664 3,995 20,671 ------ ----- -------- Cash and cash equivalents at end of year $11,663 $10,664 $ 3,995 ======= ======= ======== Supplemental disclosures: Cash paid for income taxes $ 162 $ 1,636 $ 2,112 ======= ======= ======== Non-cash investing and financing activities: Options exercised in exchange for notes receivable or stock $ -- $ -- $ 711 ======= ======= ========
See accompanying Notes to the Consolidated Financial Statements. 11 Notes To The Consolidated Financial Statements Note 1. Company And Significant Accounting Policies The Company. Caere Corporation (the Company) designs, develops, manufactures, and markets information recognition software and products. The Company distributes a range of information recognition software and equipment through channels of original equipment manufacturers, value added resellers, distributors, and retail distributors. In December 1994, the Company acquired Calera Recognition Systems, Inc. (Calera), a developer of software and hardware for converting scanned or faxed images into usable text and graphics. This acquisition was accounted for under the pooling of interests method of accounting. Accordingly, the consolidated results of the Company have been restated to include Calera's results of operations for all periods presented. In December 1996, the Company acquired Recognita Rt. (Recognita), a developer of recognition and forms software and products. This acquisition was accounted for using the purchase method of accounting. Accordingly, the consolidated results of the Company include Recognita's results of operations since the date of acquisition. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation. The accompanying financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of intercompany transactions. Foreign Currency Translation. The financial statements of the Company's foreign subsidiaries, where the local currency is the functional currency, are translated using the exchange rate in effect at the end of the year for assets and liabilities and average exchange rates during the year for results of operations. The resulting foreign currency translation adjustments have not been material. The Company enters into transactions denominated in foreign currencies and includes the exchange gain or loss arising from such transactions in current operations. Cash, Cash Equivalents, and Short-Term Investments. Cash and cash equivalents consist of cash on deposit with banks and highly liquid money market instruments with original maturities of 90 days or less. Certain cash equivalents and all investments have been classified as available-for-sale and are stated at fair value at December 31, 1996 and 1995. Inventories. Inventories are stated at the lower of first-in, first-out cost or market. Property and Equipment. Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided over the estimated useful lives of the respective assets, generally three to five years, on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease terms or the lives of the respective assets. Software Development Costs. The Company capitalizes software development costs incurred subsequent to determining a product's technological feasibility. Such costs are amortized on a straight-line basis over the estimated useful life of the product, generally two to three years. Included in other assets at December 31, 1996 and 1995, are capitalized software development costs aggregating $4,770,000 and $4,209,000, respectively, and related accumulated amortization of $4,147,000 and $3,413,000, respectively. Amortization is included in cost of revenues in the accompanying consolidated statements of earnings. Other Assets. The Company owns a minority interest in ZyLAB International, Inc. (ZyLAB), a developer of full text indexing and retrieval software, and accounts for such investment under the cost method. At December 31, 1995, the balance of the ZyLAB investment totaled $2,616,000. At December 31, 1996, the balance of the ZyLAB investment was written off. Revenue Recognition. Revenue is recognized when (i) delivery has occurred, (ii) collectibility is probable, and (iii) remaining vendor obligations are insignificant. In addition, provisions are recorded for 12 the limited rights to exchange products and price protection on unsold merchandise granted to certain distributors. Stock-Based Compensation. The Company uses the intrinsic value method to account for stock-based compensation. Income Taxes. The Company records income tax expense using the asset and liability approach that results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in Caere's financial statements or tax returns. In estimating future tax consequences, Caere generally considers all expected future events other than enactment of changes in tax laws or rates. A valuation allowance is recognized for the portion of deferred tax assets whose realizability is not considered more likely than not. Earnings Per Share. Earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of options to purchase common stock calculated using the treasury stock method. Note 2. Cash Equivalents And Short-Term Investments Certain cash equivalents and all short-term investments have been classified as available-for-sale securities, and their estimated fair value, which approximated their cost, was as follows as of December 31, 1996 and 1995:
December 31, In thousands 1996 1995 ---- ----- Corporate bonds and notes $ 17,556 $ 15,796 Commercial paper 6,712 6,549 Certificates of deposit 3,600 -- State and municipal bonds 3,101 1,600 Corporate auction-rate preferred securities 9,995 18,700 ----- ------ $ 40,964 $ 42,645 ======== ========
The Company's investments are classified as follows:
December 31, In thousands 1996 1995 ---- ----- Cash equivalents $ 8,337 $ 5,544 Short-term investments 32,627 37,101 ------ ------ $ 40,964 $ 42,645 ======== ========
The estimated fair value of available-for-sale securities as of December 31, 1996, by contractual maturity, consisted of the following: In thousands Due in one year or less $ 22,032 Due in more than one year 600 Auction-rate securities 9,995 ----- $ 32,627 ========
Auction-rate preferred securities are taxable investments without a stated expiration date. The Company has the option of adjusting the respective interest rates or liquidating these investments at auction on stated auction dates which range from 7 to 28 days. 13 Note 3. Receivables December 31, In thousands 1996 1995 ------- ------- Trade accounts receivable $ 8,139 $ 7,743 Interest receivable 264 139 ------- ------- 8,403 7,882 Less allowance for returns and doubtful accounts 1,515 1,702 ------- ------- $ 6,888 $ 6,180 ======= =======
The Company's credit risk is concentrated primarily in trade receivables from dealers and distributors of hardware and software products who sell into the retail market (see Note 11). Historically, the Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry. Note 4. Inventories
December 31, In thousands 1996 1995 ------- ------- Raw materials $ 1,540 $ 1,212 Work in process 348 287 Finished goods 891 578 ------- ------- $ 2,779 $ 2,077 ======= =======
Note 5. Property And Equipment
December 31, In thousands 1996 1995 ------- ------- Equipment $11,116 $13,012 Furniture and fixtures 1,954 2,247 Leasehold improvements 1,489 1,580 ------- ------- 14,559 16,839 Less accumulated depreciation and amortization 9,817 11,200 ------- ------- $ 4,742 $ 5,639 ======= =======
Note 6. Accrued Expenses
December 31, In thousands 1996 1995 ------- ------- Accrued payroll costs $ 1,108 $ 1,478 Accrued royalties 651 829 Accrued professional fees 329 344 Income taxes payable 700 -- Other accrued expenses 1,137 381 ------- ------- $ 3,925 $ 3,032 ======= =======
Note 7. Commitments And Contingencies The Company leases its facilities under noncancelable operating leases that expire in 2002. As of December 31, 1996, future minimum lease payments under noncancelable operating leases were $668,000, $704,000, $738,000, $772,000 and $805,000 for each of the years through the period ending December 31, 2001. Rent expense was approximately $692,000 in 1996, $611,000 in 1995, and $913,000 in 1994. The Company is responsible for taxes and insurance in connection with its facilities leases. There are certain claims against the Company arising in the normal course of business. The extent to which these matters will be pursued by the claimants or the eventual outcome is not presently determinable; however, the Company believes that the ultimate resolution of these matters will not have a material adverse effect on its consolidated financial position or results of operations. 14 Note 8. Mergers And Acquisitions On December 20, 1994, the Company issued approximately 2.5 million common shares in exchange for all of the capital stock and vested stock options of Calera, and initiated a plan to combine the operations of the two companies. This business combination has been accounted for as a pooling of interests, and accordingly, the consolidated financial statements for periods prior to the combination have been restated to include the results of operations, financial position, and cash flows of Calera. On the date of the merger, the Company recorded a $3.3 million charge related to merger transaction and integration costs. Transaction costs consist principally of transaction fees for investment bankers, attorneys, accountants, financial printing, and other related charges. Other merger related costs include the elimination of redundant information systems and equipment, severance and outplacement of terminated employees, and cancellation of certain contractual agreements. The Calera merger transaction and integration costs are summarized below:
Provision recorded at acquisition Cash Accrued as of Period from acquisition to Dec. 31, 1994, In thousands date Write-offs payments December 31, 1994 ----------- ---------- -------- ----------------- Transaction costs $ 1,236 $ -- $ 770 $ 466 Severance and outplacement 1,368 -- 9 1,359 Redundant information systems and equipment 230 200 8 22 Cancellation of facility leases 420 -- -- 420 ------- ----- ----- ------- $ 3,254 $ 200 $ 787 $ 2,267 ======= ===== ===== =======
Accrued as of Cash Change in Accrued as of Year ended Dec. 31, 1995, In thousands Dec. 31, 1994 Write-offs payments estimate Dec. 31, 1995 ------------- ---------- -------- -------- ------------- Transaction costs $ 466 $ -- $ 494 $ 51 $ 23 Severance and outplacement 1,359 -- 1,321 366 404 Redundant information systems and equipment 22 -- 17 -- 5 Cancellation of facility leases 420 -- 300 (120) -- ------- ------ ------- ----- ----- $ 2,267 $ -- $ 2,132 $ 297 $ 432 ======= ====== ======= ===== =====
Accrued as of Cash Change in Accrued as of Year ended Dec. 31, 1996, In thousands Dec. 31, 1995 Write-offs payments estimate Dec. 31, 1996 ------------- ---------- -------- -------- ------------- Transaction costs $ 23 $ -- $ 23 $ -- $ -- Severance and outplacement 404 -- 404 -- -- Redundant information systems and equipment 5 -- 5 -- -- Cancellation of facility leases -- -- -- -- -- ----- ------ ----- ------ ------ $ 432 $ -- $ 432 $ -- $ -- ===== ====== ===== ====== ======
The nature, timing and extent of other merger related costs follow: Severance and Outplacement. As a result of the merger, certain manufacturing, distribution, customer service, and administrative functions were combined and reduced. These costs included severance and outplacement charges related to approximately 40 terminated employees. Redundant Information Systems and Equipment. To facilitate the operations of the Company, the combined organization migrated to a common management information system, which resulted in the write-off of the book value of abandoned systems as of December 31, 1994. Cancellation of Facility Leases. The Company consolidated duplicate offices. An early termination was negotiated by the Company and was paid during fiscal year 1995. 15 On January 22, 1996, the Company exercised its right to terminate its agreement to acquire ViewStar Corporation. Direct transaction costs totaling $1,090,000 were expensed in fiscal year 1995. These costs included fees for investment bankers, attorneys, accountants, financial printing, and other transaction costs which were incurred through the date of termination. All such costs were paid as of December 31, 1996. In addition to these costs, additional ViewStar transaction expenses totaling $90,000 were recorded and paid in the first quarter of 1996. On December 18, 1996, the Company acquired Recognita Rt., a recognition and forms software developer headquartered in Budapest, Hungary. Total costs of the acquisition were $4,868,000. The purchase price of $3,000,000 was paid in cash prior to the end of fiscal 1996. Acquisition costs associated with the transaction totaled $1,090,000 and consisted mainly of professional fees. The Company also assumed $778,000 of debt in conjunction with the acquisition. This business combination was accounted for under the purchase method of accounting. Accordingly, Recognita's results of operations have been included in the Company's consolidated results of operations since the date of acquisition. The purchase price was allocated among the identifiable assets of Recognita. Acquired technology was valued using a risk-adjusted cash flow model, under which future expected cash flows were discounted taking into account risks related to existing markets, the technology's life expectancy, future target markets and potential changes thereto, and the competitive outlook for the technology. This analysis resulted in an allocation of $4,373,000 to in-process technology which had not yet reached technological feasibility and had no alternative future use, and accordingly, was charged to expense. The following summarized, pro forma results of operations assumes the acquisition took place at the beginning of the respective periods and excludes the $4,373,000 charge for acquired in-process technology.
Year ended December 31, In thousands, except per share amounts 1996 1995 ---- ---- Net revenues $ 56,683 $ 54,039 Net earnings $4,446 $1,852 Earnings per share $.33 $.14
Note 9. Stock Compensation Plans At December 31, 1996, the Company has several stock-based compensation plans, which are described below. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans and its stock purchase plan. Had compensation cost for such plans been determined consistent with FASB Statement No. 123, the Company's net earnings (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:
In thousands, except per share data 1996 1995 ---- ---- Net earnings (loss) As reported $ 396 $ 2,397 Pro forma $ (396) $ 1,484 Primary earnings (loss) per share As reported $ .03 $ .18 Pro forma $ (.03) $ .11
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants under each of the option plans in 1996, and 1995, respectively: dividend yield of 0% for each year; expected volatility of 66%, and 67%; risk-free interest rates of 5.85%, and 5.75%; and an expected life of .82 years following vesting for each year. Under FASB Statement No. 123, compensation cost related to the 1990 Employee Stock Purchase Plan is recognized for the fair value of the employees' purchase rights, which was estimated using the Black-Scholes model with the following assumptions for 1996, and 1995, respectively: dividend yield of 0% for each year; expected volatility of 66%, and 67%; risk-free interest rates of 5.85%, and 5.75%; and an expected life of one year for each year. The weighted-average fair value per share of those purchase rights granted in 1996, and 1995 was $2.50, and $3.06, respectively. 16 Fixed Stock Option Plans. The Company has two fixed option plans. Under the 1981 Incentive and Supplemental Stock Option Plan, the Company may grant options to its employees for up to 3,595,000 shares of common stock. Under the 1992 Non-Employee Directors' Stock Option Plan, the Company may grant options to its non-employee directors for up to 230,000 shares of common stock. Under both plans, the exercise price of each option equals the market price of the Company's stock on the date of grant, and an option's maximum term is ten years. Options are generally exercisable in equal installments over four years. A summary of the status of the Company's two fixed stock option plans as of December 31, 1996, 1995, and 1994, and changes during the years ended on those dates is presented below (in thousands except per share data):
1996 1995 1994 ---- ---- ---- Weighted- Weighted- Weighted- Average Average Average Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price ------ -------------- ------ -------------- ------ -------------- Outstanding at beginning of year 1,541 $ 7.91 1,514 $ 7.03 1,522 $ 6.20 Granted 487 8.65 438 9.27 1,156 8.00 Exercised (240) 6.49 (183) 5.00 (391) 5.15 Forfeited (329) 8.84 (228) 7.02 (773) 7.79 ------ ----- ------ ----- ------ ----- Outstanding at end of year 1,459 $ 8.18 1,541 $ 7.91 1,514 $ 7.03 ===== ====== ===== ======== ===== ====== Options exercisable at year-end 705 594 444 ===== ===== ===== Weighted-average fair value of options granted during the year $ 4.13 $ 6.30 ====== ======
The following table summarizes information about fixed stock options outstanding at December 31, 1996 (in thousands, except per share and life data):
Options Outstanding Options Exercisable ------------------- ------------------- Weighted-Avg Remaining Contractual Range of Number Life Weighted-Avg Number Weighted-Avg Exercise Prices Outstanding (in years) Exercise Price Exercisable Exercise Price - --------------- ----------- ---------- -------------- ----------- -------------- $2.73 to 7.63 524 5.5 $ 7.12 352 $ 7.12 $8.00 to 8.50 293 8.9 8.27 64 8.37 $8.63 to 9.38 293 7.7 9.02 123 9.17 $9.75 to 20.00 350 7.4 10.34 166 10.13 -------------- ----- --- ------ --- ------ $2.73 to 20.00 1,459 7.1 $ 8.18 705 $ 8.30 ============== ===== === ======= === ======
Employee Stock Purchase Plan. Under the 1990 Employee Stock Purchase Plan, the Company is authorized to issue up to 500,000 shares of common stock to its full-time employees, nearly all of whom are eligible to participate. Under the terms of the Plan, employees can choose to have up to 15 percent of their annual earnings withheld to purchase the Company's common stock. The purchase price of the stock is the lower of 85 percent of the market price on either the purchase date or the offering date. Under the Plan, the Company sold 106,922 shares, 69,778 shares, and 57,192 shares to employees in 1996, 1995, and 1994, respectively. Shareholder Rights Plan. The Company's shareholder rights plan is intended to protect shareholders from unfair or coercive takeover practices. In accordance with this plan, the Board of Directors declared a dividend distribution of one common stock purchase right on each outstanding share of its common stock held as of May 3, 1991. Each right entitles the registered holder to purchase from the Company one one- hundredth of a share of series A junior participating preferred stock at $90. The rights will not be exercisable until certain events occur. The rights are redeemable at $.01 by the Company and expire May 3, 2001. As of December 31, 1996, 100,000 shares of the Company's preferred stock have been reserved for this plan. 17 Note 10. Income Taxes The components of income tax expense are as follows:
Years Ended December 31, In thousands 1996 1995 1994 ---- ---- ---- Current: Federal $ 855 $ (423) $ 1,277 State 250 45 423 ------- ----- ------- Total current 1,105 (378) 1,700 ------- ----- ------- Deferred: Federal (1,071) 573 (535) State (230) 118 (170) ------- ----- ------- Total deferred (1,301) 691 (705) ------- ----- ------- Charges in lieu of income taxes associated with the exercise of stock options 296 110 605 ------- ----- ------- $ 100 $ 423 $ 1,600 ======= ===== =======
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are presented below.
December 31, In thousands 1996 1995 ---- ---- Deferred tax assets: Federal and state net operating loss and research and experimental credit carryforwards $ 6,671 $ 7,969 Accounts receivable, principally due to allowance for doubtful accounts and sales returns and allowances 411 500 Inventories, non-deductible lower of cost or market adjustments 327 260 Compensated absences, principally due to accrual for financial reporting purposes 285 225 Accruals for financial statement purposes not taken for tax purposes 310 670 Property and equipment principally due to differences in depreciation 373 -- Other 46 4 -------- ------- Total gross deferred tax assets 8,423 9,628 Less valuation allowance (5,523) (7,969) -------- ------- Net deferred tax assets $ 2,900 $ 1,659 Deferred tax liabilities: Property and equipment, principally due to differences in depreciation -- (25) Software development costs, principally due to capitalization and (302) (319) amortization Other (2) (20) -------- ------- Total gross deferred tax liabilities (304) (364) -------- ------- Net deferred tax benefit $ 2,596 $ 1,295 ======= =======
18 The difference between the effective income tax rate and the U. S. federal statutory income tax rate is as follows:
Years Ended December 31, 1996 1995 1994 ---- ---- ---- Statutory federal income tax rate 34.0% 34.0% 34.0% State tax, net of federal benefit 2.0 4.0 5.7 Tax exempt income -- (16.0) (9.0) Utilization of net operating loss carryforward (239.0) -- -- Change in valuation allowance (206.0) -- -- Benefit of foreign sales corporation (35.0) (4.0) (3.4) Non-deductible acquisition expenditures -- -- 10.5 In-process research and development non-deductible for tax purposes 283.0 -- -- ZyLAB investment write-down non-deductible for tax purposes 180.5 -- -- Other 0.7 (3.0) 2.4 20.2% 15.0% 40.2% ====== ====== ======
The Company has a net operating loss carryforward for federal tax purposes at December 31, 1996, of $17.9 million and federal research and experimentation credit carryforwards of $441,000. Federal tax laws impose significant restrictions on the utilization of net operating loss carryforwards in the event of a shift in the ownership of the Company, which constitutes an "ownership change" as defined by Internal Revenue Code Section 382. The acquisition of Calera in December 1994 resulted in such a change. As a result, the Company's federal net operating loss carryforwards are subject to an annual limitation approximating $2.7 million. Any unused annual limitations may be carried forward to increase the limitations in subsequent years. Note 11. Major Customers And Export Sales One distributor accounted for 28%, 22%, and 23% of net revenues in 1996, 1995, and 1994, respectively. At December 31, 1996, this distributor accounted for 34% of trade accounts receivable. A second customer accounted for 15%, 9%, and 2% of net revenues in 1996, 1995, and 1994, respectively. At December 31, 1996, this distributor accounted for 8% of trade accounts receivable. International sales, principally to Europe, were 30%, 29%, and 31% of net revenues in 1996, 1995, and 1994, respectively. Note 12. Quarterly Results Of Operations (Unaudited)
1996, Quarter Ended Year Ended --------------------- ---------- In thousands, except per share data Mar 31 Jun 30 Sep 30 Dec 31 Dec 31 ------ ------ ------ ------ ------ Net revenues $ 13,556 $ 13,989 $ 13,403 $ 13,580 $ 54,528 Gross margin 9,241 9,532 9,130 10,152 38,055 In-process research and development -- -- -- 4,373 4,373 Write-down of investment in ZyLAB -- -- -- 2,616 2,616 Earnings (loss) before income taxes 1,609 1,844 1,691 (4,648) 496 Net earnings (loss) 1,300 1,475 1,522 (3,901) 396 Net earnings (loss) per share $ .10 $ .11 $ .11 $ (.31) $ .03 Shares used in per share calculations 13,459 13,820 13,342 12,596 13,319 Common stock price per share: High $ 9.00 $ 13.38 $ 12.50 $ 11.50 $ 13.38 Low 6.63 8.63 8.00 7.63 6.63
The Company has not paid cash dividends on its common stock since its inception. The Company presently intends to retain earnings for use in its business and therefore does not anticipate paying any cash dividends in the foreseeable future. The Company's stock trades on the NASDAQ National Market System. On December 31, 1996, there were 487 holders of record of the Company's common stock. 19 Independent Auditors' Report The Board Of Directors And Stockholders Caere Corporation: We have audited the accompanying consolidated balance sheets of Caere Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Caere Corporation and subsidiaries as of December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP San Jose, California January 28, 1997 EX-21.1 9 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 LIST OF SUBSIDIARIES Caere FSC Corporation, Guam Caere GmbH, Germany Recognita Rt., Hungary EX-23.1 10 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.1 Consent of Independent Auditors The Board of Directors Caere Corporation: We consent to incorporation by reference in the registration statements (Nos. 33-35033, 33-49114, 33-32992, 33-66430, 33-81708, 33-87824, 33-81680, 33-60027, 333-02293, and 333-10803) on Form S-8 of Caere Corporation of our reports dated January 28, 1997, relating to the consolidated balance sheets of Caere Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, and the related schedule, which reports appear or are incorporated by reference in the December 31, 1996, annual report on Form 10-K of Caere Corporation. KPMG PEAT MARWICK LLP /s/ KPMG PEAT MARWICK LLP San Jose, California March 25, 1997 EX-27 11 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 11,663 32,627 6,888 1,515 2,779 57,199 14,559 9,817 63,154 7,406 0 0 0 55,412 0 63,154 54,528 54,528 16,473 37,635 2,616 0 2,692 496 100 0 0 0 0 396 .03 .03
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