<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
For the quarterly period ended June 30, 1997
OR
[_] 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: 0-27310
RED BRICK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0145392
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
485 ALBERTO WAY
LOS GATOS, CALIFORNIA 95032
(Address of principal executive offices, including zip code)
(408) 399-3200
(Registrant's Telephone No., including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
----- -----
As of July 31, 1997 there were 11,969,104 shares of the Registrant's Common
Stock outstanding.
- --------------------------------------------------------------------------------
1
<PAGE>
RED BRICK SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
As of June 30, 1997 and December 31, 1996.......................................... 3
Condensed Consolidated Statements of Operations
For the Three Months and Six Months Ended June 30, 1997 and 1996................... 4
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1997 and 1996.................................... 5
Notes to Condensed Consolidated Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................ 20
Item 5. Other Events....................................................................... 20
Item 6. Exhibits and Reports on Form 8-K................................................... 21
SIGNATURES.................................................................................. 22
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
RED BRICK SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
ASSETS (unaudited) -------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,017 $14,552
Short-term investments 17,330 20,599
Accounts receivable, net 6,773 13,106
Prepaid expenses and other current assets 1,050 1,213
Deferred tax assets 850 850
-------- -------
Total current assets 48,020 50,320
Property and equipment, net 2,805 2,693
Deposits and other assets 278 205
Deferred tax assets 150 150
-------- -------
Total assets $ 51,253 $53,368
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $437 $316
Accrued expenses 4,409 2,565
Accrued compensation 2,459 2,191
Deferred revenue 6,479 4,180
Capital lease obligations due within one year 573 760
-------- -------
Total current liabilities 14,357 10,012
Capital lease obligations 191 396
Minority interest 2 36
Stockholders' equity:
Common stock 1 1
Additional paid in capital 53,181 51,570
Accumulated deficit (16,402) (8,507)
Deferred compensation -- (36)
Translation adjustment 2 4
Unrealized losses on marketable securities (4) --
-------- -------
36,778 43,032
Notes receivable from stockholders (75) (108)
-------- -------
Total stockholders' equity 36,703 42,924
-------- -------
Total liabilities and stockholders' equity $51,253 $53,368
======== =======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
3
<PAGE>
RED BRICK SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Software license $7,401 $6,461 $11,046 $11,746
Maintenance and service 3,010 1,569 5,888 2,798
------- ------- ------- -------
Total revenues 10,411 8,030 16,934 14,544
------- ------- ------- -------
Cost of revenues:
Software license 308 198 690 462
Maintenance and service 2,115 603 3,954 1,060
------- ------- ------- -------
Total cost of revenues 2,423 801 4,644 1,522
------- ------- ------- -------
Gross margin 7,988 7,229 12,290 13,022
------- ------- ------- -------
Operating expenses:
Sales and marketing 6,765 4,711 14,041 8,208
Research and development 2,065 1,423 4,776 2,928
General and administrative 1,176 742 2,156 1,301
In-process technology -- 500 -- 500
------- ------- ------- -------
Total operating expenses 10,006 7,376 20,973 12,937
------- ------- ------- -------
Income (loss) from operations (2,018) (147) (8,683) 85
Interest and other income 521 445 1,027 764
Interest and other expense (26) (84) (66) (153)
------- ------- ------- -------
Income (loss) before provision for income
taxes and minority interest (1,523) 214 (7,722) 696
Provision for income taxes 105 22 205 70
------- ------- ------- -------
Income (loss) before minority interest (1,628) 192 (7,927) 626
Minority interest 95 -- 32 --
------- ------- ------- -------
Net income (loss) $(1,533) $ 192 $(7,895) $ 626
======= ======= ======= =======
Net income (loss) per share $ (0.13) $ 0.01 $ (0.69) $ 0.05
======= ======= ======= =======
Shares used to compute
net income (loss) per share 11,493 12,881 11,463 12,567
======= ======= ======= =======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
4
<PAGE>
RED BRICK SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,895) $ 626
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 746 596
Amortization 95 51
Deferred tax benefit -- --
Minority interest (34) --
Changes in assets and liabilities:
Accounts receivable 6,333 (3,343)
Prepaid expenses and other current assets 163 (312)
Accounts payable 121 (416)
Accrued expenses and compensation 2,148 1,646
Deferred revenue 2,299 974
-------- --------
Net cash provided by (used in) operating activities 3,976 (178)
-------- --------
Cash flows from investing activities:
Purchases of short-term investments (17,949) (27,335)
Proceeds from sales of short-term investments 21,218 8,443
Acquisition of property and equipment (953) (910)
Deposits and other assets (73) (14)
-------- --------
Net cash provided by (used in) investing activities 2,243 (19,816)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of stock, net 1,611 33,798
Payment on notes receivable 33 --
Payment on notes payable to stockholders -- (25)
Principle payments on capital lease obligations (392) (505)
Unrealized gains (losses) on marketable securities (4) 5
Translation adjustment (2) --
-------- --------
Net cash provided by financing activities 1,246 33,273
-------- --------
Net increase in cash and cash equivalents 7,465 13,279
Cash and cash equivalents at beginning of period 14,552 2,998
-------- --------
Cash and cash equivalents at end of period $ 22,017 $ 16,277
======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
5
<PAGE>
RED BRICK SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
---------------------
The unaudited condensed consolidated financial statements included herein
reflect all adjustments, consisting only of normal recurring accruals,
which in the opinion of management are necessary to fairly present the Company's
consolidated financial position, results of operations, and cash flows for the
periods presented. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements included in the
Company's fiscal year 1996 Annual Report on Form 10-K. The consolidated results
of operations for the three and six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for any subsequent period
or for the entire fiscal year ending December 31, 1997. The December 31, 1996
balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates relate to the useful lives of fixed assets,
allowances for doubtful accounts and customer returns, other reserves, and
income tax valuation allowances. Actual results inevitably will differ from
those estimates, and such differences may be material to the financial
statements.
2. Net Income (Loss) Per Share
---------------------------
Net loss per share is computed using the weighted average number of common
shares outstanding during the period.
Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Dilutive common equivalent shares consist of shares issueable upon the exercise
of stock options and warrants (using the treasury stock method).
3. Red Brick Systems Australasia Pty. Ltd.
--------------------------------------
On July 1, 1996, the Company entered into an agreement with Productivity
Software Group Limited ("PSG") to form a joint venture to distribute the
Company's products and services in Australia and New Zealand. The Company owns
approximately 50.1% of the voting stock of the joint venture and is
consolidating this entity. The minority interest shown on the financial
statements represents PSG's proportionate share in the net assets and operating
activity of the Australian subsidiary. Beginning in 1999, the Company may be
obligated to purchase the remaining stock owned by PSG at a pre-determined
price, not to exceed $5 million, based on 1998 revenue for the joint venture.
6
<PAGE>
4. Red Brick Japan Co., Ltd.
-------------------------
Red Brick Japan Co., Ltd., a wholly-owned subsidiary of Red Brick Systems,
Inc., was incorporated in Japan on January 16, 1997, for the purpose of
assisting the Company and its distributors in the licensing and sale of Red
Brick products and services in Japan.
5. Recent Pronouncements
---------------------
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options, warrants, convertible preferred stock, and common and common
equivalent shares will be excluded. The impact is expected to result in an
increase in primary earnings per share for the second quarter ended June 30,
1996 of $0.01 per share, and is expected to result in no change in primary loss
per share for the second quarter ended June 30, 1997. The impact of Statement
128 on the calculation of fully diluted earnings per share for these quarters is
not expected to be material.
6. In-Process Technology
----------------------
The Company acquired in-process technology associated with a $500,000
licensing arrangement during the second quarter of 1996. The acquired in-process
technology had not yet reached technological feasibility and did not have
alternative future uses.
7. Repricing
---------
In April 1997, the Company offered employees, excluding executive officers,
the option to exchange options to purchase 489,775 shares of Common Stock with
an aggregate exercise price of $10,782,088 for new options to purchase 489,775
shares with an exercise price of $6.00 per share. All options that are repriced
will vest beginning six months after the vesting start date under the original
terms of the option grant.
7
<PAGE>
RED BRICK SYSTEMS, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this report contains forward-looking statements that
involve risks and uncertainties including, without limitation, statements made
in the sections entitled "Revenues" "Cost of Revenues", "Operating Expenses"
"Interest and Other Income and Interest Expense", "Provisions for Income Taxes",
"Minority Interest, Net Income and Net Income (Loss) Per Share", and "Liquidity
and Capital Resources" regarding the Company's revenues and associated costs and
expenses. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the section below entitled
"Risk Factors That May Affect Future Results," as well as those risks discussed
in this section and elsewhere in this report.
RESULTS OF OPERATIONS
Revenues
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1997 Change 1996 1997 Change 1996
------- ------- ------ ------- ------- -------
Software license $ 7,401 15% $6,461 $11,046 (6%) $11,746
Percentage of total revenues 71% 80% 65% 81%
Maintenance and service $ 3,010 92% $1,569 $ 5,888 110% $ 2,798
Percentage of total revenues 29% 20% 35% 19%
Total revenues $10,411 30% $8,030 $16,934 16% $14,544
The Company's revenues are derived from (i) license fees for its software
products and (ii) fees for services complementing its products, including
software maintenance and support, training, consulting and development
agreements. Fees for service revenues are charged separately from the Company's
software products. The Company recognizes revenue in accordance with the
American Institute of Certified Public Accountants Statement of Position 91-1 on
Software Revenue Recognition. Revenue from software licensing is generally
recognized after execution of a licensing agreement and shipment of the product.
Maintenance revenue is recognized over the term of the maintenance period, which
is typically 12 months. Consulting and training revenues are recognized at the
time the services are performed. Revenue under software development agreements
is recognized using the percentage-of-completion method, based on the ratio that
incurred costs bear to total estimated costs. The Company's license agreements
generally do not provide a right of return. However, reserves are maintained
for potential credit losses.
Software License Revenues. The Company currently derives substantially all
-------------------------
of its software license revenues from licenses of Red Brick Warehouse, a
relational database management system that is specifically designed for serving
data warehouse applications. Software license revenues decreased slightly for
the six months ended June 30, 1997. Software license revenues for the three
months ended June 30, 1997, increased over the year earlier period because of an
increase in
8
<PAGE>
licensing activity; however, in the three months ended March 31, 1997, software
license revenues were down significantly from the quarter ended December 31,
1996, because a number of transactions for which the Company expected to receive
orders during the first quarter of 1997 did not close.
Maintenance and Service Revenues. The growth in maintenance revenues for
--------------------------------
the three and six month periods ended June 30, 1997, was primarily attributable
to the renewal of maintenance contracts after the initial one-year term, but the
licensing revenue was down. Service revenues increased as a result of additional
consulting and training engagements. The Company expects that prior growth rates
of the Company's maintenance and service revenues may not be sustainable in the
future.
For the three and six month periods ended June 30, 1997, Pepsi Cola
Company accounted for 16% and 11% of total revenues, respectively. For the three
and six month periods ended June 30, 1996, no one customer accounted for 10% or
more of total revenues The Company expects that licenses of its products to a
limited number of customers and resellers will continue to account for a
significant percentage of revenue for the foreseeable future. There can be no
assurance that any customer or reseller will continue to license the Company's
products. The loss of a major customer or reseller or any reduction in orders by
such customers or resellers, including reductions due to market or competitive
conditions, would have a materially adverse effect on the Company's business,
financial condition, and results of operations.
The Company's international revenues for the three and six month periods
ended June 30, 1997, were 14% and 17% of total revenues, respectively. The
Company's international revenues for the three and six month periods ended
June 30, 1996, were less than 10% of total revenues. The Company intends to
continue to expand its international operations and to enter additional
international markets.
COST OF REVENUES
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ----------------------
1997 Change 1996 1997 Change 1996
------ ------ ------ ------ ------ ------
Software license $ 308 56% $198 $ 690 49% $ 462
Percentage of total revenues 3% 2% 4% 3%
Maintenance and service $2,115 251% $603 $3,954 273% $1,060
Percentage of total revenues 20% 8% 23% 7%
Total cost of revenues $2,423 202% $801 $4,644 205% $1,522
Percentage of total revenues 23% 10% 27% 10%
Cost of Software License Revenues. Cost of software license revenues
---------------------------------
consisted primarily of the cost of royalties paid to third-party vendors,
product media and duplication, shipping expenses, manuals and packaging
materials.
Cost of Maintenance and Service Revenues. Cost of maintenance and service
----------------------------------------
revenues consisted primarily of personnel-related costs incurred in providing
telephone support, consulting services, and training to customers. Cost of
maintenance and service revenues for the three and six month periods ended June
30, 1997 increased over such costs for the same periods ended June 30, 1996, as
a result
9
<PAGE>
of increased personnel-related costs as the Company continued to expand its
customer service and consulting organizations to support an expected increase in
sales. The Company believes that the cost of maintenance and service revenues
will increase in dollar amount and may increase as a percentage of total
revenues in the future as the Company continues to build its customer service
and consulting organizations.
Operating Expenses
Three Months Ended Six Months Ended
June 30, June30,
---------------------- ----------------------
1997 Change 1996 1997 Change 1996
------- ----- ------ ------- ----- ------
Sales and marketing $ 6,765 44% $4,711 $14,041 71% $8,208
Percentage of total revenues 65% 59% 83% 56%
Research and development $ 2,065 45% $1,423 $ 4,776 63% $2,928
Percentage of total revenues 20% 18% 28% 20%
General and administrative $ 1,176 58% $ 742 $ 2,156 66% $1,301
Percentage of total revenues 11% 9% 13% 9%
In-process technology $ -- * $ 500 $ -- * $ 500
Percentage of total revenues 6% 3%
Total operating expenses $10,006 36% $7,376 $20,973 62% $12,937
Percentage of total revenues 96% 92% 124% 89%*
- ----------------------------
* Not meaningful
Sales and Marketing. Sales and marketing expenses consisted primarily of
-------------------
personnel-related costs, including sales commissions, as well as promotional
expenses including advertising, public relations, seminars, and trade shows.
The increase in dollar amount in sales and marketing expenses was primarily due
to the expansion of the Company's sales operations and increased marketing
activities. The Company believes that such expenses will increase in dollar
amount and may increase as a percentage of total revenues in the future as the
Company expands its sales and marketing activities.
Research and Development. Research and development expenses consisted
------------------------
primarily of salaries and other personnel-related expenses, and depreciation of
development equipment. The increase in dollar amount in research and development
expenses was primarily attributable to the increased staffing of software
engineers required to expand and enhance the Company's product line and the
expensing of technology and software that had not met technological feasibility.
In accordance with SFAS No. 86, the Company capitalizes eligible computer
software costs upon the achievement of technological feasibility, subject to net
realizable value considerations. The Company has defined technological
feasibility as completion of a working model. As of June 30, 1997, such
capitalizable costs were insignificant. Accordingly, the Company has charged all
such costs to research and development expense in the accompanying consolidated
statements of operation. The Company believes that research and development
expenses will continue to increase in dollar amount and may increase as a
percentage of total revenues in the future.
General and Administrative. General and administrative expenses consisted
--------------------------
primarily of personnel costs for finance and general management, as well as
insurance and professional expenses. The increase in dollar amount in general
and administrative expenses was primarily attributable to increased staffing and
professional fees necessary to manage and support the Company and to
10
<PAGE>
provide the infrastructure required for a public company. The Company believes
that its general and administrative expenses will continue to increase in dollar
amount in the future as the Company expands its administrative staff, adds
infrastructure, and incurs additional costs related to being a public company.
Cost of in-process technology. In the second quarter of 1996, the Company
-----------------------------
acquired in-process technology associated with a $500,000 licensing arrangement.
The acquired in-process technology had not yet reached technological feasibility
and did not have alternative future uses.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ---------------------
1997 Change 1996 1997 Change 1996
---- ---- ---- ------ ---- -----
Interest and other income $521 17% $445 $1,027 34% $ 764
Percentage of total revenues 5% 6% 6% 5%
Interest expense $(26) (69%) $(84) $ (66) (57%) $(153)
Percentage of total revenues (0%) (1%) (0%) (1%)
Interest and other income primarily represented interest income
earned on the Company's cash, cash equivalents, and short-term investments.
Interest and other income primarily increased during the six month period ended
June 30, 1997 compared to the year earlier period because the funds were
invested for the full six months in 1997 and were invested for a shorter period
in 1996 following the Company's initial public offering on January 22, 1996.
PROVISION FOR INCOME TAXES
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 Change 1996 1997 Change 1996
----- ---- ---- ---- ---- ----
Provision for income taxes $105 377% $22 $205 193% $70
Percentage of total revenues 1% 0% 1% 0%
The income tax provision for the six month period ended June 30, 1997 of
$205,000 is attributable to current income taxes, and consists principally of
foreign withholding taxes and other foreign income taxes and state minimum
taxes. No income tax benefit has been recognized for the loss incurred in the
first six months of 1997. Although realization is not assured, the Company
continues to believe that it is "more likely than not" that it will generate
future taxable income sufficient to realize the benefit of the $1 million net
deferred tax asset previously recognized. The amount of the net deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced. Management intends to evaluate
the realizability of the net deferred tax asset each quarter to assess the need
for the valuation allowance.
The effective tax rate for the six month period ended June 30, 1996 was
10%, which differed from the federal statutory tax rate of 34%, primarily due to
the utilization of net operating loss carryforwards, offset by domestic
alternative minimum taxes and foreign taxes.
11
<PAGE>
As of December 31, 1996, the Company had federal and state net operating
loss carryforwards of approximately of $4.6 million and $2.5 million,
respectively, and federal and state research credit carryforwards of $430,000
and $290,000, respectively. Utilization of approximately $1.5 million of the net
operating loss carryforwards is limited to approximately $100,000 per year, due
to the ownership change provisions provided by the Tax Reform Act of 1986 and
similar state provisions. These carryforwards will expire from 1998 to 2009.
MINORITY INTEREST, NET INCOME, AND NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June30,
----------------------------- -----------------------------
1997 Change 1996 1997 Change 1996
------- ------- ------ -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Minority Interest $ 95 * $ -- $ 32 * $ --
Percentage of total revenues 1% * 0% *
Net income (loss) $(1,533) * $192 $(7,895) * $626
Percentage of total revenues (15%) 2% (47%) 4%
Net income (loss) per share $ (0.13) * $0.01 $ (0.69) * $0.05
- ----------------------
* Not meaningful
</TABLE>
Net loss per share for the six month period ended June 30, 1997 was
primarily the result of the revenue shortfall for the three months ended March
31, 1997. As noted under "Software License Revenues," software license revenues
for the six month period ended June 30, 1997 decreased from the year earlier
period. In addition, as noted in "Risk Factors" below, the Company's expense
levels are relatively fixed and are based, in part, on expectations as to future
revenues. Consequently, since revenue fell below expectations, operating results
were adversely affected and net income was disproportionately affected because a
proportionately smaller amount of the Company's expenses varies with its
revenues.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
June 30, December 31,
1997 Change 1996
------- ----- -------
<S> <C> <C> <C>
Working capital $33,663 (16%) $40,308
Cash and cash equivalents and short-term investments $39,347 12% $35,151
</TABLE>
Working capital decreased at June 30, 1997, compared to that at December
31, 1996, primarily due to a decrease in accounts receivable and short-term
investments and an increase in accrued expenses and deferred revenue, partially
offset by an increase in cash and cash equivalents.
12
<PAGE>
Six Months Ended
June 30,
-----------------------
1997 Change 1996
------ ------ --------
Cash provided by (used in) operating activities $3,976 * $ (178)
Cash provided by (used in) investing activities $2,243 * $(19,816)
Cash provided by financing activities $1,246 (96%) $ 33,273
- ------------------------
* Not meaningful
For the six months ended June 30, 1997, net cash provided by operating
activities resulted primarily from a decrease in accounts receivable and
increases in deferred revenue and accrued expenses and compensation, partially
offset by the net loss adjusted for noncash items. For the six months ended
June 30, 1996, net cash used in operating activities resulted primarily from an
increase in accounts receivable and a decrease in accounts payable, partially
offset by a decrease in accrued expenses and compensation, a decrease in
deferred revenue, and by net income.
For the six months ended June 30, 1997 and 1996, the Company's investing
activities consisted of purchases of investment grade, interest-bearing
securities, offset by purchases of property and equipment. Capital expenditures
were $953,000 in the six months ended June 30, 1997, compared to $910,000 in the
six months ended June 30, 1996. The Company expects that its capital
expenditures will remain constant or increase as the Company's employee base
grows. The Company's principal commitments consist primarily of leases on
facilities and equipment.
The cash provided by financing activities during the six months ended June
30, 1997 was primarily from the issuance of common stock through the Company's
Employee Stock Purchase Plan. The cash provided by financing activities during
the six months ended June 30, 1996 was primarily from the initial public
offering.
The Company has a $3,000,000 unsecured line of credit which expires April
30, 1998. Borrowings under this line bear interest at the lender's current
index. The credit agreement requires the Company to maintain certain financial
ratios, minimum working capital, and minimum tangible net worth. The agreement
also restricts the payment of dividends. At June 30, 1997, there were no
borrowings outstanding under this line of credit.
The Company believes that its current cash balance, its credit facility,
and its cash flow provided by operations, if any, will be sufficient to meet its
anticipated working capital and capital expenditure requirements for at least
the next 12 months. Thereafter, the Company may find it necessary to obtain
additional debt or equity financing. There can be no assurance that, in the
event additional financing is required, the Company will be able to raise such
additional financing on acceptable terms or at all.
13
<PAGE>
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.
Potential Fluctuations in Quarterly Results; Seasonality. The Company's
--------------------------------------------------------
quarterly operating results have varied significantly in the past, and may vary
significantly in the future, depending on factors such as increased competition,
size and timing of significant orders, timing of new product announcements and
pricing policy changes by the Company and its competitors, market acceptance of
new and enhanced versions of the Company's products, changes in operating
expenses, changes in personnel, mix of direct and indirect sales, general
economic factors, and foreign currency exchange rates. The Company currently
operates with virtually no order backlog because its software products typically
are shipped shortly after orders are received. The Company derives a
substantial portion of its revenues from licenses of its Red Brick Warehouse, a
relational database management system that is specifically designed for serving
data warehouse applications and typically has a selling price in excess of
$100,000. As a result, the timing of the receipt and shipment of a single order
can have a significant impact on the Company's revenues and results of
operations for a particular period. In the first quarter of 1997, for example,
the Company received significantly fewer orders than expected, which had an
immediate adverse impact on operating results for the period. Historically, the
Company has often recognized a substantial portion of its revenues in the last
month of a quarter, with these revenues frequently concentrated in the last two
weeks of a quarter. As a result, product revenues in any quarter are
substantially dependent on orders booked and shipped in that quarter, and
revenues for any future quarter are not predictable with any significant degree
of certainty. Product revenues are also difficult to forecast because the
market for data warehouse software products is rapidly evolving, and the
Company's sales cycle, which may last many months, varies substantially from
customer to customer. The Company's expense levels are relatively fixed and are
based, in part, on expectations as to future revenues. Consequently, if revenue
levels fall below expectations, operating results will likely be adversely
affected, and net income (loss) may be disproportionately affected because a
proportionately smaller amount of the Company's expenses varies with its
revenues, as occurred during the quarter ended March 31, 1997. In addition, the
Company expects that sales derived through indirect channels, which are harder
to forecast and have lower gross margins than direct sales, will increase as a
percentage of total revenues. Due to all of the foregoing factors, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. As occurred during the quarter ended March 31, 1997 and as may
occur in some future quarters, the Company's operating results were and/or may
be below the expectations of public market analysts and investors. Should this
occur, the price of the Company's Common Stock would be materially adversely
affected.
The Company's business has experienced, and is expected to continue to
experience, significant seasonality, largely due to customer buying patterns.
In recent years, the Company has generally had stronger demand for its software
products during the quarters ending in June and December, and weaker demand in
the quarters ending in March and September. The Company believes this pattern
will continue.
Competition. The market for the Company's products is intensely
-----------
competitive and subject to rapid change. The Company primarily encounters
competition from large public companies, including Oracle, Informix, Sybase,
IBM, and NCR/Teradata. In addition, because there are relatively low barriers to
entry in the software market, the Company expects additional competition
14
<PAGE>
from other established and emerging companies if the data warehouse software
market continues to develop and expand. Most of the Company's competitors have
longer operating histories, significantly greater financial, technical,
marketing, and other resources, significantly greater name recognition, and a
larger installed base of customers. In addition, many of the Company's
competitors have well-established relationships with current and potential
customers of the Company, extensive knowledge of the relational database
industry, and are capable of offering a single vendor solution. As a result, the
Company's competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion, and sale of their products than can the
Company. In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address customer needs. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. The Company also expects that
competition will increase as a result of software industry consolidations.
Increased competition is likely to result in price reductions, reduced gross
margins, and loss of market share, any of which could materially adversely
affect the Company's business, operating results, and financial condition. There
can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not materially adversely affect its business, operating results
and financial condition.
Limited Profitability; Accumulated Deficit; Future Operating Results
--------------------------------------------------------------------
Uncertain. As of June 30, 1997, the Company had an accumulated deficit of $16.4
- ---------
million. The Company had a $1.5 million loss in the second quarter of 1997 and a
$6.4 million loss in the first quarter of 1997 with a $7.9 million loss for the
six month period ended June 30, 1997 and was only marginally profitable in 1996.
There can be no assurance that the Company will return to profitability on a
quarterly basis or on an annual basis. The Company began shipping its principal
product, Red Brick Warehouse, in December 1991. Future operating results will
depend on many factors, including the demand for the Company's products, the
level of product and price competition, the Company's success in expanding its
direct sales force and indirect distribution channels, the ability of the
Company to develop and market new products and control costs, and the percentage
of the Company's revenues derived from indirect channels, which have lower gross
margins than direct sales, and general economic conditions.
Dependence on Continued Growth of the Data Warehouse Market. Although
-----------------------------------------------------------
demand for data warehouse software has grown in recent years, the market is
still emerging. The Company's future financial performance will depend to a
large extent on continued growth in the number of organizations adopting data
warehouses and existing customers expanding their use of data warehouses. There
can be no assurance that the market for data warehouses will continue to grow.
If the data warehouse market fails to grow, or grows more slowly than the
Company currently anticipates, the Company's business, operating results, and
financial condition would be materially adversely affected.
Product Concentration. Substantially all of the Company's revenues have
---------------------
been attributable to sales of licenses of Red Brick Warehouse. These products
are currently expected to account for a significant part of the Company's
revenues for the foreseeable future. As a result, a decline in demand for, or
failure to achieve broad market acceptance of, Red Brick Warehouse as a result
of competition, technological change or otherwise, would have a materially
adverse effect on the business, operating results, and financial condition of
the Company. A decline in sales of Red Brick Warehouse would also have a
materially adverse effect on licensing of other Company products that may be
licensed to Red Brick Warehouse customers. The Company's future financial
performance
15
<PAGE>
will depend in part on the successful development, introduction, and customer
acceptance of new and enhanced versions of Red Brick Warehouse and other
products. There can be no assurance that the Company will continue to be
successful in marketing Red Brick Warehouse or any new or enhanced products.
Dependence on New Products and Rapid Technological Change. The market for
---------------------------------------------------------
the Company's software is characterized by rapid technological change, frequent
new product introductions, and evolving industry standards. The introduction by
others of products embodying new technologies and the emergence of new industry
standards can render the Company's existing products obsolete and unmarketable.
The life cycles of the Company's products are difficult to estimate. The
Company's future success depends on its ability to enhance its current products,
to develop and introduce new products that keep pace with technological
developments and emerging industry standards on a timely basis, and to address
the increasingly sophisticated needs of its customers. There can be no assurance
that the Company will be successful in developing and marketing product
enhancements or new products that respond to technological change or evolving
industry standards, that the Company will not experience difficulties that could
delay or prevent the successful development, introduction, and marketing of
these new products and product enhancements, or that the Company's new products
and product enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. Any potential new products or product
enhancements would likely be subject to significant technical risks. If the
Company experiences delays in the commencement of commercial shipments of new
products and enhancements, the Company could experience delays or loss of
product revenues. If the Company is unable, for technological or other reasons,
to develop and introduce new products or enhancements of existing products in a
timely manner in response to changing market conditions or customer
requirements, the Company's business, operating results, and financial condition
will be materially adversely affected.
Customer Concentration. A relatively small number of customers and
----------------------
resellers account for a significant percentage of the Company's revenues. The
Company expects that licenses of its products to a limited number of customers
and resellers may continue to account for a high percentage of revenue for the
foreseeable future. There can be no assurance that any customer or reseller will
continue to purchase the Company's products. The loss of a major customer or
reseller or any reduction in orders by such customers or resellers, including
reductions due to market or competitive conditions, would have a materially
adverse effect on the Company's business, financial condition, and results of
operations.
Risk of Product Defects. Software products as complex as those offered by
-----------------------
the Company may contain undetected errors or failures when first introduced or
when new versions are released. The Company has previously discovered software
errors in certain of its new products after their introduction. Although the
Company has not experienced materially adverse effects resulting from any such
errors to date, there can be no assurance that, despite testing by the Company
and by current and potential customers, errors will not be found in new versions
of Red Brick Warehouse or administration tools after commencement of commercial
shipments, resulting in loss of or delay in market acceptance, which could have
a materially adverse effect upon the Company's business, financial condition,
and results of operations.
Dependence Upon Key Personnel; Need to Increase Sales and Technical
-------------------------------------------------------------------
Personnel. The Company's future performance depends in a significant part upon
- ---------
the continued service of its key technical, sales, and senior management
personnel, none of whom is bound by an employment agreement. The loss of the
services of one of more of the Company's key employees in the future
16
<PAGE>
could have a materially adverse effect on the Company's business, operating
results, and financial condition. The Company's future success also depends on
its continuing ability to attract, train, and retain highly qualified technical,
sales, and managerial personnel. The Company may hire a number of additional
sales and technical personnel in 1997. Competition for such personnel is
intense, and there can be no assurance that the Company can retain its key
technical, sales, and managerial employees or that it can attract, assimilate,
or retain other highly qualified technical, sales, and managerial personnel in
the future. Because of the complexity of RDBMS technology and the differences
between OLTP and data warehouse systems, the Company has experienced in the
past, and expects to experience in the future, a time lag between the date
technical and sales personnel are hired and the date such personnel become fully
productive. Although the Company increased the size of its direct sales force
and its research and development groups in 1997 and 1996, the Company
experienced difficulty in recruiting a sufficient number of sales and technical
personnel during this period. If the Company is unable to hire such personnel on
a timely basis in the future, the Company's business, operating results, and
financial condition could be materially adversely affected.
Management of Changing Business. The Company experienced a period of
-------------------------------
significant growth in its employee base and a growth in its revenue during 1996
and 1997 that placed a serious strain upon its management systems and resources.
The Company implemented and expanded upon a number of financial and management
controls, reporting systems, and procedures. The Company's ability to compete
effectively and to manage future growth, if any, will require the Company to
continually improve its financial and management controls, reporting systems,
and procedures on a timely basis, implementing new systems as necessary, and
expanding, training, and managing its employee work force. There can be no
assurance that the Company will be able to do so successfully. The Company's
failure to do so could have a materially adverse effect upon the Company's
business, operating results, and financial condition.
Expansion of Indirect Channels. An integral part of the Company's strategy
------------------------------
is to further develop a channel of distributors, value added resellers (VARs),
application partners, and system integrators, and to increase the proportion of
the Company's customers licensed through this indirect channel. The Company is
currently investing, and intends to continue to invest, significant resources to
develop this channel, which could adversely affect the Company's operating
results if the Company's efforts do not generate significant license revenues.
There can be no assurance that the Company will be able to attract distributors,
VARs, application partners, and system integrators that will be able to market
the Company's products effectively and will be qualified to provide timely and
cost-effective customer support and service. The inability to recruit important
distributors, VARs, application partners, or system integrators could adversely
affect the Company's results of operations. In addition, if it is successful in
selling products through this channel, the Company's gross margins will be
negatively affected due to the lower unit prices the Company expects to receive
when selling through indirect channels.
International Operations. The Company's international revenues in the six
------------------------
month period ended June 30, 1997 and 1996, accounted for 19% and less than 10%
of total revenues, respectively. The Company intends to continue to expand and
maximize the sales potential of its existing international operations and enter
additional international markets. This will require significant management
attention and financial resources, and could adversely affect the Company's
business, operating results, and financial condition. In order to expand
international sales successfully in 1997 and subsequent periods, the Company
believes it may need to restructure some of its existing international
operations, establish additional foreign operations, hire additional personnel,
and recruit additional international resellers and distributors. To the extent
that the Company is unable
17
<PAGE>
to do so in a timely manner, the Company's growth in international sales, if
any, will be limited, and the Company's business, operating results, and
financial condition could be materially adversely affected. In addition, there
can be no assurance that the Company will be able to maintain or increase
international market demand for the Company's products. Additional risks
inherent in the Company's international business activities generally include
unexpected changes in regulatory requirements, tariffs and other trade barriers,
costs of localizing products for foreign countries, lack of acceptance of
localized products in foreign countries, longer accounts receivable payment
cycles, difficulties in managing international operations, potentially adverse
tax consequences including restrictions on the repatriation of earnings, weaker
intellectual property protection, and the burdens of complying with a wide
variety of foreign laws. There can be no assurance that such factors will not
have a materially adverse effect on the Company's future international sales
and, consequently, the Company's results of operations.
Limited Protection of Proprietary Technology; Risks of Infringement. The
-------------------------------------------------------------------
Company relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures, and contractual provisions to protect its
proprietary technology. For example, the Company licenses rather than sells its
software and requires licensees to enter into license agreements, which impose
certain restrictions on licensees' ability to utilize the software. In
addition, the Company seeks to avoid disclosure of its trade secrets, including,
but not limited to, requiring those persons with access to the Company's
proprietary information to execute confidentiality agreements with the Company
and restricting access to the Company's source code. The Company seeks to
protect its software, documentation, and other written materials under trade
secret and copyright laws, which afford only limited protection. The Company
presently has no patents or patent applications pending. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult, and while the Company is unable to determine the extent
to which piracy of its software products exists, software piracy can be expected
to be a persistent problem. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights to as great an extent as do the
laws of the United States. There can be no assurance that the Company's means
of protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology. There can be no
assurance that third parties will not claim infringement by the Company with
respect to current or future products. The Company expects that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in the Company's industry segment grows and
the functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays, or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, or at all,
which could have a materially adverse effect upon the Company's business,
operating results and financial condition.
The Company licenses Open Server and Open Client products from Sybase, a
competitor of the Company, pursuant to a non-exclusive, royalty bearing reseller
agreement, which expires in November 1997. The Open Server and Open Client
products provide client/server access to the Company's data warehouse. The
Company has developed alternative technology to replace the products currently
licensed from Sybase. A fully functional replacement connectivity product, with
the release of Red Brick Warehouse version 5.0.12, achieved general availability
on July 7, 1997, for certain UNIX computer hardware platforms, and on July 24,
1997, for the Windows NT/Intel computer hardware platform. The Company expects
that the replacement connectivity product will be generally available on all
currently supported hardware platforms before the expiration of the
18
<PAGE>
Sybase agreement in November 1997. The Company expects that this product will
eliminate its dependency on Sybase for connectivity products. There can be no
assurance that the Company's replacement connectivity product released to date
will operate as expected or that the replacement connectivity product will be
generally available on other computer hardware platforms currently supported by
the Company prior to expiration of the Sybase agreement in November 1997. The
occurrence of either of these events could have a materially adverse effect upon
the Company's business, operating results, and financial condition.
Product Liability. The Company's license agreements with its customers
-----------------
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. Although the Company has not experienced
product liability claims to date, the license and support of products by the
Company may entail the risk of such claims. A successful product liability
claim brought against the Company could have a materially adverse effect on the
Company's business, operating results, and financial condition.
Potential Volatility of Stock Price. The trading price of the Company's
-----------------------------------
Common Stock is highly volatile, as was demonstrated during the six month period
ended June 30, 1997, and may be subject to wide fluctuations in response to
quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts, and other events or factors. In
addition, the stock market has experienced volatility, often unrelated to
operating performance, that particularly affected market prices of equity
securities of many high technology companies. Market fluctuations may adversely
affect the market price of the Company's Common Stock. There can be no assurance
that prices and price/earnings ratios will be sustained.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual meeting of Stockholders on May 21,
1997.
(b) The Company's stockholders voted the following matters:
(i) Election of five directors. All directors proposed by
management were elected.
<TABLE>
<CAPTION>
Name of Number of # of Votes # of Votes Number of # of Broker
Nominee Votes For Against Withheld Abstentions Non-Votes
- ----------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Christopher G. Erickson 7,849,846 0 80,704 0 0
Thomas H. Bredt 7,900,827 0 29,723 0 0
Andrew K. Ludwick 7,900,827 0 29,723 0 0
John F. Shoch 7,887,307 0 43,243 0 0
John E. Warnock 7,886,827 0 43,723 0 0
</TABLE>
(ii) Approval of an amendment to the 1995 Stock Option Plan to
change the limit on the maximum number of shares issuable
per person from 50% of the share pool over the term of the
1995 Plan to 100,000 per calendar year, with a higher
limit of 300,000 shares applicable in the year an
individual first commences service with the Company.
7,778,881 votes were cast in favor of the amendment,
70,946 votes were cast against, no votes were withheld,
there were 56,096 abstentions, and 24,627 broker non-
votes.
(iii) Ratification of independent public auditors. The
Stockholders ratified the appointment of Ernst & Young as
the Company's independent public auditors for the fiscal
year ended December 31, 1997. 7,910,133 votes were cast in
favor of the appointment 7,550 votes were cast against,
zero were withheld, there were 12,867 abstentions, and no
broker non-votes.
ITEM 5. OTHER EVENTS
On July 21, 1997, the Board of Directors of the Company adopted and
approved Amended and Restated Bylaws of the Company. The Amended and
Restated Bylaws of the Company differ from the Company's previous bylaws
in two ways: (i) they eliminate the right of stockholders to call a
stockholders' meeting; and (ii) they require timely prior notice for
director nominations or other business that a stockholder wishes to
properly bring before a meeting of stockholders.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 3.5: Amended and Restated Bylaws of the Company
Exhibit 11.1: Statement Regarding Computation of Earnings Per
Share
Exhibit 27: Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the three months ended
June 30, 1997.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1997 RED BRICK SYSTEMS, INC.
(Registrant)
By: /s/ Robert C. Hausmann
Robert C. Hausmann
Vice President, Finance and Administration
(Duly authorized officer and principal
financial and accounting officer)
22
<PAGE>
EXHIBIT 3.5
AMENDED AND RESTATED
BYLAWS
OF
RED BRICK SYSTEMS, INC.
A Delaware Corporation
(Effective as of July 21, 1997)
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Dover,
----------
County of Kent, State of Delaware.
Section 2. The corporation 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.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
----------
directors shall be held at such time and place, within or without the State of
Delaware, as may be fixed from time to time by the Board of Directors, and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year
----------
1996, shall be held at such date and time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
they shall elect by a plurality vote a board of directors, and transact such
other business as may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
----------
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
----------
corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
<PAGE>
Section 5. Special meetings of the stockholders, for any purpose or
----------
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors.
Section 6. Written notice of a special meeting stating the place,
----------
date and hour of the meeting and the purpose or purposes for which the meeting
is called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
----------
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
----------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted that might have been transacted at the meeting as originally
notified. 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.
Section 9. When a quorum is present at any meeting, the vote of the
----------
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
-----------
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
Section 11. Unless otherwise provided in the certificate of
-----------
incorporation, any action required to be taken at any annual or special meeting
of the stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Effective upon the closing of the corporation's initial public
offering of securities pursuant to a registration statement filed under the
Securities Act of 1933, as amended, the stockholders of the corporation may not
take action by written consent without a meeting but must take any such actions
at a duly called annual or special meeting.
2.
<PAGE>
Section 12. Nominations of persons for election to the Board of
----------
Directors and the proposal of business to be transacted by the stockholders may
be made at an annual meeting of stockholders (a) pursuant to the Corporation's
notice with respect to such meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of record of the Corporation who was a
stockholder of record at the time of the giving of the notice provided for in
the following paragraph, who is entitled to vote at the meeting and who has
complied with the notice procedures set forth in this section.
For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of the foregoing
paragraph, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation, such business must be a proper matter for
stockholder action under the General Corporation Law of the State of Delaware
and, if the stockholder, or the beneficial owner on whose behalf any such
proposal or nomination is made, solicits or participates in the solicitation of
proxies in support of such proposal or nominees, the stockholder must have
timely indicated its, or such beneficial owner's, intention to do so as provided
in subclause (c)(iii) of this paragraph. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Corporation not less than 60 days prior to the first anniversary of the
preceding year's annual meeting of stockholders; provided, however, that if the
date of the annual meeting is advanced more than 30 days prior to or delayed by
more than 60 days after such anniversary date, notice by the stockholder to be
timely must be so delivered not later than the close of business on the later of
the 60th day prior to such annual meeting or the 10th day following the day on
which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person as would be required to be disclosed in solicitations of
proxies for the election of such nominees as directors pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and such person's written consent to serving as a director if elected; (b) to
any other business that the stockholder proposes to bring before the meeting, a
brief description of such business, the reasons for conducting such business at
the meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made; (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, (ii) the class and number of shares of the Corporation that are owned
beneficially and of record by such stockholder and such beneficial owner, and
(iii) whether either such stockholder or beneficial owner intends to solicit or
participate in the solicitation of proxies in favor of such proposal or nominee
or nominees.
Notwithstanding anything in the second sentence of the second
paragraph of this Section 12 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least 70
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Bylaw shall also be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the Corporation.
Only persons nominated in accordance with the procedures set forth in
this Section 12 shall be eligible to serve as directors and only such business
shall be conducted at an annual meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
section. The chair of the meeting shall have the power and the duty to
determine whether a nomination or any business proposed to be brought before the
meeting has been made in accordance with the procedures set forth in these
Bylaws and, if any proposed
3.
<PAGE>
nomination or business is not in compliance with these Bylaws to declare that
such defective proposed business or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors or (b) by any stockholder of
record of the Corporation who is a stockholder of record at the time of giving
of notice provided for in this paragraph, who shall be entitled to vote at the
meeting and who complies with the notice procedures set forth in this Section
12. Nominations by stockholders of persons for election to the Board of
Directors may be made at such a special meeting of stockholders if the
stockholder's notice required by the third paragraph of this Section 12 shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the later of the 60th day prior to such
special meeting or the 10th day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
For purposes of this section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a 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.
Notwithstanding the foregoing provisions of this Section 12, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to matters set forth
in this Section 12. Nothing in this Section 12 shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE III
DIRECTORS
Section 1. The number of directors that shall constitute the whole
----------
board shall be determined by resolution of the Board of Directors or by the
stockholders at the annual meeting of the stockholders, except as provided in
Section 2 of this Article, and each director elected shall hold office until his
successor is elected and qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from
----------
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute.
Section 3. The business of the corporation shall be managed by or
----------
under the direction of its board of directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
4.
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold
----------
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected Board of Directors
----------
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
----------
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the Board of Directors may be called
----------
by the president on ten (10) days' notice to each director by mail or forty-
eight (48) hours notice to each director either personally or by telephone,
telegram or facsimile; special meetings shall be called by the president or
secretary in like manner and on like notice on the written request of two (2)
directors unless the board consists of only one director, in which case special
meetings shall be called by the president or secretary in like manner and on
like notice on the written request of the sole director.
Section 8. At all meetings of the board a majority of the directors
----------
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
----------
incorporation of 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 members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
-----------
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
-----------
majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
5.
<PAGE>
In the absence of disqualification of a 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.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
-----------
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
-----------
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
-----------
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
----------
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram, telephone or facsimile.
Section 2. Whenever any notice is required to be given under the
----------
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing,
6.
<PAGE>
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
----------
Board of Directors and shall be a president, treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or
more vice-presidents, assistant secretaries and assistant treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
----------
annual meeting of stockholders shall choose a president, a treasurer, and a
secretary, and may choose vice presidents, assistant secretaries and assistant
treasurers.
Section 3. The Board of Directors may appoint such other officers and
----------
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents of the corporation
----------
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
----------
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
----------
meetings of the Board of Directors and of the stockholders at which he shall be
present. He shall have and may exercise such powers as are, from time to time,
assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
----------
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief operating officer of the
----------
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he shall preside at all meetings of the stockholders and the Board of Directors;
he shall have general and active management of the business of the corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
Section 9. The president shall execute bonds, mortgages and other
----------
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to
7.
<PAGE>
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
Section 10. In the absence of the president or in the event of his
-----------
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
-----------
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 12. The assistant secretary, or if there be more than one,
-----------
the assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
TREASURER AND ASSISTANT TREASURERS
Section 13. The treasurer shall have the custody of the corporate
-----------
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors. Unless
otherwise appointed, the chief financial officer shall be the treasurer.
Section 14. The treasurer shall disburse the funds of the corporation
-----------
as may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, the treasurer
-----------
shall give the corporation a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his office and for
the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the corporation.
8.
<PAGE>
Section 16. The assistant treasurer, or if there shall be more than
-----------
one, the assistant treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. 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 or vice-chairman of the Board of Directors, or the president or a vice-
president and the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of the corporation, certifying the number of shares owned by
him in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, 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.
Section 2. Any of or all the signatures on the certificate may be
----------
facsimile. 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 by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
----------
certificates to 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. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require 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
and/or to give the corporation a bond in such sum 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.
9.
<PAGE>
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
----------
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
----------
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
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.
REGISTERED STOCKHOLDERS
Section 6. 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 to hold liable for calls and
assessments a person registered on its books as the owner of shares 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.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. 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 at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. 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
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
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
----------
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
10.
<PAGE>
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
----------
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
----------
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
----------
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section
6 shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be a director, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide indemnification under this Section 6 shall
be offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the corporation or
any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation that alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
11.
<PAGE>
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
that may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation that is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
----------
bylaws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the certificate of
incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
12.
<PAGE>
CERTIFICATE OF ADOPTION BY THE SECRETARY OF
RED BRICK SYSTEMS, INC.
The undersigned, Robert C. Hausmann, hereby certifies that he is the
duly elected and acting Secretary of Red Brick Systems, Inc., a Delaware
corporation (the "Corporation"), and that the Amended and Restated Bylaws
attached hereto constitute the Bylaws of said Corporation as duly adopted by the
Board of Directors on July 21, 1997.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this 21/st/ day of July, 1997.
/s/ Robert C. Hausmann
----------------------
Robert C. Hausmann
Secretary
<PAGE>
EXHIBIT 11.1
RED BRICK SYSTEMS, INC.
STATEMENT REGARDING
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $(1,533,577) $ 192,441 $(7,895,134) $ 626,376
=========== =========== =========== ===========
Computations of weighted average
common and common equivalent shares
outstanding:
Weighted average common shares
outstanding 11,492,824 11,110,691 11,462,811 10,561,000
Weighted average common equivalent
shares attributable to stock
options and warrants -- 1,769,932 -- 2,006,116
----------- ----------- ----------- -----------
Shares used in computing net
income per share 11,492,824 12,880,623 11,462,811 12,567,116
=========== =========== =========== ===========
Net income per share $ (0.13) $ 0.01 $ (0.69) $ 0.05
=========== =========== =========== ===========
</TABLE>
Fully diluted computation not presented since such amounts differ by less than
3% of the net income per share amount shown above.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 22,017 22,017
<SECURITIES> 17,330 17,330
<RECEIVABLES> 7,934 7,934
<ALLOWANCES> 1,161 1,161
<INVENTORY> 0 0
<CURRENT-ASSETS> 48,020 48,020
<PP&E> 4,853 4,853
<DEPRECIATION> 2,048 2,048
<TOTAL-ASSETS> 51,253 51,253
<CURRENT-LIABILITIES> 14,357 14,357
<BONDS> 0 0
0 0
0 0
<COMMON> 53,182 53,182
<OTHER-SE> (16,479) (16,479)
<TOTAL-LIABILITY-AND-EQUITY> 51,253 51,253
<SALES> 10,411 16,934
<TOTAL-REVENUES> 10,411 16,934
<CGS> 2,423 4,644
<TOTAL-COSTS> 2,423 4,644
<OTHER-EXPENSES> 10,006 20,973
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 26 66
<INCOME-PRETAX> (1,428) (7,690)
<INCOME-TAX> 105 205
<INCOME-CONTINUING> (1,533) (7,895)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,533) (7,895)
<EPS-PRIMARY> (0.13) (0.69)
<EPS-DILUTED> (0.13) (0.69)
</TABLE>
