<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE 6 MONTH PERIOD ENDED JUNE 30, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-27438
----------------
THE FOREFRONT GROUP, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0365256
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1330 POST OAK BLVD., SUITE 1300
HOUSTON, TEXAS 77056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
ISSUER'S TELEPHONE NUMBER: (713) 961-1101
----------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [_]
Number of shares of the issuer's Common Stock outstanding as of August 7, 1996:
6,339,557
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information, and pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and notes disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the disclosures made
herein are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the financial statements
for the year ended December 31, 1995 included in the Company's 1995 Form 10-KSB
filed pursuant to Section 15(d) of the Securities Exchange Act of 1934.
2
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THE FOREFRONT GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, JUNE 30,
-------- ------------- -------------
1995 1996
------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,941,188 $11,055,937
Securities held to maturity 7,998,417 --
Accounts receivable net of allowance
of $-0- and $19,000 20,919 820,119
Interest receivable -- 16,291
Inventory -- 54,159
Prepaid expenses and other 18,902 79,368
----------- -----------
Total current assets 12,979,426 12,025,874
FURNITURE AND EQUIPMENT, net of
accumulated depreciation of $127,801,
and $174,615 147,861 594,784
PURCHASED SOFTWARE, net of
accumulated amortization of $-0- and
$13,413 -- 124,597
OTHER ASSETS 4,068 5,721
----------- -----------
Total assets $13,131,355 $12,750,976
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 317,201 $ 668,045
Accrued liabilities 348,085 572,418
Current portion of deferred revenue 13,081 72,997
----------- -----------
Total current liabilities 678,367 1,313,460
Deferred revenue, net of current portion -- 34,845
----------- -----------
Total liabilities 678,367 1,348,305
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,000,000 shares
authorized, none outstanding -- --
Common stock, $.01 par value,
20,000,000 shares authorized,
4,782,094 and 5,365,550 shares
issued 4,699,949 and 5,059,306
shares outstanding 47,821 51,415
Additional paid-in capital 16,756,181 19,560,366
Deferred compensation (586,105) (447,195)
Accumulated deficit (3,763,059) (7,760,065)
Treasury stock, 82,145 shares at cost (1,850) (1,850)
----------- -----------
Total stockholders' equity 12,452,988 11,402,671
----------- -----------
Total liabilities and stockholders'
equity $13,131,355 $12,750,976
</TABLE> =========== ===========
The accompanying notes are an integral part of these financial statements.
3
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THE FOREFRONT GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months Ended
Ended June 30, June 30,
------------------------------- ----------------------------
1995 1996 1995 1996
------------------------------- ----------------------------
<S> <C> <C> <C> <C>
REVENUES:
Licenses and royalties $ 19,647 $ 720,802 $ 135,818 $ 1,169,147
Maintenance and services 15,090 27,323 33,823 44,611
Other 1,575 5,168 4,410 11,669
---------- ----------- ---------- -----------
Total revenues 36,312 753,293 174,051 1,225,427
COST OF MAINTENANCE, SERVICES
AND PRODUCT LICENSES 24,815 105,545 81,053 196,791
---------- ----------- ---------- -----------
Gross profit 11,497 647,748 92,998 1,028,636
OPERATING EXPENSES:
Research and development 164,595 594,779 386,111 933,979
Selling and marketing 74,286 609,170 197,144 975,343
General and administrative 73,711 413,620 142,529 619,065
Acquired research and
development costs -- 2,358,723 -- 2,798,604
---------- ----------- ---------- -----------
Operating loss (301,095) (3,328,544) (632,786) (4,298,355)
OTHER:
Interest income 2,365 144,202 3,799 301,349
Interest expense (10,355) -- (12,217) --
---------- ----------- ---------- -----------
Net loss $ (309,085) $(3,184,342) $ (641,204) $(3,997,006)
========== =========== ========== ===========
NET LOSS PER SHARE $(0.10) $(0.65) $(0.20) $(0.83)
========== =========== ========== ===========
SHARES USED IN COMPUTING
NET LOSS PER SHARE 3,262,870 4,871,357 3,260,896 4,800,931
========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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THE FOREFRONT GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
------------------------------------
1995 1996
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(641,204) $(3,997,006)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 19,822 60,227
Non-cash acquired research and
development costs -- 2,798,604
Compensation expense and amortization
of deferred compensation related to
certain stock options -- 123,191
Provision for doubtful accounts -- 19,000
Changes in operating assets and
liabilities
(Net of Blue Squirrel and BookMaker
asset acquisitions):
(Increase) decrease in receivables 66,255 (643,733)
Increase in prepaid expenses (6,583) (42,088)
(Increase) decrease in other assets 850 (8,646)
Increase (decrease) in accounts payable (9,182) 333,007
Decrease in accrued liabilities (39,896) (106,307)
Increase (decrease) in current and long
term deferred revenue (26,022) 72,761
--------- -----------
Net cash used by operating activities (635,960) (1,390,990)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities held
to maturity -- 7,998,417
Purchase of furniture and equipment -- (452,744)
Cash paid for Blue Squirrel asset
acquisition -- (128,018)
Net cash received from BookMaker
acquisition -- 77,234
--------- -----------
Net cash provided by investing
activities -- 7,494,889
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 1,000 10,850
Proceeds from notes payable to
stockholders and others 480,705 --
--------- -----------
Net cash provided by financing activities 481,705 10,850
--------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (154,255) 6,114,749
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 279,407 4,941,188
--------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 125,152 $11,055,937
========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
THE FOREFRONT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The balance sheet at June 30, 1996 and the related statements of
operations for the three months and six months and cash flows for the six month
periods ended June 30, 1996 and 1995 are unaudited. These interim financial
statements should be read in conjunction with the December 31, 1995 financial
statements and related notes. The unaudited interim financial statements
reflect all adjustments which are, in the opinion of management, necessary for a
fair statement of results for the interim periods presented and all such
adjustments are of a normal recurring nature. Interim results are not
necessarily indicative of results for a full year.
REVENUE
Software licensing revenue is recognized upon delivery to the customer
and the receipt and acceptance of a signed contract or order if there are no
significant post-delivery obligations. Maintenance contract revenues are priced
separately and recognized ratably over the terms of the agreements. Consulting
service revenues, which include development and professional fees, are
recognized as the services are rendered.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers highly liquid investments with a maturity of 3
months or less when purchased to be cash equivalents. At June 30, 1996, the
Company's entire investment portfolio consisted of U.S. government debt
securities which mature July 25, 1996 and August 22, 1996, and are classified as
cash and cash equivalents.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as they are incurred.
Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise Marketed," requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the
working model and the point at which the product is ready for general release
have been insignificant.
PURCHASED SOFTWARE
Purchased software results from the acquisition of the assets of Blue
Squirrel, Inc. (Blue Squirrel) in March 1996 and BookMaker Corporation
("BookMaker") in June, 1996 (See Note 3) and is recorded at cost. Amortization
is calculated on the straight-line method over the estimated lives of the
products, which in these instances are 18-24 months.
6
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NET LOSS PER SHARE
The Company's net loss per share is based on the weighted average number
of common shares outstanding, adjusted as described as follows. With one
exception, common equivalent shares are excluded from the per share
calculations, as the effect of their inclusion is antidilutive. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletins, all common,
preferred and common equivalent shares issued during the twelve months preceding
or in contemplation of the Company's initial public offering (using the treasury
stock method and the initial public offering price of $8 per share) have been
included in the calculation of common and common equivalent shares outstanding
for all periods prior to 1996.
Shares of convertible preferred stock are treated as if converted to
common stock on the respective dates of original issuance. In December 1995,
concurrent with the closing of the Company's initial public offering, all shares
of Series A and Series B Preferred Stock were converted into 1,462,953 shares of
the Company's Common Stock at a conversion rate of one share of Common Stock for
every 2.26 shares of Series A Preferred Stock and one share of Common Stock for
every 2.256 shares of Series B Preferred Stock. All rights, preferences and
privileges associated with the Company's previously outstanding preferred stock
were terminated upon conversion.
2. INITIAL PUBLIC OFFERING
On December 26, 1995, the Company completed an initial public offering of
1,700,000 common shares at $8.00 per share. Proceeds from the IPO were
approximately $11,854,522 of cash, net of underwriting costs and other offering
costs of $1,745,478. The Company issued warrants to purchase 170,000 shares of
common stock at a price of $9.60 per share to the underwriters upon closing of
the initial public offering. The purchase price of the warrants was $.001 per
warrant. The warrants have a five-year term beginning twelve months from the
date of the consummation of the initial public offering. See Liquidity and
Capital Resources included elsewhere herein.
3. ACQUISITION
On June 12, 1996, the Company acquired the assets of BookMaker. The
consideration consisted of 248,375 shares of the Company's Common Stock issued
at closing (the "Closing Shares"), and 199,262 shares of the Company's Common
Stock (the "Earnout Shares") issued at closing and deposited in escrow to be
delivered to BookMaker subject to satisfaction of certain milestones for the
remainder of 1996 and 1997. One third of the Earnout Shares are subject to
release from escrow on or before April 30, 1997, and the remaining two thirds of
the Earnout Shares are subject to release on or before April 30, 1998, based
upon the revenues and gross profit before income tax of BookMaker's operations
after the closing for the 1996 and 1997 periods, respectively. Any Earnout
Shares not earned shall be forfeited. 10% of the Closing Shares (the "Escrow
Shares") are held in escrow for a period of two years from the Closing to cover
losses due to breach of representations and warranties. The Company must
register the shares within 120 days of closing. Holders of the Earnout and
Escrow Shares are entitled to voting and dividend rights during the period such
shares are held in escrow. The acquisition has been accounted for under the
purchase method and, accordingly, the operating results of BookMaker have been
included in the operating results since the date of acquisition. The purchase
price has been allocated to the assets purchased and the liabilities assumed
based upon the fair values at the date of acquisition. The initial purchase
price was allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Working capital, other than cash $ 81,658
Furniture and equipment 25,528
Purchased software 66,900
Other assets 1,500
Acquired research and development 2,358,723
----------
Purchase price, net of cash received $2,534,309
==========
</TABLE>
Additionally, the three founders of BookMaker entered into employment agreements
with the Company and received an option to purchase 5,000, 5,000 and 10,000
shares, respectively of the Company's Common Stock
7
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at fair market value on the date of issuance. These options were granted in
exchange for the three founders executing non-competition agreements covering
the eighteen month period from the closing date.
The following pro forma information has been prepared assuming that this
acquisition had taken place at the beginning of the period.
<TABLE>
<CAPTION>
Six Months Ended
June 30
(unaudited)
1995 1996
----------------- -------------
<S> <C> <C>
Net Revenues $1,027,815 $ 1,940,446
Operating Loss $ (731,208) $(4,363,283)
Net Loss $ (739,999) $(4,061,944)
Net Loss Per Share $ (0.21) $ (0.81)
Net Loss (excluding acquired research
and development) $ (739,999) $(1,263,340)
Net Loss Per Share (excluding acquired
research and development) $ (0.21) $ (0.25)
</TABLE>
The pro forma financial information is not necessarily indicative of
the results of operations if the Company and BookMaker had been a single entity
for the entire period.
4. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company's current operating lease for its corporate headquarters for
approximately 10,200 square feet of office space began July 1, 1996 and expires
June 30, 2001. The minimum commitment for this office space is approximately
$153,000 annually.
The Company also executed a new operating lease for its Salt Lake City,
Utah location for approximately 3,000 square feet of office space beginning
August 1, 1996 and expiring July 31, 2001. The minimum commitment for this
office space is approximately $38,700 annually.
ROYALTY AGREEMENT
On July 9, 1996, the Company and Tripos Inc. terminated the strategic
alliance agreement entered into in January 1995 for the Company's VNS product
for which the Company had received a non-refundable $100,000 payment. The
Company paid Tripos $14,285 and agreed to pay a royalty of 10% of any future
revenue received by the Company during the subsequent two year period ending
July 1998 from sales of the VNS in the chemical or pharmaceutical markets up to
an aggregate of $45,715.
5. SUBSEQUENT EVENT
On July 22, 1996, the Company consummated the acquisition of AllMicro,
Inc. ("AllMicro") pursuant to the terms of the Agreement and Plan of
Reorganization, dated as of July 19, 1996 (the "Merger Agreement") by and among
the Company, AllMicro Acquisition Corporation, AllMicro and the stockholders
(the "Stockholders") of AllMicro. The acquisition was effected by way of a
merger (the "Merger") of a wholly-owned subsidiary of the Company with and into
AllMicro. As a result of the Merger, AllMicro became a wholly-owned subsidiary
of the Company. The Merger is being treated as a "pooling of interests" for
accounting purposes. Pursuant to the Merger Agreement, the Stockholders
received an aggregate of 1,056,152 shares of common stock, $.01 par value of the
Company ("ForeFront Common Stock"), ten percent of which was placed in escrow to
satisfy claims of the Company that may arise for any breach of the
representations and warranties made by AllMicro and the Stockholders in the
Merger Agreement. The escrow shares will be released upon the filing of audited
financial statements for 1996 by the Company, except for pending claims.
8
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The shares of the Company's Common Stock were issued to the Stockholders
pursuant to an exemption from registration under Section 3(a)(10) of the
Securities Act of 1933, as amended (the "Securities Act"); however, the
Stockholders agreed not to sell the shares of ForeFront's Common Stock acquired
in the Merger prior to the time that combined financial results covering at
least 30 days post-Merger combined operations of the Company and AllMicro have
been published. The Stockholders have also been granted certain other piggyback
registration rights under certain circumstances. In addition, any sales of
ForeFront Common Stock by the Stockholders must be in compliance with the volume
limitations of Rule 145 under the Securities Act.
The following pro forma information has been prepared assuming that this
transaction had taken place at the beginning of the period but only includes the
activity of BookMaker since the closing of that acquisition on June 12, 1996.
<TABLE>
<CAPTION>
Six Months Ended
June 30
(unaudited)
1995 1996
----------------- -------------
<S> <C> <C>
Net Revenues $2,987,326 $ 5,863,784
Operating Income (Loss) $ 149,484 $(3,272,884)
Net Income (Loss) $ 142,892 $(2,952,253)
Net Income (Loss) Per Share $ 0.03 $ (0.50)
Net Income (Loss) (excluding acquired
research and development) $ 142,892 $ (153,649)
Net Income (Loss) Per Share (excluding
acquired research and development) $ 0.03 $ (0.03)
</TABLE>
The pro forma financial information is not necessarily indicative of the
results of operations if the Company and AllMicro had been a single entity for
the entire period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
The Quarterly Report on Form 10-QSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
important factors. For a discussion of important factors that could affect the
Company's results, please refer to the financial statement line item discussions
below. Readers are also encouraged to refer to the Company's 1995 Annual Report
on Form 10-KSB and Quarterly Report on Form 10-QSB for the first quarter 1996,
previously filed, for further discussion of the Company's business and the risks
and opportunities attendant thereto.
The ForeFront Group, Inc. ("ForeFront" or the "Company") completed its
initial public offering December 26, 1995. ForeFront develops, markets and
supports client server and integrated applications software that enables the
capture, organization and exchange of information over the Internet and private
computer networks. The Company's Virtual Notebook System (the "VNS"), launched
in 1992, is an integrated applications software product which was licensed
exclusively to the Company by Baylor College of Medicine. The Company intends
to expand and further develop its Internet product line based upon its VNS
technology. Currently, ForeFront's products include, but are not limited to:
WebWhacker(TM) - a tool that enables the storage of information captured from
the World Wide Web for off-line use; GrabNet(TM) - a tool that enables client
capture and organization of information from the World Wide Web; WebSeeker(TM)
(formerly SqURL(TM)) - a tool to run information queries through more than 20
Internet search engines simultaneously; RoundTable(TM) - a multimedia group
collaboration product commercially released in May 1996; ClickBook(TM), a
utility program that enables users to transform documents into professional
quality, double-sided booklets using a laser or inkjet printer; and Surf N
Print(TM), a printing utility that enables users to instantly turn any Internet,
on-line service, CD-Rom or Windows program file into a double-sided booklet.
The Company delivers its products through multiple distribution channels. The
Company currently offers its Internet products via the Internet,
9
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and through original equipment manufacturers ("OEMS"), systems integrators, and
value added resellers ("VARS"). The Company also intends to make its Internet
products available for purchase at traditional software retailers, and to seek
alliances with other computer software companies to incorporate bundled versions
of the Company's Internet products in the products of such other companies.
Also, as a result of the completion of the AllMicro acquisition, the Company
offers its products via direct marketing. (See "Subsequent Events").
RESULTS OF OPERATIONS
Six Months Ended June 30, 1995 and 1996
The Company's revenues increased from $174,051 in the six months ended
June 30, 1995 to $1,225,427 in the comparable 1996 period. The Company's
revenues for the 1995 period were primarily comprised of license revenue and
maintenance and service revenues from the VNS product. During the comparable
period for 1996, the Company's revenues were primarily comprised of license
revenue from its desktop and collaborative products. The Company successfully
entered into various OEM and other licensing agreements with several large
established industry companies. License revenue of $753,930 was recognized in
the six months ended June 30, 1996 from such agreements. Additionally, $55,725
of revenue related to these agreements has been deferred in accordance with SOP
91-1 for other insignificant obligations due to the licensees. This deferred
revenue will be recognized over the terms of the agreements, generally 12-36
months, from the time of execution.
The Company's research and development expenses increased by 142% from
$386,111 in the six months ended June 30, 1995 to $933,979 in the comparable
1996 period. The increase is primarily due to additional research and
development on the Company's new Internet line of products. The Company expects
its research and development expense to continue to increase during 1996,
reflecting anticipated increased expenses related to increased product
development.
Selling and marketing costs increased by 395% from $197,144 in the six
months ended June 30, 1995 to $975,343 in the comparable 1996 period. The
increase is primarily due to increased sales personnel and sales commissions,
and the continued establishment and expansion of various distribution channels.
The Company expects to increase its sales and marketing staff in accordance with
the targeted revenue goals and expectations of management.
General and administrative costs increased by 334% from $142,529 in the
six months ended June 30, 1995 to $619,065 in the comparable 1996 period. The
increase is due to increased personnel and recruiting costs, merger and
acquisition activity as well as higher administrative costs as a result of
becoming a public company.
During March 1996, the Company acquired the assets of Blue Squirrel, a
Utah based company and during June 1996, the Company acquired the assets of
BookMaker, a California based company. The Company recorded the fair market
value of net assets acquired, which included purchased software of $71,110 and
$66,900, respectively and recorded a charge of $439,881 and $2,358,723,
respectively for acquired research and development costs.
Three Months Ended June 30, 1995 and 1996
The Company's revenues increased from $36,312 in the three months ended
June 30, 1995 to $753,293 in the comparable 1996 period. The Company's revenues
for the 1995 period were primarily comprised of license revenue and maintenance
and service revenues from the VNS product. During the comparable period for
1996, the Company's revenues were primarily comprised of license revenue from
its desktop and collaborative products. The Company successfully entered into
various OEM and other licensing agreements with several large established
industry players. License revenue
10
<PAGE>
of $429,000 was recognized in the quarter ended June 30, 1996 from such
agreements. Additionally, $36,000 of revenue related to these agreements has
been deferred in accordance with SOP 91-1 for other insignificant obligations
due to the licensees. This deferred revenue will be recognized over the terms of
the agreements, generally 12-36 months, from the time of execution.
The Company's research and development expenses increased by 261% from
$164,595 in the three months ended June 30, 1995 to $594,779 in the comparable
1996 period. The increase is primarily due to additional research and
development on the Company's new Internet line of products. The Company expects
its research and development expense to continue to increase during 1996,
reflecting anticipated increased expenses related to increased product
development.
Selling and marketing costs increased by 720% from $74,286 in the three
months ended June 30, 1995 to $609,170 in the comparable 1996 period. The
increase is primarily due to increased sales personnel and sales commissions,
and the continued establishment and expansion of various distribution channels.
The Company expects to increase its sales and marketing staff in accordance with
the targeted revenue goals and expectations of management.
General and administrative costs increased by 461% from $73,711 in the
three months ended June 30, 1995 to $413,620 in the comparable 1996 period. The
increase is due to increased personnel and recruiting costs, merger and
acquisition activity as well as higher administrative costs as a result of
becoming a public company.
During June 1996, the Company acquired the assets of BookMaker, a
California based company. The Company recorded the fair market value of net
assets acquired, which included purchased software of $66,900 and recorded a
$2,358,723 charge for acquired research and development costs. Computer
equipment acquired was capitalized at its estimated fair market value of
$25,528. In addition, the Company assumed certain liabilities of BookMaker.
Any future charges for acquired research and development costs are subject to
certain milestones being achieved by BookMaker operations in 1996 and 1997 as
well as other transactions the Company may consider from time to time.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 the Company had cash and cash equivalents of $11,055,937
and working capital of $10,712,414. The Company has financed approximately $2.8
million of cash used in operating activities from 1992 through 1995, primarily
through the issuance of approximately $957,000 of preferred stock in 1992, $1.6
million of common stock in 1993 and $1.6 million of preferred stock and notes
payable converted into preferred stock and $11,855,000 of common stock in 1995.
The Company believes that the net proceeds from the initial public
offering in December 1995, together with available funds and revenues will be
sufficient to meet its anticipated cash needs for operations, working capital
and capital expenditures through 1997. Thereafter, if cash generated by
operations is insufficient to satisfy the Company's liquidity requirements, the
Company may seek to sell additional equity or debt securities or obtain credit
facilities. The sale of additional equity or convertible debt securities will
result in additional dilution to the Company's stockholders. There can be no
assurance that the Company will be able to raise such capital when needed or on
terms favorable to the Company.
The Company's liquidity will be reduced as amounts are expended for
continuing research and development, expansion of sales and marketing activities
and development of its administrative function. The Company's liquidity could
also be reduced if significant amounts were expended for equipment or to license
or acquire proprietary technology owned by others or to legally defend its
proprietary technology. Additionally, depending upon market conditions or
future business opportunities, the Company may decide to issue additional equity
or debt securities for cash or to acquire assets or technology of others. The
working
11
<PAGE>
capital of the Company may also be used to acquire such assets or technology,
reducing the funds available for alternative use.
As a result of the Company's limited operating history, the Company does
not have historical financial data for a significant number of periods on which
to base planned operating expenses. Accordingly, the Company's expense levels
are based in part on its expectations as to future revenues. However, the
Company typically operates with no backlog. As a result, quarterly sales and
operating results generally depend on the volume and timing of and ability to
fulfill orders received within the quarter, which are difficult to forecast.
The Company may be unable to adjust spending in a timely manner to compensate
for any unexpected revenues shortfall. Accordingly, any significant shortfall
of demand for the Company's products and services in relation to the Company's
expectations would have an immediate adverse impact on the Company's business,
operating results and financial condition. In addition, the Company plans to
increase its operating expenses to fund greater levels of research and
development, increase its sales and marketing operations, develop new
distribution channels and broaden its customer support capabilities. To the
extent that such expenses precede or are not subsequently followed by increased
revenues, the Company's business, operating results and financial condition will
be materially adversely affected.
The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including demand
for the Company's products, introduction or enhancement of products by the
Company and its competitors, market acceptance of new products, mix of
distribution channels through which products are sold, mix of products and
services sold, and general economic conditions. As a result, the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as any indication of future
performance. Due to all of the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 9, 1996, the Company and Tripos Inc. entered into a Settlement
Agreement and Release wherein each party waived any further claims against the
other arising out of the strategic alliance agreement entered into in January
1995 for the Company's VNS product. The Company paid Tripos $14,285 on execution
and agreed to pay a royalty of 10% of any future revenue received by the Company
during the subsequent two year period from sales of the VNS in the chemical or
pharmaceutical markets, up to an aggregate of $45,715. The strategic alliance
agreement was terminated as part of the settlement.
ITEM 2. CHANGES IN SECURITIES
On July 17, 1996, the Board of Directors of the Company adopted an
amendment to Section 2.2 of the Company's Bylaws which permits stockholders of
the Company holding in excess of ten percent (10%) of the outstanding voting
securities to call a special meeting of the stockholders of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Stockholders of the Company was held on May 7,
1996, to consider and vote upon the following proposals with the following
number of shares voted for and against and withheld for each director or
proposal:
(i) Election of Directors.
<TABLE>
<CAPTION>
For Against Withheld
--------- ------- --------
<S> <C> <C> <C>
G. Anthony Gorry 4,478,160 None 2,980
David Sikora 4,476,290 None 4,850
Stephen J. Banks 4,476,160 None 4,980
Terry W. Ward 4,421,967 None 59,173
Grant Dove 4,476,290 None 4,850
</TABLE>
(ii) Adoption of The ForeFront Group, Inc. 1996 Nonemployee
Directors' Stock Option Plan:
For Against Withheld
--- ------- --------
3,412,293 95,421 64,041
(iii)Adoption of The ForeFront Group, Inc. 1996 Employee Stock Purchase
Plan:
For Against Withheld
--- ------- --------
3,510,807 54,050 6,898
(iv) Ratification and Selection of Arthur Andersen LLP as
Independent Public Accountants:
For Against Withheld
--- ------- --------
4,475,710 2,630 2,800
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Number Exhibit
------ -------
3.2 Restated Bylaws
10.1 Employment Agreement between the Company and
Martin Mazner dated June 12, 1996.
11.1 Statement of computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
14
<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.
The ForeFront Group, Inc.
Date: August 14, 1996 By: /s/ David Sikora
----------------------------------
David Sikora
President and Chief Executive Officer
Date: August 14, 1996 By: /s/ Ernest D. Rapp
----------------------------------
Ernest D. Rapp
Chief Financial Officer
(Principal Financial and Accounting
Officer)
15
<PAGE>
EXHIBIT 3.2
R E S T A T E D B Y L A W S
OF
THE FOREFRONT GROUP, INC.
DATED: JULY 10, 1996
<PAGE>
I N D E X
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I OFFICES
Section 1.1 Principal Office................................................................................1
Section 1.2 Registered Office...............................................................................1
Section 1.3 Other Offices...................................................................................1
ARTICLE II STOCKHOLDERS' MEETINGS
Section 2.1 Annual Meeting..................................................................................1
Section 2.2 Special Meetings................................................................................1
Section 2.3 Notice of Meetings and Adjourned Meetings.......................................................2
Section 2.4 Voting Lists....................................................................................2
Section 2.5 Quorum..........................................................................................2
Section 2.6 Organization....................................................................................3
Section 2.7 Voting..........................................................................................3
Section 2.8 Stockholders Entitled to Vote...................................................................3
Section 2.9 Order of Business...............................................................................4
Section 2.10 Action by Written Consent......................................................................4
Section 2.11 Authorization of Proxies.......................................................................4
Section 2.12 Inspectors and Voting Procedures...............................................................5
ARTICLE III DIRECTORS
Section 3.1 Management......................................................................................5
Section 3.2 Number and Term.................................................................................6
Section 3.3 Quorum and Manner of Action.....................................................................6
Section 3.4 Vacancies.......................................................................................6
Section 3.5 Resignations....................................................................................6
Section 3.6 Removals........................................................................................7
Section 3.7 Annual Meetings.................................................................................7
Section 3.8 Regular Meetings................................................................................7
Section 3.9 Special Meetings................................................................................7
Section 3.10 Organization of Meetings.......................................................................7
Section 3.11 Place of Meetings..............................................................................7
Section 3.12 Compensation of Directors......................................................................8
Section 3.13 Action by Unanimous Written Consent............................................................8
Section 3.14 Participation in Meetings by Telephone.........................................................8
ARTICLE IV COMMITTEES OF THE BOARD
Section 4.1 Membership and Authorities......................................................................8
Section 4.2 Minutes.........................................................................................9
Section 4.3 Vacancies.......................................................................................9
Section 4.4 Telephone Meetings..............................................................................9
Section 4.5 Action Without Meeting..........................................................................9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE V OFFICERS
Section 5.1 Number and Title................................................................................9
Section 5.2 Term of Office; Vacancies......................................................................10
Section 5.3 Removal of Elected Officers....................................................................10
Section 5.4 Resignations...................................................................................10
Section 5.5 The Chairman of the Board......................................................................10
Section 5.6 President......................................................................................10
Section 5.7 Vice Presidents................................................................................11
Section 5.8 Secretary......................................................................................11
Section 5.9 Assistant Secretaries..........................................................................11
Section 5.10 Treasurer.....................................................................................11
Section 5.11 Assistant Treasurers..........................................................................12
Section 5.12 Subordinate Officers..........................................................................12
Section 5.13 Salaries and Compensation.....................................................................12
ARTICLE VI INDEMNIFICATION OF DIRECTORS AND OFFICERS.....................................................12
ARTICLE VII CAPITAL STOCK
Section 7.1 Certificates of Stock..........................................................................13
Section 7.2 Lost Certificates..............................................................................14
Section 7.3 Fixing Date for Determination of Stockholders of Record for Certain Purposes...................14
Section 7.4 Dividends......................................................................................15
Section 7.5 Registered Stockholders........................................................................15
Section 7.6 Transfer of Stock..............................................................................15
ARTICLE VIII MISCELLANEOUS PROVISIONS
Section 8.1 Corporate Seal.................................................................................15
Section 8.2 Fiscal Year....................................................................................15
Section 8.3 Checks, Drafts, Notes..........................................................................16
Section 8.4 Notice and Waiver of Notice....................................................................16
Section 8.5 Examination of Books and Records..............................................................16
Section 8.6 Voting Upon Shares Held by the Corporation....................................................16
ARTICLE IX AMENDMENTS
Section 9.1 Amendment......................................................................................17
</TABLE>
ii
<PAGE>
THE FOREFRONT GROUP, INC.
BYLAWS
ARTICLE I
OFFICES
SECTION 1.1 PRINCIPAL OFFICE. The principal office of the
Corporation shall be in the City of Houston, Texas.
SECTION 1.2 REGISTERED OFFICE. The registered office of the
Corporation required to be maintained in the State of Delaware by the General
Corporation Laws of the State of Delaware, may be, but need not be, identical
with the Corporation's principal office, and the address of the registered
office may be changed from time to time by the Board of Directors.
SECTION 1.3 OTHER OFFICES. 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
STOCKHOLDERS' MEETINGS
SECTION 2.1 ANNUAL MEETING. The annual meeting of the holders of
shares of each class or series of stock as are entitled to notice thereof and to
vote thereat pursuant to applicable law and the Corporation's Certificate of
Incorporation for the purpose of electing directors and transacting such other
proper business as may come before it shall be held in each year, at such time,
on such day and at such place, within or without the State of Delaware, as may
be designated by the Board of Directors.
SECTION 2.2 SPECIAL MEETINGS. In addition to such special meetings
as are provided by law or the Corporation's Certificate of Incorporation,
special meetings of the stockholders may be called, for any purpose or purposes,
by the President or the Board of Directors and shall be called by the president
or the Secretary if the holders of not less than 10 percent or more of all the
votes entitled to be cast on any issue proposed to be considered at such special
meeting sign, date and deliver to the corporation's Secretary one or more
written demands
<PAGE>
for a special meeting, describing the purpose(s) for which it is to be held.
Notice and call of any such special meeting shall state the purpose or purposes
of the proposed meeting, and business transacted at any special meeting of the
stockholders shall be limited to the purposes stated in the notice thereof.
SECTION 2.3 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Except as
otherwise provided by law, written notice of any meeting of Stockholders (i)
shall be given either by personal delivery or by mail to each Stockholder of
record entitled to vote thereat, (ii) shall be in such form as is approved by
the Board of Directors, and (iii) shall state the date, place and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, such written
notice shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting. Except when a Stockholder attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting is not lawfully
called or convened, presence in person or by proxy of a Stockholder shall
constitute a waiver of notice of such meeting. Further, a written waiver of any
notice required by law or by these Bylaws, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Except as otherwise provided by law, the business that
may be transacted at any such meeting shall be limited to and consist of the
purpose or purposes stated in such notice. If a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the adjournment is for more than thirty (30) days,
or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each Stockholder of
record entitled to vote at the meeting.
SECTION 2.4 VOTING LISTS. The officer or agent having charge of
the stock transfer books for shares of the Corporation shall keep a complete
list of Stockholders entitled to vote at meetings or any adjournments thereof,
arranged in alphabetical order, in accordance with applicable law and shall make
same available prior to and during each Stockholders' meeting for inspection by
the Corporation's Stockholders as required by law. The Corporation's original
stock transfer books shall be prima facie evidence as to who are the
Stockholders entitled to examine such list or transfer books or to vote at any
meeting of Stockholders.
SECTION 2.5 QUORUM. Except as otherwise provided by law or by the
Corporation's Certificate of Incorporation, the holders of a majority of the
Corporation's stock issued and outstanding and entitled to vote at a meeting,
present in person or represented by proxy, without regard to class or series,
shall constitute a quorum at all meetings of the Stockholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the Stockholders, the holders of a majority of
such shares of stock, present in person or represented by proxy, may adjourn any
meeting from time to time without notice other than announcement at the meeting,
except as otherwise required by these Bylaws, until a quorum shall be present or
represented. At any such adjourned meeting at which a
<PAGE>
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally called.
SECTION 2.6 ORGANIZATION. Meetings of the Stockholders shall be
presided over by the Chairman of the Board of Directors, if one shall be
elected, or in his absence, by the President or by any Vice President, or, in
the absence of any of such officers, by a chairman to be chosen by a majority of
the Stockholders entitled to vote at the meeting who are present in person or by
proxy. The Secretary, or, in his absence, any Assistant Secretary or any person
appointed by the individual presiding over the meeting, shall act as secretary
at meetings of the Stockholders.
SECTION 2.7 VOTING. Each Stockholder of record, as determined
pursuant to Section 2.8, who is entitled to vote in accordance with the terms of
the Corporation's Certificate of Incorporation and in accordance with the
provisions of these Bylaws, shall be entitled to one vote, in person or by
proxy, for each share of stock registered in his name on the books of the
Corporation. Every Stockholder entitled to vote at any Stockholders' meeting
may authorize another person or persons to act for him by proxy pursuant to
Section 2.12(c), provided that no such proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period. A
duly executed proxy shall be irrevocable if it states that it is irrevocable and
if, and only so long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A Stockholder's attendance at any meeting shall
not have the effect of revoking a previously granted proxy unless such
Stockholder shall in writing so notify the Secretary of the meeting prior to the
voting of the proxy. Unless otherwise provided by law, no vote on the election
of directors or any question brought before the meeting need be by ballot unless
the chairman of the meeting shall determine that it shall be by ballot or the
holders of a majority of the shares of stock present in person or by proxy and
entitled to participate in such vote shall so demand. In a vote by ballot, each
ballot shall state the number of shares voted and the name of the Stockholder or
proxy voting. Except as otherwise provided by law, by the Corporation's
Certificate of Incorporation or these Bylaws, all elections of directors and all
other matters before the Stockholders shall be decided by the vote of the
holders of a majority of the shares of stock present in person or by proxy at
the meeting and entitled to vote in the election or on the question. In the
election of directors, votes may not be cumulated.
SECTION 2.8 STOCKHOLDERS ENTITLED TO VOTE. The Board of Directors
may fix a date not more than sixty (60) days nor less than ten (10) days prior
to the date of any meeting of Stockholders, or, in the case of corporate action
by written consent in accordance with the terms of Section 2.10(b), not prior to
the date upon which the resolution of the Board of Directors fixing the record
date is adopted and not more than ten (10) days after the date upon which the
resolution of the Board of Directors fixing the record date is adopted, as a
record date for the determination of the Stockholders entitled to notice of and
to vote at such meeting and any adjournment thereof, or to act by written
consent, and in each case such Stockholders and only such Stockholders as shall
be Stockholders of record on the date so fixed shall be entitled to notice of
and to vote at such meeting and any adjournment thereof, or to act by written
consent,
<PAGE>
as the case may be, notwithstanding any transfer of any stock on the books of
the Corporation after such record date fixed as aforesaid.
SECTION 2.9 ORDER OF BUSINESS. The order of business at all meetings
of Stockholders shall be as determined by the chairman of the meeting or as is
otherwise determined by the vote of the holders of a majority of the shares of
stock present in person or by proxy and entitled to vote without regard to class
or series at the meeting.
SECTION 2.10 ACTION BY WRITTEN CONSENT. Unless otherwise provided by
law or the Corporation's Certificate of Incorporation, any action required or
permitted to be taken by the Stockholders of the Corporation may be taken
without prior notice and an actual meeting 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. Except as provided above, no action shall be taken by
the Stockholders by written consent. Prompt notice of the taking of any
corporate action without a meeting by less than unanimous written consent shall
be given to those Stockholders who have not consented in writing.
SECTION 2.11 AUTHORIZATION OF PROXIES. Without limiting the manner
in which a Stockholder may authorize another person or persons to act for him as
proxy, the following are valid means of granting such authority. A Stockholder
may execute a writing authorizing another person or persons to act for him as
proxy. Execution may be accomplished by the Stockholder or his authorized
officer, director, employee or agent signing such writing or causing his or her
signature to be affixed to such writing by any reasonable means including, but
not limited to, by facsimile signature. A Stockholder may also authorize
another person or persons to act for him as proxy by transmitting or authorizing
the transmission of a telegram, cablegram, or other means of electronic
transmission to the person who will be the holder of the proxy or to a proxy
solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
transmission, provided that any such telegram, cablegram or other means of
electronic transmission must either set forth or be submitted with information
from which it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the Stockholder. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this section may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
SECTION 2.12 INSPECTORS AND VOTING PROCEDURES.
<PAGE>
(a) The Corporation shall, in advance of any meeting of Stockholders,
appoint one or more inspectors to act at the meeting and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of Stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint
or retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors.
(c) The date and time of the opening and closing of the polls for each
matter upon which the Stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor any revocations thereof or
changes thereto, shall be accepted by the inspectors after the closing of the
polls unless the Court of Chancery upon application by a Stockholder shall
determine otherwise.
(d) In determining the validity and counting of proxies and ballots,
the inspectors may examine and consider such records or factors as allowed by
the General Corporation Laws of the State of Delaware.
ARTICLE III
DIRECTORS
SECTION 3.1 MANAGEMENT. The property, affairs and business of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all powers of the Corporation and do all lawful acts and
things as are not by law, by the Corporation's Certificate of Incorporation or
by these Bylaws directed or required to be exercised or done by the
Stockholders.
SECTION 3.2 NUMBER AND TERM. The number of directors may be fixed
from time to time by resolution of the Board of Directors adopted by the
affirmative vote of a majority of the members of the entire Board of Directors,
but shall consist of not less than one (1) member who shall be elected annually
by the Stockholders except as provided in Section 3.4. Directors
<PAGE>
need not be Stockholders. No decrease in the number of directors shall have the
effect of shortening the term of office of any incumbent director.
SECTION 3.3 QUORUM AND MANNER OF ACTION. At all meetings of the
Board of Directors a majority of the total number of directors holding office
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 law, by the Corporation's Certificate of Incorporation
or these Bylaws. When the Board of Directors consists of one director, the one
director shall constitute a majority and a quorum. If at any meeting of the
Board of Directors there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum is
obtained, and no further notice thereof need be given other than by announcement
at such adjourned meeting. Attendance by a director at a meeting shall
constitute a waiver of notice of such meeting except where a director attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
SECTION 3.4 VACANCIES. Except as otherwise provided by law or the
Corporation's Certificate of Incorporation, in the case of any increase in the
authorized number of directors or of any vacancy in the Board of Directors,
however created, the additional director or directors may be elected, or, as the
case may be, the vacancy or vacancies may be filled by majority vote of the
directors remaining on the whole Board of Directors although less than a quorum,
or by a sole remaining director. In the event one or more directors shall
resign, effective at a future date, such vacancy or vacancies shall be filled by
a majority of the directors who will remain on the whole Board of Directors,
although less than a quorum, or by a sole remaining director. Any director
elected or chosen as provided herein shall serve until the sooner of: (i) the
unexpired term of the directorship to which he is appointed; (ii) until his
successor is elected and qualified; or (iii) until his earlier resignation or
removal.
SECTION 3.5 RESIGNATIONS. A director may resign at any time upon
written notice of resignation to the Corporation. Any resignation shall be
effective immediately unless a certain effective date is specified therein, in
which event it will be effective upon such date and acceptance of any
resignation shall not be necessary to make it effective.
SECTION 3.6 REMOVALS. Any director or the entire Board of Directors
may be removed, with or without cause, and another person or persons may be
elected to serve for the remainder of his or their term by the holders of a
majority of the shares of the Corporation entitled to vote in the election of
directors. In case any vacancy so created shall not be filled by the
Stockholders at such meeting, such vacancy may be filled by the directors as
provided in Section 3.4.
SECTION 3.7 ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held, if a quorum be present, immediately following each
annual meeting of the
<PAGE>
Stockholders at the place such meeting of Stockholders took place, for the
purpose of organization and transaction of any other business that might be
transacted at a regular meeting thereof, and no notice of such meeting shall be
necessary. If a quorum is not present, such annual meeting may be held at any
other time or place that may be specified in a notice given in the manner
provided in Section 3.9 for special meetings of the Board of Directors or in a
waiver of notice thereof.
SECTION 3.8 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such places and times as shall be
determined from time to time by resolution of the Board of Directors. Except as
otherwise provided by law, any business may be transacted at any regular meeting
of the Board of Directors.
SECTION 3.9 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President, or by the Secretary on the written
request of one-third (1/3) of the members of the whole Board of Directors
stating the purpose or purposes of such meeting. Notices of special meetings, if
mailed, shall be mailed to each director not later than two (2) days before the
day the meeting is to be held or if otherwise given in the manner permitted by
these Bylaws, not later than the day before such meeting. Neither the business
to be transacted at, nor the purpose of, any special meeting need be specified
in any notice or written waiver of notice unless so required by the
Corporation's Certificate of Incorporation or by these Bylaws. Any and all
business may be transacted at a special meeting, unless limited by law, the
Corporation's Certificate of Incorporation or by these Bylaws.
SECTION 3.10 ORGANIZATION OF MEETINGS. At any meeting of the Board
of Directors, business shall be transacted in such order and manner as such
Board of Directors may from time to time determine, and all matters shall be
determined by the vote of a majority of the directors present at any meeting at
which there is a quorum, except as otherwise provided by these Bylaws or
required by law.
SECTION 3.11 PLACE OF MEETINGS. The Board of Directors may hold
their meetings and have one or more offices, and keep the books of the
Corporation, outside the State of Delaware, at any office or offices of the
Corporation, or at any other place as they may from time to time by resolution
determine.
SECTION 3.12 COMPENSATION OF DIRECTORS. Directors shall not receive
any stated salary for their services as directors, but by resolution of the
Board of Directors a fixed honorarium or fees and expenses, if any, of
attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to 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
such committee meetings.
SECTION 3.13 ACTION BY UNANIMOUS WRITTEN CONSENT. Unless otherwise
restricted by law, the Corporation's Certificate of Incorporation or these
Bylaws, any action
<PAGE>
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
of Directors or of such 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 of Directors or the committee.
SECTION 3.14 PARTICIPATION IN MEETINGS BY TELEPHONE. Unless
otherwise restricted by the Corporation's Certificate of Incorporation or these
Bylaws, members of the Board of Directors or of any committee thereof may
participate in a meeting of such Board of Directors or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting in such manner shall constitute presence in person at such meeting,
except where a person participates in the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
on the grounds that the meeting is not lawfully called or convened.
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 4.1 MEMBERSHIP AND AUTHORITIES. The Board of Directors may,
by resolution or resolutions passed by a majority of the whole Board of
Directors, designate one (1) or more Directors to constitute an Executive
Committee and such other committees as the Board of Directors may determine,
each of which committees to the extent provided in said resolution or
resolutions or in these Bylaws, shall have and may exercise all the powers of
the Board of Directors in the management of the business and affairs of the
Corporation, except in those cases where the authority of the Board of Directors
is specifically denied to the Executive Committee or such other committee or
committees by law, the Corporation's Certificate of Incorporation or these
Bylaws, and may authorize the seal of the Corporation to be affixed to all
papers that may require it. The designation of an Executive Committee or other
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it or him by law.
SECTION 4.2 MINUTES. Each committee designated by the Board of
Directors shall keep regular minutes of its proceedings and report the same to
the Board of Directors when required.
SECTION 4.3 VACANCIES. The Board of Directors may designate one (1)
or more of its members as alternate members of any committee who may replace any
absent or disqualified member at any meeting of such committee. If no alternate
members have been appointed, the committee member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously
<PAGE>
appoint another member of the Board of Directors to act at the meeting in the
place of any absent or disqualified member. The Board of Directors shall have
the power at any time to fill vacancies in, to change the membership of, and to
dissolve, any committee.
SECTION 4.4 TELEPHONE MEETINGS. Members of any committee designated
by the Board of Directors may participate in or hold a meeting by use of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section 4.4 shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
SECTION 4.5 ACTION WITHOUT MEETING. Any action required or permitted
to be taken at a meeting of any committee designated by the Board of Directors
may be taken without a meeting if a consent in writing, setting forth the action
so taken, is signed by all the members of the committee and filed with the
minutes of the committee proceedings. Such consent shall have the same force and
effect as a unanimous vote at a meeting.
ARTICLE V
OFFICERS
SECTION 5.1 NUMBER AND TITLE. The elected officers of the
Corporation shall be chosen by the Board of Directors and shall be a President,
a Vice President, a Secretary and a Treasurer. The Board of Directors may also
choose a Chairman of the Board, who must be a Board member of the Board of
Directors, and additional Vice Presidents, Assistant Secretaries and/or
Assistant Treasurers. One person may hold any two or more of these offices and
any one or more of the Vice Presidents may be designated as an Executive Vice
President or Senior Vice President.
SECTION 5.2 TERM OF OFFICE; VACANCIES. So far as is practicable, all
elected officers shall be elected by the Board of Directors at the annual
meeting of the Board of Directors in each year, and except as otherwise provided
in this Article V, shall hold office until the next such meeting of the Board of
Directors in the subsequent year and until their respective successors are
elected and qualified or until their earlier resignation or removal. All
appointed officers shall hold office at the pleasure of the Board of Directors.
If any vacancy shall occur in any office, the Board of Directors may elect or
appoint a successor to fill such vacancy for the remainder of the term.
<PAGE>
SECTION 5.3 REMOVAL OF ELECTED OFFICERS. Any elected officer may be
removed at any time, with or without cause, by affirmative vote of a majority of
the whole Board of Directors, at any regular meeting or at any special meeting
called for such purpose.
SECTION 5.4 RESIGNATIONS. Any officer may resign at any time upon
written notice of resignation to the President, Secretary or Board of Directors
of the Corporation. Any resignation shall be effective immediately unless a
date certain is specified for it to take effect, in which event it shall be
effective upon such date, and acceptance of any resignation shall not be
necessary to make it effective, irrespective of whether the resignation is
tendered subject to such acceptance.
SECTION 5.5 THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if
one shall be elected, shall preside at all meetings of the Stockholders and
Board of Directors. In addition, the Chairman of the Board shall perform
whatever duties and shall exercise all powers that are given to him by the Board
of Directors.
SECTION 5.6 PRESIDENT. The President shall be the chief executive
officer of the Corporation; shall (in the absence of the Chairman of the Board,
if one be elected) preside at meetings of the Stockholders and Board of
Directors; shall be ex officio a member of all standing committees; shall have
general and active management of business of the corporation; shall implement
the general directives, plans and policies formulated by the Board of Directors;
and shall further have such duties, responsibilities and authorities as may be
assigned to him by the Board of Directors. He may sign, with any other proper
officer, certificates for shares of the Corporation and any deeds, bonds,
mortgages, contracts and other documents which the Board of Directors has
authorized to be executed, except where required by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors or these Bylaws, to some other
officer or agent of the Corporation. In the absence of the President, his
duties shall be performed and his authority may be exercised by a Vice President
of the Corporation as may have been designated by the President with the right
reserved to the Board of Directors to designate or supersede any designation so
made.
SECTION 5.7 VICE PRESIDENTS. The several Vice Presidents shall have
such powers and duties as may be assigned to them by these Bylaws and as may
from time to time be assigned to them by the Board of Directors and may sign,
with any other proper officer, certificates for shares of the Corporation.
SECTION 5.8 SECRETARY. The Secretary, if available, shall attend all
meetings of the Board of Directors and all meetings of the Stockholders and
record the proceedings of the meetings in a book to be kept for that purpose and
shall perform like duties for any committee of the Board of Directors as shall
designate him to serve. He shall give, or cause to be given, notice of all
meetings of the Stockholders and meetings of the Board of Directors and
committees thereof and shall perform such other duties incident to the office of
secretary or as may be prescribed by the Board of Directors or the President,
under whose supervision he shall be. He
<PAGE>
shall have custody of the corporate seal of the Corporation and he, or any
Assistant Secretary, or any other person whom the Board of Directors may
designate, 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 any Assistant Secretary or by the signature of such other person so affixing
such seal.
SECTION 5.9 ASSISTANT SECRETARIES. Each Assistant Secretary shall
have the usual powers and duties pertaining to his office, together with such
other powers and duties as may be assigned to him by the Board of Directors, the
President or the Secretary. The Assistant Secretary or such other person as may
be designated by the President shall exercise the powers of the Secretary during
that officer's absence or inability to act.
SECTION 5.10 TREASURER. The Treasurer shall have the custody of and
be responsible for the corporate funds and securities, shall keep full and
accurate accounts of receipts and disbursements in the 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. He 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 and he shall perform all other duties incident to the position of
Treasurer, or as may be prescribed by the Board of Directors or the President.
If required by the Board of Directors, he shall give the Corporation a bond 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. [142(a)]
SECTION 5.11 ASSISTANT TREASURERS. Each Assistant Treasurer shall
have the usual powers and duties pertaining to his office, together with such
other powers and duties as may be assigned to him by the Board of Directors, the
President or the Treasurer. The Assistant Treasurer or such other person
designated by the President shall exercise the power of the Treasurer during
that officer's absence or inability to act.
SECTION 5.12 SUBORDINATE OFFICERS. The Board of Directors may (i)
appoint such other subordinate officers and agents as it shall deem necessary
who shall hold their offices for such terms, have such authority and perform
such duties as the Board of Directors may from time to time determine, or (ii)
delegate to any committee or officer the power to appoint any such subordinate
officers or agents.
SECTION 5.13 SALARIES AND COMPENSATION. The salary or other
compensation of officers shall be fixed from time to time by the Board of
Directors. The Board of Directors
<PAGE>
may delegate to any committee or officer the power to fix from time to time the
salary or other compensation of subordinate officers and agents appointed in
accordance with the provisions of Section 5.12.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that such person is or was, at any time
prior to or during which this Article VI is in effect, a director, officer,
employee or agent of the Corporation, or is or was, at any time prior to or
during which this Article VI is in effect, serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against reasonable expenses (including attorneys' fees), judgments, fines,
penalties, amounts paid in settlement and other liabilities actually and
reasonably incurred by such person in connection with such action, suit or
proceeding to the full extent permitted by the General Corporation Laws of the
State of Delaware, upon such determination having been made as to such person's
good faith and conduct.
(b) Expenses (including attorneys' fees) incurred by a person who is
or was a director or officer of the Corporation in appearing at, participating
in or defending any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, shall be paid by the
Corporation at reasonable intervals in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized by
this Article VI.
(c) It is the intention of the Corporation to indemnify the persons
referred to in this Article VI to the fullest extent permitted by law and with
respect to any action, suit or proceeding arising from events which occur at any
time prior to or during which this Article VI is in effect. The indemnification
and advancement of expenses provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be or become entitled under any law, the
Corporation's Certificate of Incorporation, these Bylaws, agreement, the vote of
Stockholders or disinterested directors or otherwise, or under any policy or
policies of insurance purchased and maintained by the Corporation on behalf of
any such person, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
<PAGE>
(d) The indemnification provided by this Article VI shall be subject
to all valid and applicable laws, and, in the event this Article VI or any of
the provisions hereof or the indemnification contemplated hereby are found to be
inconsistent with or contrary to any such valid laws, the latter shall be deemed
to control and this Article VI shall be regarded as modified accordingly, and,
as so modified, to continue in full force and effect.
ARTICLE VII
CAPITAL STOCK
SECTION 7.1 CERTIFICATES OF STOCK. Certificates of stock shall be
issued to each Stockholder certifying the number of shares owned by him in the
Corporation and shall be in a form not inconsistent with the Certificate of
Incorporation and as approved by the Board of Directors. The certificates shall
be signed by the Chairman of the Board, the President or a Vice President and by
the Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer and may be sealed with the seal of the Corporation or a facsimile
thereof. Any or all of the signatures on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate 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.
If the Corporation shall be authorized to issue more than one (1)
class of stock or more than one (1) 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 qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided by statute, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which 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 7.2 LOST CERTIFICATES. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the owner of such certificate, or his legal
representative. When authorizing the issuance of a new certificate, the Board of
Directors may in its discretion, as a condition precedent to the issuance
thereof, require the owner, or his legal representative, to give a bond in such
form and substance with
<PAGE>
such surety as it may direct, to indemnify the Corporation against any claim
that may be made on account of the alleged loss, theft or destruction of such
certificate or the issuance of such new certificate.
SECTION 7.3 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD
FOR CERTAIN PURPOSES. (a) In order that the Corporation may determine the
Stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of capital 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) days prior to the date of payment of such
dividend or other distribution or allotment of such rights or the date when any
such rights in respect of any change, conversion or exchange of stock may be
exercised or the date of such other action. In such a case, only Stockholders
of record on the date so fixed shall be entitled to receive any such dividend or
other distribution or allotment of rights or to exercise such rights or for any
other purpose, as the case may be, notwithstanding any transfer of any stock on
the books of the Corporation after any such record date fixed as aforesaid.
(b) If no record date is fixed, the record date for determining
Stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 7.4 DIVIDENDS. Subject to the provisions of the
Corporation's Certificate of Incorporation, if any, and except as otherwise
provided by law, the directors may declare dividends upon the capital stock of
the Corporation as and when they deem it to be expedient. Such dividends may be
paid in cash, in property or in shares of the Corporation's capital stock.
Before declaring any dividend there may be set apart out of the funds of the
Corporation available for dividends, such sum or sums as the directors from time
to time in their discretion think proper for working capital or as a reserve
fund to meet contingencies or for equalizing dividends, or for such other
purposes as the directors shall think conducive to the interests of the
Corporation and the directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 7.5 REGISTERED STOCKHOLDERS. Except as expressly provided by
law, the Corporation's Certificate of Incorporation or these Bylaws, the
Corporation shall be entitled to treat registered Stockholders as the only
holders and owners in fact of the shares standing in their respective names and
the Corporation shall not be bound to recognize any equitable or other claim to
or interest in such shares on the part of any other person, regardless of
whether it shall have express or other notice thereof.
SECTION 7.6 TRANSFER OF STOCK. Transfers of shares of the capital
stock of the Corporation shall be made only on the books of the Corporation by
the registered owners thereof, or by their legal representatives or their duly
authorized attorneys. Upon any such transfers the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in
<PAGE>
charge of the stock transfer books and ledgers, by whom they shall be cancelled
and new certificates shall thereupon be issued.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 CORPORATE SEAL. If one be adopted, the corporate seal
shall have inscribed thereon the name of the Corporation and shall be in such
form as may be approved by the Board of Directors. Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any manner
reproduced.
SECTION 8.2 FISCAL YEAR. The fiscal year of the Corporation shall
be fixed by resolution of the Board of Directors.
SECTION 8.3 CHECKS, DRAFTS, NOTES. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation shall be signed by such officer or officers,
agent or agents of the Corporation, and in such manner as shall from time to
time be determined by resolution (whether general or special) of the Board of
Directors or may be prescribed by any officer or officers, or any officer and
agent jointly, thereunto duly authorized by the Board of Directors.
SECTION 8.4 NOTICE AND WAIVER OF NOTICE. Whenever notice is required
to be given to any director or Stockholder under the provisions of applicable
law, the Corporation's Certificate of Incorporation or these Bylaws, such notice
shall be in writing and delivered either (i) personally, or (ii) by registered
or certified mail, or (iii) by telegram, telecopy, or similar facsimile means
(delivered during the recipient's regular business hours). Such notice shall be
sent to such director or Stockholder at the address or telecopy number as it
appears on the records of the Corporation, unless prior to the sending of such
notice he has designated, in a written request to the Secretary of the
Corporation, another address or telecopy number to which notices are to be sent.
Notices shall be deemed given when received, if sent by telegram, telex,
telecopy or similar facsimile means (confirmation of such receipt by confirmed
facsimile transmission being deemed receipt of communications sent by telex,
telecopy or other facsimile means); and when delivered and receipted for (or
upon the date of attempted delivery where delivery is refused), if hand-
delivered, sent by express courier or delivery service, or sent by certified or
registered mail. Whenever notice is required to be given under any provision of
law, the Corporation's Certificate of Incorporation or these Bylaws, a waiver
thereof in writing, by telegraph, cable or other form of recorded communication,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not
<PAGE>
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the Stockholders, directors, or
members of a committee of directors need be specified in any written waiver of
notice unless so required by the Corporation's Certificate of Incorporation or
these Bylaws.
SECTION 8.5 EXAMINATION OF BOOKS AND RECORDS. The Board of
Directors shall determine from time to time whether, and if allowed, when and
under what conditions and regulations the accounts and books of the Corporation
(except such as may by statute be specifically opened to inspection) or any of
them shall be open to inspection by the Stockholders, and the Stockholders'
rights in this respect are and shall be restricted and limited accordingly.
SECTION 8.6 VOTING UPON SHARES HELD BY THE CORPORATION. Unless
otherwise provided by law or by the Board of Directors, the Chairman of the
Board of Directors, if one shall be elected, or the President, if a Chairman of
the Board of Directors shall not be elected, acting on behalf of the
Corporation, shall have full power and authority to attend and to act and to
vote at any meeting of Stockholders of any corporation in which the Corporation
may hold stock and, at any such meeting, shall possess and may exercise any and
all of the rights and powers incident to the ownership of such stock which, as
the owner thereof, the Corporation might have possessed and exercised, if
present. The Board of Directors by resolution from time to time may confer like
powers upon any person or persons.
ARTICLE IX
AMENDMENTS
SECTION 9.1 AMENDMENT. Except as otherwise expressly provided in the
Corporation's Certificate of Incorporation, the directors, by the affirmative
vote of a majority of the entire Board of Directors and without the assent or
vote of the Stockholders, may at any meeting make, repeal, alter, amend or
rescind any of these Bylaws. The Stockholders shall not make, repeal, alter,
amend or rescind any of the provisions of these Bylaws except by the holders of
not less than a majority of the total voting power of all shares of stock of the
Corporation entitled to vote in the election of directors, considered for
purposes of this Article IX as one class.
<PAGE>
EXHIBIT 10.1
THE FOREFRONT GROUP, INC.
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement"), effective the date indicated
on the signature page hereto (the "Effective Date"), is entered into by and
between The ForeFront Group, Inc., a Delaware corporation ("ForeFront"), and
Martin Mazner, an individual residing in Palo Alto, California, (the
"Employee").
W I T N E S S E T H:
-------------------
WHEREAS, ForeFront wishes to employ the Employee to perform certain duties
on its behalf on the terms and conditions, and for the consideration, hereafter
set forth, and the Employee wishes to accept such employment and perform such
duties on such terms and conditions and for such consideration;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
obligations contained herein, the Employee and ForeFront do hereby agree as
follows:
1. EMPLOYMENT, DUTIES AND TERMINATION. Employee is hereby employed by
ForeFront for the initial period indicated on Exhibit A hereto. After the
expiration of the initial period indicated on Exhibit A, the Employee's
employment hereunder shall continue but either party may terminate this
Agreement, with or without cause, on thirty (30) days' notice delivered to the
other (except upon a termination "for cause" as set out below, which shall
require only the notification as hereafter indicated). Employee shall be
employed initially for the position, and generally to perform such duties, as
are set forth on Exhibit A hereto, which may change at the direction of
ForeFront in its sole determination. While employed by ForeFront, Employee
agrees to devote Employee's full productive efforts to the business of
ForeFront. Employee may have no other sources of active employment while
employed by ForeFront. Employee shall initially report to the person indicated
on Exhibit A. ForeFront shall not require the Employee to relocate to any site
more than twenty (20) miles from Palo Alto, California, without the consent of
Employee. Employee's employment may be terminated by ForeFront at any time if
the Employee: (i) is convicted of or pleads nolo contendere to a felony offense
or a crime of moral turpitude; (ii) materially breaches this Agreement and fails
to cure such breach within thirty (30) days of notice of such breach by
ForeFront; (iii) engages in willful misconduct, gross neglect of Employee's
duties, or an activity which constitutes a material conflict of interest with
Employee's job; (iv) is reasonably determined by ForeFront to be disabled and
unable to perform Employee's duties; (v) dies; or (vi) has materially
misrepresented Employee's skills, past employment, education, or any other
matter discussed between ForeFront and Employee prior to commencement of
employment hereunder, including without limitation, information supplied to
ForeFront by the Employee in Employee's employment application. In such cases,
Employee will receive only Employee's compensation to date of termination.
Employee understands and agrees that this Agreement and Employee's status
<PAGE>
as an employee of ForeFront creates a fiduciary duty which the Employee owes to
ForeFront, which duty the Employee promises to fulfill.
2. COMPENSATION.
------------
2.1 SALARY. In consideration of the performance of duties hereunder,
ForeFront agrees to pay the Employee a monthly salary as indicated on Exhibit A.
This salary shall be paid in equal semi-monthly installments. ForeFront may
withhold from any benefits payable under this Agreement, including salary, all
federal, state, city or other taxes as may be required pursuant to any law or
governmental regulation or ruling of company policy.
2.2 BENEFITS. The Employee will also receive other benefits from time to
time normally provided to employees of ForeFront, although there shall be no
obligation to commence any benefit plan, or to continue any plan once commenced.
2.3 REIMBURSEMENT. While employed hereunder, ForeFront agrees to
reimburse the Employee for all reasonable and necessary business expenses in
accordance with ForeFront's expense reimbursement policy, which expenses have
been approved in advance.
3. PROPRIETARY RELATIONSHIP.
------------------------
3.1 DISCLOSURE OF CONFIDENTIAL INFORMATION. No Confidential Information
or anything directly related to it shall be used by the Employee for the benefit
of the Employee or any third party, nor shall such Confidential Information be
disclosed to a third party, without the prior written consent of ForeFront,
except as may be necessary in the ordinary cause of performing the Employee's
duties for ForeFront and only for the benefit of ForeFront. "Confidential
Information" shall mean all of: (a) information pertaining to the design and
development of all commercial products of ForeFront that is not generally known
within the industry in which ForeFront or any of its affiliates is engaged and
that is disclosed to, learned by or developed by the Employee in the performance
of his duties during Employee's employment by ForeFront; (b) ForeFront's
customer lists, sales data, pricing formulas, marketing strategies, and other
proprietary information acquired by Employee in the performance of employment
duties hereunder; and (c) anything which would be considered "confidential"
under Texas law.
3.2 EXEMPTION. Confidential Information shall not include information
that:
(a) at the time of its disclosure, is publicly available
through no fault of the Employee;
(b) at the time of its disclosure, is, without fault of the
receiving party, part of the public domain;
2
<PAGE>
(c) subsequent to its disclosure hereunder, is obtained by
the Employee from a third party not subject to a contractual
or fiduciary obligation for confidentiality to the
disclosing party;
(d) is required to disclose under court or governmental
order, rule or regulation; or
(e) is disclosed pursuant to any research grant relating to
technology not pertaining to the commercial products of
ForeFront.
3.3 RETURN OF DATA. In the event of the termination of employment of the
Employee for any reason, the Employee will deliver to ForeFront all documents,
notebooks, designs, specifications, customer lists, drawings, software, manuals,
reports, plans and other data of any nature containing Confidential Information
or relating to the business of ForeFront, and the Employee will not deliver to
anyone else any of such documents or data or any reproduction of such documents
or data containing Confidential Information or relating to the business of
ForeFront.
3.4 DISCLOSURE AND ASSIGNMENT OF INVENTIONS. The Employee agrees to make
prompt and complete disclosure to ForeFront of every Invention. "Inventions"
shall mean all improvements, discoveries, inventions, whether patentable or not,
copyrightable works, copyrights, trade secrets, formulae, processes, techniques,
and other developments and advances which are related to or useful in the actual
or anticipated business of ForeFront and that are developed, conceived or
reduced to practice or learned by the Employee, either alone or jointly with
others, during Employee's employment by ForeFront or result from tasks assigned
to the Employee by ForeFront or result from use of premises or equipment owned,
leased, or contracted for by ForeFront. The Employee agrees that ForeFront shall
have sole ownership rights to all Inventions and agrees to cooperate fully, at
no expense to the Employee, with ForeFront to secure and defend ForeFront's said
ownership rights. The Employee hereby assigns to ForeFront any rights the
Employee may acquire in any such Inventions.
3.5 NO CONFLICT. The Employee represents and warrants that: (a) as a
matter of record, the Employee has identified on Exhibit B attached hereto all
inventions or improvements relevant to the subject matter of Employee's
employment by ForeFront which have been made or conceived or first reduced to
practice by the Employee alone or jointly with others prior to Employee's
engagement by ForeFront, which the Employee desires to remove from the operation
of this Agreement; and the employee covenants that such list is complete. If
there is no such list on Exhibit B, the Employee represents that the Employee
has made no such inventions and improvements at the time of signing this
Agreement;
(b) performance of all the terms of this Agreement by the Employee and
as an employee of ForeFront does not and, to the best of the Employee's
present knowledge and belief, will not breach any agreement or duty to keep
in confidence proprietary information
3
<PAGE>
acquired by the Employee in confidence or in trust prior to the Employee's
employment by ForeFront. The Employee has not entered into, and will not
enter into, any agreement either written or oral in conflict herewith. The
Employee is not at the present time restricted from being employed by
ForeFront or entering into this Agreement;
(c) as part of the consideration for the offer of employment extended to
the Employee by ForeFront and of the Employee's employment or continued
employment by ForeFront, the Employee has not brought and will not bring
with the Employee to ForeFront or use in the performance of the Employee's
responsibilities at ForeFront any materials or documents of a former
employer which are not generally available to the public, unless the
Employee has obtained written authorization from the former employer for
their possession and use;
(d) in the Employee's employment with ForeFront, the Employee is not to
breach any obligation of confidentiality or duty that the Employee has to
former employers and the Employee agrees that all such obligations during
the Employee's employment with ForeFront shall be fulfilled.
4. NON-COMPETITION.
---------------
4.1 RESTRICTIONS WHILE EMPLOYED. In consideration of employment or
continued employment, as the case may be, and the compensation received by the
Employee from ForeFront, while employed by ForeFront, the Employee agrees to
work solely and exclusively for ForeFront and without limiting the generality of
the foregoing agrees to refrain from working for or providing consulting or
other services, directly or indirectly, in connection with a Conflicting Product
anywhere in the world, whether or not to a Conflicting Organization.
"Conflicting Product" shall mean any commercial product, or any information
pertaining to the design, development and marketing of such product, that
provides essentially similar form, fit and function as, and competes or proposes
to compete with, a commercial product developed by ForeFront; provided however
that the following activities shall not be deemed to be a Conflicting Product:
(a) journalistic/analyst activities, including, but not limited to,
writing or appearances on radio, television or other media, whether or not
for payment;
(b) investment in or advising of venture or other investment funds, or
service as a member of a board of directors in connection with such
investment or advice, including investment in Mayfield Software Partners,
which is itself an investor in First Floor Software ("First Floor"),
provided that Mazner shall have no direct involvement with First Floor or
any other competitor of Purchaser;
(c) service on the advisory board of or investment in VoxWare, Inc. or
SoloPoint, Inc.; or
4
<PAGE>
(d) any other activity approved by Purchaser.
"Conflicting Organization" shall mean any person or organization that, for
commercial purposes, proposes to become engaged in, is engaged in, or is
about to become engaged in, research on or development of or production,
marketing, licensing or the sale of any Conflicting Product. Furthermore,
while employed by ForeFront, the Employee agrees not to make investments in
any firm, corporation or association whose products or activities compete
with the products or activities of ForeFront (other than open market
investments in no more than three percent (3%) of the outstanding stock of
any publicly traded company).
4.2 RESTRICTIONS AFTER TERMINATION. In consideration of employment or
continued employment, as the case may be, and the compensation received by the
Employee from ForeFront, while employed by ForeFront, for a period ending one
year from termination of employment (the "Restricted Period"), the Employee
agrees to refrain from working for or providing consulting or other services,
directly or indirectly, in connection with a Conflicting Product to any
Conflicting Organization: (i) where the Employee's activities take or may be
expected to take Employee into or within a 75 mile radius of any metropolitan
area in the continental United States where ForeFront or any of ForeFront's
licensees are at the time of such termination actively marketing a product, or
are actively engaged in preparations to commence active marketing of a product
(the "Restricted Area"); (ii) where the Conflicting Organization has an office
within the Restricted Area, and the Employee directly or indirectly works with
such office regarding a Conflicting Product; or (iii) where the activities of
others affiliated with a Conflicting Organization working in connection with a
Conflicting Product on which the Employee may be working, would take such other
person(s) within the Restricted Area. Further, during the Restricted Period the
Employee shall refrain from engaging in any sales or marketing activities,
directly or indirectly, in connection with a Conflicting Product, to any person
or entity which has purchased or licensed any products from ForeFront or any of
its licensees.
4.3 OTHER AGREEMENTS. In consideration of employment or continued
employment, as the case may be, and the compensation received by the Employee
from ForeFront, while employed by ForeFront, the Employee hereby further agrees
that Employee will not, during the Restricted Period, (i) solicit, for himself
or others, any person or entity that is or was a customer of ForeFront while
Employee was employed by ForeFront, for any purpose or activity that is directly
competitive with the business of ForeFront, or solicit the employment or
services of any person who is employed full-time by ForeFront or (ii) solicit,
recruit or hire, or assist any person, firm, corporation, association or other
entity in the solicitation, recruitment or hiring of, any person then engaged by
ForeFront as an employee, officer, director or consultant, or so engaged by
ForeFront within the then prior six (6) months.
4.4 SEVERABILITY OF PROVISIONS. The Employee hereby acknowledges and
agrees that the scope of the foregoing covenants are reasonable and necessary to
protect the
5
<PAGE>
interests of ForeFront. While the restrictions set forth in this Article 4 are
considered by the parties to be reasonable in all circumstances, it is
recognized that restrictions of the nature in question may fail for technical
reasons unforeseen, and accordingly it is hereby agreed that if any of such
restrictions shall be adjudged to be void as going beyond what is reasonable in
all the circumstances for the protection of ForeFront or for any other reason
but would be valid if part of the wording thereof were deleted or the periods
(if any) thereof reduced or the range of activities or area dealt with thereby
reduced in scope, such restrictions shall apply with such modifications as may
be necessary to make them valid and effective and such provisions shall be
modified accordingly.
5. MISCELLANEOUS.
-------------
5.1 NOTICE. For purposes of this Agreement, notices and all other
communications provided for or permitted herein shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to ForeFront:
The ForeFront Group, Inc.
1330 Post Oak Boulevard, Suite 1300
Houston, Texas 77056
c/o The President
If to the Employee, at the address identified on the signature page hereof,
or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
5.2 APPLICABLE LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Texas.
5.3 NO WAIVER. No failure by either party hereto at any time to give
notice of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
5.4 SEVERABILITY. If a court of competent jurisdiction determines that
any provision of this Agreement is invalid or unenforceable, then the invalidity
or unenforceability of that provision shall not affect the validity or
enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect. Further, such provisions shall
be reformed and construed to the extent permitted by law so that it would be
valid, legal and enforceable to the maximum extent possible.
6
<PAGE>
5.5 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but both of which together will
constitute one and the same Agreement.
5.6 HEADINGS. The article and section headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
5.7 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties with regard to the subject matter hereof, and contains all the
covenants, promises, representations, warranties and agreements between the
parties with respect to the subject matter hereof. Each party to this Agreement
acknowledges that no representation, inducement, promise or agreement, oral or
written, has been made by either party, or by anyone acting on behalf of either
party, that is not embodied herein, and that no agreement, statement or promise
relating to the subject matter hereof that is not contained in this Agreement
hereto shall be valid or binding. All of the foregoing notwithstanding, any and
all information contained in Employee's employment application, or represented
to ForeFront by Employee either verbally or in writing, concerning Employee,
including without limitation Employee's past or present employment, skills,
education, and other such matters, are deemed to be material representations to
ForeFront, and are incorporated herein by reference and made a part hereof for
all purposes.
5.8 AMENDMENTS. No amendment or modification to this Agreement will be
effective unless it is in writing and signed by duly authorized representatives
of both parties.
5.9 FURTHER ASSURANCES. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
5.10 SURVIVAL. The provisions of Articles 3 and 4 herein shall survive
any termination of this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
effective as of June 12, 1996 (the "Effective Date").
THE FOREFRONT GROUP, INC. EMPLOYEE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
By: /s/ David Sikora By: /s/ Martin Mazner
------------------ ---------------------------
Name: David Sikora Name: Martin Mazner
------------------
Title: President and CEO Address: 2226 Louis Road
------------------ ---------------------------
Palo Alto, California 94303
---------------------------
</TABLE>
EXHIBIT A
Position: V.P. and General Manager, BookMaker Division
--------------------------------------------
Reports to: President and CEO, ForeFront
----------------------------
Duties: [As defined by the supervisor]
Initial period of Employment shall be for a period of eighteen (18) months from
the Effective Date of this Agreement.
Gross Monthly Salary: $9,500.00
Stock Option Grant: 10,000 shares
8
<PAGE>
EXHIBIT B
---------
1. The following is a complete list of all inventions or
improvements relevant to the subject matter of my employment by The ForeFront
Group, Inc. (the "Company") which have been made or conceived or first conceived
or first reduced to practice by me alone or jointly with others prior to my
engagement by the Company:
No inventions or improvements
---------
X See below
---------
Product concepts in ClickBook and Surf 'N Print while an employee of BookMaker
- --------------------------------------------------------------------------------
Corporation are the property of BookMaker Corporation.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Additional sheets attached
---------
2. I propose to bring to my employment the following materials and
documents of a former employer which are not generally available to the public,
which materials and documents may be used in my employment:
No materials
---------
See below
---------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
--------- Additional sheets attached
The signature below confirms that my continued possession and use of
these materials is authorized.
/s/ Martin Mazner
--------------------------------------------
Martin Mazner
9
<PAGE>
EXHIBIT 11.1
THE FOREFRONT GROUP, INC.
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
----------------------------------
1995 1996
--------------- -------------
<S> <C> <C>
Weighted average shares outstanding 2,421,449 4,871,357
Effect of preferred stock, common
stock, options and warrants issued
in twelve months preceding the
Company's initial public offering 841,421 --
---------- ----------
Shares used in computing net loss per
share 3,262,870 4,871,357
========== ===========
Net loss $ (309,085) $(3,184,342)
========== ===========
Net loss per share $ (0.10) $ (0.65)
========== ===========
For the Six Months Ended June 30,
-----------------------------------
1995 1996
---------- -----------
Weighted average shares outstanding 2,419,475 4,800,931
Effect of preferred stock, common
stock, options and warrants issued
in twelve months preceding the
Company's initial public offering 841,421 --
---------- -----------
Shares used in computing net loss per
share 3,260,896 4,800,931
========== ===========
Net loss $ (641,204) $(3,997,006)
========== ===========
Net loss per share $ (0.20) $ (0.83)
========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,055,937
<SECURITIES> 0
<RECEIVABLES> 855,410
<ALLOWANCES> 19,000
<INVENTORY> 54,159
<CURRENT-ASSETS> 12,025,874
<PP&E> 769,399
<DEPRECIATION> 174,615
<TOTAL-ASSETS> 12,750,976
<CURRENT-LIABILITIES> 1,313,460
<BONDS> 0
0
0
<COMMON> 51,415
<OTHER-SE> 11,351,256
<TOTAL-LIABILITY-AND-EQUITY> 12,750,976
<SALES> 1,180,816
<TOTAL-REVENUES> 1,225,427
<CGS> 196,791
<TOTAL-COSTS> 5,523,782
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 19,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,997,006)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,997,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,997,006)
<EPS-PRIMARY> (.83)
<EPS-DILUTED> (.83)
</TABLE>
