<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ROGUE WAVE SOFTWARE, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 93-1064214
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
--------------------------
850 SW 35TH STREET
CORVALLIS, OREGON 97333
(541) 754-3010
(Address and telephone number of principal executive offices and principal place
of business)
--------------------------
THOMAS KEFFER, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ROGUE WAVE SOFTWARE, INC.
850 SW 35TH STREET
CORVALLIS, OREGON 97333
(541) 754-3010
(Name, address and telephone number of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
Mark P. Tanoury, Esq. Mark C. Stevens, Esq.
James F. Fulton, Jr., Esq. Edward M. Urschel, Esq.
COOLEY GODWARD LLP FENWICK & WEST LLP
3000 Sand Hill Road Two Palo Alto Square
Building 3, Suite 230 Palo Alto, CA 94306
Menlo Park, CA 94025-7116 (415) 494-0600
(415) 843-5000
</TABLE>
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.0015 par value.............. 2,328,750 shares $11.00 $25,616,250 $7,763
</TABLE>
(1) Includes 303,750 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act of
1933.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 4, 1996
PROSPECTUS
2,025,000 SHARES
[LOGO]
COMMON STOCK
Of the 2,025,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by the Company and 25,000 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
The Company has made application to have its Common Stock listed on the Nasdaq
National Market under the symbol RWAV.
--------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (3)............... $ $ $ $
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $1,000,000
(3) The Company and certain stockholders of the Company have granted to the
Underwriters a 30-day option to purchase up to 303,750 additional shares of
Common Stock solely to cover over-allotments, if any. If all such shares are
purchased, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to Selling Stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
--------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1996 at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST WESSELS, ARNOLD & HENDERSON
, 1996
<PAGE>
[graphic]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THE DISCUSSION IN
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS" AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
THE COMPANY
Rogue Wave is a leading provider of object-oriented software parts and
related tools. The Company's C++ and Java-based products are used to develop
robust, scalable software applications for a wide variety of environments,
including client-server, intranet and Internet environments. These products
enable customers to construct software applications more quickly, with higher
quality and across multiple platforms, and reduce the complexity associated with
the software development process. The Company's software parts provide the
functionality to perform fundamental operations such as network and database
connectivity, thereby allowing programmers to focus on the core functionality of
the software under development. Rogue Wave offers a broad suite of software
parts and related tools for C++, and has recently introduced and continues to
develop software parts and related tools for Java. The Company believes it was
the first to deliver a commercially available Java interface builder.
Software is increasingly the most critical component of today's information
systems. Businesses typically rely on such information systems as a strategic
resource and as a way of differentiating themselves from their competitors.
However, software development technologies and methods have not kept pace with
the increasing reliance on software systems. In fact, the intricacies of modern
software systems have tended to make the software development process longer,
more complicated and increasingly error prone. To address these difficulties in
developing and maintaining complex software systems, organizations are
increasingly adopting object-oriented technologies and development
methodologies. For object-oriented software development, C++ has emerged as the
industry standard programming language. Java, another object-oriented
programming language that is similar to C++, has been recently popularized
through the growth of the Internet and intranet environments. Java offers
additional benefits in the areas of platform independence and distributed
computing.
While objects are easy to use once built, developing robust, well-designed
objects can be extremely difficult and time consuming. Organizations are seeking
to improve quality and time-to-market by purchasing pre-written objects or
"parts" from independent vendors to handle fundamental operations ranging from
simple functions such as date handling to more complex functions such as network
communications. The Company believes that the use of third-party software parts
will enable organizations to develop robust software applications more rapidly,
at lower cost and with more functionality than applications using only
internally developed objects.
The Company's objective is to be the leading provider of high quality,
reusable software parts and related tools for the development of object-oriented
software applications. The Company's products have the features and
functionality necessary to provide customers with the benefits of increased
software flexibility and quality, accelerated development times and reduced
maintenance costs. The Company follows a cross-platform strategy allowing most
objects to be used on the most popular operating systems, such as Windows and
UNIX. The Company's strategy is to leverage its installed base of Tools.h++
customers by offering additional object-oriented software parts and related
tools. The Company also intends to extend its technological leadership, promote
the enterprise-wide adoption of Rogue Wave products and expand its worldwide
distribution.
To date, Rogue Wave has sold over 50,000 end-user licenses. Rogue Wave
markets its software primarily through its direct sales organization, and to a
lesser extent through outside sales representatives and indirect channel
partners. The Company bundles its Tools.h++ and/or Standard C++ Library products
with popular compilers offered by leading vendors, including Fujitsu,
Hewlett-Packard, Microware, Siemens-Nixdorf, Silicon Graphics and Sun
Microsystems. The Company's products are used by programmers to develop software
applications for organizations in a wide variety of industries. The Company's
customers include FedEx, Ford, Hewlett-Packard, IBM, MCI, Motorola, Netscape,
Sony and Sun Microsystems.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company..................... 2,000,000 shares
Common Stock offered by the Selling Stockholders........ 25,000 shares
Common Stock to be outstanding after the offering....... 7,196,259 shares (1)
Use of proceeds......................................... For general corporate purposes, including working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.................. RWAV
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS:
Total revenue................................................ $ 3,212 $ 7,209 $ 11,937 $ 8,529 $ 13,192
Income (loss) from operations................................ 180 644 195 345 (255)
Net income (loss)............................................ 175 568 79 140 (114)
Net income (loss) per common share (2)....................... $ 0.05 $ 0.14 $ 0.02 $ 0.03 $ (0.03)
Shares used in per share calculation (2)..................... 3,878 4,118 4,973 4,784 4,052
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------
ACTUAL PRO FORMA (3) AS ADJUSTED (3)
--------- ------------- ---------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET:
Cash and cash equivalents............................................... $ 2,611 $ 2,611
Total assets............................................................ 9,537 9,537
Long term obligations, less current portion............................. 377 377 377
Mandatorily redeemable preferred stock.................................. 4,664 -- --
Total stockholders' equity.............................................. 527 5,191
</TABLE>
- ------------------------------
(1) Excludes 1,456,827 shares of the Company's Common Stock issuable upon
exercise of stock options outstanding as of September 30, 1996 at a weighted
average exercise price of $2.37 per share. See "Management--Equity Incentive
Plans."
(2) See Note 1 of Notes to Consolidated Financial Statements for a description
of the calculation of the number of shares used in the calculation of net
income per common share.
(3) Pro forma to reflect the conversion of the mandatorily redeemable preferred
stock and as adjusted to reflect the sale of 2,000,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $ per share. See "Capitalization."
------------------------------
EXCEPT AS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES (i) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, (ii) A
TWO-FOR-THREE REVERSE STOCK SPLIT EXPECTED TO OCCUR PRIOR TO THE COMPLETION OF
THE OFFERING, (iii) THE CONVERSION OF ALL OUTSTANDING SHARES OF PREFERRED STOCK
INTO SHARES OF COMMON STOCK, WHICH WILL OCCUR AUTOMATICALLY UPON THE CLOSING OF
THE OFFERING, AND (iv) THE COMPANY'S REINCORPORATION INTO DELAWARE EXPECTED TO
OCCUR PRIOR TO THE COMPLETION OF THE OFFERING. SEE "DESCRIPTION OF CAPITAL
STOCK" AND "UNDERWRITING."
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING SHARES OF THE COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS PROSPECTUS.
LIMITED OPERATING HISTORY. The Company was founded in September 1989 and
first shipped products in November 1989. Although the Company's revenue has
increased in each of the last six quarters and the Company had net income in
several of those quarters, the Company incurred net losses in the quarters ended
June 30, 1995, September 30, 1995 and June 30, 1996. The Company's limited
profitability is due in part to the combination of its financial results with
those of Inmark Development Corporation ("Inmark"), with which the Company
merged in October 1995 (the "Inmark Merger"), as well as the significant
commitment of resources to the Company's product development, sales and
marketing and technical support organizations. The Company expects to continue
to devote substantial resources in these areas and as a result will need to
recognize significant quarterly revenue to achieve and maintain profitability.
The Company's limited operating history makes the prediction of future operating
results difficult or impossible. Although the Company has experienced
significant revenue growth in recent years, there can be no assurance that the
Company will sustain such growth, if any, or that the Company will remain
profitable on a quarterly basis or at all. See "Selected Consolidated Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
UNCERTAINTY OF FUTURE OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY OPERATING
RESULTS. Prior growth rates in the Company's revenue and net income should not
be considered indicative of future operating results. Future operating results
will depend upon many factors, including the demand for the Company's products,
the level of product and price competition, the length of the Company's sales
cycle, the size and timing of individual license transactions, the delay or
deferral of customer implementations, the budget cycles of the Company's
customers, the Company's success in expanding its direct sales force and
indirect distribution channels, the timing of new product introductions and
product enhancements, the mix of products and services sold, levels of
international sales, activities of and acquisitions by competitors, the timing
of new hires, changes in foreign currency exchange rates, and the ability of the
Company to develop and market new products and control costs. A significant
portion of the Company's revenue has been, and the Company believes will
continue to be, derived from relatively large orders, and the timing of such
orders has caused and may continue to cause material fluctuations in the
Company's operating results, particularly on a quarterly basis. The Company
generally ships orders as received and as a result typically has little or no
backlog. Quarterly revenue and operating results therefore depend on the volume
and timing of orders received during the quarter, which are difficult to
forecast. In addition, the Company has historically earned a substantial portion
of its revenue in the last days of each quarter. To the extent this trend
continues, the failure to achieve such revenue during the last days of any given
quarter will have a material adverse effect on the Company's business, financial
condition and results of operations.
Service and maintenance revenue tend to fluctuate as consulting contracts,
which may extend over several months, are undertaken, renewed, completed or
terminated. License fee revenue is difficult to forecast due to the fact that
the Company's sales cycle, from initial evaluation to purchase, varies
substantially from customer to customer. As a result of these and other factors,
revenue for any quarter is subject to significant variation, and the Company
believes that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. Because the Company's operating expenses are based on anticipated
revenue trends and because a high percentage of the Company's expenses are
relatively fixed, a delay in the recognition of revenue from a limited number of
transactions could cause significant variations in operating results from
quarter to quarter and could result in significant losses. To the extent such
expenses precede, or are not subsequently followed by, increased revenue, the
Company's operating results would be materially and adversely affected. 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.
5
<PAGE>
In such event, the price of the Company's Common Stock would likely be
materially and adversely affected. Fluctuations in operating results may also
result in volatility in the price of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business-- Sales, Marketing and Customer Support."
COMPETITION. The market for the Company's products is intensely
competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. The
Company's products are targeted at the emerging market for C++ software parts
and programming tools, and the Company's competitors offer a variety of products
and services to address this market. The Company believes that the principal
competitive factors in this market are product quality, flexibility,
performance, functionality and features, use of standards based technology,
quality of support and service, company reputation and price. While price is
less significant than other factors for corporate customers, price can be a
significant factor for individual programmers. Direct competitors include
Microsoft (with its Microsoft Foundation Classes, "MFC"), IBM and several
privately held companies. Microsoft is a particularly strong competitor due to
its large installed base and the fact that it bundles its MFC library with its
own and other C++ compilers. Microsoft may decide in the future to devote more
resources to or may broaden the functions of MFC in order to address and more
effectively compete with the functionality of the Company's products. Software
applications can also be developed using software parts and programming tools in
environments other than C++. Indirect competitors with such offerings include
Microsoft (with its ActiveX technology), Borland, Oracle, ParcPlace-DigiTalk and
Powersoft (a subsidiary of Sybase). Many of these competitors have longer
operating histories, significantly greater financial, technical, marketing and
other resources, significantly greater name recognition and larger installed
bases of customers than the Company. In addition, several database vendors, such
as Informix, Oracle and Sybase are increasingly developing robust software parts
for inclusion with their database products and may begin to compete with the
Company in the future. These potential competitors have well-established
relationships with current and potential customers and have the resources to
enable them to more easily offer a single vendor solution. Like the Company's
current competitors, many of these companies have longer operating histories,
significantly greater resources and name recognition and larger installed bases
of customers than the Company. As a result, these potential competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products than the Company. In addition, the Company
faces competition from Borland, Symantec and other companies for its current
Java products and it expects to face significant competition in the future from
such companies with respect to other Java products the Company may introduce.
The Company also faces competition from systems integrators and internal
development efforts. Many systems integrators possess industry specific
expertise that may enable them to offer a single vendor solution more easily,
and already have a reputation among potential customers for offering
enterprise-wide solutions to software programming needs. There can be no
assurance that these third parties, many of which have significantly greater
resources than the Company, will not market competitive software products in the
future. It is also possible that new competitors or alliances among competitors
will emerge and rapidly acquire significant market share. The Company also
expects that competition will increase as a result of software industry
consolidation. Increased competition may result in price reductions, reduced
gross margins and loss of market share, any of which could materially and
adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not materially and adversely affect its
business, financial condition and results of operations.
MANAGEMENT OF GROWTH. The Company is experiencing a period of transition
and aggressive product introductions that has placed, and may continue to place,
a significant strain on its resources, including its personnel. Following the
Inmark Merger, management and other personnel have focused a significant amount
of attention on the integration of Inmark with the Company, including the
integration of Inmark personnel, as well as the integration of zApp and zApp
Factory with the Company's existing product line and the introduction of
JFactory. Expansion of the Company's product lines, additional product
development and product introductions, or acquisitions of other technologies or
companies, when added to the day-to-day activities of the Company, will place a
further strain on the Company's resources and personnel. The Inmark Merger has
also
6
<PAGE>
resulted in the Company's product development team being distributed in three
separate sites across the country. Managing this distribution requires a
significant amount of attention from management, particularly the Vice
President, Development and the Chief Technology Officer, to ensure that the
Company's development efforts are timely, consistent and well integrated.
Furthermore, the Company believes that its ability to achieve significant
revenue growth in the future will depend in large part on its success in
recruiting and training sufficient direct sales personnel and establishing and
maintaining relationships with its outside sales representatives. Although the
Company is currently investing, and plans to continue to invest, significant
resources to expand its direct sales force and to develop distribution
relationships with outside sales representatives, the Company has at times
experienced and continues to experience difficulty in recruiting qualified sales
personnel and in establishing necessary sales representative relationships. The
Company believes that the hiring and retaining of qualified individuals at all
levels in the Company is essential to the Company's ability to manage growth
successfully, and there can be no assurance that the Company will be successful
in attracting and retaining the necessary personnel. If Company management is
unable to effectively manage growth, the Company's business, financial condition
and results of operations will be materially and adversely affected. See
"--Future Acquisitions," "Business--The Rogue Wave Strategy" and
"Business--Sales, Marketing and Customer Support."
DEPENDENCE ON EMERGING MARKET FOR C++ AND JAVA. The Company's product lines
are designed for use in object-oriented software application development,
specifically the C++ programming language, and substantially all of the
Company's revenue has been attributable to sales of products and related
maintenance and consulting services related to C++ programming and development.
The Company believes that while the market for object-oriented technology in
general, and C++ tools and programming applications in particular, is growing,
the Company's growth depends upon broader market acceptance of object-oriented
technology and the C++ programming language. Even if broader market acceptance
is achieved, the object-oriented market may continue to be characterized by a
lack of standards and numerous competitors in the areas of tools, methodology
and services. Furthermore, the C++ programming language is very complex. Should
the C++ programming language lose market acceptance or be replaced by another
programming language, the Company's business, financial condition and results of
operations would be materially and adversely affected. The Company's financial
performance will depend in part upon continued growth in the object-oriented
technology and C++ markets and the development of standards that the Company's
products address. There can be no assurance that the market will continue to
grow or that the Company will be able to respond effectively to the evolving
requirements of the market.
The number of software developers using the C++ programming language is
relatively small compared to the number of developers using more traditional
software development technology. The adoption of the C++ programming language by
software programmers who have traditionally used other technology requires
reorientation to significantly different programming methods, and there can be
no assurance that the acceptance of the C++ programming language will expand
beyond the early adopters of the technology. Furthermore, there can be no
assurance that potential corporate customers will be willing to make the
investment required to retrain programmers to build software using C++ rather
than structured or other object-oriented programming techniques. Many of the
Company's customers have purchased only small quantities of the Company's
products and there can be no assurance that these or new customers will broadly
implement C++ programming or purchase additional products.
In addition, the Company has recently introduced several products for use in
the Java market. The Company has spent and will continue to devote resources on
the development of new and enhanced products that address the Java market. There
can be no assurance that the Company will be successful in marketing its
existing or future Java products or that the market for Java products will grow.
If the Java market fails to grow, or grows more slowly than the Company
currently anticipates, the Company's business, financial condition and results
of operations could be materially and adversely affected. See
"Business--Industry Background" and "--Products."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS. The market for
software development tools is characterized by rapid technological advances,
changes in customer requirements and frequent new product
7
<PAGE>
introductions and enhancements. The Company must respond rapidly to developments
related to hardware platforms, operating systems and applicable programming
languages. Such developments will require the Company to continue to make
substantial product development investments. Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development or introduction,
could result in a loss of competitiveness or revenue.
The Company's future success will depend on its ability to continue to
enhance its current product line and to continue to develop and introduce new
products that keep pace with competitive product introductions and technological
developments, satisfy diverse and evolving customer requirements and otherwise
achieve market acceptance. There can be no assurance that the Company will be
successful in continuing to develop and market on a timely and cost-effective
basis fully functional product enhancements or new products that respond to
technological advances by others, or that its enhanced and new products will
achieve market acceptance. In addition, the Company has in the past experienced
delays in the development, introduction and marketing of new or enhanced
products, and there can be no assurance that the Company will not experience
similar delays in the future. Any failure by the Company to anticipate or
respond adequately to changes in technology and customer preferences, or any
significant delays in product development or introduction, would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "--Dependence on Emerging Market for C++ and Java" and
"Business--Product Development."
FUTURE ACQUISITIONS. While there are currently no commitments or
negotiations with respect to any particular acquisition, the Company frequently
evaluates strategic opportunities available to it and may in the future pursue
acquisitions of complementary technologies, products or businesses. Future
acquisitions of complementary technologies, products or businesses by the
Company will result in the diversion of management's attention from the
day-to-day operations of the Company's business and may include numerous other
risks, including difficulties in the integration of the operations, products and
personnel of the acquired companies. Future acquisitions by the Company may also
result in dilutive issuances of equity securities, the incurrence of debt and
amortization expenses related to goodwill and other intangible assets. Failure
of the Company to successfully manage future acquisitions may have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE UPON KEY PERSONNEL. The Company's future performance depends in
significant part upon the continued service of its key technical, sales and
senior management personnel, none of whom is bound by an employment agreement.
The Company believes that the technological and creative skills of its personnel
are essential to establishing and maintaining a leadership position,
particularly in light of the fact that its intellectual property, once sold to
the public market, is easily replicated. The loss of the services of one or more
of the Company's executive officers or key technical personnel would have a
material adverse effect on the Company's business, financial condition and
results of operations. In particular, the services of Thomas Keffer, Dan
Whitaker and Michael Scally, the Company's President and Chief Executive
Officer, Executive Vice President and Chief Operating Officer, respectively,
would be difficult to replace. The Company has key person life insurance
policies in the amount of $1.0 million on each of Mr. Keffer and Mr. Whitaker.
In addition, the Company is in the process of acquiring a key person life
insurance policy in the amount of $1.0 million on Mr. Scally. The Company's
future success also depends on its continuing ability to attract and retain
highly-qualified technical, sales and managerial personnel. In the past, the
Company has experienced some difficulty in attracting key technical personnel to
work at its headquarters in Corvallis, Oregon. Competition for such personnel is
intense, and there can be no assurance that the Company can retain its key
technical, sales and managerial employees or that it can attract, assimilate or
retain other highly qualified technical, sales and managerial personnel in the
future. See "Business--Sales, Marketing and Customer Support" and "Management."
VARIABILITY OF SALES CYCLES. The Company distributes its products through
two different direct sales channels, a telesales force and a field sales force,
each of which is subject to a variable sales cycle. Products sold by the
Company's telesales force may be sold after a single phone call or may require
several weeks of education and negotiation before a sale is made. As such, the
sales cycle associated with telesales typically ranges from a few days to two
months. On the other hand, the purchase of products from the Company's field
sales force is often an enterprise-wide decision and may require the sales
person to provide a significant level of education to
8
<PAGE>
prospective customers regarding the use and benefits of the Company's products.
For these and other reasons, the sales cycle associated with the sale of the
Company's products through its field sales force typically ranges from two to
six months and is subject to a number of significant delays over which the
Company has little or no control. Due to the foregoing factors, quarterly
revenue and operating results can be variable and are difficult to forecast, and
the Company believes that period-to-period comparisons of quarterly revenue are
not necessarily meaningful and should not be relied upon as an indicator of
future revenue. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Sales, Marketing and Customer
Support."
PROPRIETARY RIGHTS, RISKS OF INFRINGEMENT AND SOURCE CODE RELEASE. The
Company relies primarily on a combination of copyright, trademark and trade
secret laws, confidentiality procedures and contractual provisions to protect
its proprietary rights. The Company also believes that factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable product maintenance
are essential to establishing and maintaining a technological leadership
position. The Company seeks to protect its software, documentation and other
written materials under trade secret and copyright laws, which afford only
limited protection. The Company currently has one patent application pending in
the United States. There can be no assurance that the Company's pending patent
application, whether or not being currently challenged by applicable
governmental patent examiners, will be issued with the scope of the claims
sought by the Company, if at all. Furthermore, there can be no assurance that
others will not develop technologies that are similar or superior to the
Company's technology or design around the Company's pending patent. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. The nature of many of the
Company's products requires the release of the source code to all customers. As
such, policing unauthorized use of the Company's products is difficult, and
while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the United States. There
can be no assurance that the Company's means of protecting its proprietary
rights in the United States or abroad will be adequate or that competition will
not independently develop similar technology.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to license the infringed or similar
technology, the Company's business, financial condition and results of
operations would be materially and adversely affected.
LIMITED INTERNATIONAL SALES AND MARKETING EXPERIENCE. The Company opened
its first international sales office in Germany in January 1996. As of September
30, 1996, there were six employees in the German office. International revenue
accounted for less than 10% and approximately 17% of the Company's total revenue
in fiscal 1995 and the nine months ended June 30, 1996, respectively. The
Company believes that in order to increase sales opportunities and profitability
it will be required to expand its international operations. The Company has
committed and continues to commit significant management time and financial
resources to developing direct and indirect international sales and support
channels. There can be no assurance, however, that the Company will be able to
maintain or increase international market demand for its products. To the extent
that the Company is unable to do so in a timely manner, the Company's
international revenue would be limited, and the Company's business, financial
condition and results of operations would be materially and adversely affected.
9
<PAGE>
RISKS INHERENT IN INTERNATIONAL OPERATIONS. International operations are
subject to inherent risks, including the impact of possible recessionary
environments in economies outside the United States, costs of localizing
products for foreign markets, longer receivables collection periods and greater
difficulty in accounts receivable collection, unexpected changes in regulatory
requirements, difficulties and costs of staffing and managing foreign
operations, reduced protection for intellectual property rights in some
countries, potentially adverse tax consequences, and political and economic
instability. There can be no assurance that the Company will be able to sustain
or increase international revenue from licenses or from maintenance and service,
or that the foregoing factors will not have a material adverse effect on the
Company's future international revenue and, consequently, on the Company's
business, financial condition and results of operations. The Company's direct
international revenue is generally denominated in local currencies. The Company
does not currently engage in hedging activities. Although exposure to currency
fluctuations to date has been insignificant, there can be no assurance that
fluctuations in currency exchange rates in the future will not have a material
adverse impact on international revenue and thus the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Customers" and "--Sales, Marketing and Customer Support."
PRODUCT LIABILITY. The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in the Company's license agreements may not be
effective under the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company may entail the risk of such claims, and there can be no
assurance that the Company will not be subject to such claims in the future. A
successful product liability claim brought against the Company could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
RISK OF PRODUCT DEFECTS. Software products as complex as those offered by
the Company frequently contain errors or failures, especially when first
introduced or when new versions are released. Also, new products or enhancements
may contain undetected errors, or "bugs," or performance problems that, despite
testing, are discovered only after a product has been installed and used by
customers. There can be no assurance that such errors or performance problems
will not be discovered in the future, causing delays in product introduction and
shipments or requiring design modifications that could materially and adversely
affect the Company's competitive position and operating results. The Company's
products are typically intended for use in applications that may be critical to
a customer's business. As a result, the Company expects that its customers and
potential customers have a greater sensitivity to product defects than the
market for software products generally. Although the Company has not experienced
material adverse effects resulting from any such errors to date, there can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of revenue or delay in
market acceptance, diversion of development resources, damage to the Company's
reputation, or increased service and warranty costs, any of which could have a
material adverse effect upon the Company's business, financial condition and
results of operations. See "Business--Product Development."
CONTROL BY EXISTING STOCKHOLDERS. Upon completion of this offering, the
Company's officers, directors and affiliated entities together will beneficially
own approximately 59.8% of the outstanding shares of Common Stock (56.0% if the
Underwriters' over-allotment option is exercised in full). In particular, upon
completion of this offering, Thomas Keffer, the Company's President and Chief
Executive Officer, will own approximately 22.1% of the outstanding shares of
Common Stock (21.5% if the Underwriters' over-allotment option is exercised in
full). As a result, these stockholders will be able to exercise control over
matters requiring stockholder approval, including the election of directors,
mergers, consolidations and sales of all or substantially all of the assets of
the Company. This stockholder control may prevent or discourage tender offers
for the Company's Common Stock unless the terms are approved by such
stockholders. See "Principal and Selling Stockholders."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE. Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the offering. The initial public
offering price will be determined by negotiations between the Company, the
representatives of the Selling Stockholders and the
10
<PAGE>
representatives of the Underwriters. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
trading price of the Company's Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results, the gain
or loss of significant orders, changes in earning estimates by analysts,
announcements of technological innovations or new products by the Company or its
competitors, general conditions in the software and computer industries and
other events or factors. In addition, the stock market in general has
experienced extreme price and volume fluctuations that have affected the market
price for many companies in industries similar or related to that of the Company
and that have been unrelated to the operating performance of these companies.
These market fluctuations may materially and adversely affect the market price
of the Company's Common Stock.
ANTITAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE
LAW. The Company's Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the stockholders. The Preferred
Stock could be issued with voting, liquidation, dividend and other rights
superior to those of the Common Stock. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. Further, certain provisions of the
Company's Certificate of Incorporation and Bylaws and of Delaware law could
delay or make more difficult a merger, tender offer or proxy contest involving
the Company. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of substantial
numbers of shares of Common Stock in the public market following this offering
could adversely affect the market price for the Common Stock. Upon completion of
this offering, the Company will have outstanding an aggregate of 7,196,259
shares of Common Stock, assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options and based upon the number of
shares outstanding as of September 30, 1996. Of these shares, the 2,025,000
shares sold in this offering will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), unless such shares are purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act. In
addition, 586,387 shares issued in connection with the Inmark Merger will be
freely tradeable without restriction upon the expiration of the lock-up period
described below. The remaining 4,584,872 shares of Common Stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act (the "Restricted Shares"). Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rules 144, 144(k), 145 or 701 promulgated under the
Securities Act. Holders of an aggregate of 4,857,526 shares of Common Stock
after the offering, have agreed that they will not, without the prior written
consent of Hambrecht & Quist LLC, directly or indirectly, sell, offer, contract
to sell, transfer the economic risk of ownership in, make any short sale, pledge
or otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for or any other rights to purchase or
acquire shares of Common Stock owned by them during the 180-day period
commencing on the date of this Prospectus. Upon expiration of the lock-up
period, in addition to the 586,387 shares issued in connection with the Inmark
Merger, approximately 531,172 shares of Common Stock held by existing
stockholders will be eligible for sale without restriction pursuant to Rule
144(k) or Rule 701, and approximately 3,057,930 shares held by existing
stockholders will be eligible for sale subject to the volume and other
restrictions of Rule 144. The remaining 995,770 shares held by existing
stockholders will become eligible for sale pursuant to Rule 144 upon the
expiration of their two-year holding periods. In addition, as of September 30,
1996, 1,456,827 shares were subject to outstanding options. Substantially all of
these shares are subject to the lock-up agreements described above. Upon the
expiration of such lock-up agreements, approximately 665,253 shares subject to
such options will be vested. 4,150,651 of the shares outstanding immediately
following the completion of this offering will be entitled to registration
rights with respect to such shares upon termination of lock-up agreements. The
number of shares sold in the public market could increase if registration rights
are exercised. See "Description of Capital Stock" and "Shares Eligible for
Future Sale."
11
<PAGE>
UNCERTAINTY AS TO USE OF PROCEEDS. The primary purposes of this offering
are to create a public market for the Company's Common Stock, to facilitate
future access to public markets and to obtain additional working capital. As of
the date of this Prospectus, the Company has no specific plans to use the net
proceeds from this offering other than for working capital and general corporate
purposes. Accordingly, the Company's management will retain broad discretion as
to the allocation of a substantial portion of the net proceeds from this
offering. Pending any such uses, the Company plans to invest the net proceeds in
investment-grade, interest-bearing securities. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION. Investors participating in this
offering will incur immediate, substantial dilution of $ per share. To the
extent outstanding options to purchase the Company's Common Stock are exercised,
there will be further dilution. If the net proceeds of this offering, together
with available funds and cash generated from operations, are insufficient to
satisfy the Company's cash needs, the Company may be required to sell additional
equity or convertible debt securities. The sale of additional equity or
convertible debt securities could result in additional dilution to the Company's
stockholders. See "Dilution" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
THE COMPANY
The Company was founded in 1989 and incorporated in Oregon in July 1991. The
Company intends to reincorporate in Delaware prior to the completion of this
offering. Unless the context otherwise requires, "Rogue Wave" and the "Company"
refer to Rogue Wave Software, Inc. and its subsidiary. The Company's executive
offices are located at 850 SW 35th Street, Corvallis, Oregon 97333. Its
telephone number is (541) 754-3010. The Company maintains a Web site on the
World Wide Web.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.
Rogue Wave-Registered Trademark-, .h++-Registered Trademark-,
zApp-Registered Trademark- and zApp Factory-Registered Trademark- are registered
trademarks of the Company. JFactory, JMoney, JTools, JWidgets, DBTools and
DBFactory are trademarks of the Company. All other brand names or trademarks
appearing in this Prospectus are the property of their respective holders.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby, at the assumed initial public
offering price of $ per share, are estimated to be $ ( if the
Underwriters' over-allotment option is exercised in full). The Company will not
receive any proceeds from the sale of shares of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."
The principal purposes of this offering are to increase the Company's equity
capital and to create a public market for the Company's Common Stock, which will
enhance the ability of the Company to use its Common Stock as consideration for
acquisitions and as a means for attracting and retaining key employees.
The Company intends to use the net proceeds of this offering primarily for
working capital and other general corporate purposes, including expansion of
general sales and customer support activities to accommodate growth in the
Company's business and customer base. The amounts actually expended by the
Company for working capital purposes will vary significantly depending upon a
number of factors, including future revenue growth, the amount of cash generated
by the Company's operations and the progress of the Company's product
development efforts, and hence the Company's management will retain broad
discretion in the allocation of the proceeds from this offering. In addition,
the Company may make one or more acquisitions of complementary technologies,
products or businesses which broaden or enhance the Company's current product
offerings. The Company has no specific agreements or commitments, however, and
is not currently engaged in any negotiations for any such acquisition. Pending
the uses described above, the net proceeds will be invested in interest-bearing,
investment-grade securities.
DIVIDEND POLICY
In June 1994, the Company, as a Subchapter S corporation, declared and paid
a cash dividend in the aggregate amount of $500,000. The Company currently
intends to retain any future earnings to finance the growth and development of
its business and therefore does not anticipate paying any cash dividends in the
foreseeable future.
13
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
June 30, 1996, (ii) the pro forma capitalization of the Company after giving
effect to the conversion of all outstanding shares of Preferred Stock into
Common Stock, and (iii) the pro forma capitalization as adjusted to reflect the
sale by the Company of 2,000,000 shares of the Common Stock offered hereby at an
assumed initial offering price of $ .
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current portion
(1)........................................... $ 377 $ 377 $377
Mandatorily redeemable preferred stock, $0.0015
par value; 2,350,000 shares authorized;
1,543,000 shares issued and outstanding,
actual; none issued and outstanding, pro forma
and as adjusted............................... 4,664 -- --
Stockholders' equity:
Common Stock, $0.0015 par value; 13,000,000
shares authorized; 3,652,000 shares issued
and outstanding, actual; 5,195,000 shares
issued and outstanding, pro forma; and
7,195,000 shares issued and outstanding, as
adjusted (2)................................ 5 7
Additional paid-in capital.................... 670 5,332
Stockholder note receivable................... (13) (13) (13)
Retained earnings............................. (125) (125) (125)
Cumulative translation adjustment............. (10) (10) (10)
------ --------- -----------
Total stockholders' equity................ 527 5,191
------ --------- -----------
Total capitalization.................... $5,568 $5,568 $
------ --------- -----------
------ --------- -----------
</TABLE>
- ------------------------
(1) See Notes 4 and 5 of Notes to Consolidated Financial Statements for a
description of the Company's long-term obligations, less current portion.
(2) Excludes 2,268,804 shares of Common Stock reserved for issuance pursuant to
the Company's 1996 Equity Incentive Plan (the "Equity Incentive Plan") under
which options to purchase 1,456,827 shares of Common Stock were outstanding
as of September 30, 1996 at a weighted average exercise price of $2.37. Also
excludes 350,000 shares of Common Stock reserved for issuance pursuant to
the Company's Employee Stock Purchase Plan (the "Purchase Plan").
14
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996,
was approximately $ million or $ per share. Pro forma net tangible book value
per share is equal to the Company's total tangible assets less its total
liabilities, divided by the number of outstanding shares of Common Stock,
assuming conversion of all outstanding shares of Preferred Stock into Common
Stock. After giving effect to the sale of the Common Stock offered by the
Company hereby (at the assumed initial public offering price of $ per share),
the pro forma net tangible book value of the Company at June 30, 1996 would have
been approximately $ million or $ per share. This represents an immediate
increase in such net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors
purchasing shares in this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book value per share as of June 30,
1996......................................................... $
Increase per share attributable to new investors..............
---------
Pro forma net tangible book value per share after this
offering.......................................................
---------
Dilution per share to new investors............................. $
---------
---------
</TABLE>
The following table summarizes on a pro forma basis, as of June 30, 1996,
the differences between the number of shares purchased from the Company,
assuming conversion of all outstanding shares of Preferred Stock into Common
Stock, the total consideration paid and the average price paid per share by the
existing holders of Common Stock and by the new investors at the assumed initial
public offering price of $ per share:
<TABLE>
<CAPTION>
AVERAGE PRICE
PER SHARE
-------------
SHARES TOTAL
PURCHASED CONSIDERATION
---------------- ----------------
NUMBER PERCENT AMOUNT PERCENT
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders (1).......... 5,196,259 72.2% $ % $
New investors (1).................. 2,000,000 27.8
------- ------- ------- -------
Total.......................... 7,196,259 100.0% $ 100.0%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The foregoing tables exclude 2,268,804 shares of Common Stock reserved for
issuance pursuant to the Equity Incentive Plan, under which options to purchase
1,456,827 shares of Common Stock at a weighted average exercise price of $2.37
were outstanding as of September 30, 1996. In addition, 350,000 shares of Common
Stock have been reserved for issuance under the Purchase Plan. To the extent
that options are exercised in the future, there will be further dilution to new
stockholders. See "Management--Equity Incentive Plans."
- ------------------------
(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 5,171,259 shares or approximately
71.9% of the total shares of Common Stock outstanding after this offering
and will increase the number of shares held by new investors to 2,025,000
shares or approximately 28.1% of the total shares of Common Stock
outstanding after this offering.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
Notes related thereto included elsewhere in this Prospectus. The balance sheet
data at September 30, 1993 are derived from financial statements not included in
this Prospectus. The selected consolidated financial data presented below for
each of the years in the three-year period ended September 30, 1995 and the
balance sheet data as of September 30, 1994 and 1995 are derived from the
Consolidated Financial Statements of the Company, which are included elsewhere
in this Prospectus and have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, whose report thereon also is included herein. The
consolidated balance sheet data at June 30, 1996, and the consolidated
statements of operations data for the nine months ended June 30, 1995 and 1996
are derived from unaudited consolidated financial statements included elsewhere
in this Prospectus. The unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of the financial position and
results of operations for these periods. Operating results for the nine months
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending September 30, 1996.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
License revenue.............................................. $ 2,949 $ 6,652 $ 10,417 $ 7,566 $ 10,605
Service and maintenance revenue.............................. 263 557 1,520 963 2,587
--------- --------- --------- --------- ---------
Total revenue.............................................. 3,212 7,209 11,937 8,529 13,192
--------- --------- --------- --------- ---------
Cost of revenue:
Cost of license revenue...................................... 301 693 1,048 787 873
Cost of service and maintenance revenue...................... 166 331 1,123 775 1,025
--------- --------- --------- --------- ---------
Total cost of revenue...................................... 467 1,024 2,171 1,562 1,898
--------- --------- --------- --------- ---------
Gross profit............................................... 2,745 6,185 9,766 6,967 11,294
--------- --------- --------- --------- ---------
Operating expenses:
Product development.......................................... 893 2,109 3,204 2,302 3,984
Sales and marketing.......................................... 1,330 2,652 4,880 3,336 5,969
General and administrative................................... 342 780 1,487 984 1,596
--------- --------- --------- --------- ---------
Total operating expenses................................... 2,565 5,541 9,571 6,622 11,549
--------- --------- --------- --------- ---------
Income (loss) from operations.............................. 180 644 195 345 (255)
Other income (expense), net.................................... (5) 4 (10) (19) 68
--------- --------- --------- --------- ---------
Income (loss) before income taxes.......................... 175 648 185 326 (187)
Income tax expense (benefit)................................... -- 80 106 186 (73)
--------- --------- --------- --------- ---------
Net income (loss).......................................... $ 175 $ 568 $ 79 $ 140 $ (114)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per common share............................. $ 0.05 $ 0.14 $ 0.02 $ 0.03 $ (0.03)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in per share calculation (1)....................... 3,878 4,118 4,973 4,784 4,052
Pro forma net income data (2):
Income before income taxes, as reported...................... $ 175 $ 648
Pro forma income tax expense................................. 32 142
--------- ---------
Pro forma net income....................................... $ 143 $ 506
--------- ---------
--------- ---------
Pro forma net income per common share.......................... $ 0.04 $ 0.12
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------- JUNE 30,
1993 1994 1995 1996
--- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 76 $ 609 $ 1,010 $ 2,611
Total assets................................................. 881 3,301 4,758 9,537
Long-term obligations, less current portion.................. 59 166 230 377
Mandatorily redeemable preferred stock....................... -- 941 1,140 4,664
Total stockholders' equity................................... 457 536 619 527
</TABLE>
- ------------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements.
(2) The Company was a Subchapter S corporation until June 30, 1994 and
accordingly not subject to federal and state income taxes during the
periods indicated. Pro forma net income reflects federal and state income
taxes as if the Company has been a C corporation, based on effective tax
rates during the periods indicated. See Notes 1 and 6 of Notes to
Consolidated Financial Statements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Rogue Wave was founded in 1989 to provide reusable software parts for the
development of object-oriented software applications. The Company operated as a
Subchapter S corporation until June 1994. In October 1995, Rogue Wave merged
with Inmark Development Corporation ("Inmark"), a privately held corporation
specializing in the development, distribution and support of an object-oriented
graphical user interface library written in the C++ programming language. The
transaction was accounted for as a pooling-of-interests business combination.
The Inmark graphical user interface library is currently being marketed by Rogue
Wave as a component of its Visual User Interface family of products. The Company
intends to integrate these products into future product releases.
The Company has experienced significant revenue growth over the last several
years. The Company has in recent periods shifted its focus from achieving
profitability to expanding its sales channels, marketing efforts and product
development capacity. While the Company expects operating expenses to continue
to increase in absolute dollar amounts, the Company expects operating expenses
to decrease as a percentage of total revenue. There can be no assurance that the
Company will be profitable on a quarterly or annual basis. The Company's limited
operating history makes the prediction of future operating results difficult, if
not impossible. See "Risk Factors--Limited Operating History" and "--Uncertainty
of Future Operating Results; Fluctuations in Quarterly Operating Results."
To date, the Company's revenue has been derived from licenses of its
software products and related maintenance, training and consulting services.
License revenue is recognized upon execution of a license agreement and shipment
of the product if no significant contractual obligations remain and collection
of the resulting receivable is probable. Allowances for credit risks and for
estimated future returns are provided for upon shipment. Returns to date have
not been material. Service and maintenance revenue consists of fees that are
charged separately from the product licenses. Maintenance revenue consists of
fees for ongoing support and product updates and is recognized ratably over the
term of the contract, which is typically 12 months. Service revenue consists of
training and consulting services and is recognized upon completion of the
related activity. For all periods presented, the Company has recognized revenue
in accordance with Statement of Position 91-1, SOFTWARE REVENUE RECOGNITION. See
Note 1 of Notes to Consolidated Financial Statements.
The Company markets its products primarily through its direct sales force,
and to a lesser extent through an indirect channel consisting of OEMs, VARs,
dealers and distributors. The Company's direct sales force consists of an inside
telesales group that focuses on smaller orders ($50,000 or less), and an outside
sales force that focuses on larger site licenses. The Company makes all of its
products available for sale and distribution over the Internet to customers in
the United States. Revenue through this channel has not been significant to
date, and there can be no assurance that the Company will be successful in
marketing its products through this channel.
International revenue represented less than 10% of the Company's total
revenue for each of the fiscal years ended September 30, 1993, 1994 and 1995.
International revenue for the nine months ended June 30, 1996 was approximately
17% of total revenue. In January 1996, the Company established a wholly-owned
subsidiary in Germany to market and support the Company's products in Germany
and neighboring countries. The Company anticipates establishing similar
organizations in other locations in Europe, and possibly in Asia. The Company
expects that international license and service and maintenance revenue will
account for an increasing portion of its total revenue in the future. The
Company has committed and continues to commit significant management time and
financial resources to developing direct and indirect international sales and
support channels. There can be no assurance, however, that the Company will be
able to maintain or increase international market demand for its products. To
date, other than revenue generated by the Company's German subsidiary, the
Company's international revenue has been denominated in United States dollars
and the Company currently does not engage in hedging activities. Although
exposure to currency fluctuations to date has been insignificant, to the extent
international revenue is denominated in local currencies, foreign currency
translations may contribute to significant fluctuations in, and could have a
material adverse effect upon, the Company's business, financial condition and
results of operations. See "Risk Factors--Risks Inherent in International
Operations."
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data expressed as a
percentage of total revenue for each period indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE
YEAR ENDED SEPTEMBER 30, 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenue:
License revenue............................................. 91.8% 92.3% 87.3% 88.7% 80.4%
Service and maintenance revenue............................. 8.2 7.7 12.7 11.3 19.6
----- ----- ----- ----- -----
Total revenue............................................. 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenue:
Cost of license revenue..................................... 9.4 9.6 8.8 9.2 6.6
Cost of service and maintenance revenue..................... 5.1 4.6 9.4 9.1 7.8
----- ----- ----- ----- -----
Total cost of revenue..................................... 14.5 14.2 18.2 18.3 14.4
----- ----- ----- ----- -----
Gross profit.............................................. 85.5 85.8 81.8 81.7 85.6
----- ----- ----- ----- -----
Operating expenses:
Product development......................................... 27.8 29.3 26.8 27.1 30.2
Sales and marketing......................................... 41.4 36.8 40.9 39.1 45.2
General and administrative.................................. 10.7 10.8 12.5 11.5 12.1
----- ----- ----- ----- -----
Total operating expenses.................................. 79.9 76.9 80.2 77.7 87.5
----- ----- ----- ----- -----
Income (loss) from operations............................. 5.6 8.9 1.6 4.0 (1.9)
Other income (expense), net................................... (0.2) 0.1 (0.1) (0.2) 0.5
----- ----- ----- ----- -----
Income (loss) before income taxes......................... 5.4 9.0 1.5 3.8 (1.4)
Income tax expense (benefit).................................. 0.0 1.1 0.8 2.2 (0.5)
----- ----- ----- ----- -----
Net income (loss)......................................... 5.4% 7.9% 0.7% 1.6% (0.9)%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
REVENUE
The Company's total revenue was $3.2 million, $7.2 million and $11.9 million
in fiscal 1993, 1994 and 1995, respectively. Total revenue was $8.5 million and
$13.2 million for the nine months ended June 30, 1995 and June 30, 1996,
respectively. License revenue increased from $2.9 million in fiscal 1993 to $6.7
million in fiscal 1994 and to $10.4 million in fiscal 1995; and also increased
from $7.6 million in the nine months ended June 30, 1995 to $10.6 million in the
nine months ended June 30, 1996. License revenue increased primarily as a result
of an increase in the number of licenses sold to existing and new customers,
reflecting additional product offerings, an expanding market, increased market
awareness and expansion of the Company's direct sales organization. In
particular, the Company introduced its DBTools.h++ product in the first half of
fiscal 1995 and its Standard C++ Library product during the third quarter of
fiscal 1995, and established its direct sales force in the second quarter of
fiscal 1995. Service and maintenance revenue increased from $263,000 in fiscal
1993 to $557,000 in fiscal 1994 and to $1.5 million in fiscal 1995, and also
increased from $963,000 in the nine months ended June 30, 1995 to $2.6 million
in the nine months ended June 30, 1996. These increases in service and
maintenance revenue were generally attributable to the growing installed base of
the Company's products and the associated increase in demand for maintenance and
training services. An increased focus on marketing support and maintenance
services, which include upgrades and telephone support, as well as the
introduction of mentoring services, also contributed to increased service and
maintenance revenue for fiscal 1995 and the nine months ended June 30, 1996.
COST OF REVENUE
COST OF LICENSE REVENUE. Cost of license revenue consists primarily of
amortization of purchased software, materials, packaging and freight expenses.
Cost of license revenue was $301,000, $693,000 and $1.0 million in fiscal 1993,
1994 and 1995, respectively, and $787,000 and $873,000 for the nine months ended
June 30, 1995 and June 30, 1996 respectively, representing 10.2%, 10.4%, 10.1%,
10.4% and 8.2% of the license revenue for the respective periods. The period to
period dollar increases in cost of license revenue were primarily the result of
18
<PAGE>
an increase in the number of licenses sold. Fluctuations in cost of license
revenue as a percentage of total license revenue are primarily the result of
varying levels of royalties paid, changes in product mix, the timing of large
site license sales and the timing of product upgrades.
COST OF SERVICE AND MAINTENANCE REVENUE. Cost of service and maintenance
revenue consists primarily of personnel-related and facilities costs incurred in
providing customer support and training services, as well as third-party costs
incurred in providing training services. Cost of service and maintenance revenue
was $166,000, $331,000 and $1.1 million in fiscal 1993, 1994 and 1995,
respectively, and $775,000 and $1.0 million for the nine months ended June 30,
1995 and June 30, 1996, respectively, representing 63.1%, 59.4%, 73.9%, 80.5%
and 39.6% of the service and maintenance revenue for the respective periods. The
period to period dollar increases in cost of service and maintenance revenue
were primarily the result of expenses associated with the development of
training programs, utilization of training and mentoring consultants and
additional product support personnel. The higher percentages of cost of service
and maintenance revenue as a percentage of service and maintenance revenue for
fiscal 1995 and the nine months ended June 30, 1995 reflect the fact that
increases in such costs occurred prior to an anticipated increase in demand. The
decrease as a percentage of service and maintenance revenue for the nine months
ended June 30, 1996 primarily was the result of the increase in service and
maintenance revenue.
OPERATING EXPENSES
PRODUCT DEVELOPMENT. Product development expenses consist primarily of
personnel related expenses. Product development expenses increased from $893,000
in fiscal 1993 to $2.1 million in fiscal 1994 and to $3.2 million in fiscal
1995. Product development expenses increased from $2.3 million for the nine
months ended June 30, 1995 to $4.0 million for the nine months ended June 30,
1996. As a percentage of total revenue, product development expenses were 27.8%,
29.3%, 26.8%, 27.1% and 30.2% in each respective period. The increases in
product development expenses were primarily attributable to the hiring of
additional product development personnel. The Company anticipates that it will
continue to devote substantial resources to product development and that product
development expenses will increase in dollar amount for fiscal 1996 and fiscal
1997. All costs incurred in the research and development of software products
and enhancements to existing products have been expensed as incurred. See Note 1
of Notes to Consolidated Financial Statements.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel, field
office expenses, and travel, entertainment and promotional expenses. Sales and
marketing expenses increased from $1.3 million in fiscal 1993 to $2.7 million in
fiscal 1994 and $4.9 million in fiscal 1995. Sales and marketing expenses
increased from $3.3 million for the nine months ended June 30, 1995 to $6.0
million for the nine months ended June 30, 1996. As a percentage of total
revenue, sales and marketing expenses were 41.4%, 36.8%, 40.9%, 39.1% and 45.2%
in each respective period. The increase in sales and marketing expenses reflects
the hiring of additional sales and marketing personnel and related costs, as
well as increased costs associated with expanded promotional activities. The
Company expects that sales and marketing expenses will continue to increase in
dollar amount as the Company continues to hire additional sales and marketing
personnel and increase promotional activities in the future.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $342,000 in fiscal 1993 to $780,000 in fiscal 1994 and to $1.5 million in
fiscal 1995. General and administrative expenses increased from $984,000 for the
nine months ended June 30, 1995 to $1.6 million for the nine months ended June
30, 1996. As a percentage of total revenue, general and administrative expenses
were 10.7%, 10.8%, 12.5%, 11.5% and 12.1% in each respective period. The
increases in general and administrative expenses were primarily due to increased
staffing, investment in infrastructure and associated expenses necessary to
manage and support the Company's growing operations. The Company believes that
its general and administrative expenses will increase in dollar amount in fiscal
1996 and fiscal 1997 as a result of an anticipated expansion of the Company's
administrative staff required to support its growing operations and as a result
of an increase in expenses associated with being a public company.
OTHER INCOME (EXPENSE), NET
Other income (expense), net primarily represents interest income earned on
the Company's cash, cash equivalents and short-term investments, net of interest
expense on long-term obligations.
PROVISION FOR INCOME TAXES
The Company was a cash basis taxpayer through fiscal 1994. Prior to July 1,
1994, the Company was taxed under the S corporation provisions of the Internal
Revenue Code. Under those provisions, the Company did not
19
<PAGE>
pay federal or state corporate income taxes on its income. The Company's income
taxes since July 1, 1994, and Inmark's income taxes for all periods presented,
have been accounted for in accordance with Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME TAXES. The Company's effective tax
rates were 0%, 12.3% and 57.1% for fiscal 1993, 1994 and 1995. The effective tax
rate for fiscal 1993 was the result of the exclusion of earnings due to the
Company's Subchapter S election and the net loss incurred by Inmark. The 12.3%
rate of fiscal 1994 reflects three quarters of exclusion of earnings due to the
Subchapter S status of the Company and marginal profitability of Inmark. The tax
rate for fiscal 1995 reflects the inability to offset Inmark's losses against
the Company's income for the period. As a result of the merger with Inmark,
utilization of approximately $430,000 of federal net operating loss
carryforwards is limited to the future income attributable to Inmark.
20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth the quarterly financial data for the six
quarters ended June 30, 1996, including such amounts expressed as a percentage
of total revenue, as well as certain operating data. This quarterly information
is unaudited, has been prepared on the same basis as the annual consolidated
financial statements and, in the opinion of the Company's management, reflects
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the information for the periods presented. Such
statements of operations data should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto. Operating results
for any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30,
1995 1995 1995 1995 1996 1996
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
License revenue.............................. $ 2,536 $ 2,447 $ 2,850 $ 2,733 $ 3,697 $ 4,175
Service and maintenance revenue.............. 316 426 558 804 950 833
---------- ---------- ---------- ---------- ---------- ----------
Total revenue.............................. 2,852 2,873 3,408 3,537 4,647 5,008
---------- ---------- ---------- ---------- ---------- ----------
Cost of revenue:
Cost of license revenue...................... 225 274 262 219 242 412
Cost of service and maintenance revenue...... 268 249 348 294 343 388
---------- ---------- ---------- ---------- ---------- ----------
Total cost of revenue...................... 493 523 610 513 585 800
---------- ---------- ---------- ---------- ---------- ----------
Gross profit............................... 2,359 2,350 2,798 3,024 4,062 4,208
---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Product development.......................... 760 763 903 924 1,486 1,574
Sales and marketing.......................... 1,126 1,305 1,544 1,606 2,101 2,262
General and administrative................... 382 329 502 472 500 624
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses................... 2,268 2,397 2,949 3,002 4,087 4,460
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from operations.............. 91 (47) (151) 22 (25) (252)
Other income (expense), net.................... 4 (6) 9 14 43 11
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.......... 95 (53) (142) 36 18 (241)
Income tax expense (benefit)................... 54 (30) (81) 7 4 (84)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).......................... $ 41 $ (23) $ (61) $ 29 $ 14 $ (157)
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
License revenue.............................. 88.9% 85.2% 83.6% 77.3% 79.6% 83.4%
Service and maintenance revenue.............. 11.1 14.8 16.4 22.7 20.4 16.6
---------- ---------- ---------- ---------- ---------- ----------
Total revenue.............................. 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Cost of license revenue...................... 7.9 9.5 7.7 6.2 5.2 8.3
Cost of service and maintenance revenue...... 9.4 8.7 10.2 8.3 7.4 7.7
---------- ---------- ---------- ---------- ---------- ----------
Total cost of revenue...................... 17.3 18.2 17.9 14.5 12.6 16.0
---------- ---------- ---------- ---------- ---------- ----------
Gross profit............................... 82.7 81.8 82.1 85.5 87.4 84.0
Operating expenses:
Product development.......................... 26.6 26.6 26.5 26.1 32.0 31.4
Sales and marketing.......................... 39.5 45.4 45.3 45.5 45.2 45.2
General and administrative................... 13.4 11.4 14.7 13.3 10.8 12.4
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses................... 79.5 83.4 86.5 84.9 88.0 89.0
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from operations.............. 3.2 (1.6) (4.4) 0.6 (0.6) (5.0)
Other income (expense), net.................... 0.1 (0.2) 0.3 0.4 0.9 0.2
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.......... 3.3 (1.8) (4.1) 1.0 0.3 (4.8)
Income tax expense (benefit)................... 1.9 (1.0) (2.3) 0.2 0.0 (1.7)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).......................... 1.4% (0.8)% (1.8)% 0.8% 0.3% (3.1)%
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
21
<PAGE>
Prior growth rates in the Company's revenue and net income should not be
considered indicative of future operating results. Future operating results will
depend upon many factors, including the demand for the Company's products, the
level of product and price competition, the length of the Company's sales cycle,
the size and timing of individual license transactions, the delay or deferral of
customer implementations, the budget cycles of the Company's customers, the
Company's success in expanding its direct sales force and indirect distribution
channels, the timing of new product introductions and product enhancements, the
mix of products and services sold, levels of international sales, activities of
and acquisitions by competitors, the timing of new hires, changes in foreign
currency exchange rates, and the ability of the Company to develop and market
new products and control costs. A significant portion of the Company's revenue
has been, and the Company believes will continue to be, derived from relatively
large orders, and the timing of such orders has caused and may continue to cause
material fluctuations in the Company's operating results, particularly on a
quarterly basis. The Company generally ships orders as received and as a result
typically has little or no backlog. Quarterly revenue and operating results
therefore depend on the volume and timing of orders received during the quarter,
which are difficult to forecast. In addition, the Company has historically
earned a substantial portion of its revenue in the last days of each quarter. To
the extent this trend continues, the failure to achieve such revenue during the
last days of any given quarter will have a material adverse effect on the
Company's business, financial condition and results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations through cash flows
from operations and the private sale of $5.4 million of equity securities. As of
June 30, 1996, the Company had $2.6 million in cash and cash equivalents. Net
cash from operating activities was $218,000, $1.1 million, $493,000 and
$(303,000) in fiscal 1993, 1994, 1995 and the nine months ended June 30, 1996,
respectively. For fiscal 1995, net cash from operating activities of $493,000
was primarily attributable to increases in accounts payable, accrued expenses of
$440,000 and deferred revenue of $702,000, offset by an increase in accounts
receivable of $1.1 million, and adjusted for depreciation and amortization of
$514,000. For the nine months ended June 30, 1996, net cash from operating
activities of $(303,000) was primarily attributable to an increase in accounts
receivable of $1.2 million, partially offset by an increase in deferred revenue
of $858,000.
The Company currently does not employ a line of credit for support of its
working capital requirements.
As of June 30, 1996, the Company's primary investing activities have
consisted of purchases of equipment and software rights. The Company's
expenditures for equipment, including those under capital leases, totaled
$228,000, $414,000, $672,000 and $1.9 million in fiscal 1993, 1994, 1995 and the
nine months ended June 30, 1996, respectively. Capital expenditures were
primarily for computer equipment, telecommunications and Internet infrastructure
hardware and software used in support of product development and other Company
activities.
Deferred revenue consists primarily of the unrecognized portion of revenue
under maintenance and support contracts, which revenue is deferred and
recognized ratably over the term of such contracts and for the unrecognized
portion of revenue associated with product license subscription contracts. See
Note 1 of Notes to Consolidated Financial Statements.
The Company believes that the net proceeds from the offering, together with
the anticipated cash flows from operations, cash and cash equivalents and
short-term investments, will be adequate to meet its cash needs for working
capital and capital expenditures for at least the next 18 months. Thereafter,
the Company may require additional funds to support its working capital
requirements or for other purposes, and may seek to raise such additional funds
through public or private equity financing or from other sources. There can be
no assurance that such additional financing will be available on terms favorable
to the Company, if at all, and will not be dilutive to the Company's then
current stockholders.
NEW ACCOUNTING PRONOUNCEMENTS
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 ("SFAS 123"), which establishes a fair value based method of
accounting for equity compensation plans. The Company believes that there will
be no impact of the pronouncement other than pro forma disclosures in the
footnotes to the financial statements and it will continue to account for
employee stock options under APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. SFAS 123 is effective for fiscal years beginning after December 15,
1995.
22
<PAGE>
BUSINESS
Rogue Wave is a leading provider of object-oriented software parts and
related tools. The Company's C++ and Java-based products are used to develop
robust, scalable software applications for a wide variety of environments,
including client-server, intranet and Internet environments. These products
enable customers to construct software applications more quickly, with higher
quality and across multiple platforms, and reduce the complexity associated with
the software development process. The Company's software parts provide the
functionality to perform fundamental operations such as network and database
connectivity, thereby allowing programmers to focus on the core functionality of
the software under development. Rogue Wave offers a broad suite of software
parts and related tools for C++, and has recently introduced and continues to
develop software parts and related tools for Java. The Company believes it was
the first to deliver a commercially available Java interface builder.
INDUSTRY BACKGROUND
INCREASING DEPENDENCE ON SOFTWARE. Businesses are increasingly relying on
information systems as a strategic resource and as a way of differentiating
themselves from their competitors. A sophisticated enterprise-wide information
system can allow a company to take advantage of new markets before a competitor,
reduce operating expenses and increase ties with suppliers and customers.
Internet and intranet technologies can be particularly effective in extending
the information system outside the bounds of a company, creating even more
opportunities. Of all the pieces that make up an information system, it is
increasingly software that plays a critical role. Therefore, as businesses
become more dependent on these information systems, they become more dependent
on software. In addition, electronic systems manufacturers and independent
software vendors are increasingly dependent on the development of software to
provide critical functionality and product differentiation.
NEED FOR IMPROVED SOFTWARE DEVELOPMENT TECHNOLOGIES AND METHODS. Software
development technologies and methods have not kept pace with the increasing
reliance on software systems. In fact, the intricacies of modern software
systems have tended to make the software development process longer, more
complicated and increasingly error prone. For example, many businesses are
implementing client-server applications that must be scalable enough to handle
hundreds or thousands of users, yet flexible enough to meet continually changing
business requirements. Businesses implementing enterprise-wide information
systems face a particularly difficult challenge in developing software for the
distributed, heterogeneous environments that these systems typically demand. In
addition, businesses recognize that not only are these software systems
expensive to develop, they can also be expensive to maintain.
Organizations have taken an initial step in addressing the complexity and
cost of today's software systems by breaking software applications into
functional segments to be developed by separate teams of programmers. However,
traditional software development methodologies often produce unnecessary and
complex interdependencies among functional software segments. The resulting
software is typically difficult to develop and test, as well as expensive to
modify and maintain.
ADOPTION OF OBJECT-ORIENTED TECHNOLOGIES. To address the difficulties of
developing and maintaining complex software systems, organizations are
increasingly adopting object-oriented technologies and development
methodologies. Object-oriented programming allows software to be written in
terms of objects that are used as building blocks to model real-world objects
and systems. Objects are self-contained units that encapsulate a collection of
data and related procedures. Although objects may be internally complex, they
are designed to have simple interfaces that allow programmers to develop and
change objects independently without affecting other segments of the software
system. The generalized, self-contained nature of well-designed objects allows
them to be reused within a single software system and in subsequent
applications. To a large extent, developing software applications then becomes a
matter of assembling new and existing objects, rather than writing entire
programs from scratch, resulting in significantly reduced development times and
improved software quality. In addition, because the internal details of each
object are relatively insulated from the rest of the system, objects can be
tested, modified and maintained independently.
As object-oriented technologies have been adopted over the last several
years, C++ has emerged as the de facto standard computer language for
object-oriented software development. Java, another object-oriented
23
<PAGE>
programming language that is similar to C++, has been recently popularized
through the growth of the Internet and intranet environments. Java offers
additional benefits in the areas of platform independence and distributed
computing.
NEED FOR ROBUST THIRD-PARTY SOFTWARE PARTS. While objects are easy to use
once built, developing robust, well-designed objects can be extremely difficult
and time consuming. Many technical details must be addressed, including support
for various platforms, graphical user interfaces, databases and networking
protocols. As a result, object-oriented software development can be improved
significantly through the use of pre-built, industry-standard objects ("software
parts"). Software parts are typically sold as a "class library," a group of
20-100 related object types ("classes"). Organizations seek to improve quality
and time-to-market by purchasing pre-written objects from independent vendors to
handle fundamental operations ranging from simple functions such as date
handling to more complex functions such as network communications. Using
off-the-shelf parts for such tasks allows programmers to focus on the core
functionality of the systems they are developing. For example, using a standard
object for database connectivity allows a programmer to develop an application
without regard to the low level details of programming to any particular
database while allowing the freedom to switch between different database
vendors. In addition, commercially available software parts typically are more
thoroughly tested and provide more complete functionality than parts developed
in-house. The Company believes that the use of third-party software parts will
enable organizations to develop robust software applications more rapidly, at
lower cost and with more functionality than applications using only internally
developed objects.
THE ROGUE WAVE SOLUTION
Rogue Wave is a leading provider of object-oriented software parts and
related tools. The Company's products are designed to enable customers to
construct robust applications more quickly, with higher quality and across
multiple platforms, while reducing the complexity associated with the
development process. The Company provides customers with proven object-oriented
development technology so that they can better apply the principles of software
reuse to their own software development efforts. Rogue Wave's products are
designed to be general purpose in nature, supporting a broad range of
development environments and methodologies. The Company's software parts span a
range of functionality from low-level ANSI/ISO standardized data structures, to
higher level database connectivity objects. The Company follows a cross-platform
strategy allowing most objects to be used on the most popular operating systems,
such as Windows and UNIX. The Company offers a broad suite of software parts and
related tools for C++, the de facto standard object-oriented programming
language. In addition, the Company is developing a suite of Java-based software
parts and related tools and believes it was the first to deliver a commercially
available Java interface builder.
The Company's products and services provide professional programmers with
the following benefits:
IMPROVED SOFTWARE QUALITY. Rogue Wave's products improve software quality
by providing professional programmers with robust and reusable software parts
and related tools. The use of the Company's products can result in applications
that are internally simpler and contain less untested code, resulting in fewer
bugs and higher quality.
ACCELERATED DEVELOPMENT TIME. By using the Company's software parts,
developers produce and test fewer lines of original code, thereby reducing
overall development time. In addition, the Company's C++ and Java application
builders simplify and accelerate prototyping and development efforts by offering
visual design environments along with code generation and testing capabilities.
INCREASED FLEXIBLITY. Most of the Company's software parts have been
written to be cross-platform. In addition, the database products can be used
with a wide variety of databases, and the visual products with a wide variety of
GUIs. This flexiblity allows programmers to develop applications with minimal
regard to the environments in which they will be deployed. Businesses gain the
ability to deploy software systems in a wide variety of environments with
minimal redevelopment.
INCREASED FOCUS ON CRITICAL FUNCTIONALITY. Rogue Wave's products
encapsulate fundamental operations within software parts, allowing developers to
focus on creating the critical business logic within applications rather than
the arcane features of the environments in which they are developing.
24
<PAGE>
REDUCED MAINTENANCE COST. Rogue Wave's products are designed to reduce
overall maintenance and support costs over the life of an application. The use
of the Company's products helps programmers develop flexible, modular
applications that can be more easily updated, modified and refined.
THE ROGUE WAVE STRATEGY
The Company's objective is to be the leading provider of high quality,
reusable software parts and related tools for the development of object-oriented
software applications. The key elements of the Company's strategy to achieve
this objective include:
PROMOTE "TOOLS.H++ EVERYWHERE" STRATEGY. In order to establish brand
awareness and cultivate a loyal base of programmers using the Company's
products, the Company promotes the widespread use of its Tools.h++ product. The
Company believes that Tools.h++ is the most widely used cross-platform C++ class
library. In addition to its direct sales efforts, the Company has entered into
OEM agreements to bundle Tools.h++ with popular compilers offered by leading
vendors, including Fujitsu, Hewlett-Packard, Microware, Siemens-Nixdorf, Silicon
Graphics and Sun Microsystems. The Company believes its "Tools.h++ Everywhere"
strategy enables the Company to leverage its installed base of Tools.h++
customers by offering additional object-oriented software parts and related
tools through its telesales organization.
EXTEND TECHNOLOGICAL LEADERSHIP. The Company believes that it has developed
industry-leading, standards-based class libraries. The Company is an active
participant on the ANSI/ISO C++ Standards Committee and has authored several
standards. The Company's implementation of the ANSI/ISO Standard C++ Library has
been evaluated and selected by several compiler vendors such as Hewlett-Packard,
Siemens-Nixdorf, Silicon Graphics and Sun Microsystems. The Company intends to
continue to invest significant resources to maintain and extend its
technological leadership.
LEVERAGE C++ EXPERTISE TO ADDRESS THE JAVA MARKET. The Company has
considerable expertise in the C++ language, gained through the development of
its class libraries, that is directly applicable to the Java language. Java has
many of the same features of C++ but is simpler to use. Java also explicitly
supports cross-platform, distributed applications. The Company believes it was
the first to deliver a commercially available Java interface builder (JFactory)
and believes it will be able to leverage its C++ expertise to continue to
address the Java marketplace. The Company's strategy is to continue to focus on
the Java language in order to expand its product offering by developing a full
suite of Java class libraries and related development tools.
PROMOTE THE ENTERPRISE-WIDE ADOPTION OF ROGUE WAVE PRODUCTS. The Company
has traditionally marketed its products to individual professional programmers,
and the Company has sold over 50,000 end-user licenses to date. The Company
intends to leverage its installed customer base of corporate programmers to
approach its customers' higher level management and promote the standardization
of its products within customer organizations. Furthermore, the Company intends
to broaden its suite of complementary products, allowing the Company to fulfill
more of its customers' software development needs.
CONTINUE TO PROVIDE FLEXIBLE CROSS-PLATFORM SOFTWARE. The Company supports
multiple development platforms, including Windows 3.1, Windows 95, Windows NT,
UNIX, OS/2 and MacOS. In addition, the Company is committed to providing "policy
free" class libraries that provide users the flexibility to use Rogue Wave's
products with a wide variety of C++ based programming environments and
methodologies. The Company believes that this flexibility improves the
competitiveness of its products.
EXPAND WORLDWIDE DISTRIBUTION. The Company distributes its products
primarily through its direct telesales and field sales organizations and, to a
lesser extent, through OEMs and VARs. The Company intends to expand its global
distribution capabilities by increasing its presence in strategic international
markets. In particular, the Company believes that there are significant growth
opportunities in Europe. The Company intends to build on the success of its
German subsidiary, established in January 1996, by establishing direct sales
forces in additional European markets. The Company also plans to continue to
increase its domestic sales force in order to expand its market presence.
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<PAGE>
PRODUCTS
Rogue Wave's products are designed to be used individually, with each other,
or with other industry standard products. They fall into six different product
groups: Foundation (general purpose data structures and algorithms); Database
(software parts for interfacing to relational databases as well as related
tools); Visual User Interface (GUI libraries as well as related tools);
Mathematical (software parts for numerical and mathematical calculations);
Distributed (software parts for facilitating distributed computing); and Java
(Java software parts and related tools). All products are portable between
Windows and UNIX, except Heap.h++ and View.h++, which are for UNIX only.
The table below summarizes the development and release history of Rogue
Wave's principal products, and includes current list prices for perpetual-use
single-user licenses and single-user multiple platform licenses. Support is
generally available at an annual cost equal to 20% to 50% of the list price.
Rogue Wave offers site pricing for 25, 50 and 100 users.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
PRICE
ORIGINAL SINGLE-USER
RELEASE CURRENT LATEST RELEASE SINGLE-USER MULTI-PLATFORM
PRODUCT LINE DATE VERSION DATE LICENSES LICENSES
<S> <C> <C> <C> <C> <C>
FOUNDATION
Standard C++ Library 1995 1.2 March 1996 $ 195 $ 390
Tools.h++ 1990 7.0 July 1996 395 790
Heap.h++ 1994 1.0 September 1994 995 N/A
DATABASE
DBTools.h++ 1994 2.0 June 1996 $ 1,295 $ 2,090
DBFactory 1996 1.0 February 1996 995 1,990
VISUAL USER INTERFACE
zApp Developers Suite 1994 3.0 July 1996 $ 2,995 $ 4,990
View.h++ 1993 1.3 February 1996 1,995 N/A
MATHEMATICAL
Money.h++ 1994 1.3 October 1995 $ 1,295 $ 2,590
Math.h++ 1989 6.0 May 1996 595 1,190
LAPACK.h++ 1994 2.0 July 1996 795 1,590
DISTRIBUTED
Net.h++ 1995 1.1 May 1996 $ 1,495 $ 2,490
ORBstreams.h++ 1996 1.0 May 1996 395 790
JAVA
JFactory 1996 1.1 July 1996 $ 195 $ 390
JMoney 1996 2.0 September 1996 99 198
JTools 1996 1.0 July 1996 99 198
JWidgets 1996 2.0 September 1996 99 198
</TABLE>
FOUNDATION
STANDARD C++ LIBRARY. Rogue Wave has played an active role on the ANSI/ISO
C++ Standards Committee and has leveraged that experience to develop its version
of the Standard C++ Library. Rogue Wave's Standard C++ Library includes
fundamental data structures, as well as string, numeric limits, complex,
allocator, valarray, iostream and locale classes. Rogue Wave's Standard C++
Library has been adopted by many of the leading C++ compiler vendors, including
Fujitsu, Hewlett-Packard, Siemens-Nixdorf, Silicon Graphics, Sun Microsystems
and others.
TOOLS.H++. Tools.h++ encapsulates and extends the Standard C++ Library,
making the Standard C++ Library easier to use by introducing object-oriented
constructs and adding new classes, such as hash tables, that
26
<PAGE>
are not part of the Standard C++ Library. Used together, Tools.h++ and the
Standard C++ Library give users the portability of the Standard C++ Library plus
the safety and reusability associated with object-oriented design.
HEAP.H++. Heap.h++ is a replacement for the standard memory allocator that
comes with UNIX machines. This product uses a proprietary memory allocation
algorithm that allocates memory faster and with less fragmentation than most
native allocators.
DATABASE
DBTOOLS.H++. DBTools.h++, which is built on top of the Tools.h++ foundation
class library, provides a common, object-oriented interface to relational
databases. Applications can be written once to the DBTools.h++ Application
Programming Interface ("API") and then deployed to any of the supported
databases, regardless of the differences in data structures and function calls
between the different databases. DBTools.h++ provides native access to Informix,
Ingres, Oracle and Sybase, plus general connectivity to these and other
relational databases through the ODBC standard. In addition, DBTools.h++
provides a flexible error-handling model and encapsulates SQL 92 DML
functionality, including SQL extensions such as stored procedures.
DBFACTORY. DBFactory is a development tool that automatically creates
business objects represented in the schemas held in a relational database.
DBFactory maps schema information, stored procedure activation and query results
into DBTools.h++ classes. Code generation is controlled through a
point-and-click interface, which displays database and schema information on the
screen. DBFactory uses "style files" to control code generation. The user can
edit the style files to tailor output to specific needs.
VISUAL USER INTERFACE
ZAPP DEVELOPERS SUITE. The zApp Developers Suite consists of three
different products: the zApp Application Framework, zApp Factory and the zApp
Interface Pack. The zApp Application Framework, which is built on top of the
Tools.h++ foundation class library, is an object-oriented, GUI library written
in C++ that provides portability among Windows 95, Windows NT, OS/2 and many
versions of UNIX. The user programs once to the zApp API and is then able to
deploy to any supported platform with minimal changes. zApp Factory allows the
user to create an application visually. The user drags and drops various user
elements, such as push buttons, edit boxes and drop down lists, onto a window,
thereby building an application more quickly. zApp Factory then generates calls
to the zApp Application Framework library needed to represent the visual
interface. zApp Interface Pack provides high-level visual objects and custom
controls and extends the functionality of the zApp Application Framework. zApp
Interface Pack consists of approximately 100 classes, including tables,
toolbars, status lines, 3D controls and bitmap buttons. The zApp Developers
Suite was acquired by the Company in the Inmark Merger in October 1995.
VIEW.H++. View.h++, which is built on top of the Tools.h++ foundation class
library, is a C++ library that provides an object-oriented, C++ interface to
OSF/Motif, the industry standard GUI for UNIX machines. View.h++ supports both
Motif 1.1 and Motif 1.2 features.
MATHEMATICAL
MONEY.H++. Money.h++ is a C++ class library for representing and
manipulating exact decimal fractions, primarily in banking and other financial
applications. It also includes I/O formatting objects, error handling, control
over rounding and explicit representation for several non-numeric values.
MATH.H++. Math.h++ is a C++ class library that improves the performance and
reliability of any code that manipulates arrays of numbers. It includes vectors,
matrices, arrays, random number generators and Fast Fourier Transforms. Math.h++
is useful in mathematical and numerical applications.
LAPACK.H++. LAPACK.h++ is a C++ class library that is designed to solve
numerical linear algebra problems. It manages the details of data
representation, enabling the programmer to concentrate on application
development.
27
<PAGE>
DISTRIBUTED
NET.H++. Net.h++, which is built on top of the Tools.h++ foundation class
library, is a C++ class library for developing applications that communicate
across a network. By programming to the Net.h++ API, the user can write code
that is both simpler and platform independent.
ORBSTREAMS.H++. ORBstreams.h++, which is built on top of the Tools.h++
foundation class library, is a C++ library that makes C++ programming in an OMG
CORBA environment much easier by providing C++ classes that stream complicated
C++ objects across a CORBA interface, eliminating the need to write custom
marshalling and unmarshalling routines.
JAVA
JFACTORY. JFactory is similar to zApp Factory, except that it generates
Java calls to the Abstract Windowing Toolkit (from Sun Microsystems), instead of
C++ calls to the zApp Application Framework. The user can design an application
visually by dragging and dropping elements, such as radio buttons and edit
boxes, onto a window. Once the look of the application has been designed, the
user can generate the code for the application by pushing a button.
JMONEY. JMoney is a Java class library for representing and manipulating
exact decimal fractions, primarily for banking and other financial applications.
It also includes algorithms for calculating amortization and other schedules.
JTOOLS. JTools is a Java class library that extends the set of utility data
structures that comes with the Java Development Kit distributed by Sun
Microsystems.
JWIDGETS. JWidgets is a Java class library that extends the set of user
controls that comes with the Java Development Kit distributed by Sun
Microsystems. It includes such controls as trees, tabbed notebooks, grids and
others.
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CUSTOMERS
The Company's products are used by programmers to develop software
applications for organizations in a wide variety of industries. To date, the
Company has sold over 50,000 end-user licenses. The following is a
representative list of customers responsible for more than $50,000 in revenue
during the 24 months ended September 30, 1996.
TELECOMMUNICATIONS
- ----------------------------------------
Bell Atlantic
Bell Northern Research
BellSouth Telecommunications
Bosch Telecom
Deutche Telecom
Ericsson
Lucent Technologies
MCI
Motorola
Northern Telecom
NYNEX
US West Communications
INFORMATION SYSTEMS/SOFTWARE
- ----------------------------------------
Cadence Design Systems
ComputerVision
D&B Software
ICON Solutions
Netscape
Objective Systems Integrators
SYSTEMS INTEGRATORS
- ----------------------------------------
American Management Systems
Andersen Consulting
Cap Gemini
E Systems
PSI AG
FINANCIAL INSTITUTIONS
- ----------------------------------------
Citicorp
Deutsche Bank
Edward D. Jones and Company
Lehman Brothers
Morgan Guaranty Trust Co.
Morgan Stanley
Smith Barney
The Options Clearing Corporation
Union Bank of Switzerland
Westdeutche Landesbank
INDUSTRIAL, CONSUMER & OTHER
- ----------------------------------------
A.C. Nielsen Company
Blue Cross/Blue Shield
DOD, Maryland Procurement Office
FedEx
Ford Motor Company
Hughes Electronics
Lockheed Martin
Loral
Mead Data Central
Medaphis Corporation
Schlumberger Technologies
TASC
COMPUTER/ELECTRONICS
- ----------------------------------------
3Com
Cable Data
Cabletron Systems
IBM
Sony
TRANSPORTATION
- ----------------------------------------
Sabre Decision Technologies
TransQuest Information Systems
Worldspan
VARS AND OEMS
- ----------------------------------------
Hewlett-Packard
Microware
Rational Software
Siemens Nixdorf
Silicon Graphics
Sun Microsystems
Tandem Computers
SALES, MARKETING AND CUSTOMER SUPPORT
The Company markets its software primarily through its direct sales
organization and, to a lesser extent, through outside sales representatives and
indirect channel partners. As of August 31, 1996, the Company's sales and
marketing organization consisted of 62 individuals. In addition, the Company's
products and related tools are sold directly through VARs and OEMs.
TELESALES. As of August 31, 1996, the Company employed 24 telesales
representatives. A significant part of the Company's "Tools.h++ Everywhere"
strategy is the sale of its products to individual and small groups of
programmers. The Company uses OEM generated and other targeted mailing lists to
distribute product catalogs to those individuals. The Company's telesales force
complements the "Tools.h++ Everywhere" strategy by fielding inquiries and orders
from a broad range of users who are exposed to one or more of the Company's
products. Sales through this channel are typically less than $50,000 per order
and the sales cycle is generally less than two months.
DIRECT FIELD SALES. To date, the Company has primarily conducted its direct
sales activities in the United States and through a recently established sales
office in Germany. The Company currently employs 12 direct field sales
representatives supported by two technical sales representatives. The Company's
field sales force targets Fortune 500 customers in strategic industries, such as
financial services and telecommunications. The field sales force typically
focuses on reaching chief information officers or similar enterprise-wide
technology purchasers. The sales cycle for this "top down" approach typically
ranges from two to six months. The Company maintains domestic direct sales
offices or personnel in Oregon, California, Colorado, Georgia, Illinois and New
York. German direct sales operations are located in Aschaffenburg, Germany.
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<PAGE>
ORIGINAL EQUIPMENT MANUFACTURERS AND VALUE ADDED RESELLERS. The Company's
foundation products are bundled with many leading C++ compilers and distributed
by major OEMs and VARs. Although this use of OEMs and VARs does not contribute
significantly to the Company's revenue, it does further the Company's "Tools.h++
Everywhere" strategy by increasing the exposure of C++ users to the Company's
products and providing name recognition for the Company.
The Company's marketing efforts are directed at broadening the market for
its products by increasing awareness among corporate programmers and chief
information officers. In support of its sales efforts, the Company's marketing
department conducts comprehensive programs that include advertising, direct
mail, public relations, trade shows, seminars and ongoing customer
communications programs. The Company also keeps its customers informed of
advances in the field through technical papers and other mailings. The Company
maintains a Web site on the Internet that provides Company and product
information and handles sales and distribution of JFactory. The Company makes
all of its products available for sale and distribution over the Internet to
customers in the United States.
The Company believes that a high level of customer support is important to
the successful marketing and sale of its products. The Company offers telephone,
electronic mail, fax and Internet-based customer support through its support
services staff. Initial product license fees include 30 days of customer
support. The Company also offers annual maintenance agreements that include
technical support and upgrades, and offers introductory and advanced classes and
training programs.
PRODUCT DEVELOPMENT
As of September 30, 1996, there were 62 employees on the Company's product
development staff. The Company's product development expenditures in fiscal 1994
and 1995 and for the nine months ended June 30, 1996 were $2.1 million, $3.2
million and $4.0 million, respectively, and represented 29.3%, 26.8% and 30.2%
of revenue, respectively. The Company expects that it will continue to commit
substantial resources to product development in the future.
The majority of the Company's research and development department is located
at the Company's headquarters in Corvallis, Oregon, with additional groups in
Mountain View, California and Charlotte, North Carolina. The Company's research
and development department is organized into six different teams, reflecting the
six different product groups, Foundation, Database, Visual User Interface,
Mathematical, Distributed and Java. Each team has a lead architect who is
responsible for the technical content of the product group, as well as a
development manager who is responsible for the personnel in the group, both of
whom work closely with a corresponding marketing manager in the marketing
department. Although development teams are responsible for the overall design,
implementation and testing of products, the Company has a Quality Engineering
("QE") team that designs test suites and maintains configuration management
systems.
The Company has begun to adopt ClearCase from Atria Software for
configuration management. The Company intends to perform synchronization between
sites using the ClearCase "Remote Site" option. Full adoption is expected by
late calendar 1996. In addition, the Company uses Purify and Quantify from Pure
Software to improve product quality. All products developed by the Company are
tested using Purify during the Company QE process. The Company uses an internal
DESIGN AND STYLE GUIDE to ensure consistency of general architectural, design
and style features. Furthermore, the Chief Technical Officer is responsible for
the design and implementation of common architectural features across all
products.
Rogue Wave is continuing to expand and enhance its catalogue of C++ class
libraries and related development tools. In addition, Rogue Wave is working to
solidify its place as a leader in the newly developing Java tools market.
An important architectural principle of the Company is that all products
should be "policy-free." That is, they should not dictate how the product should
be used and in what environment. As an example, DBTools.h++ can manage database
connections (how and when they are established and terminated) or it can allow
the programmer to manage them manually.
30
<PAGE>
C++ PRODUCTS. The Company plans to introduce a new version of DBTools.h++
that will support SQL 3 features, as well as improved performance and support
for transactions. The Company is also working on libraries to facilitate
developing distributed intranet applications.
Rogue Wave plans to introduce a new product designed to integrate and
enhance the functionality of its code generation tools, zApp Factory and
DBFactory. The new product is being designed to enable customers to create
business objects that can include both visual and database access components.
The product is being designed to utilize live data, even in design mode, to
enhance the realism of applications as they are being developed. It is expected
to be able to generate both C++ code and database schema information to model
business objects.
JAVA PRODUCTS. The Company is also developing additional products for Java.
Although the Java language comes with a development library, the built-in
library lacks the breadth and sophistication of a complete foundation library
like Rogue Wave's Tools.h++. Rogue Wave plans to fill this gap by continuing to
augment JTools, its Java foundation library. Rogue Wave also plans to enhance
the current JFactory product with a family of products designed to allow the
building of business objects in Java. The new products will utilize the same
underlying code base used in the Company's C++ Factory product line. As with the
C++ Factory products, the resulting business objects can have both visual and
database components.
The Company's future success will depend on its ability to continue to
enhance its current product line and to continue to develop and introduce new
products that keep pace with competitive product introductions and technological
developments, satisfy diverse and evolving customer requirements and otherwise
achieve market acceptance. There can be no assurance that the Company will be
successful in continuing to develop and market on a timely and cost-effective
basis fully functional product enhancements or new products that respond to
technological advances by others, or that its enhanced and new products will
achieve market acceptance. In addition, the Company has in the past experienced
delays in the development, introduction and marketing of new or enhanced
products, and there can be no assurance that the Company will not experience
similar delays in the future. Any failure by the Company to anticipate or
respond adequately to changes in technology and customer preferences, or any
significant delays in product development or introduction, would have a material
adverse effect on the Company's business, financial condition and results of
operations.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company also believes that factors such as
the technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and reliable
product maintenance are essential to establishing and maintaining a
technological leadership position. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. The Company currently has one patent
application pending in the United States. There can be no assurance that the
Company's pending patent application whether or not being currently challenged
by applicable governmental patent examiners, will be issued with the scope of
the claims sought by the Company, if at all. Furthermore, there can be no
assurance that others will not develop technologies that are similar or superior
to the Company's technology or design around the Company's pending patent.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary. The nature of many of
the Company's products requires the release of the source code to all customers.
As such, policing unauthorized use of the Company's products is difficult, and
while the Company is unable to determine the extent to which piracy of its
software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the United States. There
can be no assurance that the Company's means of protecting its proprietary
rights in the United States or abroad will be adequate or that competition will
not independently develop similar technology.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement
31
<PAGE>
claims as the number of products and competitors in the Company's industry
segment grows and the functionality of products in different industry segments
overlaps. Any such claims, with or without merit, could be time consuming to
defend, result in costly litigation, divert management's attention and
resources, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to license the infringed or similar
technology, the Company's business, operating results and financial condition
would be materially and adversely affected.
COMPETITION
The market for the Company's products is intensely competitive, subject to
rapid change and significantly affected by new product introductions and other
market activities of industry participants. The Company's products are targeted
at the emerging market for C++ software parts and programming tools, and the
Company's competitors offer a variety of products and services to address this
market. The Company believes that the principal competitive factors in this
market are product quality, flexibility, performance, functionality and
features, use of standards based technology, quality of support and service,
company reputation and price. While price is less significant than other factors
for corporate customers, price can be a significant factor for individual
programmers. Direct competitors include Microsoft (with its MFC), IBM and
several privately held companies. Microsoft is a particularly strong competitor
due to its large installed base and the fact that it bundles its MFC library
with its own and other C++ compilers. Microsoft may decide in the future to
devote more resources to or may broaden the functions of MFC in order to address
and more effectively compete with the functionality of the Company's products.
Software applications can also be developed using software parts and programming
tools in environments other than C++. Indirect competitors with such offerings
include Microsoft (with its ActiveX technology), Borland, Oracle,
ParcPlace-DigiTalk and Powersoft (a subsidiary of Sybase). Many of these
competitors have longer operating histories, significantly greater financial,
technical, marketing and other resources, significantly greater name recognition
and larger installed bases of customers than the Company. In addition, several
database vendors, such as Informix, Oracle and Sybase are increasingly
developing robust software parts for inclusion with their database products and
may begin to compete with the Company in the future. These potential competitors
have well-established relationships with current and potential customers and
have the resources to enable them to more easily offer a single vendor solution.
Like the Company's current competitors, many of these companies have longer
operating histories, significantly greater resources and name recognition and
larger installed bases of customers than the Company. As a result, these
potential competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than the
Company. In addition, the Company faces competition from Borland, Symantec and
other companies for its current Java product and it expects to face significant
competition in the future from such companies with respect to other Java
products it may introduce.
The Company also faces competition from systems integrators and internal
development efforts. Many systems integrators possess industry specific
expertise that may enable them to offer a single vendor solution more easily,
and already have a reputation among potential customers for offering
enterprise-wide solutions to software programming needs. There can be no
assurance that these third parties, many of which have significantly greater
resources than the Company, will not market competitive software products in the
future. It is also possible that new competitors or alliances among competitors
will emerge and rapidly acquire significant market share. The Company also
expects that competition will increase as a result of software industry
consolidation. Increased competition may result in price reductions, reduced
gross margins and loss of market share, any of which could materially and
adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not materially and adversely affect its
business, financial condition and results of operations.
EMPLOYEES
As of September 30, 1996, the Company had a total of 176 employees, of which
170 were based in the United States and six were based in Germany. Of the total,
68 were engaged in sales and marketing, 62 were in
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product development, 18 were in customer support, and 28 were in finance,
administration and operations. The Company's future performance depends in
significant part upon the continued service of its key technical, sales and
senior management personnel, none of whom is bound by an employment agreement.
The loss of the services of one or more of the Company's key employees could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company's future success also depends on its
continuing ability to attract, train and retain highly qualified technical,
sales and managerial personnel. Competition for such personnel is intense, and
there can be no assurance that the Company can retain its key technical, sales
and managerial personnel in the future. The Company has not experienced any work
stoppages and considers it relations with its employees to be good.
FACILITIES
The Company's principal administrative, sales, marketing, support and
product development facilities are located in two facilities of approximately
41,000 square feet and 13,000 square feet of space in Corvallis, Oregon and
Mountain View, California, respectively. The leases on these facilities expire
in 2001 and 1999, respectively. The Company currently leases other domestic
sales and support offices in Colorado, Georgia, Illinois, New York, North
Carolina and Oregon. The Company also maintains an international office in
Germany. The Company believes that its existing facilities are adequate for its
current needs and that suitable additional or alternative space will be
available in the future on commercially reasonable terms as needed.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES
The directors, executive officers and certain key employees of the Company,
and their ages as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------- --- ------------------------------------
<S> <C> <C>
Thomas Keffer, Ph.D. 44 President, Chief Executive Officer
(1)...................... and Chairman of the Board
Dan Whitaker.............. 42 Executive Vice President, Marketing
and Director
Michael Scally............ 45 Chief Operating Officer
Robert M. Holburn, Jr..... 50 Chief Financial Officer and
Secretary
Thomas B. Brookes......... 33 Vice President, Corporate Counsel
Michael A. Foreman........ 45 Vice President, Development
Allan Vermeulen, Ph.D..... 31 Chief Technical Officer
Thomas M. Atwood.......... 47 Director
Howard M. Love, Jr........ 36 Director
Richard P. Magnuson 40 Director
(1)(2)...................
Thomas H. Peterson 40 Director
(1)(2)...................
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
THOMAS KEFFER, PH.D., Founder, President, Chief Executive Officer and
Chairman of the Board of Directors, has been with the Company since its
inception in 1989. Prior to 1989, Dr. Keffer was an Assistant Professor of
Oceanography at the University of Washington. Dr. Keffer received his Ph.D. in
Physical Oceanography from Oregon State University and his B.A. from Cornell
University.
DAN WHITAKER, Executive Vice President, Marketing and a director, has been
with the Company since January 1992. From June 1990 until January 1992, Mr.
Whitaker was the Vice President of Marketing for Evergreen Technologies, a
computer hardware company. Mr. Whitaker was a founder of the Software
Association of Oregon and served as its Director from 1989 to 1990. Mr. Whitaker
received his B.A. from Oregon State University.
MICHAEL SCALLY has served as the Chief Operating Officer of the Company
since June 1996. From May 1994 until June 1996, he served as Vice President,
National Telesales of Intersolv, a software company. From November 1988 until
April 1994, he was the Vice President, General Manager of Carnegie Group Inc., a
computer consulting company. Mr. Scally received his B.S. from Michigan
Technological University.
ROBERT M. HOLBURN, JR., the Chief Financial Officer and Secretary of the
Company, has been with the Company since October 1994. Between March 1994 and
October 1994, he served as the Chief Financial Officer for MacSema, Inc., a
manufacturer of electronic data storage systems. From August 1993 until March
1994, he served as an independent financial consultant. From August 1992 until
August 1993, he served as the Chief Financial Officer for Pacific Coast
Technologies, an electronics company. From 1987 until August 1992, Mr. Holburn
served as Vice President of Administration, Chief Financial Officer and
Secretary of Advanced Power Technology, a semiconductor manufacturer. Prior to
1987, he was employed for 13 years with Texas Instruments, Inc., an electronics
company, where he last served as Controller for its world-wide MOS memory
operations. Mr. Holburn holds an M.B.A. from the College of William and Mary and
a B.S. from the University of Rhode Island.
THOMAS B. BROOKES has served as the Company's Vice President, Corporate
Counsel since June 1996 and has been employed as legal counsel by the Company
since March 1994. From May 1993 to March 1994, Mr. Brookes was a practicing
attorney. From July 1992 to December 1992, Mr. Brookes served as the Vice
President of Text-Tel, Inc., a developer and designer of products for the
hearing impaired. From October 1989 to July 1992, Mr. Brookes was an attorney
with the law firm Wood Tatum Wonnacot & Landis. Mr. Brookes earned his B.A. from
the University of Oregon and his J.D. from the University of Washington.
34
<PAGE>
MICHAEL A. FOREMAN has served as Vice President, Development of the Company
since September 1996. From March 1995 to June 1996, he served as Vice President
of Research and Development for Eyesis Technologies, a medical device company.
Between May 1992 and March 1995, he was Senior Manager, Software Development at
Informix Software, a software company. Prior to joining Informix, he was
employed for eight years with Hewlett-Packard, a computer hardware company,
where he last served as Research and Development Project Manager, Software
Engineering Systems Division. Mr. Foreman received his M.B.A. from the
University of Maryland and his B.S. from Virginia Polytechnic Institute.
ALLAN VERMEULEN, PH.D. has served in a variety of positions with the Company
since January 1993, serving as Chief Technical Officer since October 1995. From
November 1994 to October 1995, Dr. Vermeulen served as Senior Software Engineer.
Prior to that he served as a Technical Manager and Software Engineer. Mr.
Vermeulen was enrolled in a doctoral program at the University of Waterloo,
Canada prior to joining the Company. Dr. Vermeulen earned his Ph.D. in Systems
Design Engineering and his B.S. from the University of Waterloo, Canada.
THOMAS M. ATWOOD has been a director of the Company since October 1994. Mr.
Atwood is currently Chief Executive Officer of Cinebase Software, a software
company. Prior to that, he founded Object Design, Inc., a software company, in
1988 and served as its Chairman through December 1995.
HOWARD M. LOVE, JR. has been a director of the Company since October 1995.
Since May 1996, Mr. Love has been General Partner of Love Capital Partners,
L.P., an investment fund. From June 1984 until October 1995, Mr. Love served as
President and Chairman of the Board of Inmark.
RICHARD P. MAGNUSON has served as a director of the Company since November
1995. Mr. Magnuson has served as a partner of Menlo Ventures, a venture capital
firm, since 1984. Mr. Magnuson also serves as a director of OrCAD, Inc., a
software company, California Water Service Company, a water utility, and several
privately held companies.
THOMAS H. PETERSON has served as a director of the Company since July 1994.
Mr. Peterson has been a general partner of certain venture capital funds
associated with El Dorado Ventures, a venture capital company, since May 1991.
From 1986 to May 1991, Mr. Peterson was an associate with El Dorado Ventures.
Mr. Peterson also serves on the Board of Directors of several privately held
companies.
COMMITTEES
The Audit Committee consists of Mr. Magnuson and Mr. Peterson. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent auditors and reviews
and evaluates the Company's audit and control functions.
The Compensation Committee consists of Dr. Keffer, Mr. Magnuson and Mr.
Peterson. The Compensation Committee makes recommendations regarding the
Company's 1996 Equity Incentive Plan and Employee Stock Purchase Plan and makes
decisions concerning salaries and incentive compensation for employees and
consultants of the Company.
DIRECTORS' COMPENSATION
The Company's directors do not currently receive any cash compensation for
service on the Board or any committee thereof, but directors may be reimbursed
for certain expenses in connection with attendance at Board and committee
meetings. Upon the completion of this offering, non-employee directors will be
eligible to participate in the Equity Incentive Plan. See "--Equity Incentive
Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of the Company's Board of Directors
or Compensation Committee. See "Certain Transactions" for a description of
transactions between the Company and entities affiliated with members of the
Compensation Committee.
35
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the two other most highly compensated executive
officers (collectively, the "Named Executive Officers") whose salary and bonus
for the fiscal year ended September 30, 1996 were in excess of $100,000 for
services rendered in all capacities to the Company for that fiscal year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION ---------------------
------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION (1) SALARY ($) OPTIONS COMPENSATION ($)
- ---------------------------------------------------------- ------------- --------------------- ----------------
<S> <C> <C> <C>
Thomas Keffer............................................. $ 145,000 -- --
President, Chief Executive Officer and Chairman of the
Board
Dan Whitaker.............................................. 120,000 -- --
Executive Vice President, Marketing and Director
Robert M. Holburn, Jr..................................... 105,000 26,666 --
Chief Financial Officer and Secretary
Thomas A. Nora (2)........................................ 98,440 -- $ 58,499(3)
Vice President of Sales
</TABLE>
- ------------------------
(1) Michael Scally, who joined the Company in June 1996 as Chief Operating
Officer, is paid an annual salary of $175,000 and would have been a Named
Executive Officer had he served during the entire fiscal 1996.
(2) Mr. Nora served as the Company's Vice President of Sales from March 1994
until July 1996.
(3) Represents commissions paid.
EQUITY INCENTIVE PLANS
1996 EQUITY INCENTIVE PLAN. The Company's 1996 Equity Incentive Plan (the
"Equity Incentive Plan") was adopted by the Board of Directors in June 1996 and
is expected to be approved by the stockholders in October 1996. The Equity
Incentive Plan replaced the Company's 1994 Stock Option Plan and the Inmark
Stock Option Plan. The Company has reserved a total of 2,500,000 shares of
Common Stock for issuance under the Equity Incentive Plan. The Equity Incentive
Plan provides for the following types of stock-based awards: incentive stock
options for employees (including officers and employee directors); nonstatutory
stock options for employees (including officers and employee directors),
directors and consultants; and restricted stock purchase awards, stock bonuses
and stock appreciation rights to employees (including officers and employee
directors) and consultants. The Equity Incentive Plan is administered by the
Board of Directors or a committee appointed by the Board, which determines
recipients and types of awards to be granted, including the exercise price,
number of shares subject to the award and the exercisability thereof, provided
that the terms of options granted to non-employee directors are specified in the
Equity Incentive Plan.
Non-employee directors are eligible only for nonstatutory option grants.
Each of the Company's existing non-employee directors (Messrs. Atwood, Love,
Magnuson and Peterson) will be granted an option to purchase 10,000 shares of
Common Stock on the date of this offering. In addition, each person who becomes
a non-employee director after the date of this offering will automatically be
granted an option to purchase 10,000 shares of Common Stock on the date of his
or her election to the Board. Such options will vest in 36 equal monthly
installments. On the last day of each fiscal year of the Company, commencing
with September 30, 1997, each non-employee director who has continuously served
as a non-employee director since the last annual meeting will be granted an
option to purchase 3,500 shares of Common Stock, and each other person who is
then a non-employee director will be granted an option to purchase a prorated
number of shares of Common Stock based on the number of days such person has
continuously served as a non-employee director since the last annual meeting.
These options will be fully vested when granted.
The term of a stock option granted under the Equity Incentive Plan generally
may not exceed 10 years. The exercise price of options granted under the Equity
Incentive Plan is determined by the Board of Directors, but, in the case of an
incentive stock option, cannot be less than 100% of the fair market value of the
Common Stock
36
<PAGE>
on the date of grant. Options granted under the Equity Incentive Plan vest at
the rate specified in the option agreement. No stock option may be transferred
by the optionee other than by will or the laws of descent or distribution or, in
certain limited instances, pursuant to a domestic relations order, provided that
an optionee may designate a beneficiary who may exercise the option following
the optionee's death. An optionee whose relationship with the Company or any
related corporation ceases for any reason (other than by death or permanent and
total disability) may exercise options in the three-month period following such
cessation (unless such options terminate sooner or later by their terms).
Options may be exercised for up to twelve months after an optionee's
relationship with the Company and related corporations ceases due to death or
disability (unless such options terminate sooner or later by their terms).
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant, and the term of the option
does not exceed five years from the date of grant. The aggregate fair market
value, determined at the time of grant, of the shares of Common Stock with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year (under all such plans of the Company and
its affiliates) may not exceed $100,000.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the Equity Incentive Plan. Shares subject to exercised stock
appreciation rights shall not again become available for the grant of new
awards.
The Board of Directors has the authority to reprice outstanding options and
stock appreciation rights and to offer optionees and holders of stock
appreciation rights the opportunity to replace outstanding options and stock
appreciation rights with new options or stock appreciation rights for the same
or a different number of shares.
Restricted stock purchase awards granted under the Equity Incentive Plan may
be granted pursuant to a repurchase option in favor of the Company in accordance
with a vesting schedule and at a price determined by the Board of Directors.
Restricted stock purchases must be at a price equal to at least 85% of the
stock's fair market value on the award date, but stock bonuses may be awarded in
consideration of past services without a purchase payment. Rights under a stock
bonus or restricted stock bonus agreement may not be transferred other than by
will, the laws of descent and distribution or a qualified domestic relations
order while the stock awarded pursuant to such an agreement remains subject to
the agreement. Stock appreciation rights granted under the Equity Incentive Plan
may be tandem rights, concurrent rights or independent rights.
Upon certain changes in control of the Company, all outstanding awards under
the Equity Incentive Plan shall either be assumed or substituted by the
surviving entity. If the surviving entity determines not to assume or substitute
such awards, and with respect to persons then performing services as employees,
directors or consultants, the time during which such awards may be exercised
shall be accelerated and the awards terminated if not exercised prior to such
change in control.
As of September 30, 1996, 231,196 shares of Common Stock had been issued
upon the exercise of options granted under the 1994 Plan and the Inmark Plan,
options to purchase 1,456,827 shares of Common Stock at a weighted average
exercise price of $2.37 were outstanding and 811,977 shares remained available
for future grant. The Equity Incentive Plan will terminate in June 2006 unless
sooner terminated by the Board of Directors. As of September 30, 1996, no stock
bonuses or restricted stock had been granted under the Equity Incentive Plan.
EMPLOYEE STOCK PURCHASE PLAN. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") was adopted by the Board of Directors in June 1996 and is
expected to be approved by the stockholders in October 1996. The Company has
reserved a total of 350,000 shares of Common Stock for issuance under the
Purchase Plan. The Purchase Plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
Under the Purchase Plan, the Board of Directors may authorize participation by
eligible employees, including officers, in periodic offerings following the
adoption of the Purchase Plan. The offering period for any offering will be no
more than 27 months.
Employees are eligible to participate if they are employed by the Company or
an affiliate of the Company designated by the Board of Directors. Employees who
participate in an offering can have up to 15% (as
37
<PAGE>
determined by the Board for each offering) of their earnings withheld pursuant
to the Purchase Plan and applied, on specified dates determined by the Board of
Directors, to the purchase of shares of Common Stock. The price of Common Stock
purchased under the Purchase Plan will be equal to 85% of the lower of the fair
market value of the Common Stock on the commencement date of each offering
period or the relevant purchase date. Employees may end their participation in
the offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company.
In the event of certain changes of control, the Company and the Board of
Directors has discretion to provide that each right to purchase Common Stock
will be assumed or an equivalent right substituted by the successor corporation,
or the Board may shorten the offering period and provide for all sums collected
by payroll deductions to be applied to purchase stock immediately prior to the
change in control. The Purchase Plan will terminate at the Board's direction.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended September 30, 1996 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENTAGE OF PRICE APPRECIATION FOR
UNDERLYING TOTAL OPTIONS OPTION TERM ($)(4)
OPTIONS GRANTED IN EXERCISE EXPIRATION ----------------------
NAME (1) GRANTED (2) FISCAL 1996 (3) PRICE ($/SH) DATE 5% 10%
- ----------------------------------- ----------- --------------- ------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas Keffer...................... -- -- -- -- -- --
Dan Whitaker....................... -- -- -- -- -- --
Robert M. Holburn, Jr.............. 26,666 4.8% $ 6.75 6/6/2006 $ 113,198 $ 286,866
Thomas A. Nora..................... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Mr. Scally was granted an option to purchase 200,000 shares at an exercise
price of $6.75 per share in June 1996. The options have a term of 10 years.
(2) 25% of these options vest on the first anniversary of the date of grant and
an additional 2.083% vest each month thereafter. These options have a term
of 10 years.
(3) Based on an aggregate of 555,066 shares subject to options granted to
employees of the Company under the 1994 Stock Option Plan in fiscal 1996,
including the Named Executive Officer.
(4) The potential realizable value is calculated based on the term of the option
at the time of grant (10 years). Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent the Company's prediction of its stock
price performance. The potential realizable value at 5% and 10% appreciation
is calculated by assuming that the exercise price on the date of grant
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.
38
<PAGE>
AGGREGATED OPTIONS EXERCISED IN 1996 AND YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options during
the year ended September 30, 1996 and the number and value of securities
underlying unexercised options held by the Named Executive Officers at September
30, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING UNEXERCISED
VALUE OF UNEXERCISED
OPTIONS (1) IN-THE-MONEY OPTIONS (2)
--------------------------------------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE
- ------------------------- ------------ ------------------------- -------------
<S> <C> <C> <C>
Thomas Keffer............ -- -- --
Dan Whitaker............. 150,493 127,340 $ 1,106,123
Robert M. Holburn, Jr.... 17,361 65,971 125,727
Thomas A. Nora........... 12,842 83,060 93,348
<CAPTION>
NAME UNEXERCISABLE
- ------------------------- -------------------------
<S> <C>
Thomas Keffer............ --
Dan Whitaker............. $ 935,950
Robert M. Holburn, Jr.... 303,268
Thomas A. Nora........... 603,563
</TABLE>
- ------------------------
(1) These options vest monthly over four years and have a term of 10 years.
(2) Based on the difference between the deemed fair market value as determined
by the Board of Directors on September 30, 1996 ($7.50 per share) and the
exercise price.
401(K) PLAN
In January 1993, the Board adopted an employee savings and retirement plan
(the "401(k) Plan") covering certain of the Company's employees who have at
least 90 days of service with the Company and have attained the age of 21.
Pursuant to the 401(k) Plan, eligible employees may elect to reduce their
current compensation by up to the lesser of 20% of such compensation or the
statutorily prescribed annual limit ($9,500 in 1996) and have the amount of such
reduction contributed to the 401(k) Plan. The Company matches all employee
contributions up to 3% of earnings and half of employee contributions from 3% to
5% of earnings. In addition, eligible employees may make roll-over contributions
to the 401(k) Plan from a tax-qualified retirement plan. Employees become 20%
vested in these Company contributions after two years of service, and increase
their vested percentages by an additional 20% for each year of service
thereafter. The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code of 1986, as amended, so that contributions by employees or
by the Company to the 401(k) Plan, and income earned on the 401(k) Plan
contributions, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by the Company, if any, will be deductible by
the Company when made. The trustee under the 401(k) Plan, at the direction of
each participant, invests the 401(k) Plan employee salary deferrals in selected
investment options.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws provide that the Company will indemnify its directors
and officers and may indemnify its other employees and agents to the fullest
extent permitted by Delaware law. The Company is also empowered under its Bylaws
to enter into indemnification contracts with its directors and officers and to
purchase insurance on behalf of any person it is required or permitted to
indemnify. Pursuant to this provision, the Company has entered into indemnity
agreements with each of its directors and executive officers.
In addition, the Company's Certificate of Incorporation provides that, to
the fullest extent permitted by Delaware law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to the Company and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for any transaction from
which the director derived an improper personal benefit, for improper
transactions between the director and the Company and for improper distributions
to stockholders and loans to directors and officers. This provision also does
not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
39
<PAGE>
The Registrant expects to enter into agreements with its directors and
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described above or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
CERTAIN TRANSACTIONS
In July 1994, the Company issued an aggregate of 666,666 shares of Series A
Preferred Stock for an aggregate consideration of $1.0 million to entities
affiliated with El Dorado Ventures III, L.P. ("El Dorado III").
In December 1994, the Company issued an aggregate of 133,333 shares of
Series A Preferred Stock for an aggregate consideration of $200,000 to entities
affiliated with El Dorado III.
In November 1995, the Company issued an aggregate of 742,533 shares of
Series B Preferred Stock for an aggregate consideration of approximately $3.5
million. In connection with such financing, the Company issued (i) 247,225
shares of Series B Preferred Stock to entities affiliated with El Dorado III for
cash and (ii) 453,248 shares of Series B Preferred Stock to entities affiliated
with Menlo Ventures VI, L.P. ("Menlo Ventures VI") for cash.
Thomas Peterson, a director of the Company, is a general partner of El
Dorado Venture Partners III, the general partner of El Dorado Ventures III,
L.P., El Dorado Technology IV, L.P. and El Dorado C&L Fund, L.P. Richard
Magnuson, a director of the Company, is a partner of MV Management VI, L.P., the
general partner of Menlo Ventures VI, L.P.
As part of the Inmark Merger, Howard M. Love, Jr., a director of the
Company, exchanged all of his outstanding shares of Common Stock of Inmark for
284,233 shares of Common Stock of the Company. In addition, the Company entered
into an employment agreement with Mr. Love which provided for Mr. Love to remain
with the Company until January 1, 1996. The terms of the agreement provided for
a payment of $55,500 for back wages and a severance payment upon his termination
of employment of $16,667. Mr. Love terminated his employment in January 1996.
In June 1996, the Board of Directors amended the terms of the stock options
held by Mr. Holburn, Mr. Brookes and Mr. Nora to provide that, upon a change in
control of the Company, 50% of the unvested options of each such officer would
become immediately vested.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been otherwise
obtained from unaffiliated third parties.
40
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's outstanding Common Stock as of September
30, 1996, and as adjusted to reflect the sale of the Common Stock being offered
hereby by (i) each person (or group of affiliated persons) who is known by the
Company to own beneficially more than 5% of the Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers, (iv) each of
the Selling Stockholders, and (v) all directors and officers of the Company as a
group. The table assumes the conversion of all outstanding Preferred Stock into
Common Stock upon the completion of this offering. Unless otherwise specified,
the address of the stockholder is the address of the Company set forth herein.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING (1) NUMBER OF OFFERING (1)(2)
------------------------ SHARES BEING ----------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------------------- ---------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Thomas Keffer, Ph.D.................................. 1,591,199 30.6% -- 1,591,199 22.1%
Entities affiliated with............................. 1,130,984 21.8 -- 1,130,984 15.7
El Dorado Ventures III, L.P. (3)
20300 Stevens Creek Blvd., Suite 395
Cupertino, CA 95014
Entities affiliated with............................. 606,809 11.7 -- 606,809 8.4
Menlo Ventures VI, L.P. (4)
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Dan Whitaker (5)..................................... 550,902 10.3 -- 550,902 7.5
Thomas A. Nora (6)................................... 61,106 1.2 -- 61,106 *
Mary F. Rabe (7)..................................... 34,999 * 13,000 21,999 *
Robert M. Holburn, Jr. (8)........................... 30,139 * 30,139 *
Thomas H. Peterson (3)............................... 1,130,984 21.8 -- 1,130,984 15.7
Richard P. Magnuson (9).............................. 613,475 11.8 -- 613,475 8.5
Howard M. Love, Jr................................... 303,725 5.8 -- 303,725 4.2
Thomas M. Atwood (10)................................ 6,111 * -- 6,111 *
Peter Handsman (11).................................. 52,465 1.0 7,000 45,465 *
Mark Richards (12)................................... 13,427 * 5,000 8,427 *
All directors and officers as a group (12
persons) (13)....................................... 4,502,942 81.8 13,000 4,489,942 59.8
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Percentage of beneficial ownership is based on 5,196,259 shares of Common
Stock outstanding as of September 30, 1996 and 7,196,259 shares of Common
Stock outstanding after completion of this offering.
(2) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting." If the Underwriters' over-allotment option is exercised in
full, the Company and certain stockholders will sell up to an aggregate of
303,750 shares of Common Stock of the Company, and 7,200,009 shares of
Common Stock will be outstanding after the completion of this offering.
Specifically, (i) the Company will sell 3,750 shares, (ii) entities
affiliated with El Dorado Ventures will sell an aggregate of up to 136,000
shares and will beneficially own 994,984 shares, or 13.8% of the Company's
Common Stock, after completion of this offering, (iii)
41
<PAGE>
entities affiliated with Menlo Ventures VI, L.P. will sell an aggregate of
up to 72,000 shares and will beneficially own 534,809 shares, or 7.4% of the
Company's Common Stock, after completion of this offering, (iv) Thomas
Keffer will sell 40,000 shares and will beneficially own 1,551,199 shares,
or 21.5% of the Company's Common Stock, after completion of this offering,
(v) Howard M. Love, Jr. will sell 15,000 shares and will beneficially own
288,725 shares, or 4.0% of the Company's Common Stock, after completion of
this offering, (vi) Allan Vermeulen will sell 16,000 shares and will
beneficially own 121,156 shares or 1.7% of the Company's Common Stock, after
completion of this offering, (vii) Kevin Gartner, an employee of the
Company, will sell 16,000 shares and will beneficially own 226,969 shares,
or 3.1% of the Company's Common Stock, after completion of this offering,
and (viii) Michael Scally will sell 5,000 shares and will beneficially own
42,222 shares (less than 1% of the Company's Common Stock) after completion
of this offering.
(3) Represents 1,075,019 shares held by El Dorado Ventures III, L.P., 36,059
shares held by El Dorado Technology IV, L.P., and 19,906 shares held by El
Dorado C&L Fund, L.P. Mr. Peterson, a director of the Company, is a general
partner of El Dorado Venture Partners III, the general partner of the
entities affiliated with El Dorado Ventures III, L.P. Mr. Peterson disclaims
beneficial ownership of such shares except to the extent of his partnership
interest therein.
(4) Represents 597,708 shares held by Menlo Ventures VI, L.P. and 9,101 shares
held by Menlo Entrepreneurs Fund VI, L.P. Mr. Magnuson, a director of the
Company, is a partner of MV Management VI, L.P., general partner of the
entities affiliated with Menlo Ventures VI, L.P. Mr. Magnuson disclaims
beneficial ownership of such shares except to the extent of his partnership
interest therein.
(5) Includes 162,069 shares subject to stock options exercisable within 60 days
of September 30, 1996.
(6) Includes 12,842 shares subject to stock options exercisable within 60 days
of September 30, 1996.
(7) Includes 28,333 shares subject to stock options exercisable within 60 days
of September 30, 1996.
(8) Includes 20,139 shares subject to stock options exercisable within 60 days
of September 30, 1996.
(9) Includes 597,708 shares held by Menlo Ventures VI, L.P. and 9,101 shares
held by Menlo Entrepreneurs Fund VI, L.P. Mr. Magnuson, a director of the
Company, is a partner of MV Management VI, L.P., general partner of the
entities affiliated with Menlo Ventures VI, L.P. Mr. Magnuson disclaims
beneficial ownership of such shares except to the extent of his partnership
interest therein. Also includes 6,666 shares held by Richard P. and Amy C.
Magnuson, Trustees of the Magnuson Revocable Trust dated 1/14/94.
(10) Represents 6,111 shares subject to stock options exercisable within 60 days
of September 30, 1996.
(11) Includes 39,783 shares subject to stock options exerciable within 60 days
of September 30, 1996.
(12) Includes 3,031 shares subject to stock options exercisable within 60 days
of September 30, 1996.
(13) Includes 309,236 shares subject to stock options exercisable within 60 days
of September 30, 1996.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Certificate of Incorporation and Bylaws is a summary
and is qualified in its entirety by the provisions of the Certificate of
Incorporation and Bylaws, which have been filed as exhibits to the Company's
Registration Statement, of which this Prospectus is a part.
Upon the closing of this offering, the authorized capital stock of the
Company, after giving effect to the conversion of all outstanding Preferred
Stock into Common Stock, and the amendment of the Company's Certificate of
Incorporation, will consist of 35,000,000 shares of Common Stock, $.0015 par
value. As of September 30, 1996, there were approximately 71 holders of record
of the Company's Common and Preferred Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Common Stock are not entitled to cumulative voting rights with respect to the
election of directors, and as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone. Subject to
preferences that may be applicable to any then outstanding shares of Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of the Common Stock are entitled
42
<PAGE>
to share ratably in all assets remaining after payment of liabilities and the
liquidation preference of any then outstanding Preferred Stock. Holders of
Common Stock have no preemptive rights and no right to convert their Common
Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and all shares of Common Stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred Stock
will be converted into 1,542,532 shares of Common Stock. See Notes 7 and 12 of
Notes to Consolidated Financial Statements for a description of the currently
outstanding Preferred Stock. Following the conversion, the Company's Certificate
of Incorporation will be restated to delete all references to the prior series
of Preferred Stock. The Board of Directors has the authority, without further
action by the stockholders, to issue any undesignated shares of Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences, sinking fund terms and the
number of shares constituting any series or the designation of such series,
without any further vote or action by stockholders. The issuance of Preferred
Stock could adversely affect the voting power of holders of Common Stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan to issue any
shares of Preferred Stock.
REGISTRATION RIGHTS
After this offering, the holders of approximately 4,150,651 shares of Common
Stock will be entitled to certain rights with respect to the registration of
such shares under the Securities Act, pursuant to the Amended and Restated
Investors' Rights Agreement among such holders and the Company, dated November
10, 1995 as amended June 27, 1996 (the "Investors' Rights Agreement"). Under the
terms of the Investors' Rights Agreement, if the Company proposes to register
any of its securities under the Securities Act, either for its own account or
for the account of other security holders exercising registration rights, such
holders are entitled to notice of such registration and are entitled, subject to
certain limitations, to include shares therein. The holders may also require the
Company to file a registration statement under the Securities Act with respect
to their shares, and the Company is required to use its best efforts to effect
two such registrations. Furthermore, the holders may require the Company to
register their shares on Form S-3 when such form becomes available to the
Company. Generally, the Company is required to bear all registration and selling
expenses incurred in connection with any such registrations. These rights are
subject to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration. Such registration rights terminate seven years from the date of
this offering.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of Section
203, a "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The Company's Certificate of Incorporation also requires that, effective
upon the closing of this offering, any action required or permitted to be taken
by stockholders of the Company must be effected at a duly called annual or
special meeting of the stockholders and may not be effected by a consent in
writing. In addition, special meetings of the stockholders of the Company may be
called only by the Board of Directors, the Chairman of the Board or the Chief
Executive Officer. These provisions may have the effect of delaying, deferring
or preventing a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
Chase Mellon Shareholder Services L.L.C. has been appointed as the transfer
agent and registrar for the Company's Common Stock. Its telephone number is
(415) 954-9512.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time.
Furthermore, since only a limited number of shares will be available for sale
shortly after this offering because of certain contractual and legal
restrictions on resale described below, sales of substantial amounts of Common
Stock of the Company in the public market after the restrictions lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon completion of the offering, the Company will have outstanding an
aggregate of 7,196,259 shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options and
warrants and based upon the number of shares outstanding as of September 30,
1996. Of these shares, all of the shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
unless such shares are purchased by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act ("Affiliates"). In addition,
586,387 shares issued in connection with the Inmark Merger will be freely
tradeable without restriction upon the expiration of the lock-up period
described below. The remaining 4,584,872 shares of Common Stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act (the "Restricted Shares"). Restricted Shares may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rules 144, 144(k) or 701 promulgated under the
Securities Act, which rules are summarized below.
Upon completion of this offering, the holders of 4,150,651 shares of Common
Stock, or their transferees, will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by Affiliates) immediately upon the effectiveness of such
registration. See "Description of Capital Stock--Registration Rights."
The Company, the Selling Stockholders and certain other stockholders of the
Company, including the executive officers and directors, who will own in the
aggregate 4,857,526 shares of Common Stock after the offering, have agreed that
they will not, without the prior written consent of Hambrecht & Quist LLC,
directly or indirectly, sell, offer, contract to sell, transfer the economic
risk of ownership in, make any short sale, pledge or otherwise dispose of any
shares of Common Stock or any securities convertible into or exchangeable or
exercisable for or any other rights to purchase or acquire shares of Common
Stock owned by them during the 180-day period commencing on the date of this
Prospectus. The Company may, however, issue shares of Common Stock upon the
exercise of stock options that are currently outstanding, and may grant
additional options under its stock option plans, provided that, without the
prior written consent of Hambrecht & Quist LLC, such additional options shall
not be exercisable during such period.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an Affiliate of the Company, or person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (i) one percent of the then
outstanding shares of the Company's Common Stock or (ii) the average weekly
trading volume of the Company's Common Stock in the Nasdaq National Market
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission. Sales pursuant to
Rule 144 are subject to certain requirements relating to manner of sale, notice
and availability of current public information about the Company. A person (or
person whose shares are aggregated) who is not deemed to have been an Affiliate
of the Company at any time during the 90 days immediately preceding the sale and
who has beneficially owned Restricted Shares for at least three years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above.
The Securities and Exchange Commission has proposed certain amendments to
Rule 144 that would reduce by one year the holding periods required for shares
subject to Rule 144 and Rule 144(k) to become eligible for resale in the public
market. This proposal, if adopted, would substantially increase the number of
shares of Common Stock eligible for immediate resale following the expiration of
the lock-up agreements described above. No assurance can be given concerning
whether or when the proposal will be adopted by the Securities and Exchange
Commission.
An employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
44
<PAGE>
provisions of Rule 701 under the Securities Act, which permits Affiliates and
non-Affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares
without complying with the public information, volume and notice provisions of
Rule 144.
The Company intends to file a registration statement under the Securities
Act covering shares of Common Stock reserved for issuance under the Company's
Equity Incentive Plan and the Purchase Plan. Based on the number of options
outstanding and options and shares reserved for issuance at September 30, 1996,
such registration statement would cover approximately 2,618,804 shares. Such
registration statement is expected to be filed and to become effective as soon
as practicable after the date hereof. Shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to Affiliates,
be available for sale in the open market, unless such shares are subject to
vesting restrictions with the Company or the lock-up agreements described above.
See "Management."
45
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC
and Wessels, Arnold & Henderson, L.L.C., have severally agreed to purchase from
the Company and the Selling Stockholders the following respective number of
shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Hambrecht & Quist LLC.............................................................
Wessels, Arnold & Henderson, L.L.C................................................
----------
Total............................................................................. 2,025,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the Representatives of the Underwriters.
The Company and certain stockholders have granted to the Underwriters an
option, exercisable no later than 30 days after the date of this Prospectus, to
purchase up to 303,750 additional shares of Common Stock at the initial public
offering price, less the underwriting discount, set forth on the cover page of
this Prospectus. To the extent that the Underwriters exercise this option, each
of the Underwriters will have a firm commitment to purchase approximately the
same percentage thereof which the number of shares of Common Stock to be
purchased by it shown in the above table bears to the total number of shares of
Common Stock offered hereby. The Company and such stockholders will be
obligated, pursuant to the option, to sell shares to the Underwriters to the
extent the option is exercised. The Underwriters may exercise such option only
to cover over-allotments made in connection with the sale of shares of Common
Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.
The Company, the Selling Stockholders and certain other stockholders of the
Company, including the executive officers and directors, who will own in the
aggregate 4,857,526 shares of Common Stock after the offering, have agreed that
they will not, without the prior written consent of Hambrecht & Quist LLC,
directly or indirectly, sell, offer, contract to sell, transfer the economic
risk of ownership in, make any short sale, pledge or otherwise dispose of any
shares of Common Stock or any securities convertible into or exchangeable or
46
<PAGE>
exercisable for or any other rights to purchase or acquire shares of Common
Stock owned by them during the 180-day period commencing on the date of this
Prospectus. The Company may, however, issue shares of Common Stock upon the
exercise of stock options that are currently outstanding, and may grant
additional options under its stock option plans, provided that, without the
prior written consent of Hambrecht & Quist LLC, such additional options shall
not be exercisable during such period.
Prior to the offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiation among the Company, the Selling Stockholders and the Representatives.
Among the factors to be considered in determining the initial public offering
price are prevailing market and economic conditions, revenue and earnings of the
Company, market valuations of other companies engaged in activities similar to
the Company, estimates of the business potential and prospects of the Company,
the present state of the Company's business operations, the Company's management
and other factors deemed relevant. The estimated initial public offering price
range set forth on the cover of this preliminary prospectus is subject to change
as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward LLP, Menlo Park, California. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Fenwick & West LLP, Palo Alto, California.
EXPERTS
The consolidated financial statements of the Company as of September 30,
1994 and 1995 and for each of the years in the three-year period ended September
30, 1995 have been included in this Prospectus and elsewhere in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and upon the authority
of said firm as experts in accounting and auditing.
LEGAL PROCEEDINGS
On December 15, 1995, the Company filed suit in the Circuit Court of Benton
County (Oregon) against former Vice President of Marketing Eugene O. Cho,
seeking a declaration of the rights of the parties in connection with 162,483
shares of Common Stock of the Company. The shares were the subject of two Stock
Restriction Agreements dated as of July 1, 1994 (the "Restriction Agreements"),
the meaning of the second of which is in dispute. The Company and Mr. Cho had
entered into a Separation Agreement on July 17, 1995 (the "Separation
Agreement") granting the Company repurchase rights as to certain of the shares
covered by the second Restriction Agreement and covering other issues relating
to Mr. Cho's termination of employment. After Mr. Cho refused to perform the
Separation Agreement that had been executed, the Company filed suit as described
above. The Company claims that the formula controlling the vesting of the
subject shares was inadvertently misstated in the second Restriction Agreement,
and seeks reformation of that agreement to reflect the true intent of the
parties, such that, effective upon the termination of Mr. Cho in May 1995, the
Company was entitled to repurchase 92,763 shares of Common Stock of the Company
at $0.15 per share. A First Amended Complaint was filed by the Company on March
26, 1996. On April 26, 1996, Mr. Cho filed an answer and counterclaims against
the Company, denying the Company's claims and seeking damages in connection with
the alleged breach by the Company of the Restriction Agreements and the
Separation Agreement. Mr. Cho also asserts a claim for rescission of the second
Restriction Agreement. The Company has denied the material allegations of the
counterclaims. The Company filed a Second Amended Complaint on August 23, 1996
adding a claim for breach of contract in connection with the Separation
Agreement. On September 16, 1996, Mr. Cho filed an answer denying the Company's
claims and asserting the same counterclaims as previously set forth. The case is
currently in the discovery stage. Trial is set for December 2, 1996.
On January 23, 1996, Matthew Steinauer, a former employee of the Company,
filed suit against Thomas Nora, the Company's former Vice President of Sales and
Kevin Gartner, an employee of the Company, for intentional interference with a
contractual relationship. Mr. Steinauer also named the Company in his complaint,
alleging breach of contract. Mr. Steinauer is seeking $150,000 in damages
against Messrs. Nora and
47
<PAGE>
Gartner and $56,242 in damages against the Company. As a former officer of the
Company, Mr. Nora may have a claim for indemnification with the Company. The
Company and Messrs. Nora and Gartner filed an answer on March 12, 1996, denying
Mr. Steinauer's claims. The case is currently in the discovery stage.
The Company has received a letter, dated October 1, 1996, from legal counsel
for Thomas Nora asserting various claims against the Company relating to the
termination of Mr. Nora's employment with the Company. The letter asserts Mr.
Nora's ownership of 140,000 shares of the Company's Common Stock and seeks to
have the Company repurchase such shares at a deemed fair value and to reimburse
Mr. Nora for specified expenses and unpaid wages. The Company believes that Mr.
Nora rightfully owns 48,264 shares of Common Stock and has the right to purchase
an additional 12,842 shares pursuant to stock options that expire on October 23,
1996.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and copies of all or any part thereof may be
obtained from the Commission upon the payment of certain fees prescribed by the
Commission.
48
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP........................................... F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Stockholders' Equity........................... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rogue Wave Software, Inc.
and Subsidiary:
We have audited the accompanying consolidated balance sheets of Rogue Wave
Software, Inc. and subsidiary as of September 30, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended September 30, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rogue Wave
Software, Inc. and subsidiary as of September 30, 1994 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1995 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
June 14, 1996 except
Note 12 which is
as of October 3, 1996
F-2
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
-------------------- ------------------------
ASSETS 1994 1995 1996 1996
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(PRO FORMA)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............................ $ 609 $ 1,010 $ 2,611
Short-term investments............................... 344 -- --
Accounts receivable, net............................. 1,049 2,164 3,325
Prepaid expenses and other current assets............ 158 212 617
Deferred income taxes................................ -- 80 156
--------- --------- -----------
Total current assets............................... 2,160 3,466 6,709
Furniture, fixtures and equipment, net................. 530 889 2,443
Other noncurrent assets, net........................... 611 403 385
--------- --------- -----------
Total assets....................................... $ 3,301 $ 4,758 $ 9,537
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... 357 520 606
Accrued expenses..................................... 391 668 816
Deferred revenue..................................... 649 1,351 2,209
Current portion of long-term debt and lease
obligations......................................... 261 230 338
--------- --------- -----------
Total current liabilities.......................... 1,658 2,769 3,969
Long-term debt and lease obligations, less current
portion............................................... 166 230 377
--------- --------- -----------
Total liabilities.................................. 1,824 2,999 4,346
--------- --------- -----------
Commitments and contingencies
Mandatorily redeemable preferred stock, $.0015 par
value. Authorized 1,000, 1,200 and 2,350 shares at
September 30, 1994 and 1995 and June 30, 1996,
respectively; issued and outstanding 667, 800 and
1,543 shares at September 30, 1994 and 1995 and June
30, 1996, respectively ($1,200 and $4,731 aggregate
liquidation and redemption preference at September 30,
1995 and June 30, 1996, respectively); pro forma no
shares issued and outstanding......................... 941 1,140 4,664 $ --
--------- --------- ----------- -----------
Stockholders' equity:
Common stock, $.0015 par value. Authorized 7,200
shares; issued and outstanding 3,425, 3,425 and
3,652 shares at September 30, 1994 and 1995 and June
30, 1996, respectively; pro forma 5,195 shares
issued and outstanding.............................. 5 5 5 7
Additional paid-in capital........................... 634 638 670 5,332
Stockholder note receivable.......................... (13) (13) (13) (13)
Retained deficit..................................... (90) (11) (125) (125)
Cumulative translation adjustment.................... -- -- (10) (10)
--------- --------- ----------- -----------
Total stockholders' equity......................... 536 619 527 $ 5,191
--------- --------- ----------- -----------
-----------
Total liabilities and stockholders' equity......... $ 3,301 $ 4,758 $ 9,537
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
YEAR ENDED SEPTEMBER 30, (UNAUDITED)
------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
Revenue:
<S> <C> <C> <C> <C> <C>
License revenue............................. $ 2,949 $ 6,652 $ 10,417 $ 7,566 $ 10,605
Service and maintenance revenue............. 263 557 1,520 963 2,587
--------- --------- --------- ----------- -----------
Total revenue............................. 3,212 7,209 11,937 8,529 13,192
--------- --------- --------- ----------- -----------
Cost of revenue:
Cost of license revenue..................... 301 693 1,048 787 873
Cost of service and maintenance revenue..... 166 331 1,123 775 1,025
--------- --------- --------- ----------- -----------
Total cost of revenue..................... 467 1,024 2,171 1,562 1,898
--------- --------- --------- ----------- -----------
Gross profit.............................. 2,745 6,185 9,766 6,967 11,294
--------- --------- --------- ----------- -----------
Operating expenses:
Product development......................... 893 2,109 3,204 2,302 3,984
Sales and marketing......................... 1,330 2,652 4,880 3,336 5,969
General and administrative.................. 342 780 1,487 984 1,596
--------- --------- --------- ----------- -----------
Total operating expenses.................. 2,565 5,541 9,571 6,622 11,549
--------- --------- --------- ----------- -----------
Income (loss) from operations............. 180 644 195 345 (255)
Other income (expense), net................... (5) 4 (10) (19) 68
--------- --------- --------- ----------- -----------
Income (loss) before income taxes......... 175 648 185 326 (187)
Income tax expense (benefit).................. -- 80 106 186 (73)
--------- --------- --------- ----------- -----------
Net income (loss)......................... $ 175 $ 568 $ 79 $ 140 $ (114)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Net income (loss) per common share............ $ 0.05 $ 0.14 $ 0.02 $ 0.03 $ (0.03)
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Shares used in per share calculation.......... 3,878 4,118 4,973 4,784 4,052
Pro forma net income data (unaudited):
Income before income taxes, as reported..... $ 175 $ 648
Pro forma income tax expense................ 32 142
--------- ---------
Pro forma net income...................... $ 143 $ 506
--------- ---------
--------- ---------
Pro forma net income per common share
(unaudited).................................. $ 0.04 $ 0.12
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCKHOLDER CUMULATIVE TOTAL
--------------- PAID-IN NOTE RETAINED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT ADJUSTMENT EQUITY
------ ------ ---------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1992........... 3,224 $ 5 $ 557 $ -- $ (333) $ -- $ 229
Issuance of common stock................ 118 -- 53 -- -- -- 53
Net income.............................. -- -- -- -- 175 -- 175
------ ------ ---------- ----------- --------- ----------- -----
Balance at September 30, 1993........... 3,342 5 610 -- (158) -- 457
Issuance of common stock................ 83 -- 24 (13) -- -- 11
Dividends paid.......................... -- -- -- -- (500) -- (500)
Net income.............................. -- -- -- -- 568 -- 568
------ ------ ---------- ----------- --------- ----------- -----
Balance at September 30, 1994........... 3,425 5 634 (13) (90) -- 536
Issuance of common stock................ -- -- 4 -- -- -- 4
Net income.............................. -- -- -- -- 79 -- 79
------ ------ ---------- ----------- --------- ----------- -----
Balance at September 30, 1995........... 3,425 5 638 (13) (11) -- 619
Net income (unaudited).................. -- -- -- -- (114) -- (114)
Exercise of stock options (unaudited)... 227 -- 32 -- -- -- 32
Foreign currency translation adjustment
(unaudited)............................ -- -- -- -- -- (10) (10)
------ ------ ---------- ----------- --------- ----------- -----
Balance at June 30, 1996 (unaudited).... 3,652 $ 5 $ 670 $ (13) $ (125) $ (10) $ 527
------ ------ ---------- ----------- --------- ----------- -----
------ ------ ---------- ----------- --------- ----------- -----
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30,
SEPTEMBER 30, (UNAUDITED)
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income (loss)....................................... $ 175 $ 568 $ 79 $ 140 $ (114)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization......................... 79 266 514 379 511
Loss on disposal of equipment......................... -- -- 23 -- --
Changes in assets and liabilities:
Accounts receivable................................. (271) (618) (1,115) (718) (1,161)
Prepaid expenses and other current assets........... (23) (105) (54) (224) (405)
Deferred income taxes............................... -- -- (80) -- (76)
Other noncurrent assets............................. 18 (54) (16) (7) (150)
Accounts payable and accrued expenses............... 87 610 440 138 234
Deferred revenue.................................... 153 462 702 395 858
--------- --------- --------- --------- ---------
Net cash from operating activities................ 218 1,129 493 103 (303)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment........... (228) (368) (326) (205) (1,529)
(Purchase) maturity of short-term investments........... -- (344) 344 344 --
Payments for software rights............................ (50) (174) -- -- --
--------- --------- --------- --------- ---------
Net cash from investing activities................ (278) (886) 18 139 (1,529)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Payments on long-term debt and capital lease
obligations............................................ -- (162) (313) (69) (120)
Proceeds from long-term debt............................ 75 -- -- -- --
Dividends paid.......................................... -- (500) -- -- --
Net proceeds from issuance of mandatorily redeemable
preferred stock........................................ -- 941 199 200 3,524
Proceeds from issuance of common stock.................. 53 11 4 -- --
Proceeds from exercise of stock options................. -- -- -- -- 32
--------- --------- --------- --------- ---------
Net cash from financing activities................ 128 290 (110) 131 3,436
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash and cash
equivalents.............................................. -- -- -- -- (3)
--------- --------- --------- --------- ---------
Net change in cash and cash equivalents........... 68 533 401 373 1,601
Cash and cash equivalents at beginning of period.......... 8 76 609 609 1,010
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period................ $ 76 $ 609 $ 1,010 $ 982 $ 2,611
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest.................................. $ 7 $ 9 $ 53 $ 32 $ 35
Cash paid for taxes..................................... 1 18 258 146 106
Supplemental disclosure of non-cash investing and
financing activities:
Acquisition of equipment financed by capital lease
obligations............................................ -- 46 346 292 368
Purchase of software rights financed by long-term
debt................................................... -- 445 -- -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION AS OF JUNE 30, 1996 AND FOR
THE NINE-MONTH PERIOD THEN ENDED IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Rogue Wave Software, Inc. (the Company) was founded in 1989 and is primarily
engaged in the development, sale and support of object-oriented software parts
and related tools. As more fully discussed in note 2, the Company acquired
Inmark Development Corporation (Inmark) in a transaction accounted for as a
pooling of interests effective October 27, 1995. Accounts for the periods prior
to the merger have been restated to reflect the combined amounts for the Company
and Inmark.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Rogue Wave Software GmbH (incorporated January
1996). The Company translates the accounts of its foreign subsidiary using the
local foreign currency as the functional currency. All significant intercompany
balances and transactions have been eliminated in consolidation.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The financial statements for the nine months ended June 30, 1995 and 1996
are unaudited. In the opinion of management, all adjustments consisting of
normal recurring items considered necessary for a fair presentation have been
included.
CASH EQUIVALENTS
Cash equivalents consist of investments in highly liquid investment
instruments with original maturities of three months or less to the Company.
SHORT-TERM INVESTMENTS
Short-term investments consist of commercial paper. The investments are
stated at cost which approximates fair market value.
ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts of $34,
$151 and $113 at September 30, 1994 and 1995 and June 30, 1996, respectively.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are stated at cost. Maintenance and
repairs are expensed as incurred. Equipment under capital leases is stated at
the present value of future minimum lease payments at the inception of the
lease.
Depreciation of furniture, fixtures and equipment is calculated on the
straight-line method over the estimated useful lives of the assets ranging from
three to seven years. Equipment held under capital leases are amortized
straight-line over the shorter of the lease term or estimated useful lives of
the assets.
INTANGIBLE ASSETS
Other noncurrent assets include purchased software rights and a covenant not
to compete, which are amortized over three years using the straight-line method.
Original cost of these intangibles was $670, $670 and $670 at September 30, 1994
and 1995 and June 30, 1996, respectively. Accumulated amortization at September
30, 1994 and 1995 and June 30, 1996 was $117, $341 and $509, respectively.
Amortization charged to expense was $11, $106, $224 and $168 for the years ended
September 30, 1993, 1994 and 1995 and for the nine-month period ended June 30,
1996, respectively.
F-7
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION AS OF JUNE 30, 1996 AND FOR
THE NINE-MONTH PERIOD THEN ENDED IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
REVENUE RECOGNITION
License revenue is recognized at the time of shipment. Revenue from service
contracts sold in conjunction with product sales is also recognized at the point
of sale. The service contracts generally are for thirty days.
Maintenance and service revenue includes maintenance revenue which is
recognized ratably over the maintenance period and revenue from training and
consulting services, which is recognized as services are performed.
The Company provides a thirty-day right of return policy for software sales.
The allowance for returns was $36, $111 and $111 at September 30, 1994 and 1995
and June 30, 1996, respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents and
accounts receivable. Management believes the credit risk associated with cash
and cash equivalents is minimal. The Company sells its products primarily to
major corporations that serve a wide variety of U.S. and foreign markets and,
therefore, the concentrations of credit risk are considered limited.
RESEARCH AND DEVELOPMENT
Software development costs have been accounted for in accordance with
Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED. Under the standard,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations. The
Company begins capitalization upon completion of a working model. To date, such
capitalizable costs have not been material. Accordingly, the Company has charged
all such costs to product development expense. Future capitalized costs, if any,
will be amortized on a straight-line basis over the estimated life of the
products or the ratio of current revenue to the total of current and anticipated
future revenue, whichever expense is greater.
INCOME TAXES
Prior to July 1, 1994, the Company was taxed under the S Corporation
provisions of the Internal Revenue Code. Under those provisions, the Company did
not pay federal or state corporate income taxes on its taxable income. Instead,
the stockholders were liable for federal and state income taxes on the Company's
taxable income.
Effective June 30, 1994, the S Corporation election was terminated. The
Company's income taxes since that date, as well as unaudited pro forma and
Inmark income taxes for all periods presented, have been provided for under
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES
(SFAS No. 109). SFAS No. 109 is an asset and liability approach that requires
deferred tax assets and liabilities to be recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
COMPUTATION OF NET INCOME PER SHARE
Net income per share is computed using the weighted average number of shares
of common and common equivalent shares outstanding. Common equivalent shares are
excluded from the computation if their effect is
F-8
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION AS OF JUNE 30, 1996 AND FOR
THE NINE-MONTH PERIOD THEN ENDED IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
antidilutive, except that pursuant to the Securities and Exchange Staff
Accounting Bulletins, common and common equivalent shares issued at prices below
the public offering price during the twelve months immediately preceding the
initial filing date have been included in the calculation as if they were
outstanding for all periods presented using the treasury stock method and the
initial public offering price. Common equivalent shares consist of the common
shares issuable upon the conversion of the Series A preferred stock (using the
if-converted method) and incremental shares issuable upon the exercise of stock
options and upon the conversion of the Series B preferred stock (using the
treasury stock method).
FINANCIAL INSTRUMENTS
The recorded amounts of financial instruments approximate their fair market
values.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(2) MERGER
On October 27, 1995, the Company acquired all of the common stock of Inmark
in exchange for 878 shares of the Company's common stock in a transaction
accounted for as a pooling of interests. Inmark was a privately held corporation
specializing in the development, distribution and support of object-oriented
graphical user interface library software. The Company's consolidated financial
statements and notes to consolidated financial statements have been restated to
include the results of Inmark for all periods presented.
Separate results of operations for the periods prior to the merger are as
follows:
<TABLE>
<CAPTION>
THE COMPANY INMARK COMBINED
----------- --------- -----------
<S> <C> <C> <C>
Year ended September 30, 1993:
Total revenue.................................................... $ 1,824 $ 1,388 $ 3,212
Net income (loss)................................................ 176 (1) 175
Year ended September 30, 1994:
Total revenue.................................................... 4,570 2,639 7,209
Net income....................................................... 528 40 568
Year ended September 30, 1995:
Total revenue.................................................... 8,663 3,274 11,937
Net income (loss)................................................ 349 (270) 79
One month ended October 31, 1995:
Total revenue.................................................... 835 237 1,072
Net income (loss)................................................ (58) 16 (42)
</TABLE>
Merger costs of $120 were incurred and charged to expense in the first
quarter of 1996 for services rendered to facilitate completion of the
transaction.
F-9
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION AS OF JUNE 30, 1996 AND FOR
THE NINE-MONTH PERIOD THEN ENDED IS UNAUDITED)
(3) BALANCE SHEET COMPONENTS
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1994 1995 1996
---- ------ ---------
<S> <C> <C> <C>
Computer equipment....................... $750 $1,213 $2,758
Furniture, fixtures and equipment........ 141 179 531
---- ------ ---------
891 1,392 3,289
Less accumulated depreciation and
amortization............................ 361 503 846
---- ------ ---------
Furniture, fixtures and equipment,
net................................... $530 $ 889 $2,443
---- ------ ---------
---- ------ ---------
</TABLE>
Depreciation expense for the years ended September 30, 1993, 1994, and 1995
and for the nine-month period ended June 30, 1996 was $62, $160, $262 and $343,
respectively.
ACCRUED EXPENSES
The Company's accrued expenses include the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------- JUNE 30,
1994 1995 1996
---- ---- ---------
<S> <C> <C> <C>
Accrued payroll and related
liabilities............................. $228 $316 $456
Other accrued expenses................... 163 352 360
---- ---- ---------
Accrued expenses....................... $391 $668 $816
---- ---- ---------
---- ---- ---------
</TABLE>
(4) LEASES
The Company leases certain of its office space through noncancelable
operating lease arrangements. The leases expire 1996 through 1999 and are net
leases with the Company paying all executory costs, including insurance,
utilities and maintenance. Rent expense for operating leases during the years
ended September 30, 1993, 1994 and 1995 and for the nine-month period ended June
30, 1996 was approximately $95, $157, $210 and $220, respectively.
Property under capital leases at September 30, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Computer equipment........................................ $50 $388
Office furniture and equipment............................ 18 26
---- ----
Total................................................... 68 414
Less accumulated amortization............................. 23 112
---- ----
Property under capital leases, net...................... $45 $302
---- ----
---- ----
</TABLE>
Amortization expense is included in depreciation expense for furniture,
fixtures and equipment.
F-10
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION AS OF JUNE 30, 1996 AND FOR
THE NINE-MONTH PERIOD THEN ENDED IS UNAUDITED)
(4) LEASES (CONTINUED)
Future minimum lease payments under capital and operating leases (with
initial or remaining lease terms in excess of one year) and the present value of
future minimum capital lease payments are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Year ending September 30:
1996............................................ $133 $ 212
1997............................................ 129 321
1998............................................ 99 316
1999............................................ 24 310
2000............................................ 2 --
------- ---------
Total minimum lease payments.................. 387 $1,159
---------
---------
Less amounts representing interest................ 50
-------
Present value of future minimum lease
payments..................................... 337
Less current portion.............................. 107
-------
Obligations under capital leases, less current
portion...................................... $230
-------
-------
</TABLE>
(5) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1994 1995 1996
----- ----- ---------
<S> <C> <C> <C>
Note payable to bank, secured by all accounts
receivable, inventory and equipment, payable in
monthly installments of $3, including interest at
9.5%, due February 1996, guaranteed by certain
stockholders...................................... $ 47 $ 17 $ --
Notes payable in installments of $150 and $125, due
July 1, 1995 and July 1, 1996, respectively,
noninterest bearing (less unamortized discount of
$19 at September 30, 1995, based on imputed
interest rate of 8.75%)........................... 244 106 121
Note payable, noninterest bearing.................. 75 -- --
----- ----- ---
366 123 121
Less current portion of long-term debt............. 246 123 121
----- ----- ---
Long-term debt, less current portion............. $ 120 $ -- $ --
----- ----- ---
----- ----- ---
</TABLE>
(6) INCOME TAXES
As described in note 1, the Company was taxed as an S Corporation through
June 30, 1994. Pro forma figures for 1993 and 1994 are presented to show the
impact as if the Company's earnings from continuing
F-11
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION AS OF JUNE 30, 1996 AND FOR
THE NINE-MONTH PERIOD THEN ENDED IS UNAUDITED)
(6) INCOME TAXES (CONTINUED)
operations had been subject to federal and state income taxes as a C Corporation
in those years. Actual figures for 1993, 1994 and all remaining periods
presented reflect the Company's taxes as a C Corporation effective July 1, 1994
and Inmark's taxes as a C Corporation.
<TABLE>
<CAPTION>
NINE
MONTHS
YEAR ENDED SEPTEMBER 30, ENDED
----------------------------------------------- JUNE 30,
1993 1993 1994 1994 1995 1996
------ ----------- ----- ----------- ---- ---------
(UNAUDITED) (UNAUDITED)
(PRO FORMA) (PRO FORMA)
<S> <C> <C> <C> <C> <C> <C>
Current:
Federal............................... $ -- $ 4 $ 62 $154 $142 $ 2
State and local....................... -- 1 18 42 44 1
------ ----- ----- --- ---- ---
-- 5 80 196 186 3
------ ----- ----- --- ---- ---
Deferred:
Federal............................... -- 16 -- (37) (49) (62)
State and local....................... -- 11 -- (17) (31) (14)
------ ----- ----- --- ---- ---
-- 27 -- (54) (80) (76)
------ ----- ----- --- ---- ---
Total............................... $ -- $32 $ 80 $142 $106 $(73)
------ ----- ----- --- ---- ---
------ ----- ----- --- ---- ---
</TABLE>
Income tax expense differs from the expected tax expense (computed by
applying the U.S. federal corporate income tax rate of 34% to net income before
income taxes) as follows:
<TABLE>
<CAPTION>
NINE
MONTHS
YEAR ENDED SEPTEMBER 30, ENDED
--------------------------------------------- JUNE 30,
1993 1993 1994 1994 1995 1996
---- ----------- ----- ----------- ---- ---------
(UNAUDITED) (UNAUDITED)
(PRO FORMA) (PRO FORMA)
<S> <C> <C> <C> <C> <C> <C>
Computed expected income tax expense.... $ 60 $60 $ 220 $220 $ 63 $(64)
Increase (reduction) in income tax
expense resulting from:
State income tax expense.............. 1 11 14 32 1 (11)
Research and experimentation credit... (15) (41) (57) (152) (110) --
Change in valuation allowance......... 13 13 16 16 120 12
Rate differential..................... -- (10) -- -- 14 --
Exclusion of earnings for period that
S Corporation election was valid..... (60) -- (121) -- -- --
Other, net............................ 1 (1) 8 26 18 (10)
---- ----- ----- --- ---- ---
Income tax expense.................. $ -- $32 $ 80 $142 $106 $(73)
---- ----- ----- --- ---- ---
---- ----- ----- --- ---- ---
</TABLE>
F-12
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION AS OF JUNE 30, 1996 AND FOR
THE NINE-MONTH PERIOD THEN ENDED IS UNAUDITED)
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1994 1995 1996
----- ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Intangible assets.............................. $ -- $ 25 $ 37
Accrued expenses............................... 37 142 159
Cash to accrual adjustment..................... 61 -- --
Net operating loss carryforwards............... 15 171 183
Research and experimentation credit
carryforward.................................. 86 120 120
Other.......................................... 18 3 17
----- ----- -----
Total gross deferred tax assets.............. 217 461 516
Valuation allowance............................ (194) (314) (326)
----- ----- -----
Net deferred tax assets...................... 23 147 190
Deferred tax liabilities:
Cash to accrual adjustment..................... -- 27 20
Property and equipment, due to differences in
depreciation.................................. 23 40 14
----- ----- -----
Total gross deferred tax liabilities......... 23 67 34
----- ----- -----
Net deferred taxes........................... $ -- $ 80 $ 156
----- ----- -----
----- ----- -----
</TABLE>
At September 30, 1995, the Company had net operating loss carryforwards for
federal and state income tax purposes of $430 and $200, respectively, that
expire 2007 to 2010. The Company also had $120 of tax credit carryforwards that
expire 2003 to 2010. The net operating loss and tax credit carryforwards were
generated by Inmark prior to Inmark's merger with the Company on October 27,
1995. As a result, utilization of all such amounts are limited by the future
taxable income of Inmark.
(7) PREFERRED STOCK
The Company has 1,200 shares of preferred stock authorized at September 30,
1995. The stock has a par value of $.0015 and was issued in mandatorily
redeemable Series A (Series A). As discussed in note 12, the Company authorized
the issuance of 766 shares of Series B preferred stock in October 1995. The
terms of the Series A preferred stock are:
- Each share of Series A preferred stock is voting and convertible into
common stock using formulas specified in the Series A Preferred Stock
Purchase Agreement. Series A preferred stockholders have non-cumulative
dividend rights at the rate of $.09 per share payable in preference and
priority to common stock. Upon liquidation, Series A preferred
stockholders are entitled to be paid out of the assets of the Company
which are available for distribution to its stockholders before any
payment is made to common stockholders. Series A preferred stockholders
will receive an amount equal to $1.50 per share plus all related declared
and unpaid dividends.
- There is an automatic conversion of Series A preferred stock into shares
of common stock upon the affirmative vote of the holders of at least a
majority of the outstanding shares of the Series A preferred stock, or
immediately upon the closing of a firmly underwritten public offering
pursuant to an effective
F-13
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION AS OF JUNE 30, 1996 AND FOR
THE NINE-MONTH PERIOD THEN ENDED IS UNAUDITED)
(7) PREFERRED STOCK (CONTINUED)
registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of the Company's common stock that results in
gross cash proceeds of at least $10,000 and that has a public offering
price of at least $9.51 per share (as adjusted for stock splits,
recapitalizations and the like) (see note 12).
Other rights and restrictions of Series A preferred stockholders are as
follows:
- Redemption rights upon demand of at least a majority of the then
outstanding shares of Series A preferred stock in three equal annual
installments beginning on May 15, 1999 and ending on May 15, 2001. The
redemption rights provide for redemption rates identical to the
liquidation rates described above.
- Shares are subject to an Investors' Rights Agreement which provides for
the registration of the shares under the Securities Act of 1933 under
certain circumstances.
- Shares are subject to a Co-Sale and Voting Agreement which obligates the
Series A preferred stockholders to vote in a certain manner with regard to
the election of the Board members and which grants to preferred
stockholders and common "key stockholders" the opportunity to participate
on a pro-rata basis in subsequent sales of the common or preferred stock
of the Company made by each stockholder subject to this Agreement.
(8) STOCK OPTION PLAN
In July 1994, stockholders approved the 1994 Stock Option Plan (the Plan),
which currently authorizes the issuance of up to 1,541 shares of common stock.
The Plan authorizes the issuance of incentive options and nonqualified stock
options to advisors, agents, consultants, directors, independent contractors,
employees and officers. Subsequent to the year ended September 30, 1995, the
Company's Board of Directors adopted and the stockholders approved the 1996
Equity Incentive Plan which will replace the Plan (see note 12).
Incentive stock options and nonqualified stock options allow for the
purchase of common stock at prices determined by the Plan Administrator but
which generally must be purchased at prices not less than fair market value at
the date of grant. The term of each option is established by the Plan
Administrator and, if not established, will be ten years from the date it is
granted and is exercisable over four years.
For incentive stock options granted under the Plan to any employee who owns
more than 10% of all classes of stock outstanding of the Company, the term of
the incentive stock option will not exceed five years and the exercise price
will not be less than 110% of the fair market value of the shares at the time
the incentive stock option is granted.
F-14
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION AS OF JUNE 30, 1996 AND FOR
THE NINE-MONTH PERIOD THEN ENDED IS UNAUDITED)
(8) STOCK OPTION PLAN (CONTINUED)
The following table summarizes stock option activity through June 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF SHARES
--------------------------------
QUALIFIED NONQUALIFIED
INCENTIVE STOCK
OPTIONS OPTIONS TOTAL PRICE PER SHARE
--------- ------------ ----- ---------------
<S> <C> <C> <C> <C>
Outstanding options at September 30, 1993.... 103 -- 103 $ .39-1.94
Granted...................................... 1,085 -- 1,085 .15-1.94
Exercised.................................... -- -- -- --
Canceled..................................... -- -- -- --
--------- ----- ----- ---------------
Outstanding options at September 30, 1994.... 1,188 -- 1,188 .15-194
Granted...................................... 447 13 460 .15-194
Exercised.................................... -- -- -- --
Canceled..................................... (267) -- (267) .15
--------- ----- ----- ---------------
Outstanding options at September 30, 1995.... 1,368 13 1,381 .15-1.94
Granted...................................... 379 111 490 .53-6.75
Exercised.................................... (227) -- (227) .15-1.94
Canceled..................................... (105) -- (105) .15-1.98
--------- ----- ----- ---------------
Outstanding options at June 30, 1996......... 1,415 124 1,539 $ .15-6.75
--------- ----- ----- ---------------
--------- ----- ----- ---------------
</TABLE>
Of the 1,539 options outstanding, 340 options were vested and exercisable as
of June 30, 1996 (unaudited).
(9) STOCK RESTRICTION AGREEMENTS
The Company has entered into stock restriction agreements with certain
stockholders which restrict the sale or transfer of "unvested shares" (shares
vest 50% on or after July 1, 1994, plus an additional 1.388% on or after the
first day of each full month thereafter; shares are 100% vested on or after July
1, 1997).
These agreements also give the Company the option to purchase stockholders'
unvested shares under certain conditions at prices determined according to terms
specified in the agreements.
These stock restriction agreements terminate upon the earlier to occur of
the following events:
- Consummation of the Company's sale of its common stock in a firm
commitment underwritten public offering pursuant to a registration
statement filed under the Securities Act of 1933, as amended, which
results in aggregate offering proceeds paid to the Company of at least
$7,500 and a public offering price of at least $11.25 per share (as
adjusted for subsequent stock dividends, stock splits and
recapitalizations) (see note 12); or
- The stockholder no longer holds any unvested shares.
(10) QUALIFIED PROFIT SHARING PLAN
The Company adopted a 401(k) profit sharing plan in January 1993. The plan
is offered to eligible employees and calls for a discretionary employer match of
employee contributions which is approved by the Board of Directors. To
participate in the plan, employees must be 21 years of age, have been employed
for 90
F-15
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION AS OF JUNE 30, 1996 AND FOR
THE NINE-MONTH PERIOD THEN ENDED IS UNAUDITED)
(10) QUALIFIED PROFIT SHARING PLAN (CONTINUED)
days, and work a minimum of 1,000 hours during the plan year. The Company
matches all employee contributions up to 3 percent of earnings and half of
employee contributions from 3 percent to 5 percent. Company contributions paid
in the years ended September 30, 1994 and 1995 and in the nine-month period
ended June 30, 1996, were $49, $31 and $0, respectively.
(11) CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
(12) SUBSEQUENT EVENTS
PUBLIC OFFERING
In June 1996, the Company's Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock.
EQUITY INCENTIVE PLAN
In June 1996, the Company's Board of Directors adopted and the stockholders
are expected to approve the 1996 Equity Incentive Plan (the Equity Incentive
Plan). The Company has reserved 2,500 shares of common stock for issuance under
the Equity Incentive Plan. The Equity Incentive Plan replaces the Company's 1994
Stock Option Plan and the Inmark Stock Option Plan.
The Equity Incentive Plan provides for grants of stock options to employees
(including officers and employee directors) and nonstatutory stock options to
employees (including officers and employee directors), directors and consultants
of the Company. The Equity Incentive Plan is administered by the Board of
Directors of a committee appointed by the Board, which determines recipients and
types of awards to be granted, including the exercise price, number of shares
subject to the award and the exercisability thereof.
The terms of a stock option granted under the Equity Incentive Plan
generally may not exceed ten years (five years in the case of holders of more
than 10% of the Company's capital stock). The exercise price of options granted
under the Equity Incentive Plan is determined by the Board of Directors but, in
the case of an incentive stock option, cannot be less than 100% of the fair
market value of the common stock on the date of grant. Options granted under the
Equity Incentive Plan vest at the rate specified in the option agreement.
EMPLOYEE STOCK PURCHASE PLAN
In June 1996, the Board adopted the Employee Stock Purchase Plan (the
Purchase Plan) covering an aggregate of 350 shares of common stock. The Purchase
Plan is intended to qualify as an employee stock purchase plan within the
meaning of Section 423 of the Internal Revenue Code. Under the Purchase Plan,
the Board of Directors may authorize participation by eligible employees,
including officers, in periodic offerings following the adoption of the Purchase
Plan. The offering period for any offering will be no more than 27 months.
Employees are eligible to participate if they are employed by the Company or
an affiliate of the Company designated by the Board of Directors. Employees who
participate in an offering can have up to 15% of their earnings withheld
pursuant to the Purchase Plan and applied, on specified dates determined by the
Board of Directors, to the purchase of shares of common stock. The price of
common stock purchased under the Purchase
F-16
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION AS OF JUNE 30, 1996 AND FOR
THE NINE-MONTH PERIOD THEN ENDED IS UNAUDITED)
(12) SUBSEQUENT EVENTS (CONTINUED)
Plan will be equal to 85% of the lower of the fair market value of the common
stock on the commencement date of each offering period or the relevant purchase
date. Employees may end their participation in the offering at any time during
the offering period, and participation ends automatically on termination of
employment with the Company.
PREFERRED STOCK
The Company authorized the issuance of 766 shares of Series B preferred
stock in October 1995. The stock has terms identical to those of Series A
preferred stock (see note 7). The Company sold 743 shares of Series B preferred
stock in November 1995 at a price of $4.76 per share.
STOCK SPLIT
The Company effected a 2 for 3 reverse stock split in October 1996. All
share and per share amounts have been restated to reflect the reverse split.
F-17
<PAGE>
THE SOFTWARE PARTS COMPANY [COMPANY LOGO]
VISUAL BUILDERS FOR C++ AND JAVA APPLICATIONS
[GRAPHIC DEPICTING SCREENS FROM THE COMPANY'S ZAPP FACTORY, DBFACTORY AND
JFACTORY PRODUCTS, INCLUDING TEXT NEXT TO THE DBFACTORY SCREEN 'GENERATE C++
CLASSES THAT MAP TO DATA IN AN RDBMS.']
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 5
Use of Proceeds...................................... 13
Dividend Policy...................................... 13
Capitalization....................................... 14
Dilution............................................. 15
Selected Consolidated Financial Data................. 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 17
Business............................................. 23
Management........................................... 34
Certain Transactions................................. 40
Principal and Selling Stockholders................... 41
Description of Capital Stock......................... 42
Shares Eligible for Future Sale...................... 44
Underwriting......................................... 46
Legal Matters........................................ 47
Experts.............................................. 47
Legal Proceedings.................................... 47
Additional Information............................... 48
Index to Consolidated Financial Statements........... F-1
</TABLE>
--------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,025,000 SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
, 1996
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Registrant expects to enter into agreements with its directors and
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registration in connection with the
sale of the Common Stock being registered. All the amounts shown are estimates
except for the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee................................................ $ 7,763
NASD filing fee................................................. 3,062
Nasdaq application fee.......................................... 50,000
Blue sky qualification fee and expenses......................... 12,000
Printing and engraving expenses................................. 135,000
Legal fees and expenses......................................... 325,000
Accounting fees and expenses.................................... 250,000
Directors' and officers' insurance.............................. 150,000
Transfer agent and registrar fees............................... 30,000
Miscellaneous................................................... 37,175
---------
Total....................................................... $1,000,000
---------
---------
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 30, 1993, the Registrant has sold and issued the following
unregistered securities:
(1) In July 1994, the Company issued an aggregate of 666,666 shares of
Series A Preferred Stock for an aggregate consideration of $1.0 million to
entities affiliated with El Dorado Ventures III, L.P. ("El Dorado III").
(2) In December, 1994, the Company issued an aggregate of 333,333 shares of
Series A Preferred Stock for an aggregate consideration of $200,000 to entities
affiliated with El Dorado III.
(3) In November 1995, the Company issued an aggregate of 742,533 shares of
Series B Preferred Stock for an aggregate consideration of $3,530,762. In
connection with such financing, the Company issued (i) 247,225 shares of Series
B Preferred Stock to entities affiliated with El Dorado III for cash and (ii)
453,248 shares of Series B Preferred Stock to entities affiliated with Menlo
Ventures VI, L.P. ("Menlo Ventures VI") for cash.
(4) On October 27, 1995, the Company merged with Inmark Development Company
("Inmark") and acquired all of the outstanding common stock of Inmark in
exchange for 877,620 shares of the Company's Common Stock.
(5) The Registrant sold an aggregate of 231,196 shares of its Common Stock
to employees, directors and consultants of the Registrant for consideration in
the aggregate amount of $57,423 pursuant to the exercise of stock options
granted under the 1994 Stock Option Plan and Inmark Stock Option Plan.
The sales and issuances of securities in the transactions described in
paragraphs (1) through (3) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Regulation D
promulgated under the Securities Act. The purchasers in each case represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.
The sales and issuances of securities in the transaction described in
paragraph (4) above were deemed to be exempt from registration under the
Securities Act by virtue of Section 3(a)(10) promulgated under the Securities
Act.
The sales and issuance of securities in the transaction described in
paragraph (5) above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.
II-2
<PAGE>
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization between Registrant, Inmark Development Corporation and RW
Acquisition, Inc., dated as of September 19, 1995.
*2.2 Agreement and Plan of Merger between the Registrant and Rogue Wave Software, Inc., an Oregon
corporation, dated as of , 1996.
*3.1 Certificate of Incorporation of Rogue Wave Software, Inc., a Delaware corporation, as currently in
effect.
*3.2 Amended and Restated Certificate of Incorporation of Rogue Wave Software, Inc., a Delaware corporation,
as in effect immediately following the closing of the offering.
*3.3 Bylaws of Rogue Wave Software, Inc., a Delaware corporation.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
*4.2 Specimen Stock Certificate.
4.3 Amended and Restated Investors' Rights Agreement between the Registrant and certain investors, dated
November 10, 1995, as amended June 27, 1996.
*5.1 Opinion of Cooley Godward LLP.
*10.1 Registrant's 1996 Equity Incentive Plan and related documents.
*10.2 Registrant's Employee Stock Purchase Plan and related documents.
10.3 Form of Indemnity Agreement to be entered into between the Registrant and its officers and directors.
10.4 Lease Agreement between Registrant and the State of Oregon, dated May 1, 1996.
10.5 Lease Agreement between the Registrant and the Landmark, dated April 22, 1996.
11.1 Statement Regarding Computation of Net Income Per Share.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP. Reference is made to page II-6.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to the Signature page II-5.
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 28. UNDERTAKINGS.
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 24 or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
II-3
<PAGE>
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant undertakes that: (1) for determining any
liability under the Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the Registrant under to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time the Commission declared it
effective, and (2) for determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered in the
registration statement, and that offering of such securities at that time shall
be deemed to be the initial BONA FIDE offering of those securites.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Corvallis, State of Oregon, on the 4th day of
October, 1996.
ROGUE WAVE SOFTWARE, INC.
By:_________/s/_THOMAS KEFFER_________
Thomas Keffer
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Thomas
Keffer and Robert M. Holburn, Jr., his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to the Registration
Statement on Form SB-2, and to any registration statement filed under Securities
and Exchange Commission Rule 462, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------ -------------------
<C> <S> <C>
/s/THOMAS KEFFER President, Chief Executive Officer and
--------------------------------- Chairman of the Board October 4, 1996
Thomas Keffer (PRINCIPAL EXECUTIVE OFFICER)
/s/DAN WHITAKER
--------------------------------- Executive Vice President, Marketing and October 4, 1996
Dan Whitaker Director
/s/ROBERT M. HOLBURN, JR. Chief Financial Officer and Secretary
--------------------------------- (PRINCIPAL FINANCIAL AND ACCOUNTING October 4, 1996
Robert M. Holburn, Jr. OFFICER)
/s/THOMAS M. ATWOOD
--------------------------------- Director October 4, 1996
Thomas M. Atwood
/s/HOWARD M. LOVE, JR.
--------------------------------- Director October 4, 1996
Howard M. Love, Jr.
/s/RICHARD P. MAGNUSON
--------------------------------- Director October 4, 1996
Richard P. Magnuson
/s/THOMAS H. PETERSON
--------------------------------- Director October 4, 1996
Thomas H. Peterson
</TABLE>
II-5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Rogue Wave Software, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" and "Selected Consolidated Financial Data"
in the Prospectus.
KPMG PEAT MARWICK LLP
Portland, Oregon
October 4, 1996
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- --------------------------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Reorganization between Registrant, Inmark Development Corporation and RW
Acquisition, Inc., dated as of September 19, 1995.
*2.2 Agreement and Plan of Merger between the Registrant and Rogue Wave Software, Inc., an Oregon
corporation, dated as of , 1996.
*3.1 Certificate of Incorporation of Rogue Wave Software, Inc., a Delaware corporation, as currently in
effect.
*3.2 Amended and Restated Certificate of Incorporation of Rogue Wave Software, Inc., a Delaware corporation,
as in effect immediately following the offering.
*3.3 Bylaws of Rogue Wave Software, Inc., a Delaware corporation.
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3.
*4.2 Specimen Stock Certificate.
4.3 Amended and Restated Investors' Rights Agreement between the Registrant and certain investors, dated
June , 1996, as amended June 27, 1996.
*5.1 Opinion of Cooley Godward LLP.
*10.1 Registrant's 1996 Equity Incentive Plan, and related documents.
*10.2 Registrant's Employee Stock Purchase Plan, and related documents.
10.3 Form of Indemnity Agreement to be entered into between the Registrant and its officers and directors.
10.4 Lease Agreement between Registrant and the State of Oregon, dated May 1, 1996.
10.5 Lease Agreement between the Registrant and the Landmark, dated April 22, 1996.
11.1 Statement Regarding Computation of Net Income Per Share.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of KPMG Peat Marwick LLP. Reference is made to page II-6.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to the Signature page II-5.
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
===============================================================================
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
ROGUE WAVE SOFTWARE, INC.
RW ACQUISITION, INC.
AND
INMARK DEVELOPMENT CORPORATION
DATED AS OF SEPTEMBER 19, 1995
===============================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
DESCRIPTION OF TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Merger of RW Sub into Inmark . . . . . . . . . . . . . . . . . . . 1
1.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Conversion of Inmark Stock . . . . . . . . . . . . . . . . . . . . 2
1.5 Assumption of Stock Options. . . . . . . . . . . . . . . . . . . . 3
1.6 Conversion of RW Sub Stock . . . . . . . . . . . . . . . . . . . . 4
1.7 Closing of Inmark Transfer Books . . . . . . . . . . . . . . . . . 4
1.8 Exchange Procedures. . . . . . . . . . . . . . . . . . . . . . . . 4
1.9 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . . . 5
1.10 No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . 5
1.11 Cancellation of Stock Options, Etc.. . . . . . . . . . . . . . . . 6
1.12 Shareholders' Meeting and Notice of Appraisal Rights . . . . . . . 6
1.13 Market Stand-Off . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.14 Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.15 Articles of Incorporation and Bylaws; Directors and Officers . . . 6
1.16 Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . 7
1.17 Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.18 Disclosure Statements. . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF INMARK . . . . . . . . . . . . . . . . . . 7
2.1 Organization and Related Matters . . . . . . . . . . . . . . . . . 7
2.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 Authority; Noncontravention; Approvals . . . . . . . . . . . . . . 8
2.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Absence of Changes.. . . . . . . . . . . . . . . . . . . . . . . . 9
2.6 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.8 Employee and Labor Matters.. . . . . . . . . . . . . . . . . . . . 14
2.9 Real and Personal Property . . . . . . . . . . . . . . . . . . . . 15
2.10 Proprietary Assets . . . . . . . . . . . . . . . . . . . . . . . . 16
2.11 Benefit Plans; ERISA.. . . . . . . . . . . . . . . . . . . . . . . 16
2.12 Proceedings; Orders. . . . . . . . . . . . . . . . . . . . . . . . 17
2.13 Environmental Provisions . . . . . . . . . . . . . . . . . . . . . 17
2.14 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.15 Receivables; Major Customers.. . . . . . . . . . . . . . . . . . . 18
2.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
i.
<PAGE>
2.17 No Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . . 19
2.18 Third Party Consents.. . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ROGUE WAVE AND RW SUB. . . . . . . . . . . 19
3.1 Organization and Related Matters . . . . . . . . . . . . . . . . . 19
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.3 Authority; Noncontravention; Approvals . . . . . . . . . . . . . . 21
3.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 22
3.5 Absence of Changes.. . . . . . . . . . . . . . . . . . . . . . . . 22
3.6 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.7 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.8 Employee and Labor Matters.. . . . . . . . . . . . . . . . . . . . 26
3.9 Real and Personal Property . . . . . . . . . . . . . . . . . . . . 27
3.10 Proprietary Assets . . . . . . . . . . . . . . . . . . . . . . . . 28
3.11 Benefit Plans; ERISA.. . . . . . . . . . . . . . . . . . . . . . . 29
3.12 Proceedings; Orders. . . . . . . . . . . . . . . . . . . . . . . . 29
3.13 Environmental Provisions . . . . . . . . . . . . . . . . . . . . . 30
3.14 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.15 Receivables; Major Customers.. . . . . . . . . . . . . . . . . . . 31
3.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.17 No Brokers or Finders. . . . . . . . . . . . . . . . . . . . . . . 32
3.18 Third Party Consents.. . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 4
COVENANTS WITH RESPECT TO THE PERIOD PRIOR TO CLOSING. . . . . . . . . . . . 32
4.1 Access and Investigation.. . . . . . . . . . . . . . . . . . . . . 32
4.2 Operation of Business. . . . . . . . . . . . . . . . . . . . . . . 32
4.3 Filings and Consents.. . . . . . . . . . . . . . . . . . . . . . . 34
4.4 Notification; Updates to Disclosure. . . . . . . . . . . . . . . . 34
4.5 No Negotiation.. . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.6 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.7 Approval of Merger . . . . . . . . . . . . . . . . . . . . . . . . 35
4.8 Closing Documents. . . . . . . . . . . . . . . . . . . . . . . . . 35
4.9 Shareholder Certificates . . . . . . . . . . . . . . . . . . . . . 36
4.10 FIRPTA Letter. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.11 Fairness Hearing and Permit. . . . . . . . . . . . . . . . . . . . 36
4.12 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.13 Issuance of Shares.. . . . . . . . . . . . . . . . . . . . . . . . 36
ii.
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ARTICLE 5
CONDITIONS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.1 General Conditions . . . . . . . . . . . . . . . . . . . . . . . . 36
5.2 Conditions to Obligations of Rogue Wave and RW Sub.. . . . . . . . 37
5.3 Conditions to Obligations of Inmark. . . . . . . . . . . . . . . . 39
ARTICLE 6
TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.2 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 41
6.3 Extension of Time; Waivers . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 7
COVENANTS TO BE PERFORMED AFTER THE CLOSING. . . . . . . . . . . . . . . . . 41
7.1 Reservation of Employee Pool.. . . . . . . . . . . . . . . . . . . 41
7.2 Employment Benefits. . . . . . . . . . . . . . . . . . . . . . . . 41
7.3 Severance Compensation.. . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 8
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.2 Entire Agreement; Counterparts; Applicable Law . . . . . . . . . . 41
8.3 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.4 Assignability. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.6 Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.7 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
EXHIBITS
Exhibit A Definitions
Exhibit B Agreement of Merger
Exhibit C Form of Opinion of Fenwick & West
Exhibit D Form of Opinion of Cooley Godward Castro Huddleson & Tatum
iii.
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered into
as of September 19, 1995, by and among ROGUE WAVE SOFTWARE, INC., an Oregon
corporation ("Rogue Wave"), RW ACQUISITION, INC., a Delaware corporation and
wholly owned subsidiary of Rogue Wave ("RW Sub"), and INMARK DEVELOPMENT
CORPORATION, a California corporation ("Inmark"). Capitalized terms used and
not otherwise defined herein shall have the meanings given them in Exhibit A
hereto.
RECITALS
A. Rogue Wave has formed RW Sub as a wholly owned subsidiary in order to
effect the merger of RW Sub with and into Inmark (the "Merger") in accordance
with the laws of the State of Delaware and the laws of the State of California
and in accordance with this Agreement, so that upon consummation of the Merger,
RW Sub will cease to exist and Inmark will become a wholly owned subsidiary of
Rogue Wave;
B. This Agreement has been approved by the respective Boards of Directors
of Rogue Wave, RW Sub, and Inmark, by Rogue Wave in its capacity as sole
stockholder of RW Sub, and will be submitted for approval by the shareholders of
Inmark; and
C. The Merger is intended to qualify as a tax-free reorganization within
the meaning of the provisions of Section 368 of the Internal Revenue Code of
1986, as it may be amended from time to time and to be accounted for as a
pooling of interests.
AGREEMENT
NOW, THEREFORE, in consideration of their mutual covenants, promises and
obligations contained in this Agreement, the mutual receipt and sufficiency of
which hereby are acknowledged, the parties hereto agree as follows:
ARTICLE 1
DESCRIPTION OF TRANSACTION
1.1 MERGER OF RW SUB INTO INMARK. Subject to the terms and conditions of
this Agreement, RW Sub shall be merged with and into Inmark and the separate
existence of RW Sub shall cease. Inmark shall be the surviving corporation in
the Merger under the corporate name Inmark Development Corporation, and Rogue
Wave shall own all of the issued and
1.
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outstanding shares of capital stock of Inmark. Inmark, in its capacity as
the corporation surviving the Merger, is sometimes referred to herein as the
"Surviving Corporation."
1.2 CLOSING. Consummation of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Cooley Godward
Castro Huddleson & Tatum, 3000 Sand Hill Road, Building 3, Suite 230, Menlo
Park, California 94025, at such time and date as Rogue Wave and Inmark may
mutually select (the "Closing Date"). At the Closing, RW Sub and Inmark will
each carry out the procedures specified under the applicable provisions of the
General Corporation Law of the State of Delaware (the "Delaware Law") and the
General Corporation Law of the State of California (the "California Law"),
including duly executing and filing an Agreement of Merger in the form attached
hereto as Exhibit B (the "Agreement of Merger") with the Secretary of State of
the State of Delaware and the Secretary of State of the State of California, to
the end that the Merger shall become effective. The Merger shall become
effective on the last to occur of (a) the date the Agreement of Merger is duly
filed with the Secretary of State of the State of California or (b) such later
date as may be specified in such Agreement of Merger (the "Effective Time").
1.3 EFFECT OF THE MERGER. The Merger shall have the effects set forth in
the Delaware Law and the California Law. Without limiting the generality of the
foregoing, the Surviving Corporation shall possess all the rights, privileges,
powers and franchises, of a public as well as a private nature, and be subject
to all the restrictions, disabilities and duties, of each of RW Sub and Inmark
(collectively, the "Constituent Corporations"). The Surviving Corporation shall
be vested with the rights, privileges, powers and franchises, all property
(real, personal, and mixed) and all debts due on whatever account and all other
things in action or belonging to, and all and every other interest of, each of
the Constituent Corporations. All debts, liabilities and duties of each of the
Constituent Corporations shall attach to the Surviving Corporation and may be
enforced against it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it.
1.4 CONVERSION OF INMARK STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any capital stock of
Inmark:
(a) Each issued and then outstanding share of common stock, without
par value, of Inmark (the "Inmark Common Stock") (other than shares of Inmark
Common Stock to be canceled pursuant to Section 1.4(b) and shares of Inmark
Common Stock, if any, held by shareholders who have not voted such shares in
favor of the Merger) (the "Inmark Outstanding Shares") shall cease to be issued
and outstanding and shall become and be converted into that number of shares of
common stock, $0.001 par value, of Rogue Wave (the "Rogue Wave Common Stock")
equal to (i) the number of shares of Rogue Wave Common Stock equal to (A) the
number of shares of Rogue Wave Common Stock Equivalents (as defined below)
divided by .8, minus (B) the number of shares of Rogue Wave Common Stock
Equivalents (the differences of clause (A) minus clause (B) being referred to
herein as the "Merger Consideration"), divided by (ii) the number of shares of
Inmark Common Stock Equivalents (as defined below). The ratio pursuant to which
each share of Inmark Common Stock will be exchanged for shares of Rogue Wave
Common Stock, determined in accordance with the foregoing sentence, is
2.
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hereinafter referred to as the "Exchange Ratio". For the purposes of this
Agreement, the term Rogue Wave Common Stock Equivalents shall be the sum of (A)
the number of shares of Rogue Wave Common Stock outstanding immediately prior to
the Effective Time, (B) the number of shares of Rogue Wave Common Stock into
which the then outstanding shares of Rogue Wave Preferred Stock could be
converted if fully converted immediately prior to the Effective Time, and (C)
the number of shares of Rogue Wave Common Stock which could be obtained through
the exercise or conversion of all other rights, option and convertible
securities (except Rogue Wave Preferred Stock) (whether or not exercisable or
convertible) immediately prior to the Effective Time. For the purposes of this
Agreement, the term Inmark Common Stock Equivalents shall be the sum of (A) the
number of shares of Inmark Common Stock outstanding immediately prior to the
Effective Time and (B) the number of shares of Inmark Common Stock which could
be obtained through the exercise or conversion of all other rights, option and
convertible securities (whether or not exercisable or convertible) immediately
prior to the Effective Time.
(b) Each share of Inmark Common Stock issued and outstanding
immediately prior to the Effective Time and held in the treasury of Inmark or
owned by Rogue Wave automatically shall be canceled at the Effective Time and no
conversion shall be made in respect thereof.
1.5 ASSUMPTION OF STOCK OPTIONS.
(a) At the Effective Time, each unexpired and unexercised option to
purchase shares of Inmark Common Stock (an "Inmark Option") granted under the
stock option plans and agreements of Inmark outstanding immediately prior to the
Effective Time shall be assumed by Rogue Wave (an "Assumed Option"). Schedule
2.2(a) of the Inmark Disclosure Statement sets forth a true and complete list as
of the date hereof of all holders of Inmark Options exercisable to purchase
shares of Inmark Common Stock, including the number of shares of Inmark Common
Stock subject to such options, a breakdown as between vested and unvested
options, the exercise price per share and the term of such options. Each Inmark
Option so assumed by Rogue Wave will continue to have, and be subject to,
substantially the same terms and conditions set forth in the documents governing
such Inmark Option immediately prior to the Effective Time, except that (A) such
Assumed Option will be exercisable for that number of whole shares of Rogue Wave
Common Stock equal to the product of the number of shares of Inmark Common Stock
that were purchasable under such Assumed Option immediately prior to the
Effective Time of the Merger multiplied by the Exchange Ratio, rounded down to
the nearest whole number of shares of Rogue Wave Common Stock, and (B) the per
share exercise price for the shares of Rogue Wave's Common Stock issuable upon
exercise of such Assumed Option will be equal to the quotient obtained by
dividing the exercise price per share of Inmark Common Stock at which such
Inmark Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounding up to the nearest whole cent. Consistent with the
terms of the Inmark Options and the documents governing such Inmark Options, the
Merger will not terminate or accelerate any Assumed Option (other than an
Assumed Option for one holder of an Inmark Option) or any right of exercise,
vesting or repurchase relating thereto with respect to shares of Rogue Wave
Common Stock acquired upon exercise of such Inmark Option.
3.
<PAGE>
Holders of Inmark Options will not be entitled to acquire Inmark capital
stock following the Merger.
(b) Holders of vested Inmark Options may elect to exercise such
options prior to the Effective Time of the Merger and receive their pro rata
share of the Merger Consideration by providing notice of such exercise and
payment of the exercise price thereof to Inmark at any time prior to the
Effective Time. In the event that any holder of vested Inmark Options does not
exercise such Inmark Options prior to the Effective Time, such Inmark Options
shall become Assumed Options.
(c) As soon as practicable after the Effective Time, Rogue Wave shall
issue to each holder of an Assumed Option a document evidencing assumption by
Rogue Wave. Such document shall not contain a right of Rogue Wave to repurchase
any or all of the shares of Rogue Wave Common Stock that such holder owns or has
the right to acquire.
1.6 CONVERSION OF RW SUB STOCK. At the Effective Time, each issued and
outstanding share of common stock, $.01 par value, of RW Sub shall cease to be
an existing and issued share and shall become and be converted into one share of
common stock of the Surviving Corporation and the aggregate of such shares shall
constitute the only outstanding capital shares of the Surviving Corporation.
1.7 CLOSING OF INMARK TRANSFER BOOKS. On and after the Effective Time,
holders of certificates representing Inmark Outstanding Shares shall cease to
have any rights as shareholders of Inmark and the share transfer books of Inmark
shall be closed with respect to the Inmark Outstanding Shares and no further
transfer of such shares shall thereafter be made on such share transfer books.
1.8 EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, Rogue Wave shall mail to each holder of record of a stock certificate
that, immediately prior to the Effective Time, represented Inmark Outstanding
Shares (the "Inmark Certificates"): (a) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Inmark Certificates shall pass, only upon delivery of the Inmark Certificates
to Rogue Wave); and (b) instructions for use in effecting the surrender of
the Inmark Certificates in exchange for such holder's ratable portion of the
Merger Consideration. Upon surrender of an Inmark Certificate: (a) the
holder thereof shall be entitled to receive in exchange therefor a
certificate representing the number of shares of Rogue Wave Common Stock to
which such holder is entitled pursuant to Section 1.4(a) and represented by
the Inmark Certificate so surrendered; and (b) the Inmark Certificate so
surrendered shall forthwith be canceled. In lieu of the foregoing, upon
written instruction from an Inmark Shareholder, Rogue Wave shall be entitled
to deliver to counsel for Inmark, on behalf of such Inmark Shareholder, the
ratable portion of the Merger Consideration due such Inmark Shareholder,
subject to delivery of the Inmark Certificate(s) held by such Inmark
Shareholder. In such event, counsel for Inmark shall have sole
responsibility to deliver to such Inmark Shareholder such Merger
Consideration, and neither Rogue Wave nor RW Sub shall have any obligation or
liability therefore. In the event of a transfer of ownership of Inmark
Common Stock which is not registered in the transfer records of Inmark, the
4.
<PAGE>
appropriate number of shares of Rogue Wave Common Stock may be delivered to
a transferee if the Inmark Certificate representing such Inmark Common Stock is
presented to Rogue Wave and accompanied by all documents required to evidence
and effect such transfer and to evidence that any applicable stock transfer
taxes have been paid. Until surrendered as contemplated by this Section 1.8,
each Inmark Certificate shall be deemed at any time after the Effective Time to
represent the right to receive upon such surrender a holder's ratable portion of
the Merger Consideration as provided by this Section 1.8 and the provisions of
the Delaware Law and the California Law. Immediately prior to the Effective
Date, Inmark shall provide to Rogue Wave and RW Sub a Schedule 1.8, setting
forth the name and address of each Inmark Shareholder and the number of shares
of Inmark Common Stock then held by such person and Rogue Wave shall be entitled
to rely on such Schedule in issuing the Merger Consideration as contemplated
hereunder.
1.9 DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, shares of Inmark Common Stock that are held by shareholders who have
not voted such shares in favor of the Merger shall not be canceled and converted
into shares of Rogue Wave Common Stock in accordance with Section 1.4(a) unless
and until such holder shall have failed to perfect, or shall have effectively
withdrawn or lost, such holder's right to appraisal and payment under the
California Law. If such holder shall have so failed to perfect, or shall have
effectively withdrawn or lost such right, such shareholder's shares shall be
deemed to have been canceled and converted as described in Section 1.4(a) at the
Effective Time, and each such share shall represent solely the right to receive
that portion of the Merger Consideration that such shares would have been
entitled to receive had they been voted in favor of the Merger. Inmark shall
give Rogue Wave prompt notice of any demands received by Inmark for appraisal of
its shares, and, prior to the Effective Time, Rogue Wave shall have the right to
participate in all negotiations and proceedings with respect thereto. Prior to
the Effective Time, Inmark shall not, without the prior written consent of Rogue
Wave, make any payment with respect to, or settle or offer to settle, any such
demand. From and after the Effective Time, no shareholder of Inmark who has
demanded appraisal rights as provided in Section 1301 of the California Law
shall be entitled to vote such holder's shares of Inmark Common Stock for any
purpose or to receive payment of dividends or other distributions with respect
to such holder's shares (except dividends and other distributions payable to
shareholders of record as of a date prior to the Effective Time).
1.10 NO FRACTIONAL SHARES. No fractional shares of Rogue Wave Common Stock
will be issued in connection with the Merger and no certificate therefor will be
issued. In lieu of such fractional shares, any holder of Inmark Common Stock
who would otherwise receive a fractional share shall, upon surrender of his
certificate or certificates representing Inmark Common Stock, be paid an amount
in cash (without interest) determined by multiplying such fraction by $0.35.
Rogue Wave will, subject to any applicable statute of limitation or abandoned
property or similar law, until three years after the Effective Time, pay to such
holders, upon surrender of their certificates representing Rogue Wave Common
Stock outstanding immediately prior to the Effective Time, the cash value of
such fractions so determined, without interest.
5.
<PAGE>
1.11 CANCELLATION OF STOCK OPTIONS, ETC. At the Effective Time, each
option, warrant, convertible note, preferred stock and any other right to
purchase shares of Inmark Common Stock or capital stock then outstanding under
any stock option plan or agreement of any type shall be canceled and terminated.
1.12 SHAREHOLDERS' MEETING AND NOTICE OF APPRAISAL RIGHTS. Inmark, acting
through its Board of Directors, in accordance with applicable law and its
Articles of Incorporation and Bylaws, shall as soon as practicable either (a)
duly call, give notice of, convene and hold a special meeting of its
shareholders for the purpose of considering and voting upon the Merger, or
(b) solicit from all shareholders written consents approving the Agreement, the
Merger and the transactions contemplated herein. In connection with such
meeting or such solicitation, Inmark also shall: (a) provide each holder of
Inmark Common Stock with a proxy statement, information statement or other
disclosure document containing such disclosure as required under applicable
federal and state securities laws and in a form reasonably acceptable to Rogue
Wave; (b) take such other action in connection with such solicitation as is
required under federal and state securities laws and otherwise reasonably
requested by Rogue Wave and its counsel; and (c) if so required under Section
1300 of the California Law, notify each of its shareholders entitled to
appraisal rights under the California Law that appraisal rights are available
for any or all of the shares of the Inmark Common Stock, and shall include in
such notice any required provisions of the California Law. In connection with
such solicitation of consents, if so required by applicable law, Inmark shall
give prompt notice of the corporate actions taken thereby to those shareholders,
if any, who do not consent thereto in writing.
1.13 MARKET STAND-OFF. The shares of Rogue Wave Common Stock issued to
Inmark Shareholders pursuant to the Merger may not be sold, transferred or
otherwise disposed of by the holder thereof, as requested by the underwriters
for a period of 180 days following the effective date of the first registration
statement of Rogue Wave filed under the Securities Act of 1933, as amended;
provided that all officers and directors of Rogue Wave enter into similar
agreements.
1.14 FURTHER ACTION. Each of Rogue Wave, RW Sub and Inmark shall take all
actions as may be reasonably necessary or appropriate in order to effectuate the
transactions contemplated hereby. If at any time after the Effective Time any
further action by or on behalf of any such entity is necessary or desirable to
carry out the purposes of this Agreement or to vest the Surviving Corporation
with the full right, title and possession to all assets, property, rights,
privileges, immunities, powers and franchises of either or both of the
Constituent Corporations, the officers and directors of Rogue Wave and the
Surviving Corporation, as applicable, shall take or cause to be taken all such
necessary action.
1.15 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. The
Articles of Incorporation and Bylaws of Inmark shall be the Articles of
Incorporation and Bylaws of the Surviving Corporation immediately after the
Effective Time. The individuals identified on Schedule 1.15 shall be the
directors and officers of the Surviving Corporation, and shall hold such offices
from the Effective Time until their respective successors are duly elected or
6.
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appointed and qualified in the manner provided in the Articles of Incorporation
and Bylaws of the Surviving Corporation, or as otherwise provided by law.
1.16 ACCOUNTING TREATMENT. The parties intend that the Merger will be
treated as a pooling of interest for accounting purposes.
1.17 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a tax-free reorganization within the meaning of Section
368(a) of the Code.
1.18 DISCLOSURE STATEMENTS. On the date hereof Rogue Wave shall deliver to
Inmark a Rogue Wave Disclosure Statement executed on behalf of Rogue Wave and RW
Sub and on the date hereof Inmark shall deliver to Rogue Wave an Inmark
Disclosure Statement executed on behalf of Inmark. References in Article 2 are
references to the schedules, as set forth in the Inmark Disclosure Statement.
References in Article 3 are references to the schedules as set forth in the
Rogue Wave Disclosure Statement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF INMARK
Except as set forth in the Inmark Disclosure Statement, Inmark represents,
warrants and agrees, as of the date hereof, as follows:
2.1 ORGANIZATION AND RELATED MATTERS. Inmark is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has the requisite corporate power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted. Inmark is qualified to do business and is in good standing in
each jurisdiction in which the properties owned, leased or operated by it or the
nature of its business makes such qualification necessary, except where the
failure to be so qualified and in good standing would not have a Material
Adverse Effect on its business, as presently conducted. True, accurate and
complete copies of the Articles of Incorporation and Bylaws of Inmark, in each
case as in effect on the date hereof, including all amendments thereto, and
minutes of all actions, and actions by written consent, of the directors and
shareholders of Inmark, have been delivered to Rogue Wave.
2.2 CAPITALIZATION.
(a) The authorized capital stock of Inmark consists of (i) 5,000,000
shares of Inmark Common Stock, no par value, of which as of the date hereof,
3,379,290 are issued and outstanding and (ii) 1,000,000 shares of Preferred
Stock, no par value, of which as of the date hereof, no shares are issued and
outstanding. All of the issued and outstanding shares of Inmark Common Stock
are validly issued, fully paid and nonassessable. Schedule 2.2(a) sets forth a
list of all shareholders of Inmark including their names and addresses and the
number of shares they hold, beneficially and of record, of Inmark Common Stock.
7.
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(b) As of the date hereof, there are Inmark Options to purchase
899,000 shares of Inmark Common Stock pursuant to Inmark's Stock Option Plan, a
list of which has been delivered with the Inmark Disclosure Statement to Rogue
Wave or its counsel. Schedule 2.2(b) sets forth a list of the name of each
optionee, the number of shares of Inmark Common Stock subject to each Inmark
Option, the date of grant and exercise price of each Inmark Option and a vesting
schedule for such Inmark Option. Except as set forth above or pursuant to the
exercise of Inmark Options, there are not as of the date hereof, and on the
Effective Time there will not be, any outstanding subscriptions, options,
warrants, stock appreciation rights, calls, rights, convertible securities or
other agreements or commitments of any character relating to issued or unissued
capital shares or other securities of Inmark, or otherwise obligating Inmark to
issue, transfer or sell any capital shares of Inmark, or other securities
convertible into, exchangeable for, or evidencing the right to subscribe for,
any capital shares of Inmark. Following the Closing, Inmark will have no
obligation to issue, transfer or sell any of its capital shares or other
securities of Inmark pursuant to any currently existing employee benefit plan or
otherwise. All shares of Inmark capital stock have been issued in compliance
with federal and state securities laws, and Inmark has no liability to any
current or former shareholder of Inmark arising from or relating to the offer
and sale of any of its securities, whether under federal or state securities
law, or otherwise. There are no voting trusts, proxies or other agreements or
understandings to which Inmark is a party or is bound with respect to the voting
of any of the capital stock of Inmark.
(c) Inmark has no subsidiaries and does not own or hold, directly or
indirectly, any debt or equity securities of, nor has any other interest in, any
corporation, limited liability company, partnership, joint venture or other
entity.
2.3 AUTHORITY; NONCONTRAVENTION; APPROVALS.
(a) Inmark has full corporate power and authority to execute, deliver
and perform this Agreement and the Agreement of Merger. The execution, delivery
and performance of the Agreement and the Agreement of Merger has been duly and
validly authorized by the Board of Directors of Inmark, and by all other
necessary corporate action on the part of Inmark. This Agreement and the
Agreement of Merger have been, or will be on or prior to the Closing Date, duly
and validly executed and delivered by Inmark, and constitutes the valid and
binding agreement of Inmark, enforceable against Inmark in accordance with its
terms, except as such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally, and general equitable principles.
(b) Neither the execution and delivery of this Agreement by Inmark
nor the consummation by Inmark of the transactions contemplated herein will
(i) conflict with or result in any breach of any provision of the Articles of
Incorporation or Bylaws of Inmark, (ii) result in a default (or give rise to
any right of termination, cancellation, acceleration, repurchase, put or
call) under the terms, conditions or provisions of any note, bond, mortgage,
indenture or other evidence of indebtedness of Inmark or any material license
agreement or lease or other material contract, instrument or obligation to
which Inmark is a party, or by which Inmark or
8.
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any of its assets may be bound, (iii) violate any statute, rule, regulation,
order, writ, injunction, decree or arbitration award applicable to Inmark or
its assets, or (iv) result in the creation of any material (individually or
in the aggregate) liens, charges or encumbrances on any of the assets of
Inmark.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency, commission,
regulatory authority or other governmental authority or instrumentality, whether
domestic or foreign (a "Governmental Entity"), is required by or with respect to
Inmark in connection with the execution and delivery of this Agreement and the
Agreement of Merger by Inmark or the consummation by Inmark of the transactions
contemplated hereby or thereby, except for (i) the filing of the Agreement of
Merger with the Secretary of State of the State of California, (ii) the issuance
of a Permit by the California Department of Corporations with respect to the
issuance of Rogue Wave Common Stock pursuant to this Agreement, (iii) such other
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the Merger,
and (iv) informational filings.
2.4 FINANCIAL STATEMENTS.
(a) Inmark has delivered to Rogue Wave (i) an audited balance sheet
of Inmark as of December 31, 1994, its related audited statements of operations
and cash flows of Inmark for the twelve (12) months then ended, together with
the notes thereto and (ii) its unaudited balance sheet as at July 31, 1995 (the
"Inmark Statement Date") and unaudited statement of income for the seven month
period ending on the Inmark Statement Date (collectively, the "Inmark Financial
Statements").
(b) The Inmark Financial Statements are accurate and complete in all
respects and present fairly the financial position of Inmark as of the Inmark
Statement Date and the results of operations of Inmark for the period covered
thereby.
(c) Inmark has no liabilities or obligations (absolute or contingent)
required in accordance with GAAP to be disclosed in the financial statements of
Inmark except liabilities (i) that are reflected or disclosed in the Inmark
Financial Statements, (ii) that are disclosed in this Agreement or the schedules
hereto, or (iii) that were incurred after the Inmark Statement Date in the
ordinary course of business and which in the aggregate do not exceed $25,000.
2.5 ABSENCE OF CHANGES. Since the Inmark Statement Date:
(a) No event has occurred that has had or might have a Material
Adverse Effect on Inmark;
(b) There has not been any loss with respect to, or any interruption
in the use of, any of Inmark's assets (whether or not covered by insurance);
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(c) Inmark has not (i) declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any of its capital stock,
or (ii) repurchased, redeemed or otherwise reacquired any of its capital stock;
(d) Inmark has not sold or otherwise issued any shares of capital
stock or any options, warrants or other rights to purchase or receive shares of
capital stock or other securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of capital stock of Inmark;
(e) Inmark has not amended its Articles of Incorporation or Bylaws
and has not effected or been a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(f) Inmark has not purchased or otherwise acquired any material asset
from any other person or entity, other than in the ordinary course of business;
(g) Inmark has not leased or licensed any material asset from any
other person or entity other than in the ordinary course of business;
(h) Inmark has not made any individual capital expenditure in excess
of $50,000;
(i) Inmark has not sold or otherwise transferred, and has not leased
or licensed, any material asset to any other person or entity except in the
ordinary course of business;
(j) Inmark has not written off as uncollectible, or established any
extraordinary reserve with respect to, any account receivable or other
indebtedness;
(k) Inmark has not pledged or hypothecated any of its assets or
otherwise permitted any of its assets to become subject to any lien or
encumbrance;
(l) Inmark has not made any loan or advance to any other person or
entity, except for employee travel advances made in the ordinary course of
business;
(m) Inmark has not (i) established or adopted any employee benefit
plan, or (ii) paid any bonus or made any profit-sharing or similar payment to,
or increased the amount of the wages, salary, commissions, fringe benefits or
other compensation or remuneration payable to, any of its directors, officers or
employees, other than in accordance with past practice;
(n) No material contract, agreement or obligation by which Inmark or
any of the assets owned or used by Inmark is or was bound, or under which Inmark
has or had any rights or interest, has been amended or terminated;
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(o) Inmark has not discharged any lien or encumbrance or discharged
or paid any indebtedness or other liability, except for accounts payable that
(i) are reflected as current liabilities in the Inmark Financial Statements or
have been incurred by Inmark since the Inmark Statement Date in the ordinary
course of business, and (ii) have been discharged or paid in the ordinary course
of business;
(p) Inmark has not forgiven any debt or otherwise released or waived
any right or claim;
(q) Inmark has not changed any of its methods of accounting or
accounting practices in any respect;
(r) Inmark has not entered into any transaction or taken any other
action outside the ordinary course of business; and
(s) Inmark has not agreed, committed or offered (in writing or
otherwise), and has not attempted, to take any of the actions referred to in
clauses "(c)" through "(r)" above.
2.6 CONTRACTS.
(a) Schedule 2.6(a) identifies each contract, agreement, lease,
instrument, understanding or arrangement to which Inmark is a party, or by which
Inmark is or may become subject, or by which any of its assets are or may become
bound (each, an "Inmark Material Contract"):
(i) for the employment, or restricting the employment, of any
employee;
(ii) with respect to consulting services under which Inmark is
obligated to make payments in excess of $25,000 in any year or under which
Inmark paid in excess of $25,000 in calendar year 1994;
(iii) restricting in any manner its right to compete with any
other person or entity or restricting its right to sell to or purchase from any
other person or entity;
(iv) with any Affiliate, or any person controlled by an
Affiliate, for or with respect to the purchase or sale of goods, the performance
of services or the loan or guarantee of any amount by or to Inmark;
(v) regarding the payment or receipt of license fees or
royalties to or from any person with annual payment obligations in excess of
$25,000;
(vi) regarding the license to Inmark of any Proprietary Asset,
other than end-user license agreements entered into in the ordinary course of
business;
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(vii) regarding agency, representation, distribution or
franchise, and that cannot be canceled without payment or penalty of less than
$25,000 upon notice of 60 days or less;
(viii) contracts relating to the sale, transfer or disposition
of Inmark's securities;
(ix) lease or sublease, either as lessee or sublessee, lessor or
sublessor, of real or personal property or intangibles;
(x) warranty or service contracts;
(xi) that provides for the guaranty for borrowed money by, or
indemnification obligations of, another person; or
(xii) that is specified under Section 2.10(e).
(b) Each Inmark Material Contract is in full force and effect, is
binding upon Inmark and, to the best of Inmark's knowledge, is binding on all
other parties thereto. Copies of each Inmark Material Contract have been
provided to counsel to Rogue Wave. Inmark and the other parties to such Inmark
Material Contracts have duly performed its obligations under each Inmark
Material Contract to the extent such obligations to perform have accrued, and no
breach or default, or alleged breach or default, or event which would (with the
passage of time, notice or both) constitute a breach or default thereunder has
occurred or has been alleged, nor will occur as a result of consummation of the
transactions contemplated by this Agreement, and, to the best of Inmark's
knowledge, no breach or default by any other contracting parties thereunder has
occurred or has been alleged. Consummation of the transactions contemplated by
this Agreement will not (and will not give any person a right to) terminate or
modify any material rights of, or accelerate or augment any material obligation
of Inmark under any Inmark Material Contract.
(c) Schedule 2.6(c) identifies each permit or license applied for,
pending, issued or given to Inmark that is material to the conduct of the
business, and Inmark possesses all such licenses and permits required in
order to operate the business, and is in compliance with each such license
and permit. Each such license and permit is valid and in full force and
effect and will remain so upon consummation of the transactions contemplated
by this Agreement except where the failure to comply would not have a
Material Adverse Effect.
2.7 TAX MATTERS. With respect to Taxes (as defined below):
(a) Inmark has filed or will file or cause to be filed, within the
time and in the manner prescribed by law, all returns, declarations, reports,
estimates, information returns and statements, including information returns and
reports ("Returns") required to be filed under federal, state, local or any
foreign laws by Inmark for all Returns due on or prior to the
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Effective Time; all Returns so filed complied in all material respects with
the laws, rules and regulations applicable to such Returns;
(b) Inmark has within the time and in the manner prescribed by law,
paid (and until the Closing will, within the time and in the manner prescribed
by law, pay) all Taxes (as defined below) that are due and payable;
(c) Inmark has established (and until the Closing will establish) on
its books and records reserves that are adequate for the payment of all Taxes
not yet due and payable and there is (and until the Closing shall be) no
material difference between the amounts of the book basis and the tax basis of
assets (net of liabilities) that are not accounted for by an accrual on the
books for federal income tax purposes or, if not required to be so accrued under
GAAP, are described in Schedule 2.7(c);
(d) There are no liens for Taxes upon the assets of Inmark except
liens for Taxes not yet due;
(e) Inmark has not filed (and will not file prior to the Effective
Time) any consent agreement under Section 341(f) of the Internal Revenue Code of
1986, as amended (the "Code") or agreed to have Section 341(f)(2) of the Code
apply to any disposition of the subsection (f) asset (as such term is defined in
Section 341(f)(4) of the Code) owned by Inmark;
(f) No deficiency or adjustment for any Taxes has been proposed or
asserted or assessed against Inmark and, to the best of Inmark's knowledge, no
foreign, federal, state or local audits, examination or other administrative
proceedings or court proceedings are presently pending with regard to any Taxes,
and no waiver or consent extending any statute of limitations for the assessment
or collection of any Taxes, which waiver or consent remains in effect, has been
executed by (or on behalf of) Inmark nor are any requests for such waiver or
consent pending;
(g) Inmark is not a party to any tax-sharing or allocation agreement,
nor does Inmark owe any amount under any tax-sharing or allocation agreement;
(h) The acquisition of Inmark by Rogue Wave will not result in the
payment of any "excess parachute payment" within the meaning of Section 280G of
the Code and there is no agreement, plan or arrangement covering any employee or
independent contractor of Inmark that would give rise to any payment that would
not be deductible pursuant to Section 280G or Section 162 of the Code;
(i) Inmark has not made any election under Section 338(g) of the Code
with respect to any acquisition and no outstanding debt obligation of Inmark is
"corporate acquisition indebtedness" within the meaning of Section 279(b) of the
Code;
(j) Inmark is not a United States Real Property Holding Corporation
as defined under Section 897(c)(2) of the Code;
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(k) Schedule 2.7 lists the years involved, type of Tax and taxing
authority involved for every completed audit of Taxes of Inmark; and
(l) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies, or other assessments of whatever kind or nature,
including, without limitation, all net income, gross income, gross receipts,
sales, use, value-added, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated, severance, stamp, net
worth, environmental, occupancy or property taxes, customs duties, fees,
assessments or charges of any kind whatsoever (together with any interest and
any penalties, additions to tax or additional amounts) imposed by any taxing
authority (domestic or foreign) upon or payable by Inmark or Rogue Wave, as
applicable.
2.8 EMPLOYEE AND LABOR MATTERS.
(a) Section 2.8 accurately sets forth, with respect to each employee
of Inmark (including any employee of Inmark who is on a leave of absence or on
layoff status):
(i) the name, title and general duties of such employee;
(ii) each Inmark Plan (as defined in Section 2.11) in which such
employee participates or is eligible to participate; and
(iii) accurate and complete information as to the aggregate
dollar amount of the compensation (including wages, salary, commissions,
director's fees, fringe benefits, bonuses, profit-sharing payments and other
payments or benefits of any type) received by each such employee with respect to
services performed for Inmark for the year to date June 30, 1995, and any change
in such employee's aggregate monthly compensation since June 30, 1995.
(b) No former employee of Inmark is receiving or is scheduled to
receive (or whose spouse or other dependent is receiving or is scheduled to
receive) any benefits (whether from Inmark or otherwise) relating to such former
employee's employment with Inmark.
(c) Inmark is not, and never has been, a party to or bound by any
employment agreement or any union contract, collective bargaining agreement or
similar contract.
(d) The employment of each of Inmark's employees is terminable by
Inmark at will. Inmark has delivered to Rogue Wave accurate and complete copies
of all employee manuals and handbooks, disclosure materials, policy statements
and other materials relating to the employment of the current and former
employees of Inmark.
(e) To the best of Inmark's knowledge, none of its employees (i)
presently intends to terminate his employment with Inmark, or (ii) is a party
to or is bound by any confidentiality agreement, noncompetition agreement or
other contract or agreement that may have an adverse effect on (A) the
performance by such employee of any of his duties or
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responsibilities as an employee of Inmark or Rogue Wave, or (B) the business
of Inmark or Rogue Wave.
(f) There is no unfair labor practice charge or similar charge,
complaint, allegation or other process or claim pending or, to the knowledge of
Inmark, threatened, against Inmark before the National Labor Relations Board or
any other Governmental Entity which, if adversely determined, would have a
Material Adverse Effect. There is not now pending, never has been, and to the
best of Inmark's knowledge, no person or entity has threatened to commence, any
slowdown, work stoppage, labor dispute or union organizing activity or any
similar activity or dispute affecting Inmark or any of its employees. No event
has occurred, and no condition or circumstance exists, that might directly or
indirectly give rise to or provide a basis for the commencement of any such
slowdown, work stoppage, labor dispute or union organizing activity or any
similar activity or dispute.
2.9 REAL AND PERSONAL PROPERTY.
(a) Inmark has good and valid title to or other right to use, free of
any liens or encumbrances, (i) all real property held on a fee basis used in its
business, all leasehold property held pursuant to leases (each, a "Lease") and
all other interests in such real property, and (ii) all other tangible assets
and properties that presently are used in its business, including tangible
assets and properties that it purports to own or have the right to use as
reflected in the Inmark Financial Statements or that thereafter were acquired,
except, in each case, for (a) liens reflected in the Inmark Financial Statements
as securing specified liabilities (with respect to which no default exists), (b)
liens for Taxes not yet due or matters otherwise described on Schedule 2.7
(whether or not such liens or other matters constitute encumbrances), and
(c) assets and properties disposed of since the Inmark Statement Date in the
ordinary course of business.
(b) Each Lease is valid, binding and enforceable against Inmark and,
to the best of Inmark's knowledge, each other party thereto, subject only to
such exceptions as do not materially interfere with the operation of the
business conducted on such leasehold property or are not material to the
business. There is not pending nor, to Inmark's knowledge, threatened, any
proceeding that would interfere with the quiet enjoyment of any such leasehold
property held by Inmark pursuant to any such Lease. Inmark is not in default
under the terms of any Lease nor, to the best of Inmark's knowledge, is any
other party thereto in default thereunder, and no event has occurred which (with
notice, lapse of time or both) would constitute a default thereunder by Inmark.
There are no condemnation proceedings pending nor, to the best of Inmark's
knowledge, threatened with respect to any portion of any property subject to a
Lease. All of the real property and personal property of Inmark are in all
material respects fit for the purposes for which intended and in good operating
condition and repair, ordinary wear and tear excepted, and as of the Closing,
such assets shall constitute all of the properties, rights and assets necessary
for the conduct of the business.
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2.10 PROPRIETARY ASSETS.
(a) Schedule 2.10 identifies each Proprietary Asset owned by or
licensed to Inmark that is material to the business of Inmark, including,
without limitation, the title and a brief description of each Inmark software
program developed by or on behalf of Inmark or under development by or on behalf
of Inmark (the "Inmark Software") and the release date or expected release date
of such Inmark Software, and such Proprietary Assets constitute all of the
Proprietary Assets necessary or useful to enable Inmark to conduct its business
in the manner currently being conducted and in the manner in which its business
is proposed to be conducted.
(b) Inmark has taken the measures and precautions necessary to
protect the confidentiality and value of each Proprietary Asset identified or
required to be identified on Schedule 2.10, and Schedule 2.10 specifies each
jurisdiction in which issuance or registration of any such Proprietary Assets
has been filed and applicable registration or application numbers.
(c) Inmark has not received any notice or other communication (in
writing or otherwise) of any actual, alleged, possible or potential
infringement of, and, to the best of its knowledge, presently is not
infringing and has not at any time infringed, any Proprietary Asset owned or
used by any other person or entity. To the best of Inmark's knowledge, no
other person or entity is infringing, and no Proprietary Asset owned or used
by any other person or entity infringes or conflicts with, any Proprietary
Asset owned or used by Inmark.
(d) To the extent any Proprietary Asset, including, without
limitation, any Inmark Software, has been licensed or developed, in whole or in
part, from or by any consultant or other third party, a description of such
Proprietary Asset and the third party relationship, including information
regarding any Inmark Material Contract with respect thereto, is set forth on
Schedule 2.10.
(e) Schedule 2.6(a) identifies all license, distribution or
agreements of any type related to the Proprietary Assets, including, without
limitation, each Inmark Software, including, all agreements related to (i) the
license, assignment or other transfer of any patent, copyright, trademark, trade
secret and other intellectual property rights thereto, and (ii) the
modification, reproduction, license, sublicense, distribution or marketing of
any Proprietary Asset, including, without limitation, each type of Inmark
Software. There are no oral agreements related to any of the foregoing. Any
obligation to pay royalties under any of such agreements is set forth on
Schedule 2.6(a).
2.11 BENEFIT PLANS; ERISA. All material employee benefit plans,
programs, policies, or arrangements (including, without limitation, each
employee benefit plan within the meaning of Section 3(3) of ERISA) that are
sponsored, maintained or contributed to or required to be contributed to by
Inmark for the benefit of any active, former, or retired employee of Inmark
are listed in Schedule 2.6(a) (the "Inmark Plans"). Each Inmark Plan has
been maintained and administered in all material respects with its terms and
applicable law, including ERISA and the Code. Any Inmark Plan intended to be
qualified under Section 401(a) of the Code has either obtained a favorable
determination letter as to its qualified status from the IRS or still has a
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remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such determination letter and to make
any amendments necessary to obtain a favorable determination. No Inmark Plan
is covered by Title IV of ERISA or Section 412 of the Code. To the knowledge
of Inmark, neither Inmark nor any officer or director of Inmark has incurred
any liability or penalty under Sections 4975 through 4980 of the Code or
Title I of ERISA. No suit, action, or other litigation (excluding claims for
benefits incurred in the ordinary course of Inmark Plan activities) has been
brought or, to the knowledge of Inmark, is threatened against or with respect
to any such Inmark Plan. All material contributions, reserves, or premium
payments required to be made or accrued as of the date hereof to the Inmark
Plans have been made or accrued.
2.12 PROCEEDINGS; ORDERS.
(a) (i) There is no Proceeding or order, injunction, writ or decree
pending or, to the best of Inmark's knowledge, threatened, against or affecting
Inmark or any of its assets that has or would have a Material Adverse Effect.
(ii) To the best of Inmark's knowledge, no event has occurred,
and no claim, dispute or other condition or circumstance exists, that might
directly or indirectly give rise to or serve as a basis for the commencement of
any such Proceeding or the imposition of any such order, injunction, writ or
decree.
(b) Schedule 2.12 identifies each Proceeding pending or order,
injunction, writ or decree that (i) involves a claim or potential claim of
liability in excess of $10,000 against or affecting Inmark or any of its assets
or (ii) enjoins or seeks to enjoin any activity by Inmark or any of its
directors or officers.
(c) Inmark has delivered or made available to Rogue Wave accurate and
complete copies of all pleadings, correspondence and other written materials to
which Inmark has access that relate to each Proceeding identified on Schedule
2.12.
2.13 ENVIRONMENTAL PROVISIONS.
(a) To the best of Inmark's knowledge, Inmark is in full compliance
with all applicable Environmental Laws, which compliance includes, but is not
limited to, the possession by Inmark of all permits and licenses required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof, except where the failure to so comply would not have a Material Adverse
Effect. Inmark has not received any communication (written or oral) from any
person alleging that Inmark is not in such full compliance, and, to the best of
Inmark's knowledge, there are no circumstances that may prevent or interfere
with such full compliance in the future. Schedule 2.13 identifies all permits
and licenses currently held by Inmark pursuant to Environmental Laws.
(b) There is no Environmental Claim pending or, to the best of
Inmark's knowledge, threatened against Inmark or against any person or entity
from whom Inmark has,
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or may have, retained or assumed liability for any Environmental Claim either
contractually or by operation of law.
(c) Without limiting the generality of the foregoing, Schedule 2.13
identifies (i) all on-site and off-site locations where Inmark has stored or
disposed of, and all entities with which Inmark has arranged for the disposal
of, Materials of Environmental Concern, and (ii) all underground storage tanks
(whether or not in use by Inmark), and the capacity and contents of such tanks,
located on property owned or leased by Inmark. To the best of Inmark's
knowledge, there is no asbestos contained in or forming a part of any building,
building component, structure or office space owned or leased by Inmark, and
(iv) no polychlorinated biphenyls (PCBs) are used or stored at any property
owned or leased by Inmark.
2.14 INSURANCE. Inmark is, and at all times during the past two years has
been, insured with reputable insurers against all risks normally insured against
by comparable entities, and all of the insurance policies and bonds required to
be maintained by Inmark are in full force and effect. Schedule 2.14 lists all
insurance policies and bonds that, as of the date hereof, are material to the
business of Inmark. Inmark is not in default under any such policy or bond, and
no event which would (with the passage of time, notice or both) constitute a
breach or default thereunder by Inmark or, to the best knowledge of Inmark, the
insurer thereunder has occurred or, to the knowledge of Inmark, will occur as a
result of the transactions contemplated herein. Consummation of the
transactions contemplated herein will not (and will not give any person or
entity a right to) terminate or modify any material rights of, or accelerate or
augment any material obligation of, Inmark under any insurance policy or bond
insofar as such policy or bond relates to or covers occurrences that give rise
to claims for occurrences taking place prior to the Closing Date. There is no
pending claim under any of the policies set forth on Schedule 2.14, and no event
has occurred and no condition exists that could reasonably be expected to give
rise to or serve as a basis for any such claim.
2.15 RECEIVABLES; MAJOR CUSTOMERS.
(a) Schedule 2.15 provides an accurate and complete breakdown and
aging of all accounts receivable, notes receivable and other receivables of
Inmark as of the Inmark Statement Date.
(b) All existing accounts receivable of Inmark (including those
accounts receivable reflected on the Inmark Financial Statements that have not
yet been collected and those accounts receivable that have arisen since the
Inmark Statement Date and have not yet been collected):
(i) represent valid obligations of customers of Inmark arising
from bona fide transactions entered into in the ordinary course of business; and
(ii) are dated as set forth on Schedule 2.15 and, to the best of
Inmark's knowledge after reasonable investigation, will be collected in full
(without any counterclaim or setoff) on or before December 31, 1995.
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2.16 DISCLOSURE.
(a) The copies of all documents furnished by Inmark pursuant to the
terms of this Agreement are complete and accurate. Inmark has provided Rogue
Wave and its counsel with full and complete access to all of Inmark's
facilities, employees, vendors, records and other documents and data.
(b) For purposes of this Agreement and the transactions contemplated
hereby, none of (i) the representations and warranties made by Inmark in this
Agreement, (ii) the Inmark Disclosure Statement or (iii) any statement by Inmark
or, to the best of Inmark's knowledge, any other person, contained in any
document, certificate or other writing furnished by Inmark to Rogue Wave in
connection this Agreement, the Merger or the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary to make the statements made
herein or wherein, in light of the circumstances in which they were made, not
misleading.
(c) There is no fact within the knowledge of Inmark that (i) may have
an adverse effect on Inmark's business, condition, assets, liabilities,
operations, financial performance, net income or prospects (or any portion
thereof) or on the ability of Inmark to comply with or perform any covenant or
obligation under the Agreement or any document certificate or writing furnished
in connection with the transactions contemplated hereby, or (ii) may have the
effect of preventing, delaying, making illegal or otherwise interfering with the
Merger.
2.17 NO BROKERS OR FINDERS. No agent, broker, finder, or investment or
commercial banker, or other person or entity engaged by or acting on behalf of
Inmark in connection with the transactions contemplated herein is or will be
entitled to any broker's or finder's or similar fee or other commission as a
result of the transactions contemplated herein.
2.18 THIRD PARTY CONSENTS. No consent or approval is needed from any third
party in order to effect the Merger, this Agreement or any of the transactions
contemplated hereby.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ROGUE WAVE AND RW SUB
Except as set forth in the Rogue Wave Disclosure Statement, each of Rogue
Wave and RW Sub represents, warrants and agrees, as of the date hereof, as
follows:
3.1 ORGANIZATION AND RELATED MATTERS. It is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its respective assets and properties and
to carry on its respective business as now being conducted. It is qualified
to do business and is in good standing in each jurisdiction in which the
properties owned, leased or
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operated by it or the nature of its business makes such qualification
necessary, except where the failure to be so qualified and in good standing
would not have a Material Adverse Effect on its business, as presently
conducted. True, accurate and complete copies of the organizational
documents of each of Rogue Wave and RW Sub, in each case as in effect on the
date hereof, including all amendments thereto, and minutes of all actions,
and actions by written consent of the directors and shareholders of Rogue
Wave and RW Sub, as applicable, have been delivered to Inmark.
3.2 CAPITALIZATION.
(a) The authorized capital stock of Rogue Wave consists of (i)
7,200,000 shares of Rogue Wave Common Stock, $0.001 par value, of which as of
the date hereof, 3,820,400 are issued and outstanding, and (ii) 1,200,000 shares
of Rogue Wave Preferred Stock, $0.001 par value, all of which are designated
Series A Preferred Stock and are issued and outstanding as of the date hereof.
As of the date hereof, the issued and outstanding shares of Series A Preferred
Stock are convertible into 1,200,000 shares of Rogue Wave Common Stock. The
issued and outstanding shares of Rogue Wave Common Stock and Rogue Wave
Preferred Stock are validly issued, fully paid and nonassessable. Schedule
3.2(a) sets forth a list of all shareholders of Rogue Wave and the number of
shares they hold, beneficially and of record, of Rogue Wave Common Stock.
(b) The authorized capital stock of RW Sub consists of 1,000 shares
of Common Stock, $0.01 par value, all of which are issued, outstanding and held
by Rogue Wave as of the date hereof. There are not as of the date hereof, and
on the Effective Time there will not be, any outstanding subscriptions, options,
warrants, stock appreciation rights, calls, rights, convertible securities or
other agreements or commitments of any character relating to issued or unissued
capital shares or other securities of RW Sub, or otherwise obligating RW Sub to
issue, transfer or sell any capital shares of RW Sub, or other securities
convertible into, exchangeable for, or evidencing the right to subscribe for,
any capital shares of RW Sub. All shares of RW Sub capital stock have been
issued in compliance with federal and state securities laws.
(c) As of the date hereof, there are Rogue Wave Options
outstanding to purchase 1,649,350 shares of Rogue Wave Common Stock pursuant
to Rogue Wave's 1994 Stock Option Plan, a list of which has been delivered
with the Rogue Wave Disclosure Statement to Inmark or its counsel. Set forth
on Schedule 3.2(c) is the name of each optionee, the number of shares of
Rogue Wave Common Stock subject to each Rogue Wave Option, the date of grant
and exercise price of each Rogue Wave Option and a vesting schedule for such
Rogue Wave Option. Except as set forth above or pursuant to the exercise of
Rogue Wave Options, there are not as of the date hereof, and on the Effective
Time there will not be, any outstanding subscriptions, options, warrants,
stock appreciation rights, calls, rights, convertible securities or other
agreements or commitments of any character relating to issued or unissued
capital shares or other securities of Rogue Wave, or otherwise obligating
Rogue Wave to issue, transfer or sell any capital shares of Rogue Wave, or
other securities convertible into, exchangeable for, or evidencing the right
to subscribe for, any capital shares of Rogue Wave. All shares of Rogue
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Wave capital stock have been issued in compliance with federal and state
securities laws, and Rogue Wave has no liability to any current or former
shareholder of Rogue Wave arising from or relating to the offer and sale of
any of its securities, whether under federal or state securities law, or
otherwise. There are no voting trusts, proxies or other agreements or
understandings to which Rogue Wave is a party or is bound with respect to the
voting of any of the capital stock of Rogue Wave.
(d) Except for RW Sub, Rogue Wave has no subsidiaries and, except as
set forth on Schedule 3.2(d), Rogue Wave does not own or hold, directly or
indirectly, any debt or equity securities of, nor has any other interest in, any
corporation, limited liability company, partnership, joint venture or other
entity.
3.3 AUTHORITY; NONCONTRAVENTION; APPROVALS.
(a) Each of Rogue Wave and RW Sub has full corporate power and
authority to execute, deliver and perform this Agreement and the Agreement of
Merger, as applicable. The execution, delivery and performance of the Agreement
and the Agreement of Merger has been duly and validly authorized by the
respective Board of Directors of Rogue Wave and RW Sub, and by all other
necessary corporate action on the part of Rogue Wave and RW Sub. This Agreement
and the Agreement of Merger have been, or will be on or prior to the Closing
Date, duly and validly executed and delivered by Rogue Wave or RW Sub, as
applicable, and constitutes the valid and binding agreement of Rogue Wave or RW
Sub, enforceable against Rogue Wave or RW Sub in accordance with its terms,
except as such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally, and general equitable principles.
(b) Neither the execution and delivery of this Agreement by Rogue
Wave or RW Sub nor the consummation by Rogue Wave or RW Sub of the transactions
contemplated herein will (i) conflict with or result in any breach of any
provision of its respective organizational documents, (ii) result in a default
(or give rise to any right of termination, cancellation, acceleration,
repurchase, put or call) under the terms, conditions or provisions of any note,
bond, mortgage, indenture or other evidence of indebtedness of Rogue Wave or RW
Sub or any material license agreement or lease or other material contract,
instrument or obligation to which Rogue Wave or RW Sub is a party, or by which
Rogue Wave or RW Sub or any of its respective assets may be bound, (iii) violate
any statute, rule, regulation, order, writ, injunction, decree or arbitration
award applicable to Rogue Wave or RW Sub or its respective assets, or
(iv) result in the creation of any material (individually or in the aggregate)
liens, charges or encumbrances on any of the assets of Rogue Wave or RW Sub.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Rogue Wave or RW Sub in connection with the execution and delivery of
this Agreement and the Agreement of Merger by Rogue Wave or RW Sub or the
consummation by Rogue Wave or RW Sub of the transactions contemplated hereby or
thereby, except for (i) the filing of the Agreement of Merger with the Secretary
of State of the State of Delaware and appropriate documents with the relevant
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authorities of other states in which Inmark is qualified to do business, (ii)
the issuance of a Permit by the California Department of Corporations with
respect to the issuance of Rogue Wave Common Stock pursuant to this
Agreement, (iii) such other consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws in connection with the Merger, and (iv) informational filings.
3.4 FINANCIAL STATEMENTS.
(a) Rogue Wave has delivered to Inmark (i) an audited balance sheet
of Rogue Wave as of September 30, 1994, its related audited statements of
operations and cash flows of Rogue Wave for the twelve (12) months then ended,
together with the notes thereto and (ii) its unaudited balance sheet as at July
31, 1995 (the "Rogue Wave Statement Date") and unaudited statement of income for
the ten month period ending on the Rogue Wave Statement Date (collectively, the
"Rogue Wave Financial Statements").
(b) The Rogue Wave Financial Statements are accurate and complete in
all respects and present fairly the financial position of Rogue Wave as of the
Rogue Wave Statement Date and the results of operations of Rogue Wave for the
period covered thereby.
(c) Rogue Wave has no liabilities or obligations (absolute or
contingent) required in accordance with GAAP to be disclosed in the financial
statements of Rogue Wave except liabilities (i) that are reflected or disclosed
in the Rogue Wave Financial Statements, (ii) that are disclosed in this
Agreement or the schedules hereto, or (iii) that were incurred after the Rogue
Wave Statement Date in the ordinary course of business and which in the
aggregate do not exceed $25,000.
3.5 ABSENCE OF CHANGES. Since the Rogue Wave Statement Date:
(a) No event has occurred that has had or might have a Material
Adverse Effect on Rogue Wave;
(b) There has not been any loss with respect to, or any interruption
in the use of, any of Rogue Wave's assets (whether or not covered by insurance);
(c) Rogue Wave has not (i) declared, accrued, set aside or paid any
dividend or made any other distribution in respect of any of its capital stock,
or (ii) repurchased, redeemed or otherwise reacquired any of its capital stock;
(d) Rogue Wave has not sold or otherwise issued any shares of capital
stock or any options, warrants or other rights to purchase or receive shares of
capital stock or other securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of capital stock of Rogue
Wave;
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(e) Rogue Wave has not amended its Articles of Incorporation or
Bylaws and has not effected or been a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(f) Rogue Wave has not purchased or otherwise acquired any material
asset from any other person or entity, other than in the ordinary course of
business;
(g) Rogue Wave has not leased or licensed any material asset from any
other person or entity other than in the ordinary course of business;
(h) Rogue Wave has not made any individual capital expenditure in
excess of $50,000;
(i) Rogue Wave has not sold or otherwise transferred, and has not
leased or licensed, any material asset to any other person or entity except in
the ordinary course of business;
(j) Rogue Wave has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness;
(k) Rogue Wave has not pledged or hypothecated any of its assets or
otherwise permitted any of its assets to become subject to any lien or
encumbrance;
(l) Rogue Wave has not made any loan or advance to any other person
or entity, except for employee travel advances made in the ordinary course of
business;
(m) Rogue Wave has not (i) established or adopted any employee
benefit plan, or (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, other than in accordance with past practice;
(n) No material contract, agreement or obligation by which Rogue Wave
or any of the assets owned or used by Rogue Wave is or was bound, or under which
Rogue Wave has or had any rights or interest, has been amended or terminated;
(o) Rogue Wave has not discharged any lien or encumbrance or
discharged or paid any indebtedness or other liability, except for accounts
payable that (i) are reflected as current liabilities in the Rogue Wave
Financial Statements or have been incurred by Rogue Wave since the Rogue Wave
Statement Date in the ordinary course of business, and (ii) have been discharged
or paid in the ordinary course of business;
(p) Rogue Wave has not forgiven any debt or otherwise released or
waived any right or claim;
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(q) Rogue Wave has not changed any of its methods of accounting or
accounting practices in any respect;
(r) Rogue Wave has not entered into any transaction or taken any
other action outside the ordinary course of business; and
(s) Rogue Wave has not agreed, committed or offered (in writing or
otherwise), and has not attempted, to take any of the actions referred to in
clauses "(c)" through "(r)" above.
3.6 CONTRACTS.
(a) Schedule 3.6(a) identifies each contract, agreement, lease,
instrument, understanding or arrangement to which Rogue Wave is a party, or by
which Rogue Wave is or may become subject, or by which any of its assets are or
may become bound (each, a "Rogue Wave Material Contract"):
(i) for the employment, or restricting the employment, of any
employee;
(ii) with respect to consulting services under which Rogue Wave
is obligated to make payments in excess of $25,000 in any year or under which
Rogue Wave paid in excess of $25,000 in calendar year 1994;
(iii) restricting in any manner its right to compete with any
other person or entity or restricting its right to sell to or purchase from any
other person or entity;
(iv) with any Affiliate, or any person controlled by an
Affiliate, for or with respect to the purchase or sale of goods, the performance
of services or the loan or guarantee of any amount by or to Rogue Wave;
(v) regarding the payment or receipt of license fees or
royalties to or from any person with annual payment obligations in excess of
$25,000;
(vi) regarding the license to Rogue Wave of any Proprietary
Asset, other than end-user license agreements entered into in the ordinary
course of business;
(vii) regarding agency, representation, distribution or
franchise, and that cannot be canceled without payment or penalty of less than
$25,000 upon notice of 60 days or less;
(viii) contracts relating to the sale, transfer or disposition
of Rogue Wave's securities;
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(ix) lease or sublease, either as lessee or sublessee, lessor or
sublessor, of real or personal property or intangibles;
(x) warranty or service contracts;
(xi) that provides for the guaranty for borrowed money by, or
indemnification obligations of, another person; or
(xii) that is specified under Section 3.10(e).
(b) Each Rogue Wave Material Contract is in full force and effect, is
binding upon Rogue Wave and, to the best of Rogue Wave's knowledge, is binding
on all other parties thereto. Copies of each Rogue Wave Material Contract have
been provided to counsel to Inmark. Rogue Wave and the other parties to such
Rogue Wave Material Contracts have duly performed its obligations under each
Rogue Wave Material Contract to the extent such obligations to perform have
accrued, and no breach or default, or alleged breach or default, or event which
would (with the passage of time, notice or both) constitute a breach or default
thereunder has occurred or has been alleged, nor will occur as a result of
consummation of the transactions contemplated by this Agreement, and, to the
best of Rogue Wave's knowledge, no breach or default by any other contracting
parties thereunder has occurred or has been alleged. Consummation of the
transactions contemplated by this Agreement will not (and will not give any
person a right to) terminate or modify any material rights of, or accelerate or
augment any material obligation of Rogue Wave under any Rogue Wave Material
Contract.
(c) Schedule 3.6(c) identifies each permit or license applied for,
pending, issued or given to Rogue Wave that is material to the conduct of the
business, and Rogue Wave possesses all such licenses and permits required in
order to operate the business, and is in compliance with each such license and
permit. Each such license and permit is valid and in full force and effect and
will remain so upon consummation of the transactions contemplated by this
Agreement except where the failure to comply would not have a Material Adverse
Effect.
3.7 TAX MATTERS. With respect to Taxes:
(a) Rogue Wave has filed or will file or cause to be filed, within
the time and in the manner prescribed by law, all Returns required to be filed
under federal, state, local or any foreign laws by Rogue Wave for all Returns
due on or prior to the Effective Time; all Returns so filed complied in all
material respects with the laws, rules and regulations applicable to such
Returns;
(b) Rogue Wave has within the time and in the manner prescribed by
law, paid (and until the Closing will, within the time and in the manner
prescribed by law, pay) all Taxes that are due and payable;
(c) Rogue Wave has established (and until the Closing will establish)
on its books and records reserves that are adequate for the payment of all Taxes
not yet due and
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payable and there is (and until the Closing shall be) no material difference
between the amounts of the book basis and the tax basis of assets (net of
liabilities) that are not accounted for by an accrual on the books for
federal income tax purposes or, if not required to be so accrued under GAAP,
are described in Schedule 3.7(c);
(d) There are no liens for Taxes upon the assets of Rogue Wave except
liens for Taxes not yet due;
(e) Rogue Wave has not filed (and will not file prior to the
Effective Time) any consent agreement under Section 341(f) of the Code or agreed
to have Section 341(f)(2) of the Code apply to any disposition of the subsection
(f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by
Rogue Wave;
(f) No deficiency or adjustment for any Taxes has been proposed or
asserted or assessed against Rogue Wave and, to the best of Rogue Wave's
knowledge, no foreign, federal, state or local audits, examination or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes, and no waiver or consent extending any statute of
limitations for the assessment or collection of any Taxes, which waiver or
consent remains in effect, has been executed by (or on behalf of) Rogue Wave nor
are any requests for such waiver or consent pending;
(g) Rogue Wave is not a party to any tax-sharing or allocation
agreement, nor does Rogue Wave owe any amount under any tax-sharing or
allocation agreement;
(h) Rogue Wave has not made any election under Section 338(g) of the
Code with respect to any acquisition and no outstanding debt obligation of Rogue
Wave is "corporate acquisition indebtedness" within the meaning of
Section 279(b) of the Code;
(i) Rogue Wave is not a United States Real Property Holding
Corporation as defined under Section 897(c)(2) of the Code; and
(j) Schedule 3.7 lists the years involved, type of Tax and taxing
authority involved for every completed audit of Taxes of Rogue Wave.
3.8 EMPLOYEE AND LABOR MATTERS.
(a) Section 3.8 accurately sets forth, with respect to each employee
of Rogue Wave (including any employee of Rogue Wave who is on a leave of absence
or on layoff status):
(i) the name, title and general duties of such employee;
(ii) each Rogue Wave Plan (as defined in Section 3.11) in which
such employee participates or is eligible to participate; and
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(iii) accurate and complete information as to the aggregate
dollar amount of the compensation (including wages, salary, commissions,
director's fees, fringe benefits, bonuses, profit-sharing payments and other
payments or benefits of any type) received by each such employee with respect to
services performed for Rogue Wave for the year to date June 30, 1995, and any
change in such employee's aggregate monthly compensation since June 30, 1995.
(b) No former employee of Rogue Wave is receiving or is scheduled to
receive (or whose spouse or other dependent is receiving or is scheduled to
receive) any benefits (whether from Rogue Wave or otherwise) relating to such
former employee's employment with Rogue Wave.
(c) Rogue Wave is not, and never has been, a party to or bound by any
employment agreement or any union contract, collective bargaining agreement or
similar contract.
(d) The employment of each of Rogue Wave's employees is terminable by
Rogue Wave at will. Rogue Wave has delivered to Inmark accurate and complete
copies of all employee manuals and handbooks, disclosure materials, policy
statements and other materials relating to the employment of the current and
former employees of Rogue Wave.
(e) To the best of Rogue Wave's knowledge, none of its employees (i)
presently intends to terminate his employment with Rogue Wave, or (ii) is a
party to or is bound by any confidentiality agreement, noncompetition agreement
or other contract or agreement that may have an adverse effect on (A) the
performance by such employee of any of his duties or responsibilities as an
employee of Rogue Wave, or (B) the business of Inmark or Rogue Wave.
(f) There is no unfair labor practice charge or similar charge,
complaint, allegation or other process or claim pending or, to the knowledge of
Rogue Wave, threatened, against Rogue Wave before the National Labor Relations
Board or any other Governmental Entity which, if adversely determined, would
have a Material Adverse Effect. There is not now pending, never has been, and
to the best of Rogue Wave's knowledge, no person or entity has threatened to
commence, any slowdown, work stoppage, labor dispute or union organizing
activity or any similar activity or dispute affecting Rogue Wave or any of its
employees. No event has occurred, and no condition or circumstance exists,
that might directly or indirectly give rise to or provide a basis for the
commencement of any such slowdown, work stoppage, labor dispute or union
organizing activity or any similar activity or dispute.
3.9 REAL AND PERSONAL PROPERTY.
(a) Rogue Wave has good and valid title to or other right to use,
free of any liens or encumbrances, (i) all real property held on a fee basis
used in its business, all leasehold property held pursuant to a Lease and all
other interests in such real property, and (ii) all other tangible assets and
properties that presently are used in its business, including tangible assets
and properties that it purports to own or have the right to use as reflected in
the Rogue Wave Financial Statements or that thereafter were acquired, except, in
each case, for (a) liens reflected
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in the Rogue Wave Financial Statements as securing specified liabilities
(with respect to which no default exists), (b) liens for Taxes not yet due or
matters otherwise described on Schedule 3.7 (whether or not such liens or
other matters constitute encumbrances), and (c) assets and properties
disposed of since the Rogue Wave Statement Date in the ordinary course of
business.
(b) Each Lease is valid, binding and enforceable against Rogue Wave
and, to the best of Rogue Wave's knowledge, each other party thereto, subject
only to such exceptions as do not materially interfere with the operation of the
business conducted on such leasehold property or are not material to the
business. There is not pending nor, to Rogue Wave's knowledge, threatened, any
proceeding that would interfere with the quiet enjoyment of any such leasehold
property held by Rogue Wave pursuant to any such Lease. Rogue Wave is not in
default under the terms of any Lease nor, to the best of Rogue Wave's knowledge,
is any other party thereto in default thereunder, and no event has occurred
which (with notice, lapse of time or both) would constitute a default thereunder
by Rogue Wave. There are no condemnation proceedings pending nor, to the best
of Rogue Wave's knowledge, threatened with respect to any portion of any
property subject to a Lease. All of the real property and personal property of
Rogue Wave are in all material respects fit for the purposes for which intended
and in good operating condition and repair, ordinary wear and tear excepted, and
as of the Closing, such assets shall constitute all of the properties, rights
and assets necessary for the conduct of the business.
3.10 PROPRIETARY ASSETS.
(a) Schedule 3.10 identifies each Proprietary Asset owned by or
licensed to Rogue Wave that is material to the business of Rogue Wave,
including, without limitation, the title and a brief description of each Rogue
Wave software program developed by or on behalf of Rogue Wave or under
development by or on behalf of Rogue Wave (the "Rogue Wave Software") and the
release date or expected release date of such Rogue Wave Software, and such
Proprietary Assets constitute all of the Proprietary Assets necessary or useful
to enable Rogue Wave to conduct its business in the manner currently being
conducted and in the manner in which its business is proposed to be conducted.
(b) Rogue Wave has taken the measures and precautions necessary to
protect the confidentiality and value of each Proprietary Asset identified or
required to be identified on Schedule 3.10, and Schedule 3.10 specifies each
jurisdiction in which issuance or registration of any such Proprietary Assets
has been filed and applicable registration or application numbers.
(c) Rogue Wave has not received any notice or other communication (in
writing or otherwise) of any actual, alleged, possible or potential infringement
of, and, to the best of its knowledge, presently is not infringing and has not
at any time infringed, any Proprietary Asset owned or used by any other person
or entity. To the best of Rogue Wave's knowledge, no other person or entity is
infringing, and no Proprietary Asset owned or used by any other person or entity
infringes or conflicts with, any Proprietary Asset owned or used by Rogue Wave.
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(d) To the extent any Proprietary Asset, including, without
limitation, any Rogue Wave Software, has been licensed or developed, in whole or
in part, from or by any consultant or other third party, a description of such
Proprietary Asset and the third party relationship, including information
regarding any Rogue Wave Material Contract with respect thereto, is set forth on
Schedule 3.10.
(e) Schedule 3.6(a) identifies all license, distribution or
agreements of any type related to the Proprietary Assets, including, without
limitation, each Rogue Wave Software, including, all agreements related to (i)
the license, assignment or other transfer of any patent, copyright, trademark,
trade secret and other intellectual property rights thereto, and (ii) the
modification, reproduction, license, sublicense, distribution or marketing of
any Proprietary Asset, including, without limitation, each type of Rogue Wave
Software. There are no oral agreements related to any of the foregoing. Any
obligation to pay royalties under any of such agreements is set forth on
Schedule 3.6(a).
3.11 BENEFIT PLANS; ERISA. All material employee benefit plans, programs,
policies, or arrangements (including, without limitation, each employee benefit
plan within the meaning of Section 3(3) of ERISA) that are sponsored, maintained
or contributed to or required to be contributed to by Rogue Wave for the benefit
of any active, former, or retired employee of Rogue Wave are listed in Schedule
3.6(a) (the "Rogue Wave Plans"). Each Rogue Wave Plan has been maintained and
administered in all material respects with its terms and applicable law,
including ERISA and the Code. Any Rogue Wave Plan intended to be qualified
under Section 401(a) of the Code has either obtained a favorable determination
letter as to its qualified status from the IRS or still has a remaining period
of time under applicable Treasury Regulations or IRS pronouncements in which to
apply for such determination letter and to make any amendments necessary to
obtain a favorable determination. No Rogue Wave Plan is covered by Title IV of
ERISA or Section 412 of the Code. To the knowledge of Rogue Wave, neither Rogue
Wave nor any officer or director of Rogue Wave has incurred any liability or
penalty under Sections 4975 through 4980 of the Code or Title I of ERISA. No
suit, action, or other litigation (excluding claims for benefits incurred in the
ordinary course of Rogue Wave Plan activities) has been brought or, to the
knowledge of Rogue Wave, is threatened against or with respect to any such Rogue
Wave Plan. All material contributions, reserves, or premium payments required
to be made or accrued as of the date hereof to the Rogue Wave Plans have been
made or accrued.
3.12 PROCEEDINGS; ORDERS.
(a) (i) There is no Proceeding or order, injunction, writ or decree
pending or, to the best of Rogue Wave's knowledge, threatened, against or
affecting Rogue Wave or any of its assets that has or would have a Material
Adverse Effect.
(ii) To the best of Rogue Wave's knowledge, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
might directly or indirectly give rise to or serve as a basis for the
commencement of any such Proceeding or the imposition of any such order,
injunction, writ or decree.
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(b) Schedule 3.12 identifies each Proceeding pending or order,
injunction, writ or decree that (i) involves a claim or potential claim of
liability in excess of $10,000 against or affecting Rogue Wave or any of its
assets or (ii) enjoins or seeks to enjoin any activity by Rogue Wave or any of
its directors or officers.
(c) Rogue Wave has delivered or made available to Inmark accurate and
complete copies of all pleadings, correspondence and other written materials to
which Rogue Wave has access that relate to each Proceeding identified on
Schedule 3.12.
3.13 ENVIRONMENTAL PROVISIONS.
(a) To the best of Rogue Wave's knowledge, Rogue Wave is in full
compliance with all applicable Environmental Laws, which compliance includes,
but is not limited to, the possession by Rogue Wave of all permits and licenses
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof, except where the failure to so comply would not have a
Material Adverse Effect. Rogue Wave has not received any communication (written
or oral) from any person alleging that Rogue Wave is not in such full
compliance, and, to the best of Rogue Wave's knowledge, there are no
circumstances that may prevent or interfere with such full compliance in the
future. Schedule 3.13 identifies all permits and licenses currently held by
Rogue Wave pursuant to Environmental Laws.
(b) There is no Environmental Claim pending or, to the best of Rogue
Wave's knowledge, threatened against Rogue Wave or against any person or entity
from whom Rogue Wave has, or may have, retained or assumed liability for any
Environmental Claim either contractually or by operation of law.
(c) Without limiting the generality of the foregoing, Schedule 3.13
identifies (i) all on-site and off-site locations where Rogue Wave has stored or
disposed of, and all entities with which Rogue Wave has arranged for the
disposal of, Materials of Environmental Concern, and (ii) all underground
storage tanks (whether or not in use by Rogue Wave), and the capacity and
contents of such tanks, located on property owned or leased by Rogue Wave. To
the best of Rogue Wave's knowledge, there is no asbestos contained in or forming
a part of any building, building component, structure or office space owned or
leased by Rogue Wave, and (iv) no polychlorinated biphenyls (PCBs) are used or
stored at any property owned or leased by Rogue Wave.
3.14 INSURANCE. Rogue Wave is, and at all times during the past two years
has been, insured with reputable insurers against all risks normally insured
against by comparable entities, and all of the insurance policies and bonds
required to be maintained by Rogue Wave are in full force and effect. Schedule
3.14 lists all insurance policies and bonds that, as of the date hereof, are
material to the business of Rogue Wave. Rogue Wave is not in default under any
such policy or bond, and no event which would (with the passage of time, notice
or both) constitute a breach or default thereunder by Rogue Wave or, to the best
knowledge of Rogue Wave, the insurer thereunder has occurred or, to the
knowledge of Rogue Wave, will occur as a result of the transactions contemplated
herein. Consummation of the transactions contemplated herein
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will not (and will not give any person or entity a right to) terminate or
modify any material rights of, or accelerate or augment any material
obligation of, Rogue Wave under any insurance policy or bond insofar as such
policy or bond relates to or covers occurrences that give rise to claims for
occurrences taking place prior to the Closing Date. There is no pending
claim under any of the policies set forth on Schedule 3.14, and no event has
occurred and no condition exists that could reasonably be expected to give
rise to or serve as a basis for any such claim.
3.15 RECEIVABLES; MAJOR CUSTOMERS.
(a) Schedule 3.15 provides an accurate and complete breakdown and
aging of all accounts receivable, notes receivable and other receivables of
Rogue Wave as of the Rogue Wave Statement Date.
(b) All existing accounts receivable of Rogue Wave (including those
accounts receivable reflected on the Rogue Wave Financial Statements that have
not yet been collected and those accounts receivable that have arisen since the
Rogue Wave Statement Date and have not yet been collected):
(i) represent valid obligations of customers of Rogue Wave
arising from bona fide transactions entered into in the ordinary course of
business; and
(ii) are dated as set forth on Schedule 3.15 and, to the best of
Rogue Wave's knowledge after reasonable investigation, will be collected in full
(without any counterclaim or setoff) on or before December 31, 1995.
3.16 DISCLOSURE.
(a) The copies of all documents furnished by Rogue Wave or RW Sub
pursuant to the terms of this Agreement are complete and accurate. Rogue Wave
has provided Inmark and its counsel with full and complete access to all of
Rogue Wave's facilities, employees, vendors, records and other documents and
data.
(b) For purposes of this Agreement and the transactions contemplated
hereby, none of (i) the representations and warranties made by Rogue Wave in
this Agreement, (ii) the Rogue Wave Disclosure Statement or (iii) any statement
by Rogue Wave or, to the best of Rogue Wave's knowledge, any other person,
contained in any document, certificate or other writing furnished by Rogue Wave
to Inmark in connection this Agreement, the Merger or the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary to make the
statements made herein or wherein, in light of the circumstances in which they
were made, not misleading.
(c) There is no fact within the knowledge of Rogue Wave that (i) may
have an adverse effect on Rogue Wave's business, condition, assets, liabilities,
operations, financial performance, net income or prospects (or any portion
thereof) or on the ability of Rogue Wave to comply with or perform any covenant
or obligation under the Agreement or any document
31.
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certificate or writing furnished in connection with the transactions
contemplated hereby, or (ii) may have the effect of preventing, delaying,
making illegal or otherwise interfering with the Merger.
3.17 NO BROKERS OR FINDERS. No agent, broker, finder, or investment or
commercial banker, or other person or entity engaged by or acting on behalf of
Rogue Wave in connection with the transactions contemplated herein is or will be
entitled to any broker's or finder's or similar fee or other commission as a
result of the transactions contemplated herein.
3.18 THIRD PARTY CONSENTS. No consent or approval is needed from any third
party in order to effect the Merger, this Agreement or any of the transactions
contemplated hereby.
ARTICLE 4
COVENANTS WITH RESPECT TO THE PERIOD PRIOR TO CLOSING
Rogue Wave covenants on behalf of itself and RW Sub, and Inmark covenants
on behalf of itself, as follows with respect to the period between the date of
this Agreement and the Effective Time:
4.1 ACCESS AND INVESTIGATION.
Each of Rogue Wave, RW Sub and Inmark will provide each other and
their respective representatives with reasonable access to its representatives,
personnel and assets and to copies of all existing books, records, tax returns,
work papers and other documents and information relating to its business, and
will compile and provide each other and their respective representatives with
such additional financial, operating and other data and information regarding
its business as the other may request in good faith.
4.2 OPERATION OF BUSINESS.
(a) Rogue Wave and Inmark will each:
(i) conduct its respective operations in the ordinary course of
business and in the same manner as such operations have been conducted prior to
the date of this Agreement;
(ii) use its best efforts to preserve intact its respective
current business organization, keep available the services of its current
officers and employees and maintain its relations and good will with all
suppliers, customers, landlords, creditors, licensors, licensees, employees and
other persons or entities having business relationships with Inmark; and
(iii) promptly notify the other party of any inquiry,
proposal or offer from any person or entity relating to any Acquisition
Transaction.
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(b) Rogue Wave and Inmark will not, without the prior written consent
of the other party except in the ordinary course of business:
(i) declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any of its capital stock and it will not
repurchase, redeem or otherwise reacquire any of its capital stock;
(ii) sell or otherwise issue any capital stock or other equity
interest or securities or other instruments convertible into or exchangeable for
capital stock or any other rights, warrants or options to acquire the foregoing
equity securities;
(iii) amend its respective Articles of Incorporation or
Bylaws, and will not effect or become a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(iv) form any subsidiary or acquire any equity securities of, or
other interest in, any other entity;
(v) make any individual capital expenditure in excess of
$20,000;
(vi) enter into or permit any of the assets owned or used by
Rogue Wave or Inmark, as applicable, to become bound by any contract or
agreement that would, if entered into prior to the date hereof, be required to
be identified as an Inmark Material Contract or Rogue Wave Material Contract
pursuant to Section 2.6 and Section 3.6, respectively;
(vii) incur, assume or otherwise become subject to any
material liability, except for current liabilities incurred in the ordinary
course of business;
(viii) commence any Proceeding;
(ix) take or permit any action that would prevent the Merger from
qualifying as a tax-free reorganization under Section 368(a)(1)(A) of the Code;
(x) enter into any transaction or take any other action of the
type referred to in Section 2.5 or Section 3.5, as applicable;
(xi) enter into any transaction or take any other action that
might cause or constitute a breach of any representation or warranty made by
Rogue Wave or Inmark, as applicable, in this Agreement; and
(xii) agree, commit, offer (in writing or otherwise) or
attempt to take any of the actions prohibited by this subsection (b).
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4.3 FILINGS AND CONSENTS.
(a) Rogue Wave and Inmark agree to:
(i) make or give as soon as possible after the date of this
Agreement each filing or notice required to be made or given (pursuant to any
applicable statute, rule, regulation, order, writ, injunction, decree or
arbitration award, contract or otherwise) by it in connection with the execution
and delivery of the Agreement or the Agreement of Merger or in connection with
the consummation or performance of any of the transactions contemplated herein;
(ii) obtain each consent (pursuant to any applicable statute,
rule, regulation, order, writ, injunction, decree or arbitration award, contract
or otherwise) required by it in connection with the execution and delivery of
the Agreement or the Agreement of Merger or in connection with the consummation
or performance of any of the transactions contemplated herein as soon as
possible after the date of this Agreement;
(iii) promptly deliver to the other party a copy of each
filing made, each notice given and each consent obtained by it; and
(iv) cooperate, and ensure that its representatives cooperate,
with reasonable requests of the other party and representatives, and prepare and
make available such documents and take such other actions as the other party may
request in good faith, in connection with any filing, notice or consent that
such party is required or elects to make, give or obtain.
4.4 NOTIFICATION; UPDATES TO DISCLOSURE. Each of Rogue Wave, RW Sub and
Inmark promptly shall notify the others in writing of:
(a) the discovery by it of any event, condition, fact or circumstance
that occurred or existed on or prior to the date of this Agreement and that
caused or constitutes a material breach of any representation or warranty made
by it in this Agreement;
(b) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute a
material breach of any representation or warranty made by it in this Agreement
if (i) such representation or warranty had been made as of the time of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, or (ii) such event, condition, fact or circumstance had occurred,
arisen or existed on or prior to the date of this Agreement;
(c) any material breach of any of its covenants or obligations; and
(d) any event, condition, fact or circumstance that may make the
timely satisfaction of any of the conditions set forth in Article 5 impossible
or unlikely.
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4.5 NO NEGOTIATION. Inmark and Rogue Wave will not (with the exception of
the prior retention of Wessels, Arnold & Henderson, L.L.C., and only in
connection with Rogue Wave and Inmark, taken as a whole), and will ensure that
none of its respective representatives, directly or indirectly:
(a) enter into any contract, agreement, understanding or arrangement
relating to any Acquisition Transaction;
(b) solicit or encourage the initiation of any inquiry, proposal or
offer from any person or entity (other than Rogue Wave) relating to any
Acquisition Transaction;
(c) participate in any discussions or negotiations with, or provide
any information regarding Inmark or Rogue Wave or its respective business or
operations to, any person or entity (other than Rogue Wave or Inmark, as
applicable) relating to any proposed Acquisition Transaction; or
(d) permit any Affiliate of Inmark or Rogue Wave to do any of the
foregoing.
4.6 CONFIDENTIALITY. Each of Rogue Wave, RW Sub and Inmark shall ensure
that:
(a) it and its respective representatives keep strictly confidential
the terms of this Agreement;
(b) without the prior written consent of the other, neither it nor
any of its representatives issues or disseminates any press release or other
publicity or otherwise makes any disclosure of any nature (to any of its
suppliers, customers, landlords, creditors or to any other person or entity)
regarding any of the transactions contemplated herein, except to the extent
required by law to make any such disclosure regarding the transactions
contemplated herein; and
(c) if it is required by law to make any disclosure regarding the
transactions contemplated herein, it promptly advises the other, of the nature
and content of the intended disclosure.
4.7 APPROVAL OF MERGER. Each of RW Sub and Inmark shall solicit the
consent of its shareholders as promptly as practicable after the issuance of the
Permit for the purpose of obtaining the shareholder approval required in
connection with the transactions contemplated hereby, and shall use its best
efforts to obtain such approval. Rogue Wave, after the issuance of the Permit,
agrees to vote its shares of RW Sub in favor of the Merger.
4.8 CLOSING DOCUMENTS. Each of Rogue Wave, RW Sub and Inmark shall use
its best efforts to deliver to such other parties as is required under this
Agreement the closing documents referred to in this Agreement.
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4.9 SHAREHOLDER CERTIFICATES. Inmark shall deliver to Rogue Wave a
certificate regarding continuity of interest and similar matters in a form
reasonably satisfactory to Rogue Wave or its counsel (a "Shareholder
Certificate") signed by a majority of the holders of Inmark Outstanding Shares.
4.10 FIRPTA LETTER. Prior to the Effective Time, Inmark shall deliver to
Rogue Wave a statement executed on Inmark's behalf by its President in such form
as reasonably requested by counsel for Rogue Wave, confirming the requirements
of Treasury Regulation Section 1.897-2(h)(1)(i), if required.
4.11 FAIRNESS HEARING AND PERMIT. Rogue Wave and Inmark shall prepare an
Application for Qualification of Securities by Permit under Section 25121 of the
California Corporate Securities Law of 1968, as amended, a related Notice of
Hearing and an information statement or other disclosure material (the
"Disclosure Document") to be supplied to the shareholders of Inmark in
connection with the transactions contemplated hereby (collectively, the "Hearing
Documents"). Rogue Wave and Inmark will file the Hearing Documents as promptly
as practicable with the California Department of Corporations and request a
hearing on the fairness of the Merger pursuant to Section 25142 of the
California Corporate Securities Law. Rogue Wave and Inmark will thereafter
endeavor in good faith to obtain a finding of fairness and the issuance of a
Permit to such effect by the California Department of Corporations as a result
of such hearing.
4.12 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement, the Agreement of Merger and
the transactions contemplated hereby and thereby, including fees of any finders
or brokers or attorneys and accountants retained by such party, shall be paid by
the party incurring such expense; PROVIDED, HOWEVER, that such payment
obligation shall not preclude either party from pursuing any remedies conferred
hereby or by law or equity on such party for the repayment of such amounts in
connection with a breach of this Agreement.
4.13 ISSUANCE OF SHARES. Rogue Wave shall, as and when required under this
Agreement and the Agreement of Merger, issue and deliver certificates
representing the Rogue Wave Common Stock into which the Inmark Outstanding
Shares at the Effective Time of the Merger will be converted.
ARTICLE 5
CONDITIONS OF MERGER
5.1 GENERAL CONDITIONS. The obligations of Rogue Wave, RW Sub and Inmark
to effect the Closing and consummate the transactions contemplated herein shall
be subject to the following conditions, unless waived in writing by each of
them:
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(a) NO ORDERS; LEGAL PROCEEDINGS. No order, injunction, writ or
decree shall have been enacted, entered, issued, promulgated or enforced by any
governmental entity that prohibits or restricts the Merger or the transactions
contemplated herein. No Proceeding shall be pending or threatened by any
Governmental Entity (i) challenging or seeking to make illegal or otherwise to
directly or indirectly restrain or prohibit or make materially more costly the
consummation of the transactions contemplated herein, or seeking to obtain
material damages in connection with the transactions contemplated herein, or
(ii) which would have a Material Adverse Effect on Rogue Wave or Inmark; and no
order, injunction, writ or decree shall have been issued which would have the
effect of or require anything set forth in clause (i) or clause (ii) above.
(b) APPROVALS. All permits, approvals and consents required to be
obtained from any Governmental Entity to effect the Merger and to consummate the
transactions contemplated herein shall have been received or obtained on or
prior to the Closing Date.
(c) SHAREHOLDERS' APPROVAL. This Agreement, and the transactions
contemplated herein, shall have been approved by (i) the requisite vote of the
Inmark Common Stock entitled to vote, as required by and in accordance with
Inmark's Articles of Incorporation and the applicable provisions of the
California Law, and (ii) the requisite vote of the outstanding shares of RW Sub
entitled to vote, as required by and in accordance with the applicable
provisions of RW Sub's Certificate of Incorporation and the Delaware Law.
(d) ISSUANCE OF PERMIT. The California Department of Corporations
shall have issued a Permit under Section 25121 of the California Corporate
Securities Law of 1968, as amended, covering the issuance of the Rogue Wave
Common Stock following a hearing as to the fairness of the Merger conducted
pursuant to Section 25142 of the California Securities Law.
(e) POOLING OF INTERESTS TRANSACTION. Rogue Wave's accounting firm
[and Inmark's accounting firm] shall [each] deliver a letter, in form and
substance satisfactory to Rogue Wave and Inmark, to the effect that the Merger
will qualify as a pooling of interests transaction for financial reporting
purposes.
5.2 CONDITIONS TO OBLIGATIONS OF ROGUE WAVE AND RW SUB. The obligations
of Rogue Wave and RW Sub to effect the Closing and consummate the transactions
contemplated herein is subject to the fulfillment, prior to or upon the Closing,
of the following, except to the extent waived in writing by each of them:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS OF INMARK.
(i) Inmark shall have complied with and performed in all
material respects each covenant contained in this Agreement to be performed by
it at or prior to the Closing Date;
(ii) the representations and warranties of Inmark contained in
this Agreement, when read in conjunction with the Inmark Disclosure Statement
(which Inmark
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Disclosure Statement may be updated by Inmark as of the Closing Date provided
that the revisions made subsequent to the date of this Agreement when
considered in the aggregate do not constitute a Material Adverse Effect on
Inmark), shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date; and
(iii) Inmark shall have delivered to Rogue Wave a certificate of
its Chief Executive Officer evidencing compliance with the conditions set forth
in this Section 5.2(a).
(b) NO MATERIAL ADVERSE CIRCUMSTANCE. After the date hereof, Inmark
shall have experienced no event which would have Material Adverse Effect on
Inmark.
(c) NO LITIGATION. No Proceeding shall have been commenced against
Inmark other than by Rogue Wave or RW Sub which, if adversely determined, would
have a Material Adverse Effect.
(d) CONSENTS AND APPROVALS. Inmark shall have obtained all consents
identified on Schedule 2.3(c), and all such other governmental or other
approvals, consents, authorizations or modifications as may be required to
permit the performance by Rogue Wave, RW Sub or Inmark of their respective
obligations under this Agreement, the consummation of the transactions herein
contemplated and the continuation of Inmark's business after the consummation of
the transactions contemplated herein.
(e) APPRAISAL RIGHTS. Holders of not more than 10% of the Inmark
Common Stock shall have exercised or shall continue to have the right to
exercise, dissenters rights with respect to the transactions contemplated by
this Agreement.
(f) FIRPTA. Rogue Wave, as agent for the shareholders of Inmark,
shall have received a properly executed "FIRPTA" Notification Letter, in form
and substance reasonably acceptable to Rogue Wave, which states that shares of
Inmark do not constitute "United States Real Property Interests" under
Section 897(c) of the Code for purposes of satisfying Rogue Wave's obligations
under Treasury Regulations Section 1.1445-2(c)(3).
(g) CLOSING DOCUMENTS. Rogue Wave, or its counsel, shall have
received all of the closing documents referred to in this Agreement.
(h) EMPLOYEE ACKNOWLEDGEMENTS. Each of the individuals employed by
Inmark as of the date of this Agreement shall execute an acknowledgement form
regarding their "at will" employment status and unpaid claims in a form
acceptable to Rogue Wave.
(i) OPINION OF COUNSEL. Rogue Wave shall have received an opinion of
Fenwick & West, counsel to Inmark, dated the Closing Date, in the form attached
hereto as Exhibit C.
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5.3 CONDITIONS TO OBLIGATIONS OF INMARK. The obligations of Inmark to
effect the Closing and consummate the transactions contemplated herein are
subject to the fulfillment, prior to or upon the Closing, of the following
conditions, except to the extent waived in writing by Inmark:
(a) REPRESENTATIONS AND WARRANTIES AND COVENANTS OF ROGUE WAVE AND RW
SUB.
(i) Rogue Wave and RW Sub shall have complied with and performed
in all material respects each covenant contained in this Agreement to be
performed by it at or prior to the Closing Date;
(ii) the representations and warranties of Rogue Wave and RW Sub
contained in this Agreement, when read in conjunction with the Rogue Wave
Disclosure Statement (which Rogue Wave Disclosure Statement may be updated by
Rogue Wave and RW Sub as of the Closing Date provided that the revisions made
subsequent to the date of this Agreement when considered in the aggregate do not
constitute a Material Adverse Effect on Rogue Wave), shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date; and
(iii) each of Rogue Wave and RW Sub shall have delivered to
Inmark a certificate of its Chief Executive Officer evidencing compliance with
the conditions set forth in this Section 5.3(a).
(b) NO MATERIAL ADVERSE CHANGE. After the date hereof there shall
have been no event, fact or circumstance not contemplated under this Agreement
the effect of which would have a Material Adverse Effect on Rogue Wave or RW
Sub.
(c) REQUIRED APPROVALS. Rogue Wave, RW Sub and Inmark shall have
received all such governmental approvals, consents, authorizations or
modifications as may be required to permit the performance by Rogue Wave, RW Sub
and Inmark, of their respective obligations under this Agreement and the
consummation of the transactions herein contemplated.
(d) NO LITIGATION. No Proceeding shall have been commenced against
Rogue Wave or RW Sub other than by Inmark which, if adversely determined, would
have a Material Adverse Effect.
(e) ROGUE WAVE BOARD OF DIRECTORS. Upon the Closing Date, the
authorized size of the Board of Directors of Rogue Wave shall be five (5)
members and the board shall consist of Thomas Keffer, Dan Whitaker, Thomas
Peterson, Thomas Atwood and one representative of the Inmark Shareholders, who
shall initially be Howard Love. The Inmark Shareholders shall receive from the
holders of a majority-in-interest of the shares of Rogue Wave Common Stock and
the holders of a majority-in-interest of the shares of Rogue Wave Preferred
Stock, an acknowledgement that for a period of three (3) years following the
Closing,
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they shall agree to vote their shares of capital stock of Rogue Wave for one
designee of the Inmark Shareholders.
(f) CLOSING DOCUMENTS. Inmark, or its counsel, shall have received
all of the closing documents referred to in this Agreement.
(g) PROPRIETARY INFORMATION AGREEMENTS. Each of Rogue Wave's
employees shall have entered into Rogue Wave's standard form of Proprietary
Information Agreement.
(h) OPINION OF COUNSEL. Inmark shall have received an opinion of
Cooley Godward Castro Huddleson & Tatum, counsel to Rogue Wave and RW Sub, dated
the Closing Date, in the form attached hereto as Exhibit D.
ARTICLE 6
TERMINATION OF AGREEMENT
6.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether or not it has been approved by the shareholders of
RW Sub or Inmark:
(a) By the mutual written consent of Rogue Wave and Inmark;
(b) By Rogue Wave, if on the date hereof or at any time prior to the
consummation of the Merger or the termination of this Agreement or any amendment
or extension thereof, Inmark shall have breached in any material respect this
Agreement;
(c) By Inmark, if on the date hereof or at any time prior to the
consummation of the Merger or the termination of this Agreement or any amendment
or extension thereof, Rogue Wave or RW Sub shall have breached in any material
respect this Agreement;
(d) By either Rogue Wave or Inmark:
(i) if a court of competent jurisdiction or a Governmental
Entity shall have issued an order, injunction, writ or decree, or commenced any
Proceeding, in either case restraining, enjoining or otherwise prohibiting the
Merger; or
(ii) if the Merger shall not have been consummated on or before
October 31, 1995, provided, however, that one (1) additional day past October
31, 1995 will be allowed for each day that the notice period for the California
Department of Corporations Fairness Hearing exceeds thirty (30) days.
In the event of any such termination, no party to this Agreement (or any of
its directors or officers) shall have any liability or further obligation to any
other party to this Agreement,
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provided that nothing herein will relieve any party from liability for any
breach of this Agreement prior to such termination.
6.2 COSTS AND EXPENSES. All costs and expenses incurred in connection
with this Agreement and all related transactions hereunder will be paid by (i)
in the case of Rogue Wave and RW Sub, by Rogue Wave, and (ii) in the case of
Inmark, by Inmark. After the Closing Date, all costs and expenses incurred will
be paid by Rogue Wave.
6.3 EXTENSION OF TIME; WAIVERS. At any time prior to the Closing Date
either Rogue Wave or Inmark may (i) extend the time for the performance of any
of the obligations or other acts of the other party, and (ii) waive compliance
with any of the agreements or conditions contained herein to be performed by the
other party; provided any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
ARTICLE 7
COVENANTS TO BE PERFORMED AFTER THE CLOSING
7.1 RESERVATION OF EMPLOYEE POOL. As soon as practicable after the
Closing, Rogue Wave shall reserve an additional number of shares of Rogue Wave
Common Stock equal to eight percent (8%) of the Rogue Wave Common Stock
Equivalents determined as of the Closing, to be issued to employees, officers or
directors of, or consultants or advisors to Rogue Wave or the Surviving
Corporation.
7.2 EMPLOYMENT BENEFITS. As soon as practicable after the Closing, Rogue
Wave and the Surviving Corporation shall negotiate in good faith to standardize
the employee benefits packages for the employees of Rogue Wave and the Surviving
Corporation.
7.3 SEVERANCE COMPENSATION. In the event an Inmark employee or officer is
terminated within thirty (30) days of the Closing, other than for good cause,
such employee or officer shall be entitled to receive their current base salary
(excluding bonus or commission) for a period of sixty (60) days after any such
termination.
ARTICLE 8
MISCELLANEOUS
8.1 AMENDMENT. This Agreement may be amended, in writing, signed by all
parties hereto, with the approval of the Boards of Directors of Rogue Wave, RW
Sub and Inmark at any time before or after approval hereof by the shareholders
of RW Sub and Inmark, provided, however, that no amendment shall be made after
any such shareholder approval that would have a material adverse effect on such
shareholders without the further approval of such shareholders.
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8.2 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Agreement, the
Disclosure Statements delivered by the parties and the agreements contemplated
by the exhibits hereto (a) constitute the entire agreement and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof, including, without limitation, that
certain letter of intent dated August 22, 1995, (b) may be executed in several
counterparts, each of which will be deemed an original and all of which shall
constitute one and the same instrument and (c) shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of California as applied to contracts entered into and to be performed
entirely within the State of California.
8.3 ATTORNEYS' FEES. In any Proceeding to enforce this Agreement or the
rights of the parties hereunder, the prevailing party in such Proceeding shall
be entitled to receive a reasonable sum for its attorneys' fees and all other
reasonable costs and expenses incurred in such action or suit.
8.4 ASSIGNABILITY. This Agreement shall be binding upon, and shall be
enforceable by and inure to the benefit of, the parties named herein and their
respective successors; provided, however, that this Agreement may not be
assigned by any party without the prior written consent of the other party, and
any attempted assignment without such consent shall be void and of no effect.
8.5 NOTICES. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given if delivered by hand or mailed
by certified or registered mail:
To Rogue Wave or RW Sub:
Rogue Wave Software, Inc.
260 S.W. Madison
Corvallis, OR 97333
Attn: Thomas Keffer, President
and Chief Executive Officer
With a copy to:
Cooley Godward Castro Huddleson & Tatum
3000 Sand Hill Road
Building 3, Suite 230
Menlo Park, CA 94025
Attn: Mark P. Tanoury, Esq.
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To Inmark:
Inmark Development Corporation
2065 Landings Drive
Mountain View, CA 94043
Attn: Howard Love, President
With a copy to:
Fenwick & West
2 Palo Alto Square
Palo Alto, CA 94306
Attn: Mark Stevens, Esq.
or to such other address at which any party may by registered mail notify the
other party, and shall be deemed given on the date on which hand-delivered or on
the third business day following the date on which mailed.
8.6 TITLES. The titles and captions of the sections and paragraphs of
this Agreement are included for convenience of reference only and shall have no
effect on the construction or meaning of this Agreement.
8.7 COOPERATION. Rogue Wave, RW Sub and Inmark each agree to execute and
deliver such other documents, certificates, agreements and other writings and to
take such other actions as may be necessary or desirable in order to consummate
expeditiously or implement the transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Reorganization as of the date first written above.
ROGUE WAVE SOFTWARE, INC.
/s/ Thomas Keffer
-----------------------------------
Thomas Keffer
President and Chief Executive Officer
RW ACQUISITION, INC.
/s/ Thomas Keffer
-----------------------------------
Thomas Keffer
President and Chief Executive Officer
INMARK DEVELOPMENT CORPORATION
/s/ Howard Love
-----------------------------------
Howard Love
President
44.
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EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION TRANSACTION. "Acquisition Transaction" means any transaction
involving:
(a) The sale or other disposition of all or any portion of Inmark's or
Rogue Wave's, as applicable, business or assets (other than in the ordinary
course of business);
(b) Any merger, consolidation, business combination, share exchange,
reorganization or similar transaction involving Inmark or Rogue Wave, as
applicable; or
(c) any material investment or capital infusion in Inmark or Rogue Wave,
as applicable, or any similar transaction.
AFFILIATE. An "Affiliate" of Inmark or Rogue Wave shall mean (i) any
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with an
officer, director or shareholder of Inmark or Rogue Wave, as applicable, who
holds ten percent (10%) or more of Inmark's or Rogue Wave's capital stock, as
applicable, or (ii) any ancestor, descendent or spouse of the person specified.
AGREEMENT. "Agreement" means the Agreement to which this Exhibit A is
attached, together with all Exhibits and schedules attached thereto or expressly
incorporated therein by reference, as it may be amended or supplemented from
time to time.
CALIFORNIA LAW. "California Law" means the General Corporation Law of the
State of California.
DELAWARE LAW. "Delaware Law" means the General Corporation Law of the
State of Delaware.
ENVIRONMENTAL CLAIM. "Environmental Claim" means any claim, action, cause
of action, investigation or notice (written or oral) by any person or entity
alleging potential liability (including, without limitation, potential liability
for investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (A) the presence, or release into the
environment, of any Material of Environmental Concern at any location, whether
or not owned or operated by the person making the representation, or
(B) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.
ENVIRONMENTAL LAW. "Environmental Law" means all federal, state, local and
foreign laws and regulations relating to pollution or protection of human health
or the environment
A-1
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(including, without limitation, ambient air, surface water, ground water,
land surface or subsurface strata), including, without limitation, laws and
regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
GAAP. "GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time.
INMARK COMMON STOCK. "Inmark Common Stock" means the shares of Common
Stock, no par value, of Inmark.
INMARK SHAREHOLDERS. "Inmark Shareholders" means, collectively, the
holders of the outstanding shares of Inmark Common Stock immediately prior to
the Effective Date, excluding the holders of Inmark Common Stock who do not vote
in favor of the Merger.
IRS. "IRS" means the Internal Revenue Service or any successor entity.
MATERIAL ADVERSE EFFECT. "Material Adverse Effect" means any fact,
circumstance or condition that (i) would or would reasonably be expected to
prevent consummation of the Merger, or (ii) has had or would reasonably be
expected to have an adverse effect on the business, operations, condition
(financial or otherwise), assets or prospects of Inmark or Rogue Wave, as
applicable, which is material. For purposes of Section 2 and Section 3 of the
Agreement only, documents, objects, effects, conditions, events or occurrences
shall be deemed "material" if they involve amounts, or result in damages,
individually or in the aggregate, in excess of $100,000. For purposes of
Section 5 of the Agreement, a Material Adverse Effect will not have occurred
with respect to any fact, circumstance or condition due to general economic
condition or due to a downturn in revenues or net income after the announcement
of the Merger.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern"
means chemicals, pollutants, contaminants, wastes, toxic substances, petroleum
and petroleum products.
PROCEEDING. "Proceeding" means any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding and any informal proceeding), prosecution, contest,
hearing, inquiry, inquest, audit, examination or investigation that is, has been
or may in the future be commenced, brought, conducted or heard by or before, or
that otherwise has involved or may involve, any Governmental Entity or any
arbitrator or arbitration panel.
PROPRIETARY ASSET. "Proprietary Asset" means any patent, patent
application, trademark, trademark application, copyright or copyright
application.
A-2
<PAGE>
ROGUE WAVE COMMON STOCK. "Rogue Wave Common Stock" means the shares of
common stock, $0.001 par value, of Rogue Wave.
ROGUE WAVE PREFERRED STOCK. "Rogue Wave Preferred Stock" means the shares
of preferred stock, $0.001 par value, of Rogue Wave.
A-3
<PAGE>
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, dated as of September __, 1995 (the "Merger
Agreement"), is made and entered into by ROGUE WAVE SOFTWARE, INC., an Oregon
corporation ("Acquiror"), RW ACQUISITION, INC., a Delaware corporation
("Acquiror Sub"), and INMARK DEVELOPMENT CORPORATION, a California corporation
("Target" or "Surviving Corporation") (Target and Acquiror Sub being hereinafter
collectively referred to as the "Constituent Corporations").
RECITALS
A. Acquiror, Acquiror Sub and Target have entered into an Agreement and
Plan of Reorganization, dated as of September 19, 1995, (the "Reorganization
Agreement"), providing, among other things, for the execution and filing of this
Merger Agreement and the merger of Acquiror Sub with and into Target upon the
terms set forth in the Reorganization Agreement and this Merger Agreement (the
"Merger").
B. The respective Boards of Directors of each of the Constituent
Corporations deem it advisable and in the best interests of each of such
corporations and their respective shareholders that Acquiror Sub be merged with
and into Target.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and mutual agreements
contained in this Merger Agreement, Acquiror and the Constituent Corporations
hereby agree that Acquiror Sub shall be merged with and into Target in
accordance with the provisions of the laws of the State of Delaware and the laws
of the State of California, upon the terms and subject to the conditions set
forth as follows:
ARTICLE I
SECTION 1. THE MERGER
1.1 FILING. This Merger Agreement, together with the officers'
certificates of each of the Constituent Corporations required by the General
Corporation Law of the State of California (the "California Law") and the
General Corporation Law of the State of Delaware (the "Delaware Law"), shall be
filed with the Secretary of State of the State of California and the Secretary
of State of the State of Delaware at the time specified in the Reorganization
Agreement.
1.
<PAGE>
1.2 EFFECTIVENESS. The Merger shall become effective upon the filing of
this Merger Agreement with the Secretary of State of the State of California and
the Secretary of State of the State of Delaware (the "Effective Time").
1.3 MERGER. At the Effective Time, Acquiror Sub shall be merged into
Target and the separate corporate existence of Acquiror Sub shall thereupon
cease. Target shall be the Surviving Corporation in the Merger and the separate
corporate existence of Target, with all of its purposes, objects, rights,
privileges, powers, immunities and franchises, shall continue unaffected and
unimpaired by the Merger.
1.4 FURTHER ACTION. If at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Merger
Agreement or to vest the Surviving Corporation with the full right, title and
possession to all assets, property, rights, privileges, immunities, powers and
franchises of either or both of the Constituent Corporations, the officers and
directors of the Surviving Corporation are fully authorized in the name of
either or both of the Constituent Corporations or otherwise to take all such
action.
ARTICLE II
SECTION 2. CORPORATE GOVERNANCE MATTERS
2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of Target in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation unless and until amended as provided
by law.
2.2 BYLAWS. The Bylaws of Target in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation unless and until
amended as provided by law.
2.3 DIRECTORS. The Board of Directors of the Surviving Corporation at and
after the Effective Time, each of whom will hold office from the Effective Time
until their respective successors are duly elected or appointed and qualified in
the manner provided in the Articles of Incorporation and Bylaws of the Surviving
Corporation, or as otherwise provided by law, shall be as follows:
Thomas Keffer
Dan Whitaker
Thomas Peterson
Thomas Atwood
Howard Love
2.4 OFFICERS. The officers of the Surviving Corporation at and after the
Effective Time, each of whom will hold office from the Effective Time until
their respective successors are duly elected or appointed and qualified in the
manner provided in the Articles of
2.
<PAGE>
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law, are as follows:
Name: Title:
---- -----
Thomas Keffer President, Chief Executive Officer
Dan Whitaker Executive Vice President, Vice President of
Marketing
Thomas A. Nora Vice President of Sales
Robert M. Holburn, Jr. Chief Financial Officer, Secretary
ARTICLE III
SECTION 3. MANNER OF CONVERTING SHARES OF THE CONSTITUENT CORPORATIONS
3.1 CONVERSION OF TARGET COMMON STOCK. At the Effective Time, each then
outstanding share of Common Stock, no par value, of Target (the "Target Common
Stock"), other than shares of Target Common Stock that are held by shareholders
who have not voted such shares in favor of the merger, shall cease to be an
existing and issued share and shall become and be converted into, by virtue of
the Merger and without any action on the part of Acquiror, Acquiror Sub, Target
or the holder thereof, that number of shares of the common stock, $0.001 par
value, of Acquiror (the "Acquiror Common Stock") equal to (i) the number of
shares of Acquiror Common Stock equal to (A) the number of shares of Acquiror
Common Stock Equivalents (as defined below) divided by 0.8, minus (B) the number
of shares of Acquiror Common Stock Equivalents (the "Merger Consideration"),
divided by (ii) the number of shares of Target Common Stock Equivalents (as
defined below). The ratio pursuant to which each share of Target Common Stock
will be exchanged for one share of Acquiror Common Stock is hereinafter referred
to as the "Exchange Ratio". For the purposes of this Merger Agreement, the
number of shares of Acquiror Common Stock Equivalents just prior to the
Effective Time, shall be the sum of (A) the number of shares of Acquiror Common
Stock outstanding, (B) the number of shares of Acquiror Common Stock into which
the then outstanding shares of Acquiror Preferred Stock could be converted if
fully converted immediately prior to the Effective Time, and (C) the number of
shares of Acquiror Common Stock which could be obtained through the exercise or
conversion of all other rights, option and convertible securities (whether or
not exercisable or convertible) immediately prior to the Effective Time. For
the purposes of this Agreement, the number of shares of Target Common Stock
Equivalents just prior to the Effective Time, shall be the sum of (A) the number
of shares of Target Common Stock outstanding and (B) the number of shares of
Target Common Stock which could be obtained through the exercise or conversion
of all other rights, option and convertible securities (whether or not
exercisable or convertible) immediately prior to the Effective Time.
3.
<PAGE>
3.2 ACQUIROR SUB COMMON STOCK. At the Effective Time, each then
outstanding share of common stock, $.01 par value, of Acquiror Sub shall cease
to be an existing and issued share and shall become and be converted into, by
virtue of the Merger and without any action on the part of Acquiror, Acquiror
Sub or Target, one share of Target Common Stock and the aggregate of such shares
shall constitute the only outstanding shares of capital stock of the Surviving
Corporation.
3.3 CLOSING OF TARGET TRANSFER BOOKS. On and after the Effective Time,
holders of certificates representing shares of Target Common Stock issued and
outstanding immediately prior to the Effective Time shall cease to have any
rights as shareholders of Target and the share transfer books of Target shall be
closed with respect to shares of Target Common Stock issued and outstanding
immediately prior to the Effective Time and no further transfer of such shares
shall thereafter be made on such share transfer books. If, after the Effective
Time, valid certificates previously representing such shares are presented to
Acquiror or Target, they shall be exchanged as provided in Section 3.4.
3.4 RECEIPT OF MERGER CONSIDERATION. At the Effective Time, each
certificate for Target Common Stock issued and outstanding immediately prior to
the Effective Time shall no longer be issued and outstanding but shall represent
solely the right to receive shares of the Merger Consideration into which the
shares of Target Common Stock it theretofore represented shall become converted
into Acquiror Shares pursuant to Section 3.1 (or the holder thereof's right to
receive payment for such shares pursuant to Section 1300 of the California Law
and Section 3.6 hereof); provided, however, that customary and appropriate
certifications and indemnities allowing exchange against lost or destroyed
certificates shall be provided. Upon surrender of a stock certificate
representing Target Common Stock to Acquiror, Acquiror shall deliver to the
holder of such certificate the Merger Consideration to which such holder is
entitled pursuant to Section 3.1 hereof.
3.5 NO FRACTIONAL SHARES. No fractional shares of Acquiror Common Stock
will be issued in connection with the Merger and no certificate therefor will be
issued. In lieu of such fractional shares, any holder of Target Common Stock
who would otherwise receive a fractional share shall, upon surrender of his
certificate or certificates representing Target Common Stock, be paid an amount
in cash (without interest) equal to the value of such fractional share of
Acquiror Common Stock, deemed for purposes of this Merger Agreement to be such
fraction multiplied by an amount per share equal to $0.35. Acquiror will,
subject to any applicable statute of limitation or abandoned property or similar
law, until three months after the Effective Time, pay to such holders, upon
surrender of their certificates representing Target Common Stock outstanding
immediately prior to the Effective Time, the cash value of such fractions so
determined, without interest.
3.6 DISSENTING SHARES. Notwithstanding anything in this Merger Agreement
to the contrary, shares of Target Common Stock that are issued and outstanding
immediately prior to the Effective Time and that are held by shareholders who
have not voted such shares in favor of the Merger shall not be canceled and
converted into the Merger Consideration unless and until such holder shall have
failed to perfect, or shall have effectively withdrawn or lost, such holder's
appraisal rights under the California Law. If such holder shall have so failed
to perfect, or shall have effectively withdrawn or lost such rights, such
holder's shares of Target Common Stock shall thereupon be deemed to have been
canceled and converted as described in Section 3.1 on the Effective Time, and
each such share shall represent solely the right to receive the Merger
Consideration into which the shares of Target Common Stock if theretofore
constituted shall have been converted pursuant to Section 3.1. From and after
the Effective Time, no shareholder who has demanded the appraisal of shares as
provided in Section 1300 of the
4.
<PAGE>
California Law shall be entitled to vote such holder's shares for any purpose or
to receive payment of dividends or other distributions with respect to such
holder's shares (except dividends and other distributions payable to
shareholders of record at a date which is prior to the Effective Time).
ARTICLE IV
SECTION 4. TERMINATION AND AMENDMENT
4.1 TERMINATION. Notwithstanding the approval of this Merger Agreement by
the shareholders of Acquiror Sub and Target, this Merger Agreement shall
terminate forthwith in the event that the Reorganization Agreement shall be
terminated as therein provided.
4.2 AMENDMENT. This Merger Agreement may be amended by the parties hereto
at any time before or after approval hereof by the shareholders of either
Acquiror Sub or Target, but, after any such approval, no amendment shall be made
which, without the further approval of such shareholders, would (i) have an
adverse effect on the shareholders of either Acquiror Sub or Target, (ii) change
any of the principal terms of the Merger Agreement, or (iii) change any terms of
the Articles of Incorporation of the Surviving Corporation. This Merger
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
[THIS SPACE INTENTIONALLY LEFT BLANK]
5.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this AGREEMENT OF MERGER
as of the date first written above.
ATTEST: ROGUE WAVE SOFTWARE, INC.
an Oregon corporation
By: /s/ By: /s/ Thomas Keffer
-------------------------- --------------------------
Its Secretary Thomas Keffer, President
ATTEST: RW ACQUISITION, INC.
a Delaware corporation
By: /s/ By: /s/ Thomas Keffer
-------------------------- --------------------------
Its Secretary Thomas Keffer, President
ATTEST: INMARK DEVELOPMENT CORPORATION
a California corporation
By: /s/ By: /s/ Howard Love
------------------------- --------------------------
Its Assistant Secretary Howard Love, President
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
1. AMENDMENT AND RESTATEMENT............................................... 1
1.1 Amendment and Restatement.......................................... 1
2. GENERAL................................................................. 1
2.1 Definitions........................................................ 1
3. REGISTRATION; RESTRICTIONS ON TRANSFER................................... 2
3.1 Restrictions on Transfer........................................... 2
3.2 Demand Registration................................................ 3
3.3 Piggyback Registrations............................................ 5
3.4 Form S-3 Registration.............................................. 5
3.5 Expenses of Registration........................................... 6
3.6 Obligations of the Company......................................... 6
3.7 Termination of Registration Rights................................. 7
3.8 Delay of Registration.............................................. 8
3.9 Indemnification.................................................... 8
3.10 Assignment of Registration Rights.................................. 10
3.11 Amendment of Registration Rights................................... 10
3.12 Limitation on Subsequent Registration Rights....................... 10
3.13 "Market Stand-Off" Agreement....................................... 10
4. COVENANTS OF THE COMPANY................................................. 11
4.1 Basic Financial Information and Reporting.......................... 11
4.2 Inspection Rights.................................................. 11
4.3 Confidentiality of Records......................................... 11
4.4 Reservation of Common Stock........................................ 12
4.5 Stock Vesting...................................................... 12
4.6 Key Man Insurance.................................................. 12
4.7 Proprietary Information and Inventions Agreement................... 12
4.8 Directors' Expenses................................................ 13
4.9 Real Property Holding Corporation.................................. 13
4.10 Directors and Officers Liability Insurance......................... 13
4.11 Indemnification of Directors and Officers.......................... 13
4.12 Expenditures Subject to Board Approval............................. 13
4.13 Qualified Small Business........................................... 13
4.14 Termination of Covenants........................................... 13
5. RIGHTS OF FIRST REFUSAL.................................................. 13
5.1 Subsequent Offerings............................................... 13
5.2 Exercise of Rights................................................. 14
5.3 Termination of Rights of First Refusal............................. 14
5.4 Transfer of Rights of First Refusal................................ 14
5.5 Excluded Securities................................................ 14
6. MISCELLANEOUS............................................................ 15
6.1 Governing Law...................................................... 15
i
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
6.2 Survival........................................................... 15
6.3 Successors and Assigns............................................. 15
6.4 Separability....................................................... 15
6.5 Amendment and Waiver............................................... 15
6.6 Delays or Omissions................................................ 16
6.7 Notices............................................................ 16
6.8 Attorneys' Fees.................................................... 16
6.9 Titles and Subtitles............................................... 16
6.10 Counterparts....................................................... 16
ii
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Agreement") is
entered into as of the 10th day of November, 1995 by and among ROGUE WAVE
SOFTWARE, INC., an Oregon corporation (the "Company"), the persons listed on the
attached Exhibit A who became signatories to this Agreement (collectively, the
"Investors" and each individually as an "Investor") and the persons listed on
the attached Exhibit B (collectively, the "Key Shareholders" and individually as
a "Key Shareholder").
RECITALS
WHEREAS, certain of the Investors hold shares of the Company's Series A
Preferred Stock (the "Series A Stock") and possess registration rights,
information rights and other rights pursuant to that certain Investors Rights
Agreement dated as of June 30, 1994 between the Company, the Key Shareholders
and such Investors (the "Prior Agreement");
WHEREAS, the Company and the undersigned Investors who hold Series A Stock
desire to terminate the Prior Agreement and to accept the rights created
pursuant hereto in lieu of the rights granted to them under the Prior Agreement;
and
WHEREAS, the Investors are parties to the Series B Preferred Stock Purchase
Agreement dated as of the date hereof (the "Series B Agreement"), and certain of
the Company's and such Investors' obligations to purchase Series B Preferred
Stock ("Series B Stock") under the Series B Agreement are conditioned upon the
execution and delivery by such Investors, the holders of at least a majority of
the Series A Stock and the Company of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the Investors who are parties to the Prior Agreement hereby agree
that the Prior Agreement shall be superseded and replaced in its entirety by
this Agreement, and the parties hereto further agree as follows:
1. AMENDMENT AND RESTATEMENT.
1.1 AMENDMENT AND RESTATEMENT. Effective upon the closing of the sale and
issuance of the Series B Stock pursuant to the Series B Agreement, all
provisions of, rights granted and covenants made in the Prior Agreement and any
other agreement between the Company, the Investors and the Key Shareholders, are
hereby waived released and terminated in their entirety and shall have no
further force or effect whatsoever. The rights and covenants contained in this
Agreement set forth the sole and entire agreement among the Company, the
Investors and the Key Shareholders on the subject matter hereof and supersede
any and all rights granted or covenants made under any prior agreement.
2. GENERAL.
2.1 DEFINITIONS. As used in this Agreement the following terms shall have
the following respective meanings:
"Holder" means any person owning of record Registrable Securities or
any assignee of record of such Registrable Securities in accordance with Section
3.10 hereof.
1
<PAGE>
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"Registrable Securities" means (i) Common Stock of the Company
acquired from the Company and held by a Key Shareholder, (ii) Common Stock of
the Company issued or issuable upon conversion of the Shares, and (iii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferror's rights under Article III of this
Agreement are not assigned.
"Registrable Securities then outstanding" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 3.2, 3.3 and 3.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements not
to exceed Twenty-Five Thousand Dollars ($25,000) of a single special counsel for
the Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any event by the
Company).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale.
"Shares" shall mean the Company's Series A Stock and Series B Stock.
"Form S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "Commission" means the Securities and Exchange Commission.
3. REGISTRATION; RESTRICTIONS ON TRANSFER
3.1 RESTRICTIONS ON TRANSFER.
3.1.1 Each Investor agrees not to make any disposition of all or
any portion of the Shares (or the Common Stock issuable upon the conversion
thereof) unless and until the transferee has agreed in writing for the benefit
of the Company to be bound by this Section 3.1, provided and to the extent such
Sections are then applicable and:
2
<PAGE>
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) (A) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (B) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act or any state securities or "blue sky" laws. It is agreed that
the Company will not require opinions of counsel for transactions made pursuant
to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of paragraphs (i) and (ii)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by an Investor which is (A) a partnership to its partners in
accordance with partnership interests, or (B) to the Investor's family member or
trust for the benefit of an individual Investor, provided the transferee agrees
in writing to be subject to the terms of this Section 3.1 to the same extent as
if he were an original Investor hereunder.
3.1.2 Each certificate representing Registrable Securities shall
(unless otherwise permitted by the provisions of the Agreement) be stamped or
otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws or as
provided elsewhere in the Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT AND ALL STATE SECURITIES OR
BLUE SKY LAWS OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
3.1.3 The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder shall
have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
3.1.4 Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
3.2 DEMAND REGISTRATION.
3.2.1 Subject to the conditions of this Section 3.2, if the
Company shall receive at any time after the earlier of (i) the date one hundred
eighty (180) days following the effective date of the registration statement
pertaining to the initial public offering of the Company's common stock (the
"Initial
3
<PAGE>
Offering"), or (ii) May 31, 1997, a written request from Investors holding more
than seventy-five percent (75%) of the Shares then outstanding (the "Initiating
Holders") that the Company file a registration statement under the Securities
Act covering the registration of Registrable Securities having an aggregate
offering price to the public in excess of $2,500,000, then the Company shall,
within thirty (30) days of the receipt thereof, give written notice of such
request to all Holders, and subject to the limitations of Section 3.2.2, effect,
as soon as practicable, the registration under the Securities Act of all
Registrable Securities that the Holders request to be registered.
3.2.2 If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 3.2 and the Company shall include such information in the written
notice referred to in Section 3.2.1. In such event, the right of any Holder to
include his Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder) to
the extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 3.2, if the underwriter
advises the Company in writing that marketing factors require a limitation of
the number of securities to be underwritten (including Registrable Securities)
then the Company shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares that
may be included in the underwriting shall be allocated, first, to the Initiating
Holders of Registrable Securities on a pro rata basis based on the number of
Registrable Securities held by all such Holders; and second, to all other
Holders of Registrable Securities on a pro rata basis based on the number of
Registrable Securities held by all such Holders. Any Registrable Securities
excluded or withdrawn from such underwriting shall be withdrawn from the
registration.
3.2.3 The Company shall not be obligated to effect more than two
(2) registrations pursuant to this Section 3.2.
3.2.4 The Company shall not be required to effect a registration
pursuant to this Section 3.2 during the period starting with the date of filing
of, and ending on the date one hundred eighty (180) days following the effective
date of the registration statement pertaining to its Initial Offering, provided
that the Company is making reasonable and good faith efforts to cause such
registration statement to become effective. In addition, the Company shall not
be required to effect a registration pursuant to this Section 3.2 if within
thirty (30) days of receipt of a written request from Initiating Holders
pursuant to Section 3.2.1, the Company gives notice to the Holders of the
Company's intention to make its Initial Offering within ninety (90) days.
3.2.5 Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 3.2, a
certificate signed by the Chairman of the Board stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than ninety (90) days after receipt of the request of
the Initiating Holders; provided that such right to delay a request shall be
exercised by the Company no more than twice in any one-year period.
4
<PAGE>
3.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans and corporate reorganizations) and will afford each such Holder an
opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities in
any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
3.3.1 UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 3.3 is for an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 3.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of the
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company; second, to the Investors who are Holders on a pro rata basis based
on the total number of Registrable Securities held by such Holders; third, to
the Holders (other than the Investors) on a pro rata basis based on the total
number of Registrable Securities held by the Holders; and fourth, to any
shareholder of the Company (other than a Holder) on a pro rata basis. No such
reduction shall reduce the securities being offered by the Company for its own
account to be included in the registration and underwriting, except that in no
event shall the amount of securities of the Investors (as defined in this
Agreement) included in the registration be reduced below twenty-five percent
(25%) of the total amount of securities included in such registration, unless
such offering is the Initial Offering and such registration does not include
shares of any other selling shareholders, in which event any or all of the
Registrable Securities of the Investors may be excluded in accordance with the
immediately preceding sentence. In no event will shares of any other selling
shareholder be included in such registration which would reduce the number of
shares which may be included by any Investor without the written consent of
Investors holding not less than 75% of the Shares proposed to be sold in the
offering.
3.4 FORM S-3 REGISTRATION. In case the Company shall receive from any
Investor who is a Holder of Registrable Securities a written request or requests
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to all or a part of the Registrable Securities owned
by such Holder, the Company will:
3.4.1 promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
3.4.2 as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
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with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 3.4: (i) if
Form S-3 is not available for such offering by the Holders, (ii) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public of less than
$500,000, (iii) if the Company shall furnish to the Holders a certificate signed
by the Chairman of the Board of Directors of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than ninety (90) days after receipt of the request of the
Holder or Holders under this Section 3.4, (iv) if the Company has, within the
twelve (12) month period preceding the date of such request, already effected
two (2) registrations on Form S-3 for the Holders pursuant to this Section 3.4,
or (v) in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
3.4.3 Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All Registration Expenses incurred in
connection with registrations requested pursuant to this Section 3.4 after the
first two (2) registrations shall be paid by the selling Holders pro rata in
proportion to the number of shares sold by each.
3.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 3.2 or any registration under Section 3.3 or Section 3.4 herein shall be
borne by the Company (except as set forth in Section 3.4.3). All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 3.2 or
3.4, the request of which has been subsequently withdrawn by the Initiating
Holders unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were not aware at the
time of such request or (b) the Holders of 75% of Registrable Securities agree
to forfeit their right to one requested registration pursuant to Section 3.2 or
Section 3.4, in which event such right shall be forfeited by all Holders. If
the Holders are required to pay the Registration Expenses, such expenses shall
be borne by the holders of securities (including Registrable Securities)
requesting such registration in proportion to the number of shares for which
registration was requested. If the Company is required to pay the Registration
Expenses of a withdrawn offering pursuant to Section 3.5(a), then the Holders
shall not forfeit their rights pursuant to Section 3.2 or Section 3.4 to a
demand registration.
3.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
3.6.1 Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of 75% of the Registrable Securities registered thereunder, keep such
registration statement effective for up to ninety (90) days.
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3.6.2 Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
3.6.3 Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
3.6.4 Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
3.6.5 In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
3.6.6 Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
3.6.7 Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
3.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
to a Holder under this Article III shall terminate and be of no further force
and effect upon the earlier of (i) seven (7) years after the date following the
closing of the Company's Initial Offering, or (ii) the date on which the
Company's Common Stock is publicly traded on a national securities exchange and
all Registrable Securities held by and issuable to such Holder may be sold under
Rule 144 during any ninety (90) day period, provided that such Holder then holds
less than 1% of the then outstanding voting stock of the Company.
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3.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
3.8.1 No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Article III.
3.8.2 It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 3.2, 3.3 or 3.4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
3.9 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under Sections 3.2, 3.3 or 3.4:
3.9.1 To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers and directors of each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law in connection with the offering covered
by such registration statement; and the Company will reimburse each such Holder,
partner, officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by such person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this Section 3.9.1
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder, partner,
officer, director, underwriter or controlling person of such Holder.
3.9.2 To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other Holder
may become subject under the Securities Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and
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stated to be specifically for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer, controlling person, underwriter or
other Holder, or partner, officer, director or controlling person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 3.9.2 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 3.9
exceed the gross proceeds from the offering received by such Holder.
3.9.3 Promptly after receipt by an indemnified party under this
Section 3.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 3.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 3.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 3.9.
3.9.4 If the indemnification provided for in this Section 3.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
3.9.5 The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the Final Prospectus
was furnished to the indemnified party and was not furnished to the person
asserting the loss, liability, claim or damage at or prior to the time such
action is required by the Securities Act.
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3.9.6 The obligations of the Company and Holders under this
Section 3.9 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
3.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to this Article III may be assigned by
a Holder to a transferee or assignee of Registrable Securities; provided,
however, that no such transferee or assignee shall be entitled to registration
rights under Sections 3.2, 3.3 or 3.4 hereof unless it acquires at least fifty
thousand (50,000) shares of Registrable Securities (as adjusted for stock splits
and combinations) and the Company shall, within twenty (20) days after such
transfer, be furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned and provided further, that such
transferee agrees in writing to be bound by the terms of this Agreement.
Notwithstanding the foregoing, rights to cause the Company to register
securities may be assigned to any subsidiary, parent, general partner or limited
partner of a Holder.
3.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Article III
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least 75% of the
Registrable Securities. Any amendment or waiver effected in accordance with
this Section 3.11 shall be binding upon each Holder and the Company. By
acceptance of any benefits under this Article III, Holders of Registrable
Securities hereby agree to be bound by the provisions hereunder.
3.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of this
Agreement, the Company shall not, without the prior written consent of the
Holders of 75% of the Registrable Securities, enter into any agreement with any
holder or prospective holder of any securities of the Company that would permit
such holder to require that the Company register any securities held by such
holder.
3.13 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, an Investor
holding more than one percent (1%) of the Company's voting securities shall not
sell or otherwise transfer or dispose of any Common Stock (or other securities)
of the Company held by such Investor (other than those included in the
registration) for a period specified by the underwriters not to exceed one
hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act, provided that:
(a) such agreement shall apply only to the Company's Initial
Offering; and
(b) all officers and directors of the Company and holders of at least
one percent (1%) of the Company's voting securities enter into similar
agreements.
The obligations described in this Section 3.13 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose stop-
transfer instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day period.
In order to implement the provisions of this Section 3.13, each Investor agrees
to execute and deliver to the Company, upon the Company's request, a "lock-up"
or other similar agreement reasonably requested by an underwriter of the
Company's Common Stock.
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4. COVENANTS OF THE COMPANY
4.1 BASIC FINANCIAL INFORMATION AND REPORTING.
4.1.1 The Company will maintain true books and records of account
in which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied, and will set
aside on its books all such proper accruals and reserves as shall be required
under generally accepted accounting principles consistently applied.
4.1.2 So long as an Investor (with its affiliates) shall own not
less than two hundred fifty thousand (250,000) shares (as adjusted for stock
splits, combinations and the like) of Registrable Securities (a "Major
Investor"), as soon as practicable after the end of each fiscal year of the
Company, and in any event within 90 days thereafter, the Company will, if
requested, furnish each such Major Investor a consolidated balance sheet of the
Company, as at the end of such fiscal year, and a consolidated statement of
income and a consolidated statement of cash flows of the Company, for such year,
all prepared in accordance with generally accepted accounting principles and
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail. Such financial statements shall be
accompanied by a report and opinion thereon by independent public accountants of
national standing selected by the Company's Board of Directors.
4.1.3 If requested, the Company will furnish each Major Investor,
as soon as practicable after the end of each quarterly accounting period of the
Company, and in any event within thirty (30) days thereafter, an unaudited
consolidated balance sheet of the Company as of the end of each such quarterly
period, and an unaudited consolidated statement of income and a consolidated
statement of cash flows of the Company for such period and for the current
fiscal year to date, prepared internally and in accordance with generally
accepted accounting principles, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made.
4.1.4 The Company will furnish each such Major Investor (i) at
least thirty (30) days prior to the beginning of each fiscal year an annual
budget of sales and expenses for such fiscal year; and (ii) within thirty (30)
days after the end of each month, an unaudited balance sheet and statements of
income and cash flows, prepared in accordance with generally accepted accounting
principles, with the exception that no notes need be attached to such statements
and year-end audit adjustments may not have been made, but such statement shall
set forth applicable budget figures and variances from budget.
4.2 INSPECTION RIGHTS. Each Major Investor shall have the right to visit
and inspect any of the properties of the Company or any of its subsidiaries, and
to discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, all at such reasonable times and as often as may
be reasonably requested; provided, however, that the Company shall not be
obligated under this Section 3.2 with respect to a competitor of the Company or
with respect to information which the Board of Directors determines in good
faith is confidential and should not, therefore, be disclosed.
4.3 CONFIDENTIALITY OF RECORDS.
4.3.1 Each Investor agrees not to use Confidential Information (as
hereinafter defined) of the Company for its own use or for any purpose except to
evaluate and enforce its equity investment in the Company. Except as permitted
under subsection 3.3.2 below, each Investor agrees to use its best efforts not
to disclose such Confidential Information to any third parties. Each Investor
shall undertake to treat such Confidential Information in a manner consistent
with the treatment of its own information
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of such proprietary nature and agrees that it shall protect the confidentiality
of and use reasonable best efforts to prevent disclosure of the Confidential
Information to prevent it from falling into the public domain or the possession
of unauthorized persons. Each transferee of any Investor who receives
Confidential Information shall agree to be bound by such provisions. For
purposes of this Section, "Confidential Information" means any information,
technical data, or know-how, including, but not limited to, the Company's
research, products, software, services, development, inventions, processes,
designs, drawings, engineering, marketing, or finances, disclosed by the Company
either directly or indirectly in writing or confirmed promptly in writing to be
Confidential Information.
4.3.2 Confidential Information does not include information, technical
data or know-how which (i) is in the Investor's possession at the time of
disclosure as shown by Investor's files and records immediately prior to the
time of disclosure; (ii) before or after it has been disclosed to the Investor,
it is part of the public knowledge or literature, not as a result of any action
or inaction of the Investor; or (iii) is approved for release by written
authorization of Company. The provisions of this Section shall not apply (i) to
the extent that an Investor is required to disclose Confidential Information
pursuant to any law, statute, rule or regulation or any order of any court or
jurisdiction process or pursuant to any direction, request or requirement
(whether or not having the force of law but if not having the force of law being
of a type with which institutional investors in the relevant jurisdiction are
accustomed to comply) of any self-regulating organization or any governmental,
fiscal, monetary or other authority; (ii) to the disclosure of Confidential
Information to an Investor's employees, counsel, accountants or other
professional advisors; (iv) to the extent that an Investor needs to disclose
Confidential Information for the protection of any of such Investor's rights or
interest against the Company, whether under this Agreement or otherwise; or (v)
to the disclosure of Confidential Information to a prospective transferee of
securities which agrees in writing to be bound by the provisions of this Section
in connection with the receipt of such Confidential Information.
4.4 RESERVATION OF COMMON STOCK. The Company will at all times reserve
and keep available, solely for issuance and delivery upon the conversion of the
Preferred Stock, all Common Stock issuable from time to time upon such
conversion.
4.5 STOCK VESTING. Unless otherwise approved by the Board of Directors,
all stock options and other stock equivalents issued after the date of this
Agreement to employees, directors, consultants and other service providers shall
be subject to vesting as follows: (i) twenty-five percent (25%) of such stock
shall vest at the end of the first year following the earlier of the date of
issuance or such person's services commencement date with the Company, and (ii)
seventy-five percent (75%) of such stock shall vest over the remaining three (3)
years. With respect to any shares of stock purchased by any such person, the
Company's repurchase option shall provide that upon such person's termination of
employment or service with the Company, with or without cause, the Company or
its assignee (to the extent permissible under applicable securities laws and
other laws) shall have the option to purchase at cost any unvested shares of
stock held by such person.
4.6 KEY MAN INSURANCE. Subject to the approval of the Board of Directors,
the Company will use its best efforts to obtain and maintain in full force and
effect term life insurance in the amount of one million ($1,000,000) dollars on
the lives of each of Thomas Keffer and Dan Whitaker, naming the Company as
beneficiary.
4.7 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company shall
require all employees to execute and deliver a Proprietary Information and
Inventions Agreement substantially in the form attached to the Series B
Agreement as Exhibit H.
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4.8 DIRECTORS' EXPENSES. The Company shall not pay any compensation to any
member of the Company's Board of Directors in connection with the performance of
his or her duties as a Director, provided, however, that the Company shall pay
the reasonable expenses of members of the Company's Board of Directors in
connection with attending Board of Directors meetings (including airfare and
hotels).
4.9 REAL PROPERTY HOLDING CORPORATION. The Company covenants that it will
operate in a manner such that it will not become a "United States real property
holding corporation" ("USRPHC") as that term is defined in Section 897(c)(2) of
the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
The Company agrees to make determinations as to its status as a USRPHC, and will
file statements concerning those determinations with the Internal Revenue
Service, in the manner and at the times required under Reg. Section 1.897-2(h),
or any supplementary or successor provision thereto. Within 30 days of a
request from an Investor or any of its partners, the Company will inform the
requesting party, in the manner set forth in Reg. Section 1.897- 2(h)(1) or any
supplementary or successor provision thereto, whether that party's interest in
the Company constitutes a United States real property interest (within the
meaning of Internal Revenue Code Section 897(c)(1) and the regulations
thereunder) and whether the Company has provided to the Internal Revenue Service
all required notices as to its USRPHC status.
4.10 DIRECTORS AND OFFICERS LIABILITY INSURANCE. Subject to the
availability of commercially reasonable rates, the Company will use its best
efforts to obtain and maintain in full force and effect for as long as a
representative of the Investors serves on the Company's Board of Directors,
directors and officers liability insurance in the minimum amount of $1,000,000.
4.11 INDEMNIFICATION OF DIRECTORS AND OFFICERS. As long as any
representative of the Investors serves on the Company's Board of Directors, the
Company will at all times provide in its Articles of Incorporation and Bylaws,
indemnification of its directors and officers to the full extent permitted by
law.
4.12 EXPENDITURES SUBJECT TO BOARD APPROVAL. The Company shall not commit
to expend in excess of $150,000 with respect to any single expenditure, for
capital improvements (including capital leases), without prior written
authorization of the Company's Board of Directors. The Company shall obtain the
unanimous approval of the Board of Directors for payment of any salary in excess
of $90,000 per annum.
4.13 QUALIFIED SMALL BUSINESS. The Company hereby covenants that, so long
as the Series B Stock held by the Holders remains outstanding, the Company will
use its best efforts to cause the Company to continue to qualify as a "Qualified
Small Business" as defined in Section 1202(d) of the Internal Revenue Code of
1986, as amended; provided that, if the Company's Board of Directors determines
that an action or omission which causes such qualification to no longer be
available is in the best interest of the Company, the Company shall no longer be
subject to the foregoing covenant.
4.14 TERMINATION OF COVENANTS. All covenants of the Company contained in
Article IV of this Agreement shall expire and terminate as to each Investor
immediately after the time of effectiveness of the Company's first firm
commitment underwritten public offering registered under the Securities Act.
5. RIGHTS OF FIRST REFUSAL.
5.1 SUBSEQUENT OFFERINGS. Each Investor shall have a right of first
refusal to purchase its pro rata share of all Equity Securities, as defined
below, that the Company may, from time to time,
13
<PAGE>
propose to sell and issue after the date of this Agreement, other than the
Equity Securities excluded by Section 5.6 hereof. Each Investor's pro rata
share is equal to the ratio of (A) the number of shares of the Company's Common
Stock (including all shares of Common Stock issued or issuable upon conversion
of the Shares) of which such Investor is a holder immediately prior to the
issuance of such Equity Securities to (B) the total number of shares of the
Company's outstanding Common Stock (including all shares of Common Stock issued
or issuable upon conversion of the Shares) immediately prior to the issuance of
the Equity Securities. The term "Equity Securities" shall mean (i) any stock or
similar security of the Company, (ii) any security convertible, with or without
consideration, into any stock or similar security (including any option to
purchase such a convertible security), (iii) any security carrying any warrant
or right to subscribe to or purchase any stock or similar security or (iv) any
such warrant or right.
5.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give each Investor written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Investor shall have fifteen
(15) days from the giving of such notice to agree to purchase its pro rata share
of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Investor who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.
5.3 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first refusal
established by this Article V shall terminate upon the closing of an
underwritten public offering of Common Stock of the Company made pursuant to an
effective registration statement under the Securities Act.
5.4 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal of
each Investor under this Article V may be transferred to any constituent partner
or affiliate of such Investor, to any successor in interest to all or
substantially all the assets of such Investor, or to a transferee who acquires
at least fifty thousand (50,000) shares (as adjusted for stock splits,
combinations and the like) of Registrable Securities, provided that such
transferee agrees in writing to be bound by the provisions of this Agreement.
5.5 EXCLUDED SECURITIES. The rights of first refusal established by this
Article V shall have no application to any of the following Equity Securities:
5.5.1 shares of Common Stock (and/or options, warrants or other
Common Stock purchase rights issued pursuant to such options, warrants or other
rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to, the Company or any subsidiary, pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board;
5.5.2 stock issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, options and warrants outstanding
as of the date of this Agreement, and stock issued pursuant to any such rights
or agreements granted after the date of this Agreement, provided that the rights
of first refusal established by this Article V applied with respect to the
initial sale or grant by the Company of such rights or agreements;
5.5.3 any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination;
14
<PAGE>
5.5.4 any Equity Securities that are issued by the Company as part
of an underwritten public offering referred to in Section 5.3 hereof;
5.5.5 shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;
5.5.6 shares of Common Stock issued upon conversion of the Shares;
and
5.5.7 any Equity Securities issued pursuant to any equipment
leasing arrangement or bank financing.
6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
6.2 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, this Agreement, and the rights and obligations hereunder, may not be
assigned by any party hereto without the prior written consent of the Company
and the holders of at least a majority in interest of the Shares. The
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, permitted assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
PROVIDED, HOWEVER, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
6.4 SEPARABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
6.5 AMENDMENT AND WAIVER.
6.5.1 Except as otherwise expressly provided, this Agreement may
be amended or modified only upon the written consent of the Company and the
holders of at least 75% of the Registrable Securities.
6.5.2 Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be waived
only with the written consent of the holders of at least 75% of the Registrable
Securities.
15
<PAGE>
6.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
6.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature pages hereof
or at such other address as such party may designate by ten (10) days advance
written notice to the other parties hereto.
6.8 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
6.9 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
ROGUE WAVE SOFTWARE, INC.
260 S.W. Madison
Corvallis, OR 97333
By: /s/ Thomas Keffer
--------------------------------
Thomas Keffer, President
INVESTORS:
- -----------------------------------
(PRINT NAME OF INVESTOR)
By:
--------------------------------
(SIGNATURE)
Title:
--------------------------------
KEY SHAREHOLDERS:
- -----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
/s/ Signature
- -----------------------------------
(SIGNATURE)
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
ROGUE WAVE SOFTWARE, INC.
260 S.W. Madison
Corvallis, OR 97333
By:
--------------------------------
Thomas Keffer, President
INVESTORS:
- -----------------------------------
(PRINT NAME OF INVESTOR)
By:
--------------------------------
(SIGNATURE)
Title:
--------------------------------
KEY SHAREHOLDERS:
Dan Whitaker
- -----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
/s/ Dan Whitaker 11/9/95
- -----------------------------------
(SIGNATURE)
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
ROGUE WAVE SOFTWARE, INC.
260 S.W. Madison
Corvallis, OR 97333
By:
--------------------------------
Thomas Keffer, President
INVESTORS:
- -----------------------------------
(PRINT NAME OF INVESTOR)
By:
--------------------------------
(SIGNATURE)
Title:
--------------------------------
KEY SHAREHOLDERS:
Kevin Gartner
- -----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
/s/ Kevin E. Gartner
- -----------------------------------
(SIGNATURE)
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
ROGUE WAVE SOFTWARE, INC.
260 S.W. Madison
Corvallis, OR 97333
By:
--------------------------------
Thomas Keffer, President
INVESTORS:
- -----------------------------------
(PRINT NAME OF INVESTOR)
By:
--------------------------------
(SIGNATURE)
Title:
--------------------------------
KEY SHAREHOLDERS:
Allan Vermeulen
- -----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
/s/ Allen Vermeulen
- -----------------------------------
(SIGNATURE)
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
ROGUE WAVE SOFTWARE, INC.
260 S.W. Madison
Corvallis, OR 97333
By:
--------------------------------
Thomas Keffer, President
INVESTORS:
El Dorado Ventures III, L.P.
- -----------------------------------
(PRINT NAME OF INVESTOR)
By: El Dorado Venture Partners III,
Its Leneral Partner
By: /s/
--------------------------------
(SIGNATURE)
Title: General Partner
--------------------------------
KEY SHAREHOLDERS:
- -----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
/s/
- -----------------------------------
(SIGNATURE)
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
ROGUE WAVE SOFTWARE, INC.
260 S.W. Madison
Corvallis, OR 97333
By:
--------------------------------
Thomas Keffer, President
INVESTORS:
El Dorado C&L Fund, L.P.
- -----------------------------------
(PRINT NAME OF INVESTOR)
By: El Dorado Venture Partners III,
Its General Partner
By: /s/
--------------------------------
(SIGNATURE)
Title: General Partner
--------------------------------
KEY SHAREHOLDERS:
- -----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
- -----------------------------------
(SIGNATURE)
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
ROGUE WAVE SOFTWARE, INC.
260 S.W. Madison
Corvallis, OR 97333
By:
--------------------------------
Thomas Keffer, President
INVESTORS:
MENLO VENTURES VI, L.P.
- -----------------------------------
(PRINT NAME OF INVESTOR)
By: MV Management VI, L.P.
its General Partner
By: /s/
--------------------------------
(SIGNATURE)
Title: General Partner
--------------------------------
KEY SHAREHOLDERS:
- -----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
/s/
- -----------------------------------
(SIGNATURE)
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
ROGUE WAVE SOFTWARE, INC.
260 S.W. Madison
Corvallis, OR 97333
By:
--------------------------------
Thomas Keffer, President
INVESTORS:
MENLO ENTREPRENEURS FUND VI, L.P.
- -----------------------------------
(PRINT NAME OF INVESTOR)
By: MV Management VI; L.P.
its General Partner
By: /s/
--------------------------------
(SIGNATURE)
Title: General Partner
--------------------------------
KEY SHAREHOLDERS:
- -----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
/s/
- -----------------------------------
(SIGNATURE)
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
ROGUE WAVE SOFTWARE, INC.
260 S.W. Madison
Corvallis, OR 97333
By:
--------------------------------
Thomas Keffer, President
INVESTORS:
WA&H Investments, L.L.C.
By: Wessels, Arnold & Henderson Group, L.L.C.
its managing member
By: /s/ Kenneth J. Wessels
--------------------------------
Kenneth J. Wessels
CEO/Managing Director
KEY SHAREHOLDERS:
- -----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
- -----------------------------------
(SIGNATURE)
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
ROGUE WAVE SOFTWARE, INC.
260 S.W. Madison
Corvallis, OR 97333
By:
--------------------------------
Thomas Keffer, President
INVESTORS:
Ronald Pillar
- -----------------------------------
(PRINT NAME OF INVESTOR)
By: /s/ Ronald Pillar
--------------------------------
(SIGNATURE)
Title:
--------------------------------
KEY SHAREHOLDERS:
- -----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
- -----------------------------------
(SIGNATURE)
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
17
<PAGE>
EXHIBIT A
INVESTORS
El Dorado Ventures III, L.P.
El Dorado Technology IV, L.P.
El Dorado C&L Fund, L.P.
Menlo Ventures VI, L.P.
Menlo Entrepreneurs Fund VI, L.P.
Wessels Arnold & Henderson
Ronald Pillar
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
18
<PAGE>
EXHIBIT B
KEY SHAREHOLDERS
Thomas Keffer
Dan Whitaker
Kevin Gartner
Allan Vermeulen
Gene Cho
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
19
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT (the "Agreement") is made as of June 27, 1996, by
and among ROGUE WAVE SOFTWARE, INC., an Oregon corporation (the "Company"), the
holders of the Company's Series A Preferred Stock and Series B Preferred Stock
(the "Investors") and certain holders of the Company's Common Stock (the "Key
Shareholders").
WHEREAS, the Company, the Investors and the Key Shareholders have entered
into that certain Amended and Restated Investors' Rights Agreement dated
November 10, 1995 attached hereto as Exhibit A (the "Investors' Rights
Agreement"); and
WHEREAS, in accordance with Sections 3.11 and 6.5 of the Investors' Rights
Agreement, the Company, the Investors and the Key Shareholders wish to amend
such agreement as set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of other valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. AMENDMENT.
Section 3.13 of the Investors' Rights Agreement is hereby amended to read
in its entirety as follows:
3.13 "MARKET STAND-OFF" AGREEMENT. If requested by the Company or the
representative of the underwriters of Common Stock (or other securities) of the
Company, each Holder shall not sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such Holder (other
than those included in the registration) for a period specified by the
representative of the underwriters not to exceed one hundred eighty (180) days
following the effective date of a registration statement of the Company filed
under the Securities Act, provided that:
(i) such agreement shall apply only to the Company's Initial
Offering; and
(ii) all officers and directors of the Company enter into similar
agreements.
The obligations described in this Section 3.13 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose stop-
transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period In order to implement the provisions of this
Section 3.13, each Holder agrees to execute and deliver to the Company, upon the
Company's request, a "lock-up" or similar agreement reasonably requested by an
underwriter of the Company's Common Stock.
2. This Agreement may be executed in two or more components, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
1.
<PAGE>
IN WITNESS WHEREOF, this AMENDMENT AGREEMENT is hereby executed as of the
date first above written.
COMPANY: INVESTOR:
ROGUE WAVE SOFTWARE, INC.
-----------------------------------
(PRINT NAME OF INVESTOR)
By: /s/ Thomas Keffer By:
-------------------------------- --------------------------------
Thomas Keffer, President (SIGNATURE)
Title:
----------------------------
(IF APPLICABLE)
KEY SHAREHOLDER:
-----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
/s/ Thomas Keffer
-----------------------------------
(SIGNATURE)
2.
<PAGE>
IN WITNESS WHEREOF, this AMENDMENT AGREEMENT is hereby executed as of the
date first above written.
COMPANY: INVESTOR:
ROGUE WAVE SOFTWARE, INC.
-----------------------------------
(PRINT NAME OF INVESTOR)
By: By:
-------------------------------- --------------------------------
Thomas Keffer, President (SIGNATURE)
Title:
----------------------------
(IF APPLICABLE)
KEY SHAREHOLDER:
Allan Vermeulen
-----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
/s/ Allen Vermeulen
-----------------------------------
(SIGNATURE)
2.
<PAGE>
IN WITNESS WHEREOF, this AMENDMENT AGREEMENT is hereby executed as of the
date first above written.
COMPANY: INVESTOR:
ROGUE WAVE SOFTWARE, INC.
-----------------------------------
(PRINT NAME OF INVESTOR)
By: By:
-------------------------------- --------------------------------
Thomas Keffer, President (SIGNATURE)
Title:
----------------------------
(IF APPLICABLE)
KEY SHAREHOLDER:
Dan Whitaker
-----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
/s/ Dan Whitaker
-----------------------------------
(SIGNATURE)
2.
<PAGE>
IN WITNESS WHEREOF, this AMENDMENT AGREEMENT is hereby executed as of the
date first above written.
COMPANY: INVESTOR:
ROGUE WAVE SOFTWARE, INC.
MENLO VENTURES VI, L.P.
-----------------------------------
(PRINT NAME OF INVESTOR)
By: MV Management VI, L.P.
its General Partner
By: By: /s/ Signature
-------------------------------- --------------------------------
Thomas Keffer, President (SIGNATURE)
Title: General Partner
----------------------------
(IF APPLICABLE)
KEY SHAREHOLDER:
-----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
-----------------------------------
(SIGNATURE)
2.
<PAGE>
IN WITNESS WHEREOF, this AMENDMENT AGREEMENT is hereby executed as of the
date first above written.
COMPANY: INVESTOR:
ROGUE WAVE SOFTWARE, INC.
MENLO ENTREPRENEURS FUND VI, L.P.
-----------------------------------
(PRINT NAME OF INVESTOR)
By: MV Management VI, L.P.
its General Partner
By: By: /s/ Signature
-------------------------------- --------------------------------
Thomas Keffer, President (SIGNATURE)
Title: General Partner
----------------------------
(IF APPLICABLE)
KEY SHAREHOLDER:
-----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
-----------------------------------
(SIGNATURE)
2.
<PAGE>
IN WITNESS WHEREOF, this AMENDMENT AGREEMENT is hereby executed as of the
date first above written.
COMPANY: INVESTOR:
ROGUE WAVE SOFTWARE, INC.
El Dorado Ventures III, L.P.
-----------------------------------
(PRINT NAME OF INVESTOR)
By: Its General Partner
El Dorado Venture Partners III
By: By: /s/
-------------------------------- --------------------------------
Thomas Keffer, President (SIGNATURE)
Title: General Partner
----------------------------
(IF APPLICABLE)
KEY SHAREHOLDER:
-----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
-----------------------------------
(SIGNATURE)
2.
<PAGE>
IN WITNESS WHEREOF, this AMENDMENT AGREEMENT is hereby executed as of the
date first above written.
COMPANY: INVESTOR:
ROGUE WAVE SOFTWARE, INC.
El Dorado Technology IV, L.P.
-----------------------------------
(PRINT NAME OF INVESTOR)
By: Its General Partner
El Dorado Venture Partners III
By: By: /s/ Signature
-------------------------------- --------------------------------
Thomas Keffer, President (SIGNATURE)
Title: General Partner
----------------------------
(IF APPLICABLE)
KEY SHAREHOLDER:
-----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
-----------------------------------
(SIGNATURE)
2.
<PAGE>
IN WITNESS WHEREOF, this AMENDMENT AGREEMENT is hereby executed as of the
date first above written.
COMPANY: INVESTOR:
ROGUE WAVE SOFTWARE, INC.
El Dorado C&L Fund, L.P.
-----------------------------------
(PRINT NAME OF INVESTOR)
By: Its General Partner
El Dorado Venture Partners, III
By: /s/ Thomas Keffer By: /s/ Signature
-------------------------------- --------------------------------
Thomas Keffer, President (SIGNATURE)
Title: General Partner
----------------------------
(IF APPLICABLE)
KEY SHAREHOLDER:
-----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
-----------------------------------
(SIGNATURE)
2.
<PAGE>
IN WITNESS WHEREOF, this AMENDMENT AGREEMENT is hereby executed as of the
date first above written.
COMPANY: INVESTOR:
ROGUE WAVE SOFTWARE, INC.
WA&H Investment, L.L.C.
By: Wessels, Arnold & Henderson
Group L.L.C.
-----------------------------------
(PRINT NAME OF INVESTOR)
Its managing member
By: /s/ Thomas Keffer By: /s/ Signature
-------------------------------- --------------------------------
Thomas Keffer, President (SIGNATURE)
Title: Managing Director-CFO
----------------------------
(IF APPLICABLE)
KEY SHAREHOLDER:
-----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
-----------------------------------
(SIGNATURE)
2.
<PAGE>
IN WITNESS WHEREOF, this AMENDMENT AGREEMENT is hereby executed as of the
date first above written.
COMPANY: INVESTOR:
ROGUE WAVE SOFTWARE, INC.
-----------------------------------
(PRINT NAME OF INVESTOR)
By: By:
-------------------------------- --------------------------------
Thomas Keffer, President (SIGNATURE)
Title:
----------------------------
(IF APPLICABLE)
KEY SHAREHOLDER:
Kevin E. Gartner
-----------------------------------
(PRINT NAME OF KEY SHAREHOLDER)
/s/ Kevin E. Gartner
-----------------------------------
(SIGNATURE)
2.
<PAGE>
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this day of , 19 by
and between , a Delaware corporation (the "Corporation"), and _______
("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in ______
capacity as ________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as _________ of the
Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as _________
after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as ________
of the Corporation or as a director, officer or other fiduciary of an affiliate
of the Corporation (including any employee benefit plan of the Corporation)
faithfully and to the best of his ability so long as he is duly elected and
qualified in accordance with the provisions of the Bylaws or other applicable
charter documents of the Corporation or such affiliate; PROVIDED, HOWEVER, that
Agent may at any time and for any reason resign from such position (subject to
any contractual obligation that Agent may have assumed apart from this
Agreement) and that the Corporation or any affiliate shall have no obligation
under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the
1.
<PAGE>
Bylaws and the Code, as the same may be amended from time to time (but, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than the Bylaws or the Code permitted prior to adoption
of such amendment).
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by the
Corporation under the non-exclusivity provisions of the Code and Section 41 of
the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of profits
made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of Agent's
duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or
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agreement, except in respect of any excess beyond payment under such insurance,
clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Code, or (iv) the proceeding is initiated pursuant to
Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
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(a) the Corporation will be entitled to participate therein at its own
expense;
(b) except as otherwise provided below, the Corporation may, at its option
and jointly with any other indemnifying party similarly notified and electing to
assume such defense, assume the defense thereof, with counsel reasonably
satisfactory to Agent. After notice from the Corporation to Agent of its
election to assume the defense thereof, the Corporation will not be liable to
Agent under this Agreement for any legal or other expenses subsequently incurred
by Agent in connection with the defense thereof except for reasonable costs of
investigation or otherwise as provided below. Agent shall have the right to
employ separate counsel in such action, suit or proceeding but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless
(i) the employment of counsel by Agent has been authorized by the Corporation,
(ii) Agent shall have reasonably concluded that there may be a conflict of
interest between the Corporation and Agent in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of Agent's separate counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as to which Agent shall
have made the conclusion provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than
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an action brought to enforce a claim for expenses pursuant to Section 8 hereof,
PROVIDED THAT the required undertaking has been tendered to the Corporation)
that Agent is not entitled to indemnification because of the limitations set
forth in Section 4 hereof. Neither the failure of the Corporation (including
its Board of Directors or its stockholders) to have made a determination prior
to the commencement of such enforcement action that indemnification of Agent is
proper in the circumstances, nor an actual determination by the Corporation
(including its Board of Directors or its stockholders) that such indemnification
is improper shall be a defense to the action or create a presumption that Agent
is not entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless
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indemnify Agent to the fullest extent provided by the Bylaws, the Code or any
other applicable law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(i) upon delivery if delivered by hand to the party to whom such communication
was directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page hereof.
(b) If to the Corporation, to
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or to such other address as may have been furnished to Agent by the Corporation.
6.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of
the day and year first above written.
ROGUE WAVE SOFTWARE, INC.
By:
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Title:
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AGENT
[NAME OF OFFICER]
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Address:
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L E A S E
960214
THIS LEASE AGREEMENT is made and entered into by and between THE STATE OF OREGON
ACTING BY AND THOUGH THE STATE BOARD OF HIGHER EDUCATION ON BEHALF OF OREGON
STATE UNIVERSITY, hereinafter referred to as OSU, and ROGUE WAVE SOFTWARE, INC.,
hereinafter referred to as ROGUE WAVE.
WHEREAS, OSU owns an office building at 35th Street and Western Boulevard in
Corvallis, Oregon; and
WHEREAS, ROGUE WAVE desires to lease the building; and
WHEREAS, ROGUE WAVE and OSU agree to fully and diligently cooperate with each
other to investigate the possibility of constructing another office building
adjacent to the present facility containing approximately 25,000 to 30,000
square feet as soon as practical, with OSU to grant ROGUE WAVE a leasehold on
the land and ROGUE WAVE to secure financing and a contractor to complete the
project, with the land and building to revert back to OSU ownership sometime in
the future, the specific details to be contained in a separate document that may
amend the terms of this lease;
NOW THEREFORE, the parties agree as follows:
OSU does hereby lease to ROGUE WAVE, and ROGUE WAVE does hereby lease from OSU,
that certain real property situated in Benton County, Oregon, described as
follows:
An office building, now to be known as the ROGUE WAVE Building, located at
850 SW 35th Street on the northwest corner of West 35th Street and Western
Boulevard, Corvallis, Oregon, including approximately 120 off-street
parking spaces and more particularly described as:
Beginning at the southeast corner of the F.A. Horning Donation Land Claim;
thence running north 36 rods; thence west 33-1/3 rods, thence south 36
rods; thence east 33-1/3 rods to the place of beginning, in the county of
Benton and the state of Oregon.
TERM: The term of this Lease shall commence on May 1, 1996, and continue for an
initial term of five years and two months to and including June 30, 2001. At
the end of the initial five year term, ROGUE WAVE will have two additional five
year options expiring on June 30, 2006, and June 30, 2011, respectively. The
exercise of these additional options must be exercised no later than January 1,
2006, and January 1, 2011, respectively.
If ROGUE WAVE does not elect to carry out the construction of the additional
building, then this Lease may be canceled upon not less than one years notice.
If ROGUE WAVE elects to not carry out the new construction, but desires to
continue this Lease, then ROGUE WAVE and OSU agree to renegotiate the monthly
rental rate.
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RENT: Beginning May 1, 1996, and continuing through June 30, 2001, ROGUE WAVE
shall pay as rent the sum of $17,322 per month payable to OSU for the entire
building. The described amount does not include property taxes, maintenance,
utilities or insurance, which are the responsibility of ROGUE WAVE, to the
extent that such maintenance is the responsibility of ROGUE WAVE under the
Lease. OSU agrees to pay property taxes for the period May 1, 1996, through
April 30, 1997. Beginning May 1, 1997, ROGUE WAVE will be responsible for the
payment of property taxes.
The base monthly rent of $17,322 shall be renegotiated every three years
effective in the month of May in 1999, 2002, 2005 and 2008.
All rent payments shall be due on the first day of each month without demand.
Rent not paid by ROGUE WAVE to OSU within ten (10) days of the due date shall
accrue a late penalty of 5% of the total payment of the monies then due and an
interest charge of 1% per month on the total unpaid balance until the entire sum
is paid.
REMODELING CREDITS: OSU will grant ROGUE WAVE $173,220 in remodeling credits to
be done by ROGUE WAVE, after prior approval, from OSU for the following
improvements:
Carpet replacement, carpet cleaning and carpet installation (east end)*
Install double pane glass window skylights*
Replacing the bathroom tile
Installing ceiling fans in the skylight space
Remove computer flooring and ramps/stairs, carpet and reinstall windows
(west end)*
Reline the parking lot*
Seal the parking lot
Construct walls
Design fees
Electrical, telephone and computer connections.
If costs exceed $173,220, ROGUE WAVE has the option to complete the remodeling
at their expense or decide which projects are not to be done (except that the
asterisked [*] items will be completed).
USE OF PREMISES: ROGUE WAVE shall use the premises during the term of this
Lease as a business office and for no other purpose whatsoever without OSU's
written consent.
ROGUE WAVE shall conform to all applicable laws and regulations of any public
authority affecting the premises and the use, and correct, at ROGUE WAVE's own
expense, any failure of compliance created through ROGUE WAVE's fault or by
reason of ROGUE WAVE's use, but ROGUE WAVE shall not be required to make any
structural changes to effect such compliance unless such changes are required
because of ROGUE WAVE's specific use.
ROGUE WAVE shall refrain from any activity that would make it impossible to
insure the premises against casualty, would increase the insurance rate, or
would prevent OSU from taking advantage of any ruling of the Oregon Insurance
Rating Bureau, or its successor, allowing OSU to obtain reduced premium rates
for long-term fire insurance policies, unless ROGUE WAVE pays the additional
cost of the insurance.
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ROGUE WAVE shall refrain from any use that would be reasonably offensive to
other owners or users of neighboring premises or that would tend to create a
nuisance or damage the reputation of the premises.
ROGUE WAVE shall refrain from loading the electrical system or floors beyond the
point considered safe by a competent engineer or architect selected by OSU.
ROGUE WAVE shall refrain from making any marks on or attaching any sign,
insignia, antenna, aerial, or other device to the exterior or interior walls,
windows, or roof of the premises without the written consent of OSU. Such
consent is not to be unreasonably withheld.
ROGUE WAVE shall not cause or permit any hazardous substance to be spilled,
leaked, disposed of, or otherwise released on or under the premises. ROGUE WAVE
may use or otherwise handle on the premises only those hazardous substances
typically used or sold in the prudent and safe operation of the business. ROGUE
WAVE may store such hazardous substances on the premises only in quantities
necessary to satisfy ROGUE WAVE's reasonably anticipated needs. ROGUE WAVE
shall comply with all environmental laws and exercise the highest degree of care
in the use, handling, and storage of hazardous substances and shall take all
practicable measures to minimize the quantity and toxicity of hazardous
substances used, handled, or stored on the premises. Upon the expiration or
termination of this Lease, ROGUE WAVE shall remove all hazardous substances from
the premises. The term Environmental Law shall mean any federal, state, or
local statute, regulation, or ordinance or any judicial or other governmental
order pertaining to the protection of health, safety or the environment. The
term hazardous substance shall mean any hazardous, toxic, infectious or
radioactive substance, waste, and material as defined or listed by any law,
rule, regulation or ordinance and shall include, without limitation, petroleum
oil and its fractions. This paragraph shall not apply to preexisting conditions
prior to May 1, 1996.
ROGUE WAVE shall not make any unlawful use of said premises; shall not permit
any objectionable noise or odor to escape or be omitted from the premises or do
anything or permit anything to be done upon or about said premises in any way
tending to create a nuisance; shall not sell or permit to be sold any liquor on
said premises.
ROGUE WAVE shall, at its own expense, comply with all laws and regulations of
any municipal, county, state, federal or other public authority respecting
the use of the leased premises. OSU shall at its expense, comply with all
applicable laws and regulations with respect to its maintenance and other
obligations under this Lease.
ROGUE WAVE shall not use the outside walls of said premises, or allow signs or
devices of any kind to be attached thereto or suspended therefrom, for
advertising or display the name of the business without the prior written
consent of OSU. Consent will not be unreasonably withheld so long as ROGUE WAVE
complies with City of Corvallis sign ordinances.
REMODELING AND RENOVATION: It is mutually agreed and understood that ROGUE WAVE
may do minor remodeling and renovation on the interior of the premises during
the term of this Lease. OSU reserves the right to review any and all drawings,
modifications, materials, and specifications prior to the commencement of any
major work. OSU shall not unreasonably withhold consent to any future
remodeling or renovations. OSU shall specify at the time of the approval
whether the major improvements shall be required to be removed upon the
expiration of this Lease.
ROGUE WAVE shall perform all such remodeling or renovation and obtain all
necessary building permits related thereto at its own cost and expense.
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TAXES, EXPENSES AND OTHER OPERATING COSTS: In addition to rent, ROGUE WAVE
shall pay all operating costs and expenses of the building, including but not
limited to utilities, personal property taxes, real property taxes (except the
first year) on the land and improvements, maintenance and any other item or
cost involved or required.
If ROGUE WAVE fails to pay expenses or taxes when due, OSU may, after giving
ROGUE WAVE a ten day notice, make the payment for the account of ROGUE WAVE.
ROGUE WAVE shall reimburse OSU for any such payments along with a late penalty
of 5% of the amount paid plus 1% interest per month on the amount paid by OSU
until reimbursement is effected.
BUILDING MAINTENANCE:
The following shall be the responsibility of OSU:
- Maintenance and repair of the HVAC system and components and for any and
all repair and replacement of the roof, exterior walls (including
painting), bearing walls, structural members, floor slabs and foundation.
- Insure the building meets the requirements of the Americans for Disability
Act (ADA) at the time the building is turned over to ROGUE WAVE. If ROGUE
WAVE does additional construction or alteration to the building that
triggers the need for additional work to satisfy ADA requirements, ROGUE
WAVE will be responsible for the additional work.
- Repair of sidewalks, driveways, curbs, parking areas, and areas used in
common by ROGUE WAVE and OSU.
- Repair and maintenance of exterior water, sewage, gas, and electrical
services up to the point of entry to the leased premises.
The following shall be the responsibility of ROGUE WAVE:
- Repair of interior walls, ceilings, doors, windows, and related hardware,
light fixtures, switches, wiring and plumbing from the point of entry to
the premises.
- Any repairs necessitated by the negligence of ROGUE WAVE, its agents,
employees, and invitees.
- Ordinary maintenance of the heating and air conditioning system and any
repairs necessary because of improper maintenance.
- All other repairs to the premises which OSU is not required to make under
this section.
INSPECTIONS: IT SHALL BE LAWFUL FOR OSU, ITS AGENTS AND REPRESENTATIVES, UPON
REASONABLE NOTICE, TO ENTER INTO OR UPON THE PREMISES FOR THE PURPOSE OF
EXAMINING THE CONDITION OF THE PREMISES, OR FOR ANY OTHER LAWFUL PURPOSE.
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OSU shall have the right to inspect the premises at any reasonable time or times
to determine the necessity of repair. Whether or not such inspection is made,
the duty of OSU to make repairs shall not mature until a reasonable time after
OSU has received from ROGUE WAVE written notice of the repairs that are
required.
ASSIGNMENT: ROGUE WAVE shall not sell, assign, transfer, pledge, hypothecate,
surrender or dispose of this Lease, or any interest therein, or permit any other
person or persons to occupy the premises without the prior written consent of
OSU. Such consent is not to be unreasonably withheld.
ROGUE WAVE shall not permit its interest to be sold, assigned, transferred,
seized, or taken by operation of law or by virtue of any attachment or execution
proceedings or other legal process instituted against ROGUE WAVE, or by virtue
of any bankruptcy or insolvency proceedings. Mergers, transfers to an affiliate
and other corporate restructurings are expressly permitted. Such mergers,
transfers or restructurings will not nullify ROGUE WAVE's obligations under this
Lease.
INSURANCE: ROGUE WAVE shall, at all times during the term of this Lease, at its
own expense, maintain, keep in effect, furnish and deliver to OSU business
services, commercial general liability insurance policies in form and with an
insurer satisfactory to OSU. This insurance shall include personal injury
coverage and contractual liability coverage for the indemnity provided under
this lease. The amount of liability insurance shall not be less than $1,000,000
for injury to one person, $1,000,000 for injuries arising out of any one
accident, and not less than $1,000,000 for property damage. ROGUE WAVE shall
maintain all risk property insurance on ROGUE WAVE's personal property,
equipment and tenant improvements, in an amount sufficient to replace same if
destroyed or lost through fire or other casualty. ROGUE WAVE shall provide a
copy to OSU of such insurance and notify OSU of any insurance changes or
cancellations.
INDEMNITY: ROGUE WAVE agrees to and shall indemnify and hold OSU harmless
against any and all claims and demands arising from the negligence of ROGUE
WAVE, its officers, agents, invitees and/or employees, as well as those arising
from ROGUE WAVE's failure to comply with any requirement, covenant or provision
of this Lease on its part to be performed, and shall at its own expense defend
OSU against any and all suits or actions arising out of such negligence, actual
or alleged, and all appeals therefrom and shall satisfy and discharge any
judgment which may be awarded against OSU in any such suit or action.
DESTRUCTION OF THE PREMISES: If the leased premises are 50% or more destroyed,
the parties shall proceed as follows, subject to the provision of the following
paragraphs:
(1) OSU may elect to terminate this Lease as of the date of the damage or
destruction by notice given to ROGUE WAVE in writing not more than 45
days following the date of damage. In such event all rights and
obligations of the parties shall cease as of the date of termination.
Prorated and any prepaid rents will be refunded.
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(2) In the absence of an election under subparagraph (1) above, OSU shall
proceed to restore the leased premises to substantially the same form as
prior to the damage or destruction so as to provide for ROGUE WAVE usable
space equivalent in quantity and in character to that before the damage.
Work shall be commenced as soon as reasonably possible and thereafter
shall proceed without interruption until completion except for work
stoppages on account of labor disputes or by Force Majeure.
(3) In either (1) or (2), rent shall be adjusted from the date of damage
until such time as the restoration of facilities enables ROGUE WAVE to
assume partial or total business operation.
If the leased premises are partly damaged and the foregoing paragraph does not
apply, repairs shall be accomplished with all reasonable dispatch subject to
interruption and delays from labor disputes and matters beyond the control of
the party responsible, and shall be performed in accordance with the provisions
of this Lease. Rent shall be adjusted to the extent the premises are
untenantable subsequent to the damage and during the period of repair. ROGUE
WAVE shall resume business operations with all reasonable dispatch as renovated
spaces are made available.
Repairs are to be made on a mutually agreed schedule. All repairs are to be
made under OSU supervision. If work cannot be completed in a reasonable time,
ROGUE WAVE may terminate this Lease.
LIENS: ROGUE WAVE shall not permit any lien of any kind, type or description to
remain undischarged for more than 120 days after said lien has been filed. If
ROGUE WAVE fails to discharge any lien, OSU may do so and shall be reimbursed in
accordance with the section concerning taxes.
DEFAULT: If ROGUE WAVE fails to perform or comply with any covenant,
requirement or provision of this Lease and such default shall continue for a
period of 30 days after receipt of notice thereof in writing from OSU to ROGUE
WAVE, then OSU may reenter the premises at any time thereafter and repossess the
same without further notice. This Lease shall thereupon be deemed terminated
but without prejudice to OSU's rights to pursue any other legal remedy it has.
WAIVER: No waiver by OSU of any breach of any covenant, requirement or
provision of this Lease by ROGUE WAVE shall be deemed or considered as a
continuing waiver, and shall not operate to bar or prevent OSU from pursuing its
remedies for any succeeding breach or such covenant, requirement or provision.
HOLDING OVER: If ROGUE WAVE is permitted to hold over under this Lease, or if
the term of this Lease has been extended, then any holding over after the
expiration of the term of this Lease shall be construed to be a tenancy from
month-to-month and at such rent as shall be fixed by OSU and otherwise subject
to all the provisions of this Lease.
SURRENDER OF PREMISES: At the expiration of the term of this Lease or upon any
earlier termination thereof, ROGUE WAVE shall quit and deliver up the leased
premises and all improvements thereon, broom clean, to OSU or its successors or
assigns, peaceably, quietly, and in as good order and condition as existing at
the time of the commencement of this Lease, reasonable use and wear excepted.
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MISCELLANEOUS: ROGUE WAVE has selected the above property based upon ROGUE
WAVE's own judgment and expressly disclaims reliance on any statements or
representations made by OSU related thereto.
APPLICABLE LAW: This Lease shall be governed and construed in accordance with
the laws of the State of Oregon.
NOTICES AND REPRESENTATIVES: All notices, certificates, or other communications
rendered shall be sufficiently given when delivered or mailed postage prepaid
certified mail to the representatives of the parties at their respective places
of business.
SEVERABILITY: The parties agree that if any term or provision of this Lease is
declared by a court of competent jurisdiction to be illegal or in conflict with
any law, the validity of the remaining terms and provisions shall not be
affected, and the rights and obligations of the parties shall be construed and
enforced as if the Lease did not contain the particular term or provision held
to be invalid.
RELATIONSHIPS: OSU and ROGUE WAVE intend that ROGUE WAVE's relationship to OSU
at all times and for all purposes under this Lease is to be that of tenant.
ROGUE WAVE is not to be considered an agent or employee of OSU for any purpose,
and neither ROGUE WAVE nor any of their agents or employees are entitled to any
of the benefits that OSU provides for its employees. ROGUE WAVE will be solely
and entirely responsible for its acts and for the acts of its agents or
employees during the performance of this Lease.
STATE WORKERS' COMPENSATION ACT: ROGUE WAVE, its subcontractors if any, and all
employers working under this Lease are subject employers under the Oregon
Workers' Compensation Law and shall comply with ORS 656.017, which requires them
to provide workers' compensation coverage for all their subject workers.
CERTIFICATE OF COMPLIANCE WITH OREGON TAX LAWS: By signature on this Lease, I,
the undersigned, acting on behalf of ROGUE WAVE, hereby certify that ROGUE WAVE
is not to the best of my knowledge, in violation of any Oregon tax law. For the
purposes of this certification, Oregon tax laws are ORS chapters 118, 119, 314,
316, 317, 318, 320, 321 and 323 and sections 10 to 20, chapter 533, Oregon Laws
1981, as amended by chapter 16, Oregon Laws 1982 (first special session); the
Homeowners and Renters Property Tax Relief Program under ORS 310.60 to 310.690;
and any local tax laws administered by the Oregon Department of Revenue under
ORS 305.620.
QUIET ENJOYMENT: OSU warrants that it is the owner of the premises and has the
right to lease them to ROGUE WAVE. OSU will defend ROGUE WAVE's right to quiet
enjoyment of the premises from the lawful claims of all persons during the Lease
term.
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<PAGE>
MERGER CLAUSE: This Lease constitutes the entire Lease between the parties. No
waiver, consent, modification, or change of terms of this Lease shall bind
either party unless in writing and signed by both parties. Such waiver,
consent, modification, or change if made shall be effective only in the specific
instance and for the specific purpose given. There are no understandings,
agreements, or representations, oral or written not specified herein regarding
this Lease. ROGUE WAVE, by the signature of its authorized representative,
hereby acknowledges that ROGUE WAVE has read this Lease, understands it, and
agrees to be bound by its terms and conditions.
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
ROGUE WAVE SOFTWARE, INC. STATE OF OREGON ACTING BY AND
THROUGH THE STATE BOARD OF HIGHER
EDUCATION ON BEHALF OF OREGON
STATE UNIVERSITY
- ------------------------------ -----------------------------------
Robert M. Holbum, Jr. Date Robert L. Halvorsen Date
Chief Financial Officer Contract Administrator
8 of 8
<PAGE>
LEASE AGREEMENT
between
THE LANDMARK
and
ROGUE WAVE SOFTWARE, INC.
for
1861 Landings Drive
Mountain View, CA 94043
Dated: April 22, 1996
<PAGE>
LANDMARK BUILDING LEASE
1. PARTIES. This Lease dated, for reference purposes only, April 22, 1996,
by and between LANDMARK INVESTMENTS, LIMITED ("Landlord") and ROGUE WAVE
SOFTWARE, INC. ("Tenant"), who agree as follows:
2. PREMISES. Landlord leases to Tenant, and Tenant leases from Landlord the
office space located in Mountain View, California, 94043, described as 1861
Landings Drive, outlined in Exhibit "A" ("Premises"). Premises have an agreed
area of Twelve Thousand Eight Hundred Sixteen (12,816) rentable square feet.
3. TERM. The term of this Lease shall be for Three (3) years commencing on
October 1, 1996 and ending on September 30, 1999.
4. RENT AND TENANT IMPROVEMENT COST REIMBURSEMENT.
4.1. Tenant shall pay to Landlord as rent for the Premises, without demand,
deduction, or off-set, the sum of Twenty Four Thousand Three Hundred Fifty
Dollars and 40/100 ($24,350.40) on or before the first day of each and every
month of the term of this Lease, the first monthly payment to be made
concurrently with the execution hereof. If the commencement date is not the
first day of a month or if the rent payable hereunder shall be prorated,
based upon a thirty day month, at the current rate for the fractional month
during which this Lease commences and/or terminates. Any rent payable for a
partial month directly following the commencement date shall be payable on
the first day of the first full calendar month of the term. Rent shall be
paid to Landmark Investments, Limited, at 2093 Landings Drive, Mountain View,
CA 94043.
4.2. The base rent provided for in 4.1. above shall increase three percent
(3%) per year on the anniversary date of the commencement of the term of the
Lease stated in 3. above.
4.3. Late Charges. Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent or other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Landlord by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or of a sum due from
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Tenant shall not be received by Landlord or Landlord's designees by 12:00
noon on the fifth (5th) day of each month of the term hereof, then Tenant
shall pay to Landlord a late charge equal to five percent (5%) of such
overdue amount. The parties hereby agree that such late charges represent a
fair and reasonable estimate of the cost that Landlord will incur by reason
of the late payment by Tenant. Acceptance of such late charges by the
Landlord shall in no event constitute a waiver of Tenant's default with
respect to such overdue amount, nor prevent Landlord from exercising any of
the other rights and remedies granted hereunder.
5. SECURITY DEPOSIT. On execution of this Lease, Tenant shall increase its
security deposit with Landlord by $19,850.40 to a total of $24,350.40 for the
performance by Tenant of the provisions of this Lease. If Tenant is in
default, Landlord can use the security deposit, or any portion of it, to cure
the default or to compensate Landlord for all damage sustained by Landlord
resulting from Tenant's default. Tenant shall immediately on demand pay to
Landlord a sum equal to the portion of the security deposit expended or
applied by Landlord as provided in this paragraph so as to maintain the
security deposit in the sum initially deposited with Landlord. If Tenant is
not in default at the expiration or termination of this Lease, Landlord shall,
no later than fourteen (14) days after lease expiration or termination,
return to Tenant (or at Landlord's option, to the last assignee of Tenant's
interest hereunder), the balance of the security deposit. Landlord shall not
be required to keep this security deposit separate from its general funds,
and Tenant shall not be entitled to interest on such deposit.
6. POSSESSION.
6.1. If Landlord, for any reason cannot deliver possession of the Premises to
Tenant at the commencement of the term hereof, this Lease shall not be void or
voidable nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom, nor shall the expiration date of the above term be
extended, but, in that event, all rent shall be abated during the period
between the commencement of said term and the time when Landlord delivers
possession.
6.2. In the event that Landlord shall permit Tenant to occupy the Premises
prior to the commencement date of the term, such occupancy shall be subject
to all of the provisions of this Lease and said early possession shall not
advance the termination date hereinabove provided. Rent shall be prorated and
prepaid for early occupancy at the current rate.
7. USE.
7.1. Use. The Premises shall be used and occupied by Tenant
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<PAGE>
for general office purposes and for no other purpose without the prior
written consent of the Landlord.
7.2. Uses Prohibited.
a. Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will increase the existing
rate or affect any fire or other insurance upon the building or any of its
contents, or cause a cancellation of any insurance policy covering said
building or any part thereof or any of its contents, nor shall Tenant sell or
permit to be kept used or sold in or about said Premises any articles or
substances, inflammable or otherwise, which may be prohibited by a standard
form policy of fire insurance.
b. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants of the building or injure or annoy them or use or allow the Premises
to be used for any unlawful or objectionable purpose.
c. Tenant shall not use the Premises or permit anything to be done in or
about the Premises which will in any way conflict with any law now in force
or which may hereafter be enacted. Tenant shall at its cost promptly comply
with all laws now in force or which may hereafter be in force and with the
requirements of any board of fire underwriters or other similar body relating
to Tenant's improvements or acts.
8. ALTERATIONS AND ADDITIONS. Tenant shall not make or allow any
alterations, additions or improvements of or to the Premises without
Landlord's prior written consent. Any such alterations, additions or
improvements, including, but not limited to, wallcovering, paneling and
built-in cabinet work, but excepting movable furniture and trade fixtures,
shall become a part of the realty, shall belong to the Landlord and shall be
surrendered with the Premises at expiration or termination of the Lease. If
Landlord consents to any such alterations, additions or improvements by
Tenant, they shall be made by Tenant at Tenant's cost, and any contractor or
person selected by Tenant to perform the work shall first be approved of, in
writing, by Landlord. Upon expiration, or sooner termination of the term
hereof, Tenant shall, upon written demand by Landlord promptly remove any
alterations, additions or improvements made by Tenant and designated by
Landlord to be removed. Such removal and repair of any damage to the premises
caused by such removal shall be at Tenant's cost.
9. LIENS. Tenant shall keep the Premises and the property in which the
Premises are situated free from any liens arising out of any work performed,
materials furnished or
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<PAGE>
obligations incurred by Tenant. Landlord may required Tenant to provide
Landlord, at Tenant's cost, a lien and completion bond in an amount equal to
one and one-half (1-1/2) times the estimated cost of any improvements,
additions, or alterations by Tenant, to insure Landlord against liability for
mechanic's and materialmen's liens and to insure completion for the work.
10. REPAIRS AND MAINTENANCE. By taking possession of the Premises, Tenant
shall be deemed to have accepted the Premises as being in good sanitary
order, condition and repair. Tenant shall at Tenant's cost, keep the premises
and every part thereof in good condition and repair except for damages from
causes beyond the control of Tenant and ordinary wear and tear. Tenant shall
upon the expiration or sooner termination of this Lease surrender the
Premises to the Landlord in good condition, ordinary wear and tear and damage
from causes beyond the reasonable control of the Tenant excepted. Unless
specifically provided in an addendum to this Lease, Landlord shall have no
obligation to alter, remodel, improve, repair, decorate or paint the Premises
or any part thereof and the parties hereto affirm that Landlord has made no
representations to Tenant respecting the condition of the premises or the
building except as specifically herein set forth. Notwithstanding the above
provisions, Landlord shall repair and maintain the structural portions of the
building, including the standard plumbing, air conditioning, heating and
electrical systems furnished by Landlord, unless such maintenance and repairs
are caused in part or in whole by the act, neglect, fault or omission of any
duty by the Tenant, its agents, employees or invitees, in which case Tenant
shall pay to Landlord the reasonable cost of such maintenance and repairs.
Tenant shall give Landlord written notice of any required repairs or
maintenance. Landlord shall not be liable for any failure to repair or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice. Any repairs or maintenance to supplemental cooling
equipment required for Tenant's special needs are the responsibility of
Tenant. Except as specifically herein set forth, there shall be no abatement
of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements to any portion of the building or the Premises or
to fixtures, appurtenances and equipment therein. Tenant waives the right to
make repairs at Landlord's expense under any law, statute or ordinance now or
hereafter in effect.
11. ASSIGNMENTS AND SUBLETTING. Tenant shall not, voluntarily or by
operation of law, assign, transfer, or encumber its interest under this Lease
or in the Premises nor sublease all or any part of the premises or allow
any other person or entity (except Tenant's employees, agents
4
<PAGE>
and invitees) to occupy or use all or any part of the premises without the
prior written consent of Landlord. Landlord's consent shall not be
unreasonably withheld. Any such consent shall not release Tenant from
liability hereunder, and a consent to one assignment, subletting, occupation
or use shall not be deemed a consent to any subsequent assignment,
subletting, occupation or use. Any such purported assignment, subletting, or
permission to occupy or use without such consent from Landlord shall be void
and shall, at the option of Landlord, constitute a default under this Lease.
Tenant immediately and irrevocably assigns to Landlord, as security for
Tenant's obligations under this Lease, all rent from any subletting of all or
a part of the Premises as permitted by this Lease, and Landlord, as assignee
and as attorney-in-fact for Tenant, or a receiver for Tenant appointed on
Landlord's application, may collect such rent and apply it toward Tenant's
obligations under this Lease; except that, until the occurrence of an act of
default by Tenant, Tenant shall have the right to collect such rent.
12. HOLD HARMLESS. Except as to claims based on the sole negligence or
willful misconduct of Landlord, its agents or employees, Tenant shall hold
Landlord harmless from any claims arising from Tenant's use of the premises
or from any activity permitted by Tenant in or about the Premises, and any
claims arising from any breach or default in Tenant's performance of any
obligation under the terms of this Lease. If any action or proceeding is
brought by reason of any such claim in which Landlord is named as a party,
Tenant shall defend Landlord therein at Tenant's expense by counsel
reasonably satisfactory to Landlord. Landlord and its agents shall not be
liable for any damage to property entrusted to employees of the building, nor
for loss or damage to any property by theft or otherwise, nor from any injury
to or damage to persons or property resulting from any cause whatsoever,
unless caused by or due to the sole negligence or willful misconduct of
Landlord, its agents, or employees. Landlord shall not be liable for any
latent defect in the Premises or in the building of which they are a part.
Tenant shall give prompt notice to Landlord in case of fire or accidents in
the Premises or in the building or of alleged defects in the building,
fixtures or equipment.
13. INSURANCE.
13.1 Coverage. Tenant shall assume the risk of damage to any fixtures,
goods, inventory, merchandise, equipment, furniture and leasehold
improvements, and Landlord shall not be liable for injury to Tenant's
business or any loss of income therefrom relative to such damage. Tenant
shall, at all times during the term of this lease, and at its own cost,
procure and continue in force the following insurance coverage.
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<PAGE>
a. Comprehensive public liability insurance, insuring Landlord and Tenant
against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto.
13.2. Insurance Policies. The Limits of said insurance policies shall not,
however, limit the liability of the Tenant hereunder. Tenant may carry said
insurance under a blanket policy, providing, however, said insurance by
Tenant shall name Landlord as an additional insured. If Tenant shall fail to
procure and maintain said insurance, Landlord may, but shall not be required
to, procure and maintain same, but at the expense of Tenant. Insurance
required hereunder shall be in companies that rate B+ or better in "Best's
Insurance Guide". Tenant shall deliver to Landlord prior to occupancy of the
premises copies of policies of insurance required herein or certificates
evidencing the existence and amounts of such insurance with loss payable
clauses, satisfactory to Landlord. No policy shall be cancellable or subject
to reduction of coverage except after fifteen (15) days prior written notice
to Landlord. The minimum acceptable amount of comprehensive liability
insurance is $1,000,000 against claims in any occurrence, and property damage
insurance in an amount of not less than $100,000 per occurrence, or combined
single limit of $1,000,000 comprehensive liability and property damage
insurance.
13.3. Waiver of Subrogation. As long as their respective insurers so
permit, Landlord and Tenant each hereby waive any and all rights of recovery
against the other for any loss or damage occasioned to such waiving party or
its property of others under its control to the extent that such loss or
damage is insured against under any fire or extended coverage insurance
policy which either may have in force at the time of such loss or damage.
Each party shall obtain any special endorsement, if required by their
insurer, to evidence compliance with the aforementioned waiver.
14. SERVICE AND UTILITIES.
14.1 Landlord's Obligations. Landlord agrees to furnish to the Premises
during reasonable hours of generally recognized business days to be
determined by Landlord, and subject to the Rules and Regulations of the
building, electricity for normal lighting and fractional horsepower office
machines, heat and air conditioning required in Landlord's judgment for the
comfortable use and occupancy of the Premises, janitorial, window washing and
elevator service. Landlord shall also maintain and keep lighted the common
stairs, gallerias, entries and toilet rooms in the building. Landlord shall
not be liable for and Tenant shall not be entitled to any reduction of rental
by reason of Landlord's
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<PAGE>
failure to furnish any of the foregoing when such failure is caused by
accident, breakage, repairs, strikes, lockouts or other labor disturbances or
labor disputes of any character, or by any other cause, similar or
dissimilar, beyond the reasonable control of Landlord.
14.2 Tenant's Obligation. Tenant shall pay for, prior to delinquency, all
telephone and all other materials and services, not expressly required to be
paid by Landlord, which may be furnished to or used in, on or about the
Premises during the term of this Lease. Tenant will not, without the prior
written consent of Landlord and subject to any conditions which Landlord may
impose, use any apparatus or device in the Premises which will in any way
increase the amount of electricity or water usually furnished for use of the
Premises as general office space. If Tenant shall require water or electric
current in excess of that usually furnished or supplied for use of the
Premises as general office space, Tenant shall first procure the consent of
Landlord. Wherever heat generating machines or equipment are used in the
Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost
of installation, operation and maintenance thereof, shall be paid by Tenant
to Landlord upon demand by Landlord. Landlord shall not be liable for
Landlord's failure to furnish any of the foregoing when such failure is
caused by any cause beyond the reasonable control of Landlord. Landlord shall
not be liable under any circumstances for loss of or injury to property,
however occurring, in connection with failure to furnish any of the foregoing.
15. PROPERTY TAXES. Tenant shall pay before delinquency, all personal
property or similar taxes levied or assessed and which become payable during
the term hereof upon all Tenant's equipment, furniture, fixtures and personal
property located in the Premises. Landlord shall pay all property taxes on
the land and building, except should the California Constitution be changed in
a way that results in a higher or lower tax on the Premises than the annual
increases now a matter of law, any such increase or decrease shall be passed
through to tenant on a prorated basis as an item separate from any CPI
adjustments. Tenant shall pay to Landlord its share of such taxes, if any,
within thirty days after delivery to Tenant by Landlord of a statement in
writing setting forth the amount of such taxes.
16. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with
the rules and regulations attached as Exhibit "B" to this Lease, as well as
such rules and regulations that Landlord shall from time to time promulgate.
Landlord reserves the right from time to time to make all reasonable
modifications to those rules which shall be binding to Tenant
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<PAGE>
upon delivery of a copy of them to Tenant. Landlord shall not be responsible
to Tenant for the nonperformance of any of said rules by any other tenant.
17. HOLDING OVER. If Tenant remains in possession without Landlord's
consent, after termination of the Lease, by lapse of time or otherwise,
Tenant shall pay Landlord for each day of such retention one-fifteenth
(1/15th) of the amount of the monthly rental for the last month prior to such
termination and Tenant shall also pay all costs, expenses and damages
sustained by Landlord by reason of such retention, including, without
limitation, claims made by a succeeding tenant resulting from Tenant's
failure to surrender the Premises.
18. ENTRY BY LANDLORD. Landlord reserves the right to enter the premises at
any time to inspect the Premises, to provide any service for which Landlord
is obligated hereunder, to submit the Premises to prospective purchasers or
tenants, to post notices of nonresponsibility, and to alter, improve,
maintain or repair the Premises or any portion of the building of which the
Premises are a part that Landlord deems necessary or desirable, all without
abatement of rent. Landlord may erect scaffolding and other necessary
structures where reasonably required by the character of the work to be
performed, but shall not block entrance to the Premises and not interfere
with Tenant's business, except as reasonably required for the particular
activity by Landlord. Landlord shall not be liable in any manner for any
inconvenience, disturbance, loss of business, nuisance, interference with
quiet enjoyment, or other damage arising out of Landlord's entry on the
Premises as provided in this paragraph, except damage, if any, resulting from
the negligence or willful misconduct of Landlord or its authorized
representative. Landlord shall retain a key with which to unlock all doors
into, within and about the Premises, excluding Tenant's vaults, safes and
files. In an emergency, Landlord shall have the right to use any means which
Landlord deems reasonably necessary to obtain entry to the Premises, without
liability to Tenant, except for any failure to exercise due care for Tenant's
property. Any such entry to the Premises by Landlord shall not be construed or
deemed to be forcible or unlawful entry into or a detainer of the Premises or
an eviction of Tenant from the Premises or any portion thereof.
19. RECONSTRUCTION. If the Premises or the building of which the Premises
are a part are damaged by fire or other peril covered by extended coverage
insurance, Landlord agrees to make repairs and restorations to the extent and
in the manner possible at a cost not exceeding the proceeds of the insurance
received by Landlord. If the cost of repair and restoration exceeds the
amount of proceeds received from insurance, Landlord may elect to terminate
this Lease by giving notice to Tenant within twenty (20) days after
determining that the cost will exceed such proceeds. If
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Landlord proceeds with repair and restoration, this Lease shall remain in
full force and effect, except that Tenant shall be entitled to a
proportionate reduction of rent while such repairs are being made. The rent
reduction shall be based upon the extent to which repair and restoration
activity materially interferes with Tenant's business at the Premises,
provided, however, that if the damage was occasioned by the fault or neglect
of Tenant, its agents or employees, there shall not be an abatement of rent.
20. DEFAULT; REMEDIES.
20.1 Default. The occurrence of any of the following shall constitute a
default by Tenant:
a. Failure by Tenant to pay the rent or other monies when due, where such
failure continues for three (3) business days after written notice by
Landlord to Tenant.
b. Abandonment of the Premises by Tenant.
c. Failure by Tenant to perform any other provision of this Lease where such
failure to perform is not cured within thirty (30) days after notice has been
given to Tenant; provided, however, that if the nature of the default is such
that the same cannot reasonably be cured within said thirty (30) day period,
Tenant shall not be deemed to be in default if Tenant shall within such
period commence such cure and thereafter diligently prosecute the same to
completion.
d. The making by Tenant of any general assignment or general arrangement for
the benefit of creditors; the filing by or against Tenant of a petition to
have Tenant adjudged a bankrupt or of a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, same is dismissed within sixty (60) days; the
appointment of a trustee or receiver to take possession of substantially all
of Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where such seizure is not discharged within thirty (30) days.
20.2 Remedies. In the event of any such default Landlord may:
Maintain this Lease in full force and effect and recover the rent and other
monetary charges as they become due, without terminating Tenant's right to
possession irrespective of whether Tenant shall have abandoned the Premises.
In the event Landlord elects not to terminate the Lease, Landlord
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shall have the right to attempt to re-let the Premises at such rent and upon
such conditions and for such a term, and to do all acts necessary to maintain
or preserve the Premises as Landlord deems reasonable and necessary without
being deemed to have elected to terminate the Lease, including removal of all
persons and property from the Premises. Such property may be removed and
stored in a public warehouse or elsewhere at the cost of and for the account
of Tenant. In the event any such reletting occurs, this Lease shall terminate
automatically upon the new tenant taking possession of the Premises.
Notwithstanding that Landlord fails to elect to terminate the Lease
initially, Landlord at any time during the term of this Lease may elect to
terminate this Lease by virtue of such previous default of Tenant.
Terminate Tenant's right to possession by any lawful means, in which case
this Lease shall terminate and Tenant shall immediately surrender possession
of the Premises to Landlord. In such event Landlord shall be entitled to
recover from Tenant all damages incurred by Landlord by reason of Tenant's
default, including without limitation thereto, the following: (1) the worth
at the time of award of any unpaid rent which would have been earned at the
time of such termination; plus (2) the worth at the time of award of the
amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that is proved could have been reasonably avoided; plus (3) the worth at the
time of award of the amount by which unpaid rent for the balance of the term
after the time of award exceeds the amount of such rental loss that is proved
could be reasonably avoided; plus (4) any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's
failure to perform his obligations under this Lease or which in the ordinary
course of events would be likely to result therefrom; plus (5) at Landlord's
election, such other amounts in addition to or in lieu of the foregoing as
may be permitted from time to time by applicable law. Upon any such re-entry
Landlord shall have the right to make any reasonable repairs, alterations or
modifications to the Premises, which Landlord in its sole discretion deems
reasonable and necessary. As used in (1) above, the "worth at the time of
award" is computed by allowing interest at the rate of ten percent (10%) per
annum from the date of default. As used in (2) and (3) above, the "worth at
the time of award" is computed by discounting such amount at the discount
rate of the U.S. Federal Reserve Bank at the time of award plus one percent
(1%).
Remedies of Landlord contained in this Lease shall be construed and held to
be cumulative, and Landlord shall have the right to pursue any one or all of
such remedies or any other remedy or relief which may be provided by law. No
waiver of any default of Tenant hereunder shall be implied from any
acceptance by Landlord of any rent or other payments
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due hereunder or any omission by Landlord to take any action on account of
such default if such default persists or is repeated, and no express waiver
shall affect defaults other than as specified in said waiver. The consent or
approval of Landlord to or of any act by Tenant requiring Landlord's consent
or approval shall not be deemed to waive or render unnecessary Landlord's
consent or approval to or of any subsequent similar acts by Tenant.
21. EMINENT DOMAIN. If more than twenty-five percent (25%) of the Premises
is taken or appropriated by any public or quasi-public authority under powers
of eminent domain, either party hereto shall have the right at its option, to
terminate this Lease. If less than twenty-five percent (25%) of the Premises
is taken (or neither party elects to terminate as above, provided if more
than twenty-five percent (25%) is taken), the Lease shall continue, but the
rental thereafter to be paid shall be equitably reduced. If any part of the
building of which the Premises are a part is so taken or appropriated,
whether or not any part of the Premises is involved, Landlord shall be
entitled to the entire award and compensation for the taking which is paid or
made by the public or quasi-public agency, and Tenant shall have no claim
against said award.
22. STATEMENT TO LENDER. Tenant shall at any time and from time to time,
upon not less than ten (10) days prior written notice from Landlord, execute,
acknowledge, and deliver to Landlord a statement in writing, (a) certifying
that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modifications and certifying that this Lease as so
modified, is in full force and effect), and the date to which the rental and
other charges are paid in advance, if any, and (b) acknowledging that there
are not, to Tenant's knowledge, any uncured defaults on the part of the
Landlord hereunder, or specifying such defaults if any are claimed. Any such
statement may be relied upon by any prospective purchaser or encumbrancer of
all or any portion of the real property of which the Premises are a part.
23. PARKING. Tenant shall have the right to use, in common with other
tenants or occupants of the building, parking facilities, provided by
Landlord for tenants of The Landmark, subject to the rules and regulations
established by Landlord. Said parking shall be at no expense to the Tenant
unless a tax, fee or levy is imposed directly or indirectly by a Federal,
State or local agency or jurisdiction for parking. If such a tax, fee or levy
is imposed tenant agrees to pay its portion of said fee as reasonably
determined by the Landlord.
24. AUTHORITY OF PARTIES.
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24.1 Corporate Authority. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants
that he is fully authorized to execute and deliver this Lease on behalf of
said corporation, in accordance with a duly adopted resolution of the Board
of Directors of said corporation or in accordance with the bylaws of said
corporation, and that this Lease is binding upon said corporation in
accordance with its terms.
24.2 Limited Partnerships. Landlord herein is a limited partnership. It is
understood and agreed that any claims by Tenant on Landlord shall be limited
to the assets of the limited partnership. And furthermore, Tenant expressly
waives any and all rights to proceed against the individual partners or the
officers, directors or shareholders of any corporate partner, except to the
extent of their interest in said limited partnership.
25. GENERAL PROVISIONS.
25.1 Exhibits. Exhibits attached hereto, and addendums initialed by the
parties, are deemed to constitute a part hereof.
25.2 Waiver. The waiver by Landlord of any provision of this Lease shall
not be deemed to be a waiver of any subsequent breach of the same or any
other provisions of this Lease herein contained. The subsequent acceptance of
rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any provision of this Lease, other than the
failure of the Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of the acceptance
of such rent.
25.3 Notices. All notices and demands which may or are required to be given
by either party to the other hereunder shall be in writing. All notices and
demands by the Landlord to the Tenant shall be sufficient if delivered in
person or sent by first class mail, postage prepaid, addressed to the Tenant
at the Premises or to such other place as Tenant may from time to time
designate in a written notice to the Landlord. All written notices and
demands by the Tenant to the Landlord shall be sufficient if delivered in
person or sent by first class mail, postage prepaid, addressed to the
Landlord at the office of the building or to such other person or place as
the Landlord may from time to time designate in a notice to the Tenant. Any
such notice is effective at the time of delivery or 48 hours after mailing.
25.4 Rentable Area. Rentable square footage, as herein used, is the actual
square footage of the office suite plus a load factor for gallerias,
restrooms, hallways and other common areas. The stated rentable area will not
be used as a
12
<PAGE>
basis for either party making any claim against the other.
25.5 Joint and Several Obligations. If there be more than one Tenant, the
obligations hereunder imposed upon tenants shall be joint and several.
25.6 Captions. The captions of the paragraphs of this Lease are not a part
of this Lease and shall have no effect upon the construction or
interpretation of any part hereof.
25.7 Time. Time is of the essence hereof.
25.8 Successors and Assigns. The provisions of this Lease, subject to the
provisions as to assignment, apply to and bind the successors and assigns of
the parties hereto.
25.9 Recording. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the prior written consent of the other
party.
25.10 Scope and Amendments. This Lease is and shall be considered to be the
only agreement between the parties hereto. All negotiations and oral
agreements acceptable to both parties are included herein. No amendment or
other modification of this Lease shall be effective unless in a writing
signed by Landlord and by Tenant.
25.11 Legal Fees. In the event of any action brought by either party
against the other under this Lease, the prevailing party shall be entitled to
recover all costs including the fees of its attorneys as the court may
adjudge reasonable.
25.12 Sale. In the event of any sale of the building, Landlord shall be
released of any liability under this Lease, and the purchaser of the Premises
shall be deemed to have assumed and agreed to carry out all of the
obligations of the Landlord under this Lease.
25.13 Lender Requirements. Upon request of the Landlord, Tenant will, in
writing, subordinate its rights hereunder to the lien of any mortgagee, or
deed of trust to any bank, insurance company or other lending institution,
now or hereafter in force against the land and building of which the Premises
are a part, and to all advances made or hereafter to be made upon the
security thereof. If any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any mortgage or deed of
trust made by the Landlord covering the Premises, the Tenant shall recognize
such purchaser as the Landlord under this Lease.
25.14 Name. Tenant shall not use the name of the development in which the
Premises are situated for any purpose other than as an address of the
business to be
13
<PAGE>
conducted by the Tenant in the Premises, unless written authorization is
obtained from Landlord
25.15 Severability. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any
other provision hereof.
25.16 Applicable Law. This Lease shall be governed by the laws of the State
of California.
25.17 Toxics. Landlord and Tenant acknowledge that they have been advised
that numerous federal, state, and/or local laws, ordinances and regulations
("law") affect the existence and removal, storage, disposal, leakage of
contamination by materials designated as hazardous or toxic ("Toxics"). Many
materials, some utilized in everyday business activities and property
maintenance, are designated as hazardous or toxic. Some of the Laws require
that Toxics be removed or cleaned up without regard to whether the party
required to pay for the "clean up" caused the contamination, owned the
property at the time the contamination occurred or even knew about the
contamination. Some items, such as asbestos or PCB's, which were legal when
installed, now are classified as Toxics, and are subject to removal
requirements. Civil lawsuits for damages resulting from Toxics may be filed
by third parties in certain circumstances. Tenant and Landlord agree to hold
the other harmless from any responsibility for any Toxics which are brought
on to the Premises or the project by themselves, their agents, employees or
contractors.
26. ELECTRICAL, COMMUNICATIONS AND ALARM WIRING.
26.1 Tenant shall contact the Landlord prior to installing or relocating any
electrical, telephone, network, LAN, intercom, doorbell, or alarm wiring
systems at the Landmark Office Center.
26.2 All electrical wiring shall be installed by a licensed contractor in
expanded metal tubing in accordance with the most current electrical code,
etc.
26.3 All communication cabling shall be installed by a licensed contractor
and shall be plenum rated and shall not be installed as to "lay" on ceiling
tile or t-bar grid systems.
A certificate of compliance shall be provided by contractor to Landlord at
time of completion.
26.4 Landlord shall not be financially responsible for any repair or
replacement of any communication cables, telephone lines, telephone feeders,
or trunk lines beyond the M.P.O. (minimum point of entry) established by
Pacific Bell. If one or more of these lines serve several tenants, the cost
of installation and repair shall be divided among tenants currently being
served by said cable.
14
<PAGE>
26.5 Not all existing telephone rooms/punchdown boards are permanent. Tenant
and his contractor must verify location of termination points with the
Landlord prior to installation.
26.6 No audible alarm systems will be permitted. Landlord will not assume
any financial responsibility for any alarms attributable to its employees,
contractors, including janitors, guards, or service personnel.
26.7 Any work requiring access to adjoining tenant spaces shall be
prearranged so that Landlord can obtain permission for the
intrusion/interruption of the space. Tenant shall reasonably cooperate in
arranging access to contractors for adjoining tenant when requested by
Landlord.
26.8 Upon request of Landlord, Tenant shall remove all communication cable
that Tenant has installed in the Premises upon expiration of this Lease and
repair all damage caused by said removal.
27. AMERICANS WITH DISABILITIES ACT. Landlord believes the Premises
complies with the "Americans With Disabilities Act" (ADA), but no
independent investigation has been made to ensure compliance with the
"Americans With Disabilities Act" (ADA). This Act may require a variety of
changes to a facility, including potential removal of barriers to access by
disabled persons and provision of auxiliary aids and services for hearing,
vision or speech impaired persons, some of which would be the Landlord's
responsibility and some would be the Tenant's responsibility. Landlord urges
all parties to obtain independent legal and technical advice with respect to
the physical and environmental conditions and ADA compliance of the Property.
The Parties agree that it will rely solely on their own investigations and/or
that of a licensed professional specializing in these areas, and not on the
investigation, assurances or opinion of Landlord or Broker, if any.
28. BROKERS. Tenant warrants that it has had no dealing with any real
estate broker or agent in connection with the negotiation of this Lease
excepting only Mark Moser of Catalyst Real Estate Group, and it knows of no
other real estate broker or agent who is entitled to a commission in
connection with this Lease. Commissions shall be paid to Broker(s) on the
following schedule: 6%, 5%, 4%, 3%, 2%. No commissions shall be paid on Tenant
Improvement Amortizations, CPI Increases or any other rent adjustment covered
in section 4.2 herein.
29. TENANT IMPROVEMENTS.
a. Landlord shall, at its expense replace the carpet and paint the
walls. No rent will be charged to
15
<PAGE>
Tenant for the Premises during this time (approximately five days).
b. Landlord is also willing to construct 15 private offices on the 2nd
floor at Tenant's sole cost which may be paid in one lump sum or
amortized over the 36 months at an 8 1/2% per annum interest rate.
Tenant shall be responsible for the rent on 1861 Landings Drive
during the construction of these improvements and Tenant may pay
this in one lump sum or amortized over the 36 months at an 8 1/2%
per annum interest rate.
29. HOLD OVER IN SUITES 2065 & 2073. Tenant shall remain in possession of
their existing Premises and at their existing rate until the Tenant
Improvements requested above are complete.
30. OPTION TO EXTEND TERM. Provided Tenant is not in default hereunder at
the expiration of the term herein provided for and has fully and faithfully
performed all of Tenant's obligations under the Lease during said term, then
Tenant shall have the option to extend the term for one additional three year
term, commencing immediately upon expiration of the initial term. Tenant
shall give Landlord written notice of exercise of the option at least 180
days before the expiration of the initial term. Lease payments for said
extension period shall be at rate to be negotiated between Tenant and
Landlord at the time the lease extension notice is given. If a lease
modification extending the term and including a new lease rate is not agreed
to in writing within 30 days of the extension notice being given, this option
to extend shall become void.
31. BUILDING SIGNAGE. Landlord shall provide Tenant, a sign consistent with
the other signs on the project for full building users. Landlord shall also
at Tenant's sole cost place a standard Tenant identification sign on the
corner of Charleston Road and the entry driveway.
16
<PAGE>
The parties hereto have executed this Lease on the dates specified
immediately adjacent to their respective signatures.
LANDLORD: LANDMARK INVESTMENTS, LIMITED
By: THRUST IV, INC., General Partner
By: Date:
------------------------------------ ----------------------
Hugh P. Bikle, President
TENANT: ROGUE WAVE SOFTWARE, INC.
By: Date:
------------------------------------ ----------------------
(SIGNATURE)
------------------------------------ Tax ID# --------------------
(PRINT NAME) (TITLE)
17
<PAGE>
EXHIBIT A
PAGE 1 OF 3
[INDUSTRIAL MAP SHOWING BUILDING DESIGNATIONS]
<PAGE>
EXHIBIT A
PAGE 2 OF 3
[1ST FLOOR BUILDING E DESIGN LAYOUT]
<PAGE>
EXHIBIT A
PAGE 3 OF 3
[2ND FLOOR BUILDING E DESIGN LAYOUT]
<PAGE>
EXHIBIT B
RULES AND REGULATIONS
1. Keys are issued, in a reasonable number, by Landlord to Tenant at no
charge.
2. Access cards, used to open the electronic lock of the front entry door of
a particular building after normal business hours, are assigned to individual
people pursuant to a list submitted by Tenant to Landlord. A $15.00 deposit
per card is charged upon issuance and refundable upon return. When a card
holder is no longer entitled to a card (left employment, etc.) Tenant shall
notify Landlord of a new holder, or if the card has been taken or lost. By so
notifying Landlord, a particular card code can be removed from the authorized
list, so that it no longer will activate the lock.
3. No sign or notice shall be displayed by Tenant outside of its office
space without written consent of Landlord which may be unreasonably withheld.
If approval is not given, Landlord shall have the right to remove such sign
or notice without notice to and at expense of the Tenant. All signs on access
doors to the Premises shall be approved by Landlord. The original standard
company sign on the main door to the Premises will be installed at Landlord's
expense. Tenant may, at its expense, install a different sign, after written
design approval by Landlord. Design criteria should be obtained from Landlord
in advance.
Tenant shall not place anything within the Premises which may appear
unsightly from outside of the Premises.
Tenant shall not install any curtains, blinds, shades, or screens on any
windows or doors of the Premises without Landlord's consent which may be
unreasonably withheld.
4. Sidewalks, halls, passages, exits, entrances, elevators, and stairways
shall not be obstructed by any of the tenants, or used by them for any
purpose other than for ingress or egress from their respected offices.
5. Tenant shall not alter any lock or install any new or additional locks or
bolts on any doors or windows without the written consent of Landlord. All
such alterations shall be done by Landlord's agents at Tenant's cost.
6. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than for which they were installed.
7. Tenant shall not overload the floor of the office
<PAGE>
complex. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork, or plaster or in any way deface the Premises, except
for hanging of small items such as pictures with nail type of hangers,
without Landlord's approval. If Tenant hangs any other furniture, equipment,
whiteboards etc. Tenant shall be responsible for the removal and repair of
all damages to the Premises.
8. No unusually large or heavy equipment shall be brought into the complex
without prior notice to Landlord and all moving of the same into or out of
the office complex shall be done at such time and such a manner as Landlord
shall designate.
All damage done to the office complex by moving or maintaining any such
equipment shall be repaired at the expense of Tenant.
9. Tenant shall not use the office complex in a manner offensive or
objectionable to the Landlord or other occupants by reason of noise, odors,
and/or vibrations, or interfere in any way with other tenants or those having
business herein, nor shall any animals or birds be brought in or about the
office complex.
10. No lodging, washing clothes, cooking, excluding use of coffee makers and
microwave ovens, shall be done or permitted by any Tenant on the Premises.
11. Tenant shall not use or keep on the Premises any foul or noxious gas,
kerosene, gasoline or inflammable or combustible fluid or material, or use
any method of heating or air conditioning other than that supplied by
Landlord.
12. Landlord shall direct electricians as to where and how telephone wires
are to be installed. No changing of wires will be allowed without the consent
of the Landlord which may be unreasonably withheld. The location of the
telephones, call boxes and other office equipment affixed to the office
complex shall be subject to the approval of Landlord.
13. No aerial satellite dish or other item shall be erected on the roof or
exterior walls of the complex, or on the grounds, without in each instance,
the written consent of the Landlord which may be unreasonably withheld. Any
such item so installed without such written consent shall be subject to
removal without notice at any time.
14. No loud speakers, televisions, radios or other devices shall be used in
a manner so as to be heard or seen outside of the Premises without prior
written consent of the Landlord.
15. On Saturdays, Sundays, legal holidays, and on other days between the
hours of 5:00 P.M. and 8:00 A.M. the following
<PAGE>
day, access to the office complex, or to the Premises may be refused unless
the person seeking entry is known to the person or employee of the office
complex in charge or is properly identified. The Landlord shall in no case be
liable for damages for any error with regard to the admission to or exclusion
from the office complex of any person.
16. Any person whose presence on the Premises may in the judgement of the
Landlord be prejudicial to the safety, character, reputation and interest of
the office complex or of its tenants may be denied access to the office
complex or may be ejected therefrom.
17. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord.
18. Tenant shall not disturb, solicit, or canvass any occupant of the office
complex and shall cooperate to prevent the same.
19. Landlord shall control and operate the public portions of the office
complex, in such manner as it deems best for the benefit of the tenants
generally.
20. All windows and entrance doors in the office complex shall be left
locked when the Premises are not in use, and all doors opening to public
corridors shall be kept closed except for normal ingress and egress from the
office complex.
21. In case of invasions, mob riot, public excitement, or other emergency,
the Landlord reserves the right to prevent access to the office complex
during the continuance of the same by closing of the doors or otherwise, for
the safety of the tenants and protection of property in the office complex.
Landlord will also direct tenants as necessary in an emergency and will not
assume any liability for damages suffered by tenants as the result of such
directions.
<PAGE>
EXHIBIT 11.1
ROGUE WAVE SOFTWARE, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Weighted average shares................................................ 3,282 3,362 3,425 3,425 3,456
Dilutive common stock options using the treasury stock method.......... -- -- 180 -- --
Weighted average shares assuming conversion of Series A preferred
stock................................................................. -- 160 772 763 --
Weighted average shares assuming conversion of Series B preferred stock
(1)................................................................... -- -- -- -- --
Shares added pursuant to SAB 83 (2).................................... 596 596 596 596 596
--------- --------- --------- --------- ---------
Total shares used for per share calculations........................... 3,878 4,118 4,973 4,784 4,052
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss)...................................................... $ 175 $ 568 $ 79 $ 140 $ (114)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per common share..................................... $ 0.05 $ 0.14 $ 0.02 $ 0.03 $ (0.03)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) All shares of Series B preferred stock were issued in the one-year period
prior to the Company's filing of its registration statement on Form SB-2,
the "Cheap Stock Period," and, therefore, all 743 shares of such preferred
stock are included in the SAB 83 adjustment.
(2) Amount is calculated using the as if converted and treasury stock method and
the expected initial offering price per share of the Company's common stock.
<PAGE>
EXHIBIT 21.1
<TABLE>
<CAPTION>
JURISDICTION OF PERCENTAGE OWNED
NAME ORGANIZATION BY REGISTRANT
- ------------------------------------------------------------------- ------------------------- ---------------------
<S> <C> <C>
Rogue Wave Software GmbH........................................... Germany 100%
Inmark Development Corporation..................................... California 100%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S REGISTRATION STATEMENT ON FORM SB-2 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1995 SEP-30-1996
<PERIOD-START> OCT-01-1994 OCT-01-1995
<PERIOD-END> SEP-30-1995 JUN-30-1996
<CASH> 1,010 2,611
<SECURITIES> 0 0
<RECEIVABLES> 2,315 3,438
<ALLOWANCES> 151 113
<INVENTORY> 72 96
<CURRENT-ASSETS> 3,466 6,709
<PP&E> 1,392 3,289
<DEPRECIATION> 503 846
<TOTAL-ASSETS> 4,758 9,537
<CURRENT-LIABILITIES> 2,769 3,969
<BONDS> 230 377
1,140 4,664
0 0
<COMMON> 5 5
<OTHER-SE> 614 522
<TOTAL-LIABILITY-AND-EQUITY> 4,758 9,537
<SALES> 11,937 13,192
<TOTAL-REVENUES> 11,937 13,192
<CGS> 2,171 1,898
<TOTAL-COSTS> 2,171 1,898
<OTHER-EXPENSES> 9,571 11,549
<LOSS-PROVISION> 148 0
<INTEREST-EXPENSE> 53 35
<INCOME-PRETAX> 185 (187)
<INCOME-TAX> 106 (73)
<INCOME-CONTINUING> 79 (114)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 79 (114)
<EPS-PRIMARY> .02 (.02)
<EPS-DILUTED> .02 (.02)
</TABLE>
