<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1996
REGISTRATION NO. 333-13517
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
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, $.001 par value............... 70,276 shares $11.00 $773,042 $234.25
</TABLE>
(1) Includes 9,166 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 NOVEMBER 12, 1996
PROSPECTUS
2,086,110 SHARES
[LOGO]
COMMON STOCK
Of the 2,086,110 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by the Company and 86,110 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 $9.00 and $11.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Common Stock has been approved for listing 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 312,916 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>
Rogue Wave's object-oriented
software parts work behind the
scenes in a diverse set of
industries such as
telecommunications, finance and
aerospace.
[A graphic showing a sample screen from one of the Company's products with a
reflection of a person on the screen. Below the sample screen are two columns,
one listing several of the Company's C++ products and the other listing the
Company's Java products]
The Software Parts Company-TM- [Company Logo]
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........ 86,110 shares
Common Stock to be outstanding after the offering....... 7,201,641 shares (1)
Use of proceeds......................................... Working capital and other corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.................. RWAV
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1993 1994 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenue.......................................................... $ 3,212 $ 7,209 $ 11,937 $ 18,845
Income (loss) from operations.......................................... 180 644 195 (80)
Net income............................................................. 175 568 79 35
Net income per common share (2)........................................ $ 0.04 $ 0.14 $ 0.02 $ 0.01
Shares used in per share calculation (2)............................... 3,914 4,154 5,009 6,045
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------
ACTUAL PRO FORMA (3) AS ADJUSTED(3)
--------- ------------- --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 1,714 $ 1,714 $ 19,314
Total assets.......................................................... 10,194 10,194 27,794
Long-term obligations, less current portion........................... 322 322 322
Mandatorily redeemable preferred stock................................ 4,664 -- --
Total stockholders' equity............................................ 668 5,332 22,932
</TABLE>
- ------------------------
(1) Excludes 1,450,726 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 $2.38 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 the 2,000,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $10.00 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 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 "BUSINESS" AS WELL AS THOSE DISCUSSED ELSEWHERE IN
THIS PROSPECTUS.
LIMITED OPERATING HISTORY; DECLINE IN NET INCOME. 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. In
fiscal 1995 and fiscal 1996, the Company experienced significant declines in net
income. The declines were primarily the result of two factors, 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 Inmark
Merger had a significant adverse impact on the Company's net income because,
prior to the time of the Inmark Merger, Inmark was engaged in a new product
development effort that resulted in substantial operating losses. The increase
in resources devoted to the Company's product development, sales and marketing
and technical support organization were part of the Company's strategy to expand
market share. The strategy represented a shift away from the Company's earlier
focus on achieving profitability and the short term result was the decrease in
net income. 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
5
<PAGE>
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. 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."
DEPENDENCE ON EMERGING MARKET FOR C++ AND JAVA. 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 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 multiple software environments, many
of which are not supported by the Company's products, 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 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," "--The Rogue Wave Strategy" and "--Product
Development."
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,
6
<PAGE>
"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 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
7
<PAGE>
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."
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 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. Such delays were primarily associated with increasing product
functionality and implementing new customer requirements. To date, such delays
have not resulted in a material adverse effect on the Company's business,
financial condition and results of operations. 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--Products" and "--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 Dr. Keffer, Mr. Whitaker and
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,
8
<PAGE>
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 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 approximately 19% of the Company's total revenue in fiscal 1996.
The
9
<PAGE>
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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Sales, Marketing and Customer Support."
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--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, the payment of monetary
damages, 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 executive officers, directors and 5% stockholders together will
beneficially own approximately 57.5% of the outstanding shares of Common Stock
(53.8% 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
10
<PAGE>
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. If an active public
market for the Common Stock does not develop or is not sustained, stockholders
could experience difficulty selling the Common Stock at a price at or above the
initial public offering price, or at all. The initial public offering price will
be determined by negotiations between the Company, the representatives of the
Selling Stockholders and the 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, or the
potential for sales, whether or not such sales actually occur, 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 7,201,641
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 2,086,110
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 4,529,144 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 4,796,423 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
11
<PAGE>
the 586,387 shares issued in connection with the Inmark Merger, approximately
475,441 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 3,057,933 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, 1,450,726 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
659,152 shares subject to such options will be vested. 4,150,654 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."
UNCERTAINTY AS TO USE OF PROCEEDS. 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. 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 the net proceeds
from this offering. Pending the uses described above, the Company plans to
invest the net proceeds in short-term, investment-grade, interest-bearing
securities. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION. Investors participating in this
offering will incur immediate, substantial dilution of $6.83 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 operated as an unincorporated business
until its incorporation 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 subsidiaries. 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 are estimated to be $17,600,000
($17,634,875 if the Underwriters' over-allotment option is exercised in full) at
an assumed initial public offering price of $10.00 per share. 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 technologies, products or
businesses that 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 Company plans to invest the net proceeds in short-term,
interest-bearing, investment-grade securities. The Company believes that the net
proceeds from the offering, together with the anticipated cash flows from
operations and cash and cash equivalents, will be adequate to meet its cash
needs for working capital and capital expenditures for at least the next 18
months.
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
September 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 the 2,000,000 shares of the Common Stock offered
hereby at an assumed initial offering price of $10.00 per share.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current portion
(1)........................................... $ 322 $ 322 $ 322
Mandatorily redeemable preferred stock, $.001
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, $.001 par value; 13,000,000
shares authorized; 3,659,000 shares issued
and outstanding, actual; 5,202,000 shares
issued and outstanding, pro forma; and
7,202,000 shares issued and outstanding, as
adjusted (2)................................ 4 5 7
Additional paid-in capital.................... 676 5,339 22,937
Stockholder note receivable................... (13) (13) (13)
Retained earnings............................. 24 24 24
Cumulative translation adjustment............. (23) (23) (23)
------ --------- -----------
Total stockholders' equity................ 668 5,332 22,932
------ --------- -----------
Total capitalization.................... $5,654 $5,654 $23,254
------ --------- -----------
------ --------- -----------
</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 2,766,205 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 1,450,726 shares of Common Stock were
outstanding as of September 30, 1996 at a weighted average exercise price of
$2.38. 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 September 30,
1996, was approximately $5.2 million or $1.00 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 2,000,000 shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price of
$10.00 per share), the pro forma net tangible book value of the Company at
September 30, 1996 would have been approximately $22.8 million or $3.17 per
share. This represents an immediate increase in such net tangible book value of
$2.17 per share to existing stockholders and an immediate dilution of $6.83 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...................... $ 10.00
Pro forma net tangible book value per share as of September 30,
1996.............................................................. $ 1.00
Increase per share attributable to new investors................... 2.17
---------
Pro forma net tangible book value per share after this offering...... 3.17
---------
Dilution per share to new investors.................................. $ 6.83
---------
---------
</TABLE>
The following table summarizes on a pro forma basis, as of September 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 an assumed initial
public offering price of $10.00 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).......... 5,201,641 72.2% $ 5,331,000 21.0% $ 1.03
New investors (1).................. 2,000,000 27.8 20,000,000 79.0 10.00
------- ------- ----------- -------
Total.......................... 7,201,641 100.0% $25,331,000 100.0%
------- ------- ----------- -------
------- ------- ----------- -------
</TABLE>
The foregoing tables exclude 2,766,205 shares of Common Stock reserved for
issuance pursuant to the Equity Incentive Plan, under which options to purchase
1,450,726 shares of Common Stock at a weighted average exercise price of $2.38
were outstanding as of September 30, 1996, and 350,000 shares of Common Stock
that have been reserved for issuance under the Purchase Plan. To the extent that
outstanding options are exercised in the future, there may be further dilution
to new stockholders. If all outstanding options were exercised, the dilution per
share to new investors would be $6.97. 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 5,115,531 shares or approximately
71% of the total shares of Common Stock outstanding after this offering and
will increase the number of shares held by new investors to 2,086,110 shares
or approximately 29% 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 thereto included elsewhere in this Prospectus. The selected consolidated
financial data presented below for each of the years in the three-year period
ended September 30, 1996 and the balance sheet data as of September 30, 1995 and
1996 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.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1993 1994 1995 1996
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
License revenue.......................................... $ 2,949 $ 6,652 $ 10,417 $ 14,986
Service and maintenance revenue.......................... 263 557 1,520 3,859
--------- --------- --------- ---------
Total revenue.......................................... 3,212 7,209 11,937 18,845
--------- --------- --------- ---------
Cost of revenue:
Cost of license revenue.................................. 301 693 1,048 1,276
Cost of service and maintenance revenue.................. 166 331 1,123 1,663
--------- --------- --------- ---------
Total cost of revenue.................................. 467 1,024 2,171 2,939
--------- --------- --------- ---------
Gross profit........................................... 2,745 6,185 9,766 15,906
--------- --------- --------- ---------
Operating expenses:
Product development...................................... 893 2,109 3,204 5,548
Sales and marketing...................................... 1,330 2,652 4,880 8,234
General and administrative............................... 342 780 1,487 2,204
--------- --------- --------- ---------
Total operating expenses............................... 2,565 5,541 9,571 15,986
--------- --------- --------- ---------
Income (loss) from operations.......................... 180 644 195 (80)
Other income (expense), net................................ (5) 4 (10) 91
--------- --------- --------- ---------
Income before income taxes............................. 175 648 185 11
Income tax expense (benefit)............................... -- 80 106 (24)
--------- --------- --------- ---------
Net income............................................. $ 175 $ 568 $ 79 $ 35
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per common share (1)............................ $ 0.04 $ 0.14 $ 0.02 $ 0.01
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in per share calculation (1)................... 3,914 4,154 5,009 6,045
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,
------------------------------------------
1993 1994 1995 1996
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 76 $ 609 $ 1,010 $ 1,714
Total assets................................................. 881 3,301 4,758 10,194
Long-term obligations, less current portion.................. 59 166 230 322
Mandatorily redeemable preferred stock....................... -- 941 1,140 4,664
Total stockholders' equity................................... 457 536 619 668
</TABLE>
- ------------------------
(1) 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.
(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 "BUSINESS" AS WELL AS THOSE DISCUSSED 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.
See Note 2 of Notes to Consolidated Financial Statements. 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. During 1995, the Company shifted its focus from achieving profitability
to expanding its sales channels, marketing efforts and product development
capacity. The shift resulted in expenses growing faster than revenue, causing a
substantial decrease in net income in fiscal 1995 and fiscal 1996. As part of
the shift toward expanding its product development capacity, the Company
acquired Inmark. The Inmark Merger had a significant adverse impact on the
Company's net income because, prior to the time of the Inmark Merger, Inmark was
engaged in a new product development effort that resulted in substantial
operating losses.
In recent periods, the Company has begun to refocus its attention on
improving profitability while continuing to expand its sales channels, marketing
efforts and product development capacity. The Company's recent efforts have
included a reorganization designed to focus its marketing and product
development efforts and a reduction in the number and amount of discounts
granted on volume product purchases.
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 the Internet and 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.
17
<PAGE>
International revenue accounted for approximately 19% of total revenue in
fiscal 1996. 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 has not engaged 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."
RESULTS OF OPERATIONS
The following table sets forth certain operating data expressed as a
percentage of total revenue for each period indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS:
Revenue:
License revenue................................................................ 92.3% 87.3% 79.5%
Service and maintenance revenue................................................ 7.7 12.7 20.5
----- ----- -----
Total revenue................................................................ 100.0 100.0 100.0
----- ----- -----
Cost of revenue:
Cost of license revenue........................................................ 9.6 8.8 6.8
Cost of service and maintenance revenue........................................ 4.6 9.4 8.8
----- ----- -----
Total cost of revenue........................................................ 14.2 18.2 15.6
----- ----- -----
Gross profit................................................................. 85.8 81.8 84.4
----- ----- -----
Operating expenses:
Product development............................................................ 29.3 26.8 29.4
Sales and marketing............................................................ 36.8 40.9 43.7
General and administrative..................................................... 10.8 12.5 11.7
----- ----- -----
Total operating expenses..................................................... 76.9 80.2 84.8
----- ----- -----
Income (loss) from operations................................................ 8.9 1.6 (0.4)
Other income (expense), net...................................................... 0.1 (0.1) 0.5
----- ----- -----
Income before income taxes................................................... 9.0 1.5 0.1
Income tax expense (benefit)..................................................... 1.1 0.8 (0.1)
----- ----- -----
Net income................................................................... 7.9% 0.7% 0.2%
----- ----- -----
----- ----- -----
</TABLE>
REVENUE
The Company's total revenue increased 58% to $18.8 million in fiscal 1996
from $11.9 million in fiscal 1995. Total revenue in fiscal 1995 increased 65%
from $7.2 million in fiscal 1994. License revenue increased 44% to $15.0 million
in 1996 from $10.4 million in fiscal 1995. License revenue in fiscal 1995
increased 55% from $6.7 million in fiscal 1994. 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 field sales force in the
second quarter of fiscal 1995.
18
<PAGE>
During fiscal 1996, the Company introduced its DBFactory product and a suite of
Java products in addition to new releases of its Tools.h++, DBTools.h++ and zApp
Developers Suite products. License revenue decreased as a percentage of total
revenue due to the relatively faster growth in service and maintenance revenue.
Service and maintenance revenue increased 160% to $3.9 million in fiscal
1996 from $1.5 million in fiscal 1995. Service and maintenance revenue in fiscal
1995 increased 169% from $557,000 in fiscal 1994. 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. The increase in service and maintenance revenue as percentage
of total revenue during the periods fiscal 1994 to fiscal 1996 is primarily due
to in 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 fiscal 1996.
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. Such delays were primarily associated with increasing product
functionality and implementing new customer requirements. To date, such delays
have not resulted in a material adverse effect on the Cost. 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.
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 $693,000, $1.0 million and $1.3 million in fiscal
1994, 1995 and 1996, respectively, representing 10.4%, 10.1%, and 8.5% of the
license revenue for the respective periods. The period to period dollar
increases in cost of license revenue were primarily the result of 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 $331,000, $1.1 million and $1.7 million in fiscal 1994, 1995 and 1996,
respectively, representing 59.4%, 73.9% and 43.1% of the service and maintenance
revenue for each respective period and 32.2%, 51.6% and 56.6% of total cost of
revenue for each such respective period. 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 reflect the fact that the
increase in such costs occurred prior to an anticipated increase in demand. The
decrease as a percentage of service and maintenance revenue for fiscal 1996 was
primarily the result of the increase in service and maintenance revenue. The
increases in cost of service and maintenance revenue as a percentage of total
cost of revenue during the respective periods reflect the fact that license
revenue grew at a lower percentage rate than did service and maintenance revenue
during such periods, and the gross profit margin on service and maintenance
revenue is lower than the gross profit margin on license revenue.
OPERATING EXPENSES
PRODUCT DEVELOPMENT. Product development expenses consist primarily of
personnel related expenses. Product development expenses were $2.1 million, $3.2
million and $5.5 million in fiscal 1994, 1995 and 1996, respectively. As a
percentage of total revenue, product development expenses were 29.3%, 26.8% and
29.4% in each respective period. The increases in product development expenses
were primarily attributable to the
19
<PAGE>
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 1997 as
the Company continues to increase its product development capacity, although the
Company does not believe such expenses will increase as a percentage of total
revenue. 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 were $2.7 million, $4.9 million and $8.2 million in fiscal
1994, 1995 and 1996, respectively. As a percentage of total revenue, sales and
marketing expenses were 36.8%, 40.9% and 43.7% 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 increase in dollar amount for fiscal 1997 as the Company
continues to hire additional sales and marketing personnel and increase
promotional activities.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$780,000, $1.5 million and $2.2 million in fiscal 1994, 1995 and 1996,
respectively. As a percentage of total revenue, general and administrative
expenses were 10.8%, 12.5% and 11.7% 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 for 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.
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 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 12.3%, 57.3%
and (218.2)% for fiscal 1994, 1995 and 1996. 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. The tax benefit in fiscal 1996 was due to the use of
Inmark net operating loss carryforwards. As a result of the merger with Inmark,
utilization of federal and state net operating loss carryforwards of $186,000
and $172,000, respectively, are limited to the future income attributable to
Inmark.
NET INCOME
The Company's net income was $568,000, $79,000, and $35,000 in fiscal 1994,
1995 and 1996, respectively. The decrease in net income is primarily a result in
an increase in operating expenses from $5,541 and 76.9% of total revenue in
fiscal 1994 to $15,986 and 84.8% in fiscal 1996 associated with a shift in focus
away from achieving profitability toward expanding the Company's sales channels,
marketing efforts and product development capacity.
20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth the quarterly financial data for the six
quarters ended September 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 statement 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
----------------------------------------------------------------------
JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30,
1995 1995 1995 1996 1996 1996
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
License revenue................................ $ 2,447 $ 2,850 $ 2,733 $ 3,697 $ 4,175 $ 4,381
Service and maintenance revenue................ 426 558 804 950 833 1,272
---------- ---------- ---------- ---------- ---------- ----------
Total revenue................................ 2,873 3,408 3,537 4,647 5,008 5,653
---------- ---------- ---------- ---------- ---------- ----------
Cost of revenue:
Cost of license revenue........................ 274 262 219 242 412 403
Cost of service and maintenance revenue........ 249 348 294 343 388 638
---------- ---------- ---------- ---------- ---------- ----------
Total cost of revenue........................ 523 610 513 585 800 1,041
---------- ---------- ---------- ---------- ---------- ----------
Gross profit................................. 2,350 2,798 3,024 4,062 4,208 4,612
---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Product development............................ 763 903 924 1,486 1,574 1,564
Sales and marketing............................ 1,305 1,544 1,606 2,101 2,262 2,265
General and administrative..................... 329 502 472 500 624 608
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses..................... 2,397 2,949 3,002 4,087 4,460 4,437
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from operations................ (47) (151) 22 (25) (252) 175
Other income (expense), net...................... (6) 9 14 43 11 23
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes............ (53) (142) 36 18 (241) 198
Income tax expense (benefit)..................... (30) (81) 7 4 (84) 49
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............................ $ (23) $ (61) $ 29 $ 14 $ (157) $ 149
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUE
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
License revenue................................ 85.2% 83.6% 77.3% 79.6% 83.4% 77.5%
Service and maintenance revenue................ 14.8 16.4 22.7 20.4 16.6 22.5
---------- ---------- ---------- ---------- ---------- ----------
Total revenue................................ 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Cost of license revenue........................ 9.5 7.7 6.2 5.2 8.3 7.1
Cost of service and maintenance revenue........ 8.7 10.2 8.3 7.4 7.7 11.3
---------- ---------- ---------- ---------- ---------- ----------
Total cost of revenue........................ 18.2 17.9 14.5 12.6 16.0 18.4
---------- ---------- ---------- ---------- ---------- ----------
Gross profit................................. 81.8 82.1 85.5 87.4 84.0 81.6
Operating expenses:
Product development............................ 26.6 26.5 26.1 32.0 31.4 27.7
Sales and marketing............................ 45.4 45.3 45.5 45.2 45.2 40.1
General and administrative..................... 11.4 14.7 13.3 10.8 12.4 10.7
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses..................... 83.4 86.5 84.9 88.0 89.0 78.5
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from operations................ (1.6) (4.4) 0.6 (0.6) (5.0) 3.1
Other income (expense), net...................... (0.2) 0.3 0.4 0.9 0.2 0.4
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes............ (1.8) (4.1) 1.0 0.3 (4.8) 3.5
Income tax expense (benefit)..................... (1.0) (2.3) 0.2 0.0 (1.7) 0.9
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............................ (0.8)% (1.8)% 0.8% 0.3% (3.1)% 2.6%
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</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 $5.3 million of equity securities. As of
September 30, 1996, the Company had $1.7 million in cash and cash equivalents.
Net cash from operating activities was $1.1 million, $493,000 and $(520,000) in
fiscal 1994, 1995 and 1996, respectively. For fiscal 1995, net cash from
operating activities of $493,000 was primarily attributable to increases in
accounts payable and 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 fiscal 1996, net
cash from operating activities of $(520,000) was primarily attributable to an
increase in accounts receivable of $2.4 million, partially offset by an increase
in deferred revenue of $1.5 million.
The Company currently does not employ a line of credit for support of its
working capital requirements.
As of September 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
$414,000, $672,000 and $2.4 million in fiscal 1994, 1995 and 1996, respectively.
Capital expenditures increased significantly in fiscal 1996 primarily due to the
purchase of computer and telecommunications equipment for over 60 new employees
and due to the costs associated with the purchase of Internet infrastructure
hardware and new 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 and cash and cash equivalents, 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 (capable of
growing to support additional users) 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.
23
<PAGE>
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 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 that allows 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.
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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.
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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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 2.0 October 1996 $ 195 $ 390
Tools.h++ 1990 7.0 July 1996 395 790
Heap.h++ 1994 1.0 September 1994 995 N/A
Threads.h++ 1996 1.0 September 1996 695 1,390
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.
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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 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.
THREADS.H++. Threads.h++, which is built on top of the Tools.h++ foundation
class library, is a C++ class library for developing multi-threaded
applications. Multi-threaded applications can offer improved responsiveness and
performance. By writing to the Threads.h++ Application Programming Interface
("API"), users can write code that is both simpler and platform independent.
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++ 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.
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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.
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,
JFactory automatically generates the code for the application.
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 September 30, 1996, the Company's sales and
marketing organization consisted of 64 individuals. In addition, the Company's
products and related tools are sold directly through VARs and OEMs. The Company
sells perpetual use, non-exclusive licenses to use its products for an up front
fee. The licenses generally include a 30 day right of return policy.
TELESALES. As of September 30, 1996, the Company employed 28 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. As of September 30, 1996, the Company employed eight direct
field sales representatives supported by one technical sales representative. 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 and New York.
German direct sales operations are located in Aschaffenburg, Germany.
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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, 1995 and 1996 were $2.1 million, $3.2 million and $5.5 million,
respectively, and represented 29.3%, 26.8% and 29.4% 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.
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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. The Company currently estimates that this new product will be
introduced by the third quarter of fiscal 1997.
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
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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, 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 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.
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EMPLOYEES
As of September 30, 1996, the Company had a total of 172 employees, of which
166 were based in the United States and six were based in Germany. Of the total,
64 were engaged in sales and marketing, 62 were in 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 offices are located in facilities consisting of
approximately 41,000 square feet in Corvallis, Oregon and 13,000 square feet in
Mountain View, California. The leases on the Corvallis facilities expire on
various dates from 1998 through 2001 and the lease on the Mountain View facility
expires in 1999. The Company currently leases other domestic sales and support
offices in Colorado, New York, North Carolina and Oregon. The Company also rents
space on a month-to-month basis for its international office in Germany. Note 4
of Notes to Financial Statements describes the amount of the Company's lease
obligations. 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.
33
<PAGE>
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 of
Directors
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., President, Chief Executive Officer and Chairman of the
Board of Directors, has been with the Company since its inception in 1989. Dr.
Keffer was a founder of the Company. 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. From 1982 to
1989 Mr. Whitaker served as President of Software Support Services, Inc., a
software company. 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 received his M.B.A. from the College of William and Mary
and his 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 received 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 EyeSys 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 nine 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.
From January 1993 to November 1994, 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
received 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 been a director of the Company since November 1995.
Mr. Magnuson served as a general partner of Menlo Ventures, a venture capital
firm, from 1984 until December 1995. 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 been 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 as a director of several privately held companies.
The Company currently has authorized six directors. The current directors
were elected pursuant to the provisions of the Company's Certificate of
Incorporation in effect prior to the closing of this offering, and a voting
agreement that will expire upon the closing of this offering. The Certificate of
Incorporation provides for the election of two directors solely by the holders
of Preferred Stock, two directors solely by the holders of Common Stock and the
remaining two directors by the holders of Preferred Stock and Common Stock
voting together as a class, one of whom is designated in accordance with the
voting agreement. Upon the closing of this offering, the Certificate of
Incorporation will provide for the election of directors by a majority of the
outstanding shares of capital stock. Each director holds office until the next
annual meeting of stockholders or until a successor is duly elected and
qualified. The Company's officers serve at the discretion of the Board of
Directors.
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.
35
<PAGE>
DIRECTORS' COMPENSATION
The Company's directors do not currently receive any cash compensation for
service on the Board of Directors 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.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the three 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)........................................ 101,844 -- $ 43,052(3)
Former 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 amends and restates the Company's 1994 Stock Option Plan and the
Inmark Stock Option Plan. The Company has reserved a total of 3,000,000 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
prices, numbers of shares subject to the awards 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
36
<PAGE>
monthly installments. Following each annual meeting of the Company's
stockholders occuring after 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 on the date of grant. Options granted under the Equity Incentive
Plan vest at the rate specified in the option agreement, except that options
shall be fully vested if the optionee dies before the end of the three-month
period (12 months if the optionee is totally disabled) commencing with the
termination of the optionee's relationship with the Company. 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 and a nonstatutory option may be
transferred to the extent provided in the option agreement. 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 will 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 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 must 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
must be accelerated and the awards terminated if not exercised prior to such
change in control.
As of September 30, 1996, 233,795 shares of Common Stock had been issued
upon the exercise of options granted under the Equity Incentive Plan, options to
purchase 1,450,726 shares of Common Stock at a weighted average exercise price
of $2.38 were outstanding and 1,315,479 shares remained available for future
grant. The Equity Incentive Plan will terminate in June 2006 unless sooner
terminated by the Board of Directors.
37
<PAGE>
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 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 have 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 discretion.
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 PERCENT 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 options to purchase 200,000 shares in June 1996, each
with an exercise price of $6.75 per share. These 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 Equity Incentive 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 values at 5% and 10%
appreciation are 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>
AGGREGATE 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
OPTIONS (1)
SHARES VALUE -----------------------------
NAME ACQUIRED ON EXERCISE REALIZED EXERCISABLE
- ------------------------- ------------ ----------- ------------
<S> <C> <C> <C>
Thomas Keffer............ -- -- --
Dan Whitaker............. -- -- 150,493
Robert M. Holburn, Jr.... 10,000 $ 58,500 17,361
Thomas A. Nora........... 48,264 183,828 12,842
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS (2)
--------------------------------
NAME UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ------------------------- ------------- -------------------------
<S> <C> <C> <C>
Thomas Keffer............ -- -- --
Dan Whitaker............. 127,340 $ 1,103,866 $ 934,039
Robert M. Holburn, Jr.... 65,971 125,727 303,268
Thomas A. Nora........... -- 93,348 --
</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, work a minimum of 1,000 hours during
the plan year 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 expects to enter 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 Company expects to enter into agreements with its directors and officers
that require the Company 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 Company 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 Company 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 Securities Act and
is, therefore, unenforceable.
CERTAIN TRANSACTIONS
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 III"), El Dorado Technology IV, L.P. and El Dorado C&L Fund, L.P.
Richard Magnuson, a director of the Company, is a limited partner of MV
Management VI, L.P., the general partner of Menlo Ventures VI.
In July 1994, the Company issued an aggregate of 666,666 shares of Series A
Preferred Stock for cash consideration of $1.0 million to entities affiliated
with El Dorado III. The entities affiliated with El Dorado III were the only
purchasers of Series A Preferred Stock in the transaction. Each share of Series
A Preferred Stock will convert into one share of Common Stock upon the closing
of this offering.
In December 1994, the Company issued an aggregate of 133,333 shares of
Series A Preferred Stock for cash consideration of $200,000 to entities
affiliated with El Dorado III. The entities affiliated with El Dorado III were
the only purchasers of Series A Preferred Stock in the transaction. Each share
of Series A Preferred Stock will convert into one share of Common Stock upon the
closing of this offering.
In November 1995, the Company issued an aggregate of 742,533 shares of
Series B Preferred Stock for cash 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 in
the amount of $1,175,563 and (ii) 453,248 shares of Series B Preferred Stock to
entities affiliated with Menlo Ventures VI, L.P. ("Menlo Ventures VI") for cash
in the amount of $2,155,197. The entities affiliated with El Dorado III and
Menlo Ventures purchased 94.3% of the Series B Preferred Stock sold in the
transaction. Each share of Series B Preferred Stock will convert into one share
of Common Stock upon the closing of this offering.
As part of the Inmark Merger, Howard M. Love, Jr., exchanged all of his
outstanding shares of Common Stock of Inmark for 284,233 shares of Common Stock
of the Company. Mr. Love held approximately 33% of the outstanding shares of
Common Stock of Inmark. In connection with the Inmark Merger, Mr. Love was
elected a director of the Company. In addition, the Company entered into an
employment agreement with Mr. Love that 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, officers of the Company, 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 stock options
were amended to make them consistent with the terms of stock options granted to
other officers.
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 executive 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 NUMBER OWNED AFTER
OFFERING (1) OF SHARES OFFERING (1)(2)
------------------------ BEING ----------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------------------------- ---------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Thomas Keffer, Ph.D....................................... 1,591,200 30.6% -- 1,591,200 22.1%
Entities affiliated with.................................. 1,130,984 21.7 -- 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).......................................... 550,903 10.3 -- 550,903 7.5
Thomas A. Nora (6)........................................ 61,110 1.2 61,110 -- --
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 21.7 -- 1,130,984 15.7
Richard P. Magnuson (9)................................... 6,666 * -- 6,666 *
Howard M. Love, Jr........................................ 303,725 5.8 -- 303,725 4.2
Thomas M. Atwood (10)..................................... 6,944 * -- 6,944 *
Peter Handsman (11)....................................... 50,028 1.0 7,000 43,028 *
Mark Richards (12)........................................ 12,994 * 5,000 7,994 *
All directors and executive officers as a group (9
persons) (13)............................................ 3,667,783 67.4 -- 3,667,783 47.8
</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 5,201,641 shares of Common
Stock outstanding as of September 30, 1996 and 7,201,641 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
312,950 shares of Common Stock of the Company, and 7,205,391 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 III 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) entities affiliated with
Menlo Ventures VI will sell an aggregate of up to 72,000 shares and will
beneficially own
41
<PAGE>
534,809 shares, or 7.4% of the Company's Common Stock, after completion of
this offering, (iv) Thomas Keffer will sell 49,166 shares and will
beneficially own 1,542,034 shares, or 21.4% 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 226,970 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 III, 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 III. 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 and 9,101 shares held
by Menlo Entrepreneurs Fund VI, L.P.
(5) Includes 162,069 shares subject to stock options exercisable within 60 days
of September 30, 1996.
(6) Includes 12,846 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) Represents 6,666 shares held by Richard P. and Amy C. Magnuson, Trustees of
the Magnuson Revocable Trust dated 1/14/94. Does not include 597,708 shares
held by Menlo Ventures VI and 9,101 shares held by Menlo Entrepreneurs Fund
VI, L.P. Mr. Magnuson, a director of the Company, is a limited partner of MV
Management VI, L.P., general partner of the entities affiliated with Menlo
Ventures VI. Mr. Magnuson disclaims beneficial ownership of such shares
except to the extent of his partnership interest therein.
(10) Represents 6,944 shares subject to stock options exercisable within 60 days
of September 30, 1996.
(11) Includes 37,346 shares subject to stock options exerciable within 60 days
of September 30, 1996.
(12) Includes 2,598 shares subject to stock options exercisable within 60 days
of September 30, 1996.
(13) Includes 236,374 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, $.001 par
value, and 5,000,000 shares of Preferred Stock, $.001 par value. As of September
30, 1996, there were approximately 74 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 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
42
<PAGE>
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
The Preferred Stockholders have elected to convert their Preferred Stock
into Common 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
Note 7 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 4,150,654 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, or the potential for sales, whether or not such sales
actually occur, 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 7,201,641 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, 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 4,529,144 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 4,150,654 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 4,796,423 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 the Equity Incentive Plan, 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.
44
<PAGE>
Any 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
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. Rule 701 is available for stockholders of the Company as to all shares
issued pursuant to the exercise of options granted prior to this offering.
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 3,116,205 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."
LEGAL PROCEEDINGS
On December 15, 1995, the Company filed suit in the Circuit Court of Benton
County (Oregon) against Eugene O. Cho, former Vice President of Marketing,
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.
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.
On October 30, 1996, Mark Anthony Pinone, a former employee of the Company,
filed a Complaint in Santa Clara Superior Court, alleging cause for claims
against the Company and Mr. Nora of breach of contract, breach of the implied
covenant of good faith and fair dealing, unlawful disability discrimination,
wrongful termination in violation of public policy, and intentional and
negligent infliction of emotional distress. The Company denies the material
allegations in the Complaint and is defending the lawsuit.
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 numbers of
shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Hambrecht & Quist LLC.............................................................
Wessels, Arnold & Henderson, L.L.C................................................
----------
Total............................................................................. 2,086,110
----------
----------
</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.
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 21,030 shares of
Series B Preferred Stock to WA & H Investments, L.L.C. ("WA & H"), an entity
affiliated with Wessels, Arnold & Henderson, L.L.C. for cash consideration of
approximately $100,000. In January 1996, certain officers of the Company sold an
aggregate of 251,573 shares of Common Stock for an aggregate
46
<PAGE>
consideration of approximately $1.0 million. In connection with such sale,
certain officers of the Company sold 7,125 shares of Common Stock to WA & H for
cash consideration of approximately $28,000. The prices of the Series B
Preferred Stock and the Common Stock were the same paid by all other purchasers
in such transactions. Each share of Series B Preferred Stock will convert into
one share of Common Stock upon the closing of the offering.
The Company, the Selling Stockholders and certain other stockholders of the
Company, including the executive officers, directors and WA & H, who will own in
the aggregate 4,857,529 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 the Equity Incentive Plan, 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,
1995 and 1996 and for each of the years in the three-year period ended September
30, 1996 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.
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 (the "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. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information filed
electronically with the Commission. The address of the site is
http://www.sec.gov.
47
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
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 Subsidiaries:
We have audited the accompanying consolidated balance sheets of Rogue Wave
Software, Inc. and subsidiaries as of September 30, 1995 and 1996, 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, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Rogue Wave
Software, Inc. and subsidiaries as of September 30, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1996 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
October 16, 1996
F-2
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------
ASSETS 1995 1996 1996
--------- --------- -----------
(UNAUDITED)
(PRO FORMA)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 1,010 $ 1,714
Accounts receivable, net....................................... 2,164 4,527
Prepaid expenses and other current assets...................... 212 873
Deferred income taxes.......................................... 80 108
--------- ---------
Total current assets......................................... 3,466 7,222
Furniture, fixtures and equipment, net........................... 889 2,718
Other noncurrent assets, net..................................... 403 254
--------- ---------
Total assets................................................. $ 4,758 $ 10,194
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... 520 637
Accrued expenses............................................... 668 805
Deferred revenue............................................... 1,351 2,881
Current portion of long-term obligations....................... 230 217
--------- ---------
Total current liabilities.................................... 2,769 4,540
Long-term obligations, less current portion...................... 230 322
--------- ---------
Total liabilities............................................ 2,999 4,862
--------- ---------
Commitments and contingencies
Mandatorily redeemable preferred stock, $.001 par value.
Authorized 1,200 and 2,350 shares at September 30, 1995 and
1996, respectively; issued and outstanding 800 and 1,543 shares
at September 30, 1995 and 1996, respectively ($1,200 and $4,731
aggregate liquidation and redemption preference at September 30,
1995 and 1996, respectively); pro forma no shares issued and
outstanding..................................................... 1,140 4,664 $ --
--------- --------- -----------
Stockholders' equity:
Common stock, $.001 par value. Authorized 13,000 shares; issued
and outstanding 3,425 and 3,659 shares at September 30, 1995
and 1996, respectively; pro forma 5,202 shares issued and
outstanding................................................... 3 4 5
Additional paid-in capital..................................... 640 676 5,339
Stockholder note receivable.................................... (13) (13) (13)
Retained earnings (deficit).................................... (11) 24 24
Cumulative translation adjustment.............................. -- (23) (23)
--------- --------- -----------
Total stockholders' equity................................... 619 668 $ 5,332
--------- --------- -----------
-----------
Total liabilities and stockholders' equity................... $ 4,758 $ 10,194
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
Revenue:
<S> <C> <C> <C>
License revenue................................................. $ 6,652 $ 10,417 $ 14,986
Service and maintenance revenue................................. 557 1,520 3,859
--------- --------- ---------
Total revenue................................................. 7,209 11,937 18,845
--------- --------- ---------
Cost of revenue:
Cost of license revenue......................................... 693 1,048 1,276
Cost of service and maintenance revenue......................... 331 1,123 1,663
--------- --------- ---------
Total cost of revenue......................................... 1,024 2,171 2,939
--------- --------- ---------
Gross profit.................................................. 6,185 9,766 15,906
--------- --------- ---------
Operating expenses:
Product development............................................. 2,109 3,204 5,548
Sales and marketing............................................. 2,652 4,880 8,234
General and administrative...................................... 780 1,487 2,204
--------- --------- ---------
Total operating expenses...................................... 5,541 9,571 15,986
--------- --------- ---------
Income (loss) from operations................................. 644 195 (80)
Other income (expense), net....................................... 4 (10) 91
--------- --------- ---------
Income before income taxes.................................... 648 185 11
Income tax expense (benefit)...................................... 80 106 (24)
--------- --------- ---------
Net income.................................................... $ 568 $ 79 $ 35
--------- --------- ---------
--------- --------- ---------
Net income per common share....................................... $ 0.14 $ 0.02 $ 0.01
--------- --------- ---------
--------- --------- ---------
Shares used in per share calculation.............................. 4,154 5,009 6,045
Pro forma net income data (unaudited):
Income before income taxes, as reported......................... $ 648
Pro forma income tax expense.................................... 142
---------
Pro forma net income.......................................... $ 506
---------
---------
Pro forma net income per common share (unaudited)................. $ 0.12
---------
---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCKHOLDER RETAINED CUMULATIVE TOTAL
--------------- PAID-IN NOTE EARNINGS TRANSLATION STOCKHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE (DEFICIT) ADJUSTMENT EQUITY
------ ------ ---------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993........... 3,342 $ 3 $ 612 $ -- $ (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 3 636 (13) (90) -- 536
Issuance of common stock................ -- -- 4 -- -- -- 4
Net income.............................. -- -- -- -- 79 -- 79
------ ------ ---------- ----------- --------- ----------- -----
Balance at September 30, 1995........... 3,425 3 640 (13) (11) -- 619
Exercise of stock options............... 234 1 36 -- -- -- 37
Net income.............................. -- -- -- -- 35 -- 35
Foreign currency translation
adjustment............................. -- -- -- -- -- (23) (23)
------ ------ ---------- ----------- --------- ----------- -----
Balance at September 30, 1996........... 3,659 $ 4 $ 676 $ (13) $ 24 $ (23) $ 668
------ ------ ---------- ----------- --------- ----------- -----
------ ------ ---------- ----------- --------- ----------- -----
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income........................................................... $ 568 $ 79 $ 35
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization...................................... 266 514 807
Loss on disposal of equipment...................................... -- 23 --
Changes in assets and liabilities:
Accounts receivable.............................................. (618) (1,115) (2,385)
Prepaid expenses and other current assets........................ (105) (54) (661)
Deferred income taxes............................................ -- (80) (28)
Other noncurrent assets.......................................... (54) (16) (72)
Accounts payable and accrued expenses............................ 610 440 254
Deferred revenue................................................. 462 702 1,530
--------- --------- ---------
Net cash from operating activities............................. 1,129 493 (520)
--------- --------- ---------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment........................ (368) (326) (2,040)
(Purchase) maturity of short-term investments........................ (344) 344 --
Payments for software rights......................................... (174) -- --
--------- --------- ---------
Net cash from investing activities............................. (886) 18 (2,040)
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term obligations.................................... (162) (313) (296)
Dividends paid....................................................... (500) -- --
Net proceeds from issuance of mandatorily redeemable preferred
stock............................................................... 941 199 3,524
Proceeds from issuance of common stock............................... 11 4 --
Proceeds from exercise of stock options.............................. -- -- 37
--------- --------- ---------
Net cash from financing activities............................. 290 (110) 3,265
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents........... -- -- (1)
--------- --------- ---------
Net change in cash and cash equivalents........................ 533 401 704
Cash and cash equivalents at beginning of period....................... 76 609 1,010
--------- --------- ---------
Cash and cash equivalents at end of period............................. $ 609 $ 1,010 $ 1,714
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest............................................... $ 9 $ 53 $ 37
Cash paid for taxes.................................................. 18 258 106
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of equipment financed by capital lease obligations....... 46 346 375
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 SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(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. Financial statements 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 subsidiaries, Rogue Wave Software GmbH (incorporated
January 1996) and Inmark. 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.
CASH EQUIVALENTS
Cash equivalents consist of investments in highly liquid investment
instruments with original maturities of three months or less to the Company.
ACCOUNTS RECEIVABLE
Accounts receivable are shown net of allowance for doubtful accounts of $251
and $107 at September 30, 1995 and 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 is 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 at September 30, 1995 and 1996.
Accumulated amortization at September 30, 1995 and 1996 was $341 and $562,
respectively. Amortization charged to expense was $106, $224 and $221 for the
years ended September 30, 1994, 1995 and 1996, respectively.
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 time
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 generally provides a thirty-day right of return policy for
software sales. The allowance for returns was $111 at September 30, 1995 and
1996.
F-7
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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. At September 30, 1996, one customer accounted
for approximately 11% of accounts receivable.
The Company sells its products primarily to major corporations that serve a
wide variety of U.S. and foreign markets. International revenue accounted for
approximately 19% of the Company's total revenue in 1996.
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 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.
F-8
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
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, 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.
(3) BALANCE SHEET COMPONENTS
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1995 1996
------ ---------
<S> <C> <C>
Computer equipment....................... $1,213 $ 3,257
Furniture, fixtures and equipment........ 179 550
------ ---------
1,392 3,807
Less accumulated depreciation and
amortization............................ 503 1,089
------ ---------
Furniture, fixtures and equipment,
net................................... $ 889 $ 2,718
------ ---------
------ ---------
</TABLE>
Depreciation expense for the years ended September 30, 1994, 1995, and 1996
was $160, $262 and $586, respectively.
F-9
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(3) BALANCE SHEET COMPONENTS (CONTINUED)
ACCRUED EXPENSES
The Company's accrued expenses include the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1995 1996
---- ----
<S> <C> <C>
Accrued payroll and related
liabilities............................. $316 $471
Other accrued expenses................... 352 334
---- ----
Accrued expenses....................... $668 $805
---- ----
---- ----
</TABLE>
(4) LEASES
The Company leases certain of its office space through noncancelable
operating lease arrangements. The leases expire 1997 through 2001 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, 1994, 1995 and 1996 was $157, $210 and $566, respectively.
Property under capital leases at September 30, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Computer equipment........................................ $388 $750
Office furniture and equipment............................ 26 39
---- ----
Total................................................... 414 789
Less accumulated amortization............................. 112 282
---- ----
Property under capital leases, net...................... $302 $507
---- ----
---- ----
</TABLE>
Amortization expense is included in depreciation expense for furniture,
fixtures and equipment.
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
------- ---------
<S> <C> <C>
Year ending September 30:
1997............................................ $248 $ 606
1998............................................ 217 700
1999............................................ 121 650
2000............................................ 4 259
2001............................................ -- 156
------- ---------
Total minimum lease payments.................. 590 $2,371
---------
---------
Less amounts representing interest................ 51
-------
Present value of future minimum lease
payments..................................... 539
Less current portion.............................. 217
-------
Obligations under capital leases, less current
portion...................................... $322
-------
-------
</TABLE>
F-10
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(5) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
-------------
<S> <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...................................... $ 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%)........................... 106
---
123
Less current portion of long-term debt............. 123
---
Long-term debt, less current portion............. $ --
---
---
</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 1994 are presented to show the impact as if
the Company's earnings from continuing operations had been subject to federal
and state income taxes as a C Corporation in that year. Actual figures for 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>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------
1994 1994 1995 1996
--- ------------- --------- ---------
(UNAUDITED)
(PRO FORMA)
<S> <C> <C> <C> <C>
Current:
Federal..................................................... $ 62 $ 154 $ 142 $ --
State and local............................................. 18 42 44 4
--
--- --- ---------
80 196 186 4
--
--- --- ---------
Deferred:
Federal..................................................... -- (37) (49) (22)
State and local............................................. -- (17) (31) (6)
--
--- --- ---------
-- (54) (80) (28)
--
--- --- ---------
Total..................................................... $ 80 $ 142 $ 106 $ (24)
--
--
--- --- ---------
--- --- ---------
</TABLE>
F-11
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(6) INCOME TAXES (CONTINUED)
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>
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1994 1994 1995 1996
--------- ------------- --------- ---------
<CAPTION>
(UNAUDITED)
(PRO FORMA)
<S> <C> <C> <C> <C>
Computed expected income tax expense........................................ $ 220 $ 220 $ 63 $ 4
Increase (reduction) in income tax expense resulting from:
State income tax expense.................................................. 14 32 1 3
Research and experimentation credit....................................... (57) (152) (110) (108)
Change in valuation allowance............................................. 16 16 120 43
Rate differential......................................................... -- -- 14 --
Exclusion of earnings for period that S Corporation election was valid.... (121) -- -- --
Non-deductible meals and entertainment.................................... 3 4 9 14
Other, net................................................................ 5 22 9 20
--- --- --------- ---------
Income tax expense (benefit)............................................ $ 80 $ 142 $ 106 $ (24)
--- --- --------- ---------
--- --- --------- ---------
</TABLE>
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,
--------------
1995 1996
----- -----
Deferred tax assets:
<S> <C> <C>
Intangible assets.............................. $ 25 $ 37
Accrued expenses............................... 142 95
Net operating loss carryforwards............... 171 74
Foreign operating loss carryforwards........... -- 66
Research and experimentation credit
carryforward.................................. 120 217
Other.......................................... 3 14
----- -----
Total gross deferred tax assets.............. 461 503
Valuation allowance............................ (314) (357)
----- -----
Net deferred tax assets...................... 147 146
Deferred tax liabilities:
Cash to accrual adjustment..................... 27 18
Property and equipment, due to differences in
depreciation.................................. 40 20
----- -----
Total gross deferred tax liabilities......... 67 38
----- -----
Net deferred taxes........................... $ 80 $ 108
----- -----
----- -----
</TABLE>
At September 30, 1996, the Company had net operating loss carryforwards for
federal, state and foreign income tax purposes of $186, $172 and $136,
respectively. The federal net operating losses expire 2007 to 2010 and the state
net operating loss expires in 2000. The Company also had $217 of tax credit
carryforwards that expire 2003 to 2011. The net operating loss and $120 of the
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.
F-12
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(7) PREFERRED STOCK
The Company has 2,350 shares of preferred stock authorized at September 30,
1996. The stock has a par value of $.001 and was issued in mandatorily
redeemable Series A and Series B (Series A and B). The terms of the Series A and
B preferred stock are:
- Each share of Series A and B preferred stock is voting and convertible
into common stock using formulas specified in the Series A and B Preferred
Stock Purchase Agreements. Series A and B preferred stockholders have
non-cumulative dividend rights at the rate of $.09 per share and $.48 per
share, respectively, payable in preference and priority to common stock.
Upon liquidation, Series A and B 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 and B preferred stockholders will receive an amount equal to
$1.50 per share and $4.76 per share, respectively, plus all related
declared and unpaid dividends.
- There is an automatic conversion of Series A and B preferred stock into
shares of common stock upon the affirmative vote of the holders of at
least 75% of the outstanding shares of the Series A and B preferred stock,
or immediately upon the closing of a firmly underwritten public offering
pursuant to an effective 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.
Other rights and restrictions of Series A and B preferred stockholders are
as follows:
- Redemption rights upon demand of at least a majority of the then
outstanding shares of Series A and B 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 and B 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) EQUITY INCENTIVE PLAN
In June 1996, the Company's Board of Directors adopted the 1996 Equity
Incentive Plan (the Equity Incentive Plan). The Company has reserved 3,000
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
F-13
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(8) EQUITY INCENTIVE PLAN (CONTINUED)
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.
The following table summarizes stock option activity through September 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 .15-1.94
Granted...................................... 447 13 460 .15-1.94
Exercised.................................... -- -- -- --
Canceled..................................... (267) -- (267) .15
--------- ----- ----- ---------------
Outstanding options at September 30, 1995.... 1,368 13 1,381 .15-1.99
Granted...................................... 441 113 554 .53-7.50
Exercised.................................... (234) -- (234) .15-1.94
Canceled..................................... (251) -- (251) .15-6.76
--------- ----- ----- ---------------
Outstanding options at September 30, 1996.... 1,324 126 1,450 $ .15-7.50
--------- ----- ----- ---------------
--------- ----- ----- ---------------
</TABLE>
Of the 1,450 options outstanding, 446 options were vested and exercisable as
of September 30, 1996.
(9) 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 specific 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.
(10) 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).
F-14
<PAGE>
ROGUE WAVE SOFTWARE, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(10) STOCK RESTRICTION AGREEMENTS (CONTINUED)
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 13); or
- The stockholder no longer holds any unvested shares.
(11) 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 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, 1995 and 1996, were $49, $31 and $118,
respectively.
(12) 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.
(13) SUBSEQUENT EVENT
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-15
<PAGE>
THE SOFTWARE PARTS COMPANY [COMPANY LOGO]
FACTORIES FOR BUILDING C++ AND JAVA-TM- APPLICATIONS
[GRAPHIC DEPICTING SCREENS FROM THE COMPANY'S ZAPP FACTORY, DBFACTORY AND
JFACTORY PRODUCTS, INCLUDING TEXT NEXT TO THE ZAPP FACTORY SCREEN "BUILD CROSS
PLATFORM, NATIVE C++ GUI'S, DRAWING ON HUNDREDS OF PRE-BUILT CLASSES," TEXT NEXT
TO THE DBFACTORY SCREEN "GENERATE C++ CLASSES THAT MAP TO DATA IN AN RDBMS, AND
TEXT NEXT TO THE JFACTORY SCREEN "BUILD JAVA APPLICATIONS QUICKLY WITH THIS
INTUITIVE, DRAG-AND-DROP DESIGNER."]
<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
Legal Proceedings.................................... 45
Underwriting......................................... 46
Legal Matters........................................ 47
Experts.............................................. 47
Additional Information............................... 47
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.
2,086,110 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 Registrant 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 133,333 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 233,795 shares of its Common Stock
to 31 employees, directors and consultants of the Registrant for consideration
in the aggregate amount of $58,436 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 made to "Accredited Investors" as such
term is defined under Rule 501 of the Securities Act and were deemed to be
exempt from registration under the Securities Act by virtue of Section 4(2) and
Rule 506 of 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 securities described in paragraph (4) above were issued pursuant to a
fairness hearing held by the California Department of Corporations and 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 Form of Agreement and Plan of Merger between the Registrant and Rogue Wave Software, Inc., an Oregon
corporation, expected to be dated prior to the effectiveness of this offering.
3.1 Form of Certificate of Incorporation of Rogue Wave Software, Inc., a Delaware corporation, expected to
be in effect prior to the effectiveness of this offering.
3.2 Form of Amended and Restated Certificate of Incorporation of Rogue Wave Software, Inc., a Delaware
corporation, expected to be in effect immediately following the closing of the offering.
3.3 Form of 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.
+22.1 Schedule of Valuation and Qualifying Accounts.
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.
+27.1 Financial Data Schedule.
</TABLE>
- ------------------------
+ Previously filed.
* 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
II-3
<PAGE>
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 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 Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Corvallis, State of Oregon, on the 12th day of
November, 1996.
ROGUE WAVE SOFTWARE, INC.
By:_________*/s/_THOMAS KEFFER________
Thomas Keffer
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the 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 November 12, 1996
Thomas Keffer (PRINCIPAL EXECUTIVE OFFICER)
*/s/DAN WHITAKER
--------------------------------- Executive Vice President, Marketing and November 12, 1996
Dan Whitaker Director
*/s/ROBERT M. HOLBURN, JR. Chief Financial Officer and Secretary
--------------------------------- (PRINCIPAL FINANCIAL AND ACCOUNTING November 12, 1996
Robert M. Holburn, Jr. OFFICER)
*/s/THOMAS M. ATWOOD
--------------------------------- Director November 12, 1996
Thomas M. Atwood
*/s/HOWARD M. LOVE, JR.
--------------------------------- Director November 12, 1996
Howard M. Love, Jr.
*/s/RICHARD P. MAGNUSON
--------------------------------- Director November 12, 1996
Richard P. Magnuson
*/s/THOMAS H. PETERSON
--------------------------------- Director November 12, 1996
Thomas H. Peterson
*By: /s/ROBERT M. HOLBURN, JR.
----------------------------
Robert M. Holburn, Jr.
Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Rogue Wave Software, Inc.:
The audits referred to in our report dated October 16, 1996, included the
related financial statement schedule as of September 30, 1996, and for each of
the years in the three-year period ended September 30, 1996, included in the
registration statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
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
November 12, 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 Form of Agreement and Plan of Merger between the Registrant and Rogue Wave Software, Inc., an Oregon
corporation, expected to be dated prior to the effectiveness of this offering.
3.1 Form of Certificate of Incorporation of Rogue Wave Software, Inc., a Delaware corporation, expected to
be in effect prior to the effectiveness of this offering.
3.2 Form of Amended and Restated Certificate of Incorporation of Rogue Wave Software, Inc., a Delaware
corporation, expected to be in effect immediately following the offering.
3.3 Form of 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.
+22.1 Schedule of Valuation and Qualifying Accounts.
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.
+27.1 Financial Data Schedule.
</TABLE>
- ------------------------
+ Previously filed.
* To be filed by amendment.
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Merger
Agreement") is made as of November ___, 1996, by and between ROGUE WAVE
SOFTWARE, INC., a Oregon corporation ("RW Oregon"), and RW ACQUISITION
CORPORATION, a Delaware corporation ("RW Delaware"). RW Oregon and RW Delaware
are sometimes referred to as the "Constituent Corporations."
The authorized capital stock of RW Oregon consists of thirteen million
(13,000,000) shares of Common Stock, par value $0.001 per share, and two million
three hundred fifty thousand (2,350,000) shares of Preferred Stock, par value
$0.001 per share. The authorized capital stock of RW Delaware, upon
effectuation of the transactions set forth in this Merger Agreement, will
consist of thirty five million (35,000,000) shares of Common Stock, $.001 par
value, and two million three hundred fifty thousand (2,350,000) shares of
Preferred Stock, $.001 par value.
The directors of the Constituent Corporations deem it advisable and to the
advantage of the Constituent Corporations that RW Oregon merge into RW Delaware
upon the terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that RW Oregon shall
merge into RW Delaware on the following terms, conditions and other provisions:
1. TERMS AND CONDITIONS.
1.1 MERGER. RW Oregon shall be merged with and into RW Delaware (the
"Merger"), and RW Delaware shall be the surviving corporation (the "Surviving
Corporation") effective upon the date when this Merger Agreement is filed with
the Secretary of State of Delaware (the "Effective Date").
1.2 NAME CHANGE. On the Effective Date, the name of RW Delaware shall be
Rogue Wave Software, Inc.
1.3 SUCCESSION. On the Effective Date, RW Delaware shall continue its
corporate existence under the laws of the State of Delaware, and the separate
existence and corporate organization of RW Oregon, except insofar as it may be
continued by operation of law, shall be terminated and cease.
1.4 TRANSFER OF ASSETS AND LIABILITIES. On the Effective Date, the
rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all of the disabilities,
duties and restrictions of or upon each of the
1.
<PAGE>
Constituent Corporations; and all and singular rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal and mixed, of each of the Constituent Corporations, and all debts due
to each of the Constituent Corporations on whatever account, and all things in
action or belonging to each of the Constituent Corporations shall be transferred
to and vested in the Surviving Corporation; and all property, rights,
privileges, powers and franchises, and all and every other interest, shall be
thereafter the property of the Surviving Corporation as they were of the
Constituent Corporations, and the title to any real estate vested by deed or
otherwise in either of the Constituent Corporations shall not revert or be in
any way impaired by reason of the Merger; provided, however, that the
liabilities of the Constituent Corporations and of their shareholders, directors
and officers shall not be affected and all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and any claim existing or action or proceeding pending by or against
either of the Constituent Corporations may be prosecuted to judgment as if the
Merger had not taken place except as they may be modified with the consent of
such creditors and all debts, liabilities and duties of or upon 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.
1.5 COMMON STOCK OF RW OREGON AND RW DELAWARE. On the Effective Date, by
virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders, each three (3) shares of Common
Stock of RW Oregon issued and outstanding immediately prior thereto shall be
converted into two (2) fully paid and nonassessable shares of the Common Stock
of RW Delaware and each share of Common Stock of RW Delaware issued and
outstanding immediately prior thereto shall be cancelled and returned to the
status of authorized but unissued shares.
1.6 PREFERRED STOCK OF RW OREGON AND RW DELAWARE. On the Effective Date,
by virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders, each three (3) shares of Series
A Preferred Stock of RW Oregon issued and outstanding immediately prior thereto
shall be converted into two (2) fully paid and nonassessable shares of Series A
Preferred Stock of RW Delaware and each three (3) shares of Series B Preferred
Stock of RW Oregon issued and outstanding immediately prior thereto shall be
converted into two (2) fully paid and nonassessable share of Series B Preferred
Stock of RW Delaware.
1.7 STOCK CERTIFICATES. On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of the
Common Stock or of the Preferred Stock of RW Oregon shall be deemed for all
purposes to evidence ownership of and to represent the shares of RW Delaware
into which the shares of RW Oregon represented by such certificates have been
converted as herein provided and shall be so registered on the books and records
of the Surviving Corporation or its transfer agents.
2.
<PAGE>
The registered owner of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or its transfer agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
any dividend and other distributions upon the shares of RW Delaware evidenced by
such outstanding certificate as above provided.
1.8 OPTIONS. On the Effective Date, the Surviving Corporation will assume
and continue RW Oregon's 1994 Stock Option Plan, Inmark Stock Option Plan and
Employee Stock Purchase Plan and the outstanding and unexercised portions of all
options to purchase Common Stock of RW Oregon, including without limitation all
options outstanding under such stock plans and any other outstanding options,
shall be converted into options of RW Delaware, such that an option for three
(3) shares of RW Oregon shall be converted into an option for two (2) shares of
RW Delaware, and the exercise price of the RW Delaware option shall be equal to
one and one half (1.5) times the exercise price of the RW Oregon option. No
other changes in the terms and conditions of such options will occur. Effective
on the Effective Date, RW Delaware hereby assumes the outstanding and
unexercised portions of such options and the obligations of RW Oregon with
respect thereto.
1.9 EMPLOYEE BENEFIT PLANS. On the Effective Date, the Surviving
Corporation shall assume all obligations of RW Oregon under any and all employee
benefit plans in effect as of such date. On the Effective Date, the Surviving
Corporation shall adopt and continue in effect all such employee benefit plans
upon the same terms and conditions as were in effect immediately prior to the
Merger and shall reserve that number of shares of RW Delaware Common Stock with
respect to each such employee benefit plan as is proportional to the number of
shares of RW Oregon Common Stock (if any) so reserved on the Effective Date.
2. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS.
2.1 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of RW Delaware in effect on the Effective Date shall
continue to be the Certificate of Incorporation and Bylaws of the Surviving
Corporation, except that Article I of the Certificate of Incorporation and
Bylaws of the Surviving Corporation shall, effective upon the filing of this
Merger Agreement with the Secretary of State of the State of Delaware, be
amended to read in its entirety as follows: "The name of this corporation is
Rogue Wave Software, Inc."
2.2 DIRECTORS. The directors of RW Oregon immediately preceding the
Effective Date shall become the directors of the Surviving Corporation on and
after the Effective Date to serve until the expiration of their terms and until
their successors are elected and qualified.
3.
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2.3 OFFICERS. The officers of RW Oregon immediately preceding the
Effective Date shall become the officers of the Surviving Corporation on and
after the Effective Date to serve at the pleasure of its Board of Directors.
3. MISCELLANEOUS.
3.1 FURTHER ASSURANCES. From time to time, and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of RW Oregon such deeds and other instruments, and there
shall be taken or caused to be taken by it such further and other action, as
shall be appropriate or necessary in order to vest or perfect in or to conform
of record or otherwise, in the Surviving Corporation the title to and possession
of all the property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of RW Oregon and otherwise to carry out the purposes of
this Merger Agreement, and the officers and directors of the Surviving
Corporation are fully authorized in the name and on behalf of RW Oregon or
otherwise to take any and all such action and to execute and deliver any and all
such deeds and other instruments.
3.2 AMENDMENT. At any time before or after approval by the shareholders
of RW Oregon, this Merger Agreement may be amended in any manner (except that,
after the approval of the Merger Agreement by the shareholders of RW Oregon, the
principal terms may not be amended without the further approval of the
shareholders of RW Oregon) as may be determined in the judgment of the
respective Board of Directors of RW Delaware and RW Oregon to be necessary,
desirable, or expedient in order to clarify the intention of the parties hereto
or to effect or facilitate the purpose and intent of this Merger Agreement.
3.3 CONDITIONS TO MERGER. The obligations of the Constituent Corporations
to effect the transactions contemplated hereby is subject to satisfaction of the
following conditions (any or all of which may be waived by either of the
Constituent Corporations in its sole discretion to the extent permitted by law):
(a) the Merger shall have been approved by the shareholders of RW
Oregon in accordance with applicable provisions of the General Corporation Law
of the State of Oregon; and
(b) RW Oregon, as sole stockholder of RW Delaware, shall have
approved the Merger in accordance with the General Corporation Law of the State
of Delaware;
(c) any and all consents, permits, authorizations, approvals, and
orders deemed in the sole discretion of RW Oregon to be material to consummation
of the Merger shall have been obtained; and
4.
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(d) no shareholders of RW Oregon shall have exercised their
dissenters' rights.
3.4 ABANDONMENT OR DEFERRAL. At any time before the Effective Date, this
Merger Agreement may be terminated and the Merger may be abandoned by the Board
of Directors of either RW Oregon or RW Delaware or both, notwithstanding the
approval of this Merger Agreement by the shareholders of RW Oregon or RW
Delaware, or the consummation of the Merger may be deferred for a reasonable
period of time if, in the opinion of the Boards of Directors of RW Oregon and RW
Delaware, such action would be in the best interest of such corporations. In
the event of termination of this Merger Agreement, this Merger Agreement shall
become void and of no effect and there shall be no liability on the part of
either Constituent Corporation or its Board of Directors or shareholders with
respect thereto, except that RW Oregon shall pay all expenses incurred in
connection with the Merger or in respect of this Merger Agreement or relating
thereto.
3.5 COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
5.
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IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by the Board of Directors of RW Oregon and RW Delaware, is hereby executed on
behalf of each said corporation and attested by their respective officers
thereunto duly authorized.
ROGUE WAVE SOFTWARE, INC.
An Oregon corporation
By
-----------------------------------
Thomas Keffer
President
ATTEST:
- ------------------------------
Robert M. Holburn, Jr.
Secretary
RW ACQUISITION CORPORATION
A Delaware corporation
By
-----------------------------------
Thomas Keffer
President
ATTEST:
- ------------------------------
Robert M. Holburn, Jr.
Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
RW ACQUISITION CORPORATION
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is RW Acquisition Corporation.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the corporation in the State of Delaware at
such address is the The Prentice-Hall Corporation System, Inc.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is thirty seven
million three hundred fifty thousand (37,350,000) shares. Thirty five million
(35,000,000) shares shall be Common Stock, each having a par value of one-tenth
of one cent ($.001). Two million three hundred fifty thousand (2,350,000)
shares shall be Preferred Stock, each having a par value of one-tenth of one
cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation
Law, to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
1.
<PAGE>
C. One Million Two Hundred Thousand (1,200,000) of the authorized shares
of Preferred Stock are hereby designated "Series A Preferred Stock" (the
"Series A Preferred") and One Million One Hundred Fifty Thousand (1,150,000) of
the authorized shares of Preferred Stock are hereby designated "Series B
Preferred". The Series A Preferred and the Series B Preferred are hereinafter
collectively referred to as the "Series Preferred".
D. The rights, preferences, privileges, restrictions and other matters
relating to the Common Stock and the Series Preferred are as follows:
1. DIVIDEND RIGHTS.
(a) Holders of Series A Preferred and Series B Preferred, in
preference to the holders of any other stock of the Company ("Junior Stock"),
shall be entitled to receive, when and as declared by the Board of Directors,
but only out of funds that are legally available therefor, cash dividends at
the rate of six percent (6%) of the "Original Issue Price" per annum on each
outstanding share of Series A Preferred and Series B Preferred (as adjusted for
any stock dividends, combinations or splits with respect to such shares)
payable out of funds legally available therefor. The Original Issue Price of
the Series A Preferred shall be one dollar ($1.00). The Original Issue Price
of the Series B Preferred shall be three dollars and seventeen cents ($3.17).
Such dividends shall be payable only when, as and if declared by the Board of
Directors and shall be non-cumulative.
(b) So long as any shares of Series Preferred shall be outstanding,
no dividend, whether in cash or property, shall be paid or declared, nor shall
any other distribution be made, on any Junior Stock, nor shall any shares of
any Junior Stock of the Company be purchased, redeemed, or otherwise acquired
for value by the Company (except for acquisitions of Common Stock by the
Company pursuant to agreements which permit the Company to repurchase such
shares upon termination of services to the Company or in exercise of the
Company's right of first refusal upon a proposed transfer) until all dividends
(set forth in Section 1(a) above) on the Series Preferred shall have been paid
or declared and set apart. In the event dividends are paid on any share of
Common Stock, an additional dividend shall be paid with respect to all
outstanding shares of Series Preferred in an amount equal per share (on an as-
if-converted to Common Stock basis) to the amount paid or set aside for each
share of Common Stock. The provisions of this Section 1(b) shall not, however,
apply to (i) a dividend payable in Common Stock, (ii) the acquisition of shares
of any Junior Stock in exchange for shares of any other Junior Stock, or (iii)
any repurchase of any outstanding securities of the Company that is unanimously
approved by the Company's Board of Directors.
2. VOTING RIGHTS.
(a) Except as otherwise provided herein or as required by law, the
Series Preferred shall be voted equally with the shares of the Common Stock of
the Company and not as a separate class, at any annual or special meeting of
shareholders of the Company, and may act by written consent in the same manner
as the Common Stock, in either case upon the following basis: each holder of
shares of Series Preferred shall be entitled to such number of votes as shall
be equal to the whole number of shares of Common Stock into which such holder's
aggregate
2.
<PAGE>
number of shares of Series Preferred are convertible (pursuant to
Section 5 hereof) immediately after the close of business on the record date
fixed for such meeting or the effective date of such written consent.
(b) For so long as the authorized size of the Company's Board of
Directors is four (4) or more, the holders of Series A Preferred, voting as a
separate class, shall be entitled to elect one (1) member of the Company's
Board of Directors, and to remove from office such director and to fill any
vacancy caused by the resignation, death or removal of such director; the
holders of the Series B Preferred, voting as a separate class, shall be
entitled to elect one (1) member of the Company's Board of Directors, and to
remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director; the holders of Common Stock,
voting as a separate class, shall be entitled to elect two (2) members of the
Board of Directors, and to remove from office such directors and to fill any
vacancy caused by the resignation, death or removal of such directors; and the
holders of Common Stock and Series Preferred, voting together as a class, shall
be entitled to elect all remaining members of the Board of Directors.
(c) In addition to any other vote or consent required herein or by
law, the vote or written consent of the holders of at least seventy-five
percent (75%) of the outstanding Series Preferred shall be necessary for
effecting or validating the following actions:
(i) Any amendment, alteration, or repeal of any provision of the
Amended and Restated Articles of Incorporation or the Bylaws of the Company
that affects adversely the voting powers, preferences, or other special rights
or privileges, qualifications, limitations, or restrictions of the Series
Preferred;
(ii) Any increase or decrease (other than by redemption or
conversion) in the authorized number of shares of Common or Preferred Stock;
(iii) Any authorization, whether by reclassification or
otherwise, of equity securities of the Company ranking on a parity with or
senior to the Series Preferred in right of redemption, liquidation preference,
voting or dividends;
(iv) Any redemption, repurchase, payment of dividends or
other distributions with respect to Junior Stock (except for acquisitions of
Common Stock by the Company pursuant to agreements which permit the Company to
repurchase such shares upon termination of services to the Company or in
exercise of the Company's right of first refusal upon a proposed transfer);
(v) Any agreement by the Company or its shareholders regarding
an Asset Transfer or Acquisition (each as defined in Section 3(c));
(vi) Any action that results in the payment or declaration
of any dividend on any shares of Common Stock or Preferred Stock; or
(vii) Any voluntary dissolution or liquidation of the Company.
3.
<PAGE>
3. LIQUIDATION RIGHTS.
(a) Upon any liquidation, dissolution, or winding up of the Company,
whether voluntary or involuntary, before any distribution or payment shall be
made to the holders of any Junior Stock, the holders of Series Preferred shall
be entitled to be paid out of the assets of the Company an amount per share of
Series Preferred equal to the sum of (i) Original Issue Price and (ii) all
declared and unpaid dividends on such shares of Preferred Stock for each share
of Series Preferred held by them. If, upon the occurrence of a liquidation
event, the assets and funds thus distributed among the holders of the Series
Preferred shall be insufficient to permit the payment to such holders of the
full preferential amount, then the entire assets of the Company legally
available for distribution shall be distributed ratably among the holders of
the Series Preferred, in proportion to the preferential amount each such holder
would have been entitled to receive.
(b) After the payment of the full liquidation preference of the
Series Preferred as set forth in Section 3(a) above, the remaining assets of
the Company legally available for distribution, if any, shall be distributed
ratably to the holders of the Common Stock and Series Preferred (on an as-if-
converted to Common Stock basis); provided, however, that a holder of Series A
Preferred shall not be entitled to share in any further distribution under this
Section 3(b) after such Holder has received under Section 3(a) and this Section
3(b) an aggregate amount equal to $6.34 per share of Series A Preferred (as
adjusted for any stock dividends, combinations, splits or the like) and a
holder of Series B Preferred shall not be entitled to share in any further
distribution under this Section 3(b) after such Holder has received under
Section 3(a) and this Section 3(b) an aggregate amount equal to $6.34 per share
of Series B Preferred (as adjusted for any stock dividends, combinations,
splits or the like).
(c) The following events shall be considered a liquidation under
this Section 3:
(i) any consolidation or merger of the Company with or into
any other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than 50% of the Company's
voting power immediately after such consolidation, merger or reorganization, or
any transaction or series of related transactions in which in excess of fifty
percent (50%) of the Company's voting power is transferred (an "Acquisition");
or
(ii) a sale, lease or other disposition of all or
substantially all of the assets of the Company (an "Asset Transfer").
4. REDEMPTION.
(a) The Company shall be obligated to redeem the Series Preferred as
follows:
(i) The holders of at least 75% of the then outstanding shares
of Series Preferred, voting together as a separate class, may require the
Company to redeem the Series Preferred in three equal annual installments
beginning on May 15, 1999, and ending on May 15, 2001 (each a "Redemption
Date"). The Company shall effect such redemptions on the applicable Redemption
Date by paying in cash in exchange for the shares of Series Preferred to be
4.
<PAGE>
redeemed a sum equal to the Original Issue Price per share of Series A
Preferred or Series B Preferred, as applicable (as adjusted for any stock
dividends, combinations or splits) plus declared and unpaid dividends with
respect to such shares. The number of shares of Series Preferred that the
Company shall be required to redeem on any one Redemption Date shall be equal
to the amount determined by dividing (i) the aggregate number of shares of
Series Preferred outstanding immediately prior to the Redemption Date by (ii)
the number of remaining Redemption Dates (including the Redemption Date to
which such calculation applies).
(ii) At least thirty (30) days but no more than sixty (60) days
prior to the first Redemption Date, the Company shall send a notice (a
"Redemption Notice") to all holders of Series Preferred to be redeemed setting
forth (a) the Redemption Price for the shares to be redeemed; and (b) the place
at which such holders may obtain payment of the Redemption Price upon surrender
of their share certificates. If the Company does not have sufficient funds
legally available to redeem all shares to be redeemed at the Redemption Date,
then it shall redeem such shares pro rata (based on the portion of the
aggregate Redemption Price payable to them) to the extent possible and shall
redeem the remaining shares to be redeemed as soon as sufficient funds are
legally available.
(iii) Notwithstanding any other provision of this Section 4,
the Company shall not make any redemption that would cause the aggregate amount
paid to the holders of Series Preferred on any Redemption Date to exceed
seventy-five (75%) of working capital of the Company as of such Redemption
Date. If the Company does not have sufficient working capital to redeem all
shares to be redeemed at the Redemption Date while remaining in compliance with
the foregoing sentence, then it shall redeem such shares pro rata (based on the
portion of the aggregate Redemption Price payable to them) to the extent
possible and shall redeem the remaining shares on the next subsequent
Redemption Date (or if no subsequent Redemption Date remains, on the one year
anniversary of the Redemption Date).
(b) On or prior to the Redemption Date, the Company shall deposit
the Redemption Price of all shares to be redeemed with a bank or trust company
having aggregate capital and surplus in excess of $10,000,000, as a trust fund,
with irrevocable instructions and authority to the bank or trust company to
pay, on and after such Redemption Date, the Redemption Price of the shares to
their respective holders upon the surrender of their share certificates. The
balance of any funds deposited by the Company pursuant to this Section 4(b)
remaining unclaimed at the expiration of one year following such Redemption
Date shall be returned to the Company promptly upon its written request.
(c) On or after such Redemption Date, each holder of shares of
Series Preferred to be redeemed shall surrender such holder's certificates
representing such shares to the Company and thereupon the Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof. From and after such
Redemption Date, unless there shall have been a default in payment of the
Redemption Price or the Company is unable to pay the Redemption Price due to
not having sufficient legally available funds or inadequate working capital
levels, all dividends on the shares of Series Preferred to be redeemed shall
cease to accrue and all rights of the holders of such shares as holders of
Series
5.
<PAGE>
Preferred (except the right to receive the Redemption Price without
interest upon surrender of their certificates), shall cease and terminate with
respect to such shares, provided that in the event that shares of Series
Preferred are not redeemed due to a default in payment by the Company or
because the Company does not have sufficient legally available funds or
adequate working capital, such shares of Series Preferred shall remain
outstanding and shall be entitled to all of the rights and preferences provided
herein.
5. CONVERSION RIGHTS.
The holders of the Series Preferred shall have the following rights with
respect to the conversion of the Series Preferred into shares of Common Stock:
(a) Optional Conversion. Subject to and in compliance with the
provisions of this Section 5, any shares of Series Preferred may, at the option
of the holder, be converted at any time into fully-paid and nonassessable
shares of Common Stock. With respect to any shares of Series Preferred for
which a notice of redemption has been given pursuant to Section 4(a), the right
of conversion of those shares shall terminate upon redemption. The number of
shares of Common Stock to which a holder of Series A Preferred shall be
entitled upon conversion shall be the product obtained by multiplying the
"Series A Conversion Rate" then in effect (determined as provided in Section
5(b)) by the number of shares of Series A Preferred being converted. The
number of shares of Common Stock to which a holder of Series B Preferred shall
be entitled upon conversion shall be the product obtained by multiplying the
"Series B Conversion Rate" then in effect (determined as provided in Section
5(b)) by the number of shares of Series B Preferred being converted.
(b) Conversion Rate. The conversion rate in effect at any time for
conversion of the Series A Preferred (the "Series A Conversion Rate") shall be
the quotient obtained by dividing the Original Issue Price of the Series A
Preferred by the "Series A Conversion Price," calculated as provided in Section
5(c). The conversion rate in effect at any time for conversion of the Series B
Preferred (the "Series B Conversion Rate") shall be the quotient obtained by
dividing the Original Issue Price of the Series B Preferred by the "Series B
Conversion Price," calculated as provided in Section 5(c).
(c) Conversion Price. The conversion price for the Series A
Preferred as of the Original Issue Date (as defined in Section 5(e) below)
shall be the Original Issue Price of the Series A Preferred (the "Series A
Conversion Price"). Such initial Series A Conversion Price shall be adjusted
from time to time in accordance with this Section 5. All references to the
Series A Conversion Price herein shall mean the Series A Conversion Price as so
adjusted. The conversion price for the Series B Preferred as of the Original
Issue Date (as defined in Section 5(e) below) shall be the Original Issue Price
of the Series B Preferred (the "Series B Conversion Price"). Such initial
Series B Conversion Price shall be adjusted from time to time in accordance
with this Section 5. All references to the Series B Conversion Price herein
shall mean the Series B Conversion Price as so adjusted. The Series A
Conversion Price and the Series B Conversion Price shall collectively be
referred to as the "Conversion Prices" and each a "Conversion Price".
6.
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(d) Mechanics of Conversion. Each holder of Series Preferred who
desires to convert the same into shares of Common Stock pursuant to this
Section 5 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Series
Preferred, and shall give written notice to the Company at such office that
such holder elects to convert the same. Such notice shall state the number of
shares of Series Preferred being converted. Thereupon, the Company shall
promptly issue and deliver at such office to such holder a certificate or
certificates for the number of shares of Common Stock to which such holder is
entitled and shall promptly pay in cash or, to the extent sufficient funds are
not then legally available therefor, in Common Stock (at the Common Stock's
fair market value determined by the Board of Directors as of the date of such
conversion), any declared and unpaid dividends on the shares of Series
Preferred being converted. Such conversion shall be deemed to have been made
at the close of business on the date of such surrender of the certificates
representing the shares of Series Preferred to be converted, and the person
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such shares of Common
Stock on such date.
(e) Adjustment for Stock Splits and Combinations. If the Company
shall at any time or from time to time after the date that the first share of
Series B Preferred is issued (the "Original Issue Date") effect a subdivision
of the outstanding Common Stock, Conversion Prices in effect immediately before
that subdivision shall be proportionately decreased. Conversely, if the
Company shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock into a smaller number of shares,
the Conversion Prices in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Section 5(e) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(f) Adjustment for Common Stock Dividends and Distributions. If the
Company at any time or from time to time after the Original Issue Date makes,
or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, in each such event the Conversion Prices that are then
in effect shall be decreased as of the time of such issuance or, in the event
such record date is fixed, as of the close of business on such record date, by
multiplying the applicable Conversion Prices then in effect by a fraction (1)
the numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (2) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Conversion Prices shall be recomputed accordingly as
of the close of business on such record date and thereafter the Conversion
Prices shall be adjusted pursuant to this Section 5(f) to reflect the actual
payment of such dividend or distribution.
(g) Adjustments for Other Dividends and Distributions. If the
Company at any time or from time to time after the Original Issue Date makes,
or fixes a record date for the
7.
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determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Company other than shares of
Common Stock, in each such event provision shall be made so that the holders of
the Series Preferred shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount of other
securities of the Company which they would have received had their Series
Preferred been converted into Common Stock on the date of such event and had
they thereafter, during the period from the date of such event to and including
the conversion date, retained such securities receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 5 with respect to the rights of the holders of the
Series Preferred or with respect to such other securities by their terms.
(h) Adjustment for Reclassification, Exchange and Substitution. If
at any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the conversion of the Series Preferred is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than an Acquisition
or Asset Transfer as defined in Section 3(c) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 5), in any such event each holder
of Series Preferred shall have the right thereafter to convert such stock into
the kind and amount of stock and other securities and property receivable upon
such recapitalization, reclassification or other change by holders of the
maximum number of shares of Common Stock into which such shares of Series
Preferred could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided
herein or with respect to such other securities or property by the terms
thereof.
(i) Reorganizations, Mergers, Consolidations or Sales of Assets.
If at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than an Acquisition or Asset
Transfer as defined in Section 3(c) or a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 5, as a part of such capital reorganization, provision
shall be made so that the holders of the Series Preferred shall thereafter be
entitled to receive upon conversion of the Series Preferred the number of shares
of stock or other securities or property of the Company to which a holder of the
number of shares of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, subject to adjustment in respect of
such stock or securities by the terms thereof. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the holders of Series Preferred after the capital
reorganization to the end that the provisions of this Section 5 (including
adjustments of the Conversion Prices then in effect and the number of shares
issuable upon conversion of the Series Preferred) shall be applicable after that
event and be as nearly equivalent as practicable.
(j) Sale of Shares Below Series Conversion Price.
(i) If from time to time after the Original Issue Date, but
prior to the date twelve months after the Original Issue Date, the Company
issues or sells, or is deemed by
8.
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the express provisions of this subsection (j) to have issued or sold, Additional
Shares of Common Stock (as hereinafter defined), other than as a dividend or
other distribution on any class of stock as provided in Section 5(f) above, and
other than a subdivision or combination of shares of Common Stock as provided in
Section 5(e) above, for an Effective Price (as hereinafter defined) less than
the then effective Series A Conversion Price or Series B Conversion Price, then
and in each such case the then existing Series A Conversion Price or Series B
Conversion Price, as applicable, shall be reduced, as of the opening of business
on the date of such issue or sale, to a price determined by multiplying the
Series A Conversion Price or Series B Conversion Price, as applicable, by a
fraction (i) the numerator of which shall be (A) the number of shares of Common
Stock into which the then outstanding shares of Series Preferred could be
converted if fully converted on the day immediately prior to such issue or sale,
plus (B) the number of shares of Common Stock which the aggregate consideration
received (as defined in subsection (j)(2)) by the Company for the total number
of Additional Shares of Common Stock so issued would purchase at such Series A
Conversion Price or Series B Conversion Price, as applicable, and (ii) the
denominator of which shall be the number of shares of Common Stock into which
the then outstanding shares of Series Preferred could be converted if fully
converted on the day immediately prior to such issue or sale plus the total
number of Additional Shares of Common Stock so issued.
(ii) For the purpose of making any adjustment required under
this Section 5(j), the consideration received by the Company for any issue or
sale of securities shall (A) to the extent it consists of cash, be computed at
the net amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensation or concessions paid or
allowed by the Company in connection with such issue or sale but without
deduction of any expenses payable by the Company, (B) to the extent it consists
of property other than cash, be computed at the fair value of that property as
determined in good faith by the Board of Directors, and (C) if Additional
Shares of Common Stock, Convertible Securities (as hereinafter defined) or
rights or options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers
both, be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors to be allocable
to such Additional Shares of Common Stock, Convertible Securities or rights or
options.
(iii) For the purpose of the adjustment required under this
Section 5(j), if the Company issues or sells any rights or options for the
purchase of, or stock or other securities convertible into, Additional Shares
of Common Stock (such convertible stock or securities being herein referred to
as "Convertible Securities") and if the Effective Price of such Additional
Shares of Common Stock is less than the Series A Conversion Price or Series B
Conversion Price, as applicable, in each case the Company shall be deemed to
have issued at the time of the issuance of such rights or options or
Convertible Securities the maximum number of Additional Shares of Common Stock
issuable upon exercise or conversion thereof and to have received as
consideration for the issuance of such shares an amount equal to the total
amount of the consideration, if any, received by the Company for the issuance
of such rights or options or Convertible Securities, plus, in the case of such
rights or options, the minimum amounts of
9.
<PAGE>
consideration, if any, payable to the Company upon the exercise of such rights
or options, plus, in the case of Convertible Securities, the minimum amounts of
consideration, if any, payable to the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) upon the
conversion thereof; provided that if in the case of Convertible Securities the
minimum amounts of such consideration cannot be ascertained, but are a function
of antidilution or similar protective clauses, the Company shall be deemed to
have received the minimum amounts of consideration without reference to such
clauses; provided further that if the minimum amount of consideration payable to
the Company upon the exercise or conversion of rights, options or Convertible
Securities is reduced over time or on the occurrence or non-occurrence of
specified events other than by reason of antidilution adjustments, the Effective
Price shall be recalculated using the figure to which such minimum amount of
consideration is reduced; provided further that if the minimum amount of
consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities is subsequently increased, the
Effective Price shall be again recalculated using the increased minimum amount
of consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities. No further adjustment of the Series A
Conversion Price or Series B Conversion Price, as applicable, as adjusted upon
the issuance of such rights, options or Convertible Securities, shall be made as
a result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having been
exercised, the Series A Conversion Price or Series B Conversion Price, as
applicable, as adjusted upon the issuance of such rights, options or Convertible
Securities shall be readjusted to the Series A Conversion Price or Series B
Conversion Price, as applicable, which would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any, actually
issued or sold on the exercise of such rights or options or rights of conversion
of such Convertible Securities, and such Additional Shares of Common Stock, if
any, were issued or sold for the consideration actually received by the Company
upon such exercise, plus the consideration, if any, actually received by the
Company for the granting of all such rights or options, whether or not
exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted, plus the consideration, if any,
actually received by the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) on the conversion of such
Convertible Securities, provided that such readjustment shall not apply to prior
conversions of Series A Preferred or Series B Preferred.
(iv) "Additional Shares of Common Stock" shall mean all shares
of Common Stock issued by the Company or deemed to be issued pursuant to this
Section 5(j), whether or not subsequently reacquired or retired by the Company
other than (1) shares of Common Stock issued upon conversion of the Series
Preferred; (2) shares of Common Stock (and/or options, warrants or other Common
Stock purchase rights, and the Common Stock 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; and (3) shares of Common Stock issued pursuant to the
exercise of options, warrants or convertible
10.
<PAGE>
securities outstanding as of the Original Issue Date. The "Effective Price" of
Additional Shares of Common Stock shall mean the quotient determined by dividing
the total number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold by the Company under this Section 5(j), into the
aggregate consideration received, or deemed to have been received, by the
Company for such issue under this Section 5(j), for such Additional Shares of
Common Stock.
(k) Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of the Series A Conversion Price or Series B
Conversion Price for the number of shares of Common Stock or other securities
issuable upon conversion of the Series Preferred, if the Series Preferred is
then convertible pursuant to this Section 5, the Company, at its expense, shall
compute such adjustment or readjustment in accordance with the provisions
hereof and prepare a certificate showing such adjustment or readjustment, and
shall mail such certificate, by first class mail, postage prepaid, to each
registered holder of Series Preferred at the holder's address as shown in the
Company's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (1) the consideration received
or deemed to be received by the Company for any Additional Shares of Common
Stock issued or sold or deemed to have been issued or sold, (2) the Series A
Conversion Price and Series B Conversion Price at the time in effect prior to
and following such adjustment, (3) the number of Additional Shares of Common
Stock issued or sold or deemed to have been issued or sold, if any, and (4) the
type and amount, if any, of shares or other property which at the time would be
received upon conversion of each share of each series of the Series Preferred.
(l) Notices of Record Date. Upon (i) any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any Acquisition (as defined in Section 3(c)) or other
capital reorganization of the Company, any reclassification or recapitalization
of the capital stock of the Company, any merger or consolidation of the Company
with or into any other corporation, or any Asset Transfer (as defined in
Section 3(c)), or any voluntary or involuntary dissolution, liquidation or
winding up of the Company, the Company shall mail to each holder of Series
Preferred at least twenty (20) days prior to the applicable record or closing
date, a notice specifying (1) the date on which any such record is to be taken
for the purpose of such dividend or distribution and a description of such
dividend or distribution, (2) the date on which any such Acquisition,
reorganization, reclassification, transfer, consolidation, merger, Asset
Transfer, dissolution, liquidation or winding up is expected to become
effective, and (3) the date, if any, that is to be fixed as to when the holders
of record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up.
(m) Automatic Conversion.
11.
<PAGE>
(i) Each share of Series Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective Conversion
Prices, at any time upon the affirmative vote of the holders of at least 75% of
the outstanding shares of the Series Preferred, or immediately upon the closing
of a firmly underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Company in which (i) the per share
price is at least $6.34 (as adjusted for stock splits, recapitalizations and
the like), and (ii) the gross cash proceeds to the Company (before underwriting
discounts, commissions and fees) are at least $10,000,000.
(ii) Upon the occurrence of the event specified in paragraph
(i) above, the outstanding shares of Series Preferred shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Company or its transfer agent; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless the certificates evidencing such shares of Series
Preferred are either delivered to the Company or its transfer agent as provided
below, or the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of the Series Preferred, the holders of Series Preferred shall
surrender the certificates representing such shares at the office of the Company
or any transfer agent for the Series Preferred. Thereupon, there shall be issued
and delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Series Preferred
surrendered were convertible on the date on which such automatic conversion
occurred, and the Company shall promptly pay in cash or, at the option of the
Company, Common Stock (at the Common Stock's fair market value determined by the
Board as of the date of such conversion), or, at the option of the Company,
both, all declared and unpaid dividends on the shares of Series Preferred being
converted, to and including the date of such conversion.
(n) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of Series Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share
of Series Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Corporation shall, in
lieu of issuing any fractional share, pay cash equal to the product of such
fraction multiplied by the Common Stock's fair market value (as determined by
the Board) on the date of conversion.
(o) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series Preferred. If at any time the number
of
12.
<PAGE>
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series Preferred,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(p) Notices. Any notice required by the provisions of this Section
5 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
notices shall be addressed to each holder of record at the address of such
holder appearing on the books of the Company.
(q) Payment of Taxes. The Company will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed
with respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Series Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series Preferred
so converted were registered.
(r) No Dilution or Impairment. Without the consent of the holders
of at least 75% of the then outstanding Series Preferred, the Company shall not
amend its Restated Articles of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, for the purpose of
avoiding or seeking to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but shall at all times in
good faith assist in carrying out all such action as may be reasonably
necessary or appropriate in order to protect the conversion rights of the
holders of the Series Preferred against dilution or other impairment.
6. NO REISSUANCE OF SERIES PREFERRED.
No share or shares of Series Preferred acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued.
7. NO PREEMPTIVE RIGHTS.
Shareholders shall have no preemptive rights except as granted by the
Company pursuant to written agreements.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
13.
<PAGE>
A.
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following
the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned
to each class in accordance with a resolution or resolutions adopted by the
Board of Directors. At the first annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term
of three years. At the second annual meeting of stockholders following the
Closing of the Initial Public Offering, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
Closing of the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting.
3. Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
4. Subject to the rights of the holders of any series of Preferred
Stock, no director shall be removed without cause. Subject to any limitations
imposed by law, the Board of Directors or any individual director may be
removed from office at any time with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock").
5. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full
14.
<PAGE>
term of the director for which the vacancy was created or occurred and until
such director's successor shall have been elected and qualified.
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws and following the closing of the Initial Public Offering no action
shall be taken by the stockholders by written consent.
4. Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors shall fix.
5. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
after approval by the stockholders of this Article to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director shall be eliminated or limited to the fullest
extent permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
15.
<PAGE>
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
The name and the mailing address of the Sole Incorporator is as follows:
NAME MAILING ADDRESS
JAMES F. FULTON, JR. Cooley Godward Castro
Huddleson & Tatum
3000 Sand Hill Road, Bldg. 3, Suite 230
Menlo Park, CA 94025
IN WITNESS WHEREOF, this Certificate has been subscribed this day of
, 1996 by the undersigned who affirms that the statements made herein are
true and correct.
--------------------------------------------
James F. Fulton, Jr.
SOLE INCORPORATOR
16.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ROGUE WAVE SOFTWARE, INC.
I.
The name of this corporation is Rogue Wave Software, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the corporation in the State of Delaware at such
address is the The Prentice-Hall Corporation System, Inc.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is forty million
(40,000,00) shares. Thirty five million (35,000,000) shares shall be Common
Stock, each having a par value of one-tenth of one cent ($.001). Five million
(5,000,000) shares shall be Preferred Stock, each having a par value of one-
tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such
1.
<PAGE>
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, directors
shall be elected at each annual meeting of stockholders for a term of one year.
Each director shall serve until his successor is duly elected and qualified or
until his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. Subject to the rights of the holders of any series of Preferred
Stock, no director shall be removed without cause. Subject to any limitations
imposed by law, the Board of Directors or any individual director may be removed
from office at any time with cause by the affirmative vote of the holders of a
majority of the voting power of all the then-outstanding shares of voting stock
of the corporation, entitled to vote at an election of directors (the "Voting
Stock").
4. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
2.
<PAGE>
B.
1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the Voting Stock. The Board of Directors shall
also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws and following the closing of the Initial Public Offering no action
shall be taken by the stockholders by written consent.
4. Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors shall fix.
5. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
3.
<PAGE>
VI.
A. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
4.
<PAGE>
BYLAWS
OF
ROGUE WAVE SOFTWARE, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I. OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office. . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . . 1
Section 4. Place of Meetings. . . . . . . . . . . . . . . . . . . . . 1
Section 5. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . 1
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . . 3
Section 7. Notice of Meetings . . . . . . . . . . . . . . . . . . . . 4
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 9. Adjournment and Notice of Adjourned Meetings . . . . . . . 4
Section 10. Voting Rights. . . . . . . . . . . . . . . . . . . . . . . 5
Section 11. Joint Owners of Stock. . . . . . . . . . . . . . . . . . . 5
Section 12. List of Stockholders.. . . . . . . . . . . . . . . . . . . 5
Section 13. Action Without Meeting.. . . . . . . . . . . . . . . . . . 5
Section 14. Organization.. . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV. DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 15. Number and Term of Office. . . . . . . . . . . . . . . . . 7
Section 16. Powers.. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 17. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 18. Resignation. . . . . . . . . . . . . . . . . . . . . . . . 7
Section 19. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 20. Meetings.. . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 21. Quorum and Voting. . . . . . . . . . . . . . . . . . . . . 9
Section 22. Action Without Meeting.. . . . . . . . . . . . . . . . . . 9
Section 23. Fees and Compensation. . . . . . . . . . . . . . . . . . . 9
Section 24. Committees.. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 25. Organization.. . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE V. OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . .11
Section 26. Officers Designated. . . . . . . . . . . . . . . . . . . .11
Section 27. Tenure and Duties of Officers. . . . . . . . . . . . . . .11
Section 28. Delegation of Authority. . . . . . . . . . . . . . . . . .13
Section 29. Resignations.. . . . . . . . . . . . . . . . . . . . . . .13
Section 30. Removal. . . . . . . . . . . . . . . . . . . . . . . . . .13
i.
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TABLE OF CONTENTS
PAGE
ARTICLE VI. EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION. . . . . . . . . . . .13
Section 31. Execution of Corporate Instruments.. . . . . . . . . . . .13
Section 32. Voting of Securities Owned by the Corporation. . . . . . .14
ARTICLE VII. SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . .14
Section 33. Form and Execution of Certificates.. . . . . . . . . . . .14
Section 34. Lost Certificates. . . . . . . . . . . . . . . . . . . . .14
Section 35. Transfers. . . . . . . . . . . . . . . . . . . . . . . . .15
Section 36. Fixing Record Dates. . . . . . . . . . . . . . . . . . . .15
Section 37. Registered Stockholders. . . . . . . . . . . . . . . . . .16
ARTICLE VIII. OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . .16
Section 38. Execution of Other Securities. . . . . . . . . . . . . . .16
ARTICLE IX. DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 39. Declaration of Dividends.. . . . . . . . . . . . . . . . .17
Section 40. Dividend Reserve.. . . . . . . . . . . . . . . . . . . . .17
ARTICLE X. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . .17
Section 41. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . .17
ARTICLE XI. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . .17
Section 42. Indemnification of Directors, Executive Officers,
Other Officers, Employees and Other Agents.. . . . . . . .17
ARTICLE XII. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Section 43. Notices. . . . . . . . . . . . . . . . . . . . . . . . . .20
ARTICLE XIII. AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . .22
Section 44. Amendments.. . . . . . . . . . . . . . . . . . . . . . . .22
ARTICLE XIV. LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . .22
Section 45. Loans to Officers. . . . . . . . . . . . . . . . . . . . .22
ii.
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BYLAWS
OF
ROGUE WAVE SOFTWARE, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.
(Del. Code Ann., tit. 8, Section 131)
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require. (Del. Code Ann.,
tit. 8, Section 122(8))
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8,
Section 122(3))
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, Section
211(a))
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. (Del. Code Ann., tit. 8, Section
211(b))
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought
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before the meeting. To be properly brought before an annual meeting, business
must be: (A) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (B) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(C) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
later than the close of business on the sixtieth (60th) day nor earlier than the
close of business on the ninetieth (90th) day prior to the first anniversary of
the preceding year's annual meeting; PROVIDED, HOWEVER, that in the event that
no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or, in the event public announcement of the date of such annual
meeting is first made by the corporation fewer than seventy (70) days prior to
the date of such annual meeting, the close of business on the tenth (10th) day
following the day on which public announcement of the date of such meeting is
first made by the corporation. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (b), and, if he should
so determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted. (Del. Code Ann.,
tit. 8: Section 211(b))
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such
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stockholder's notice shall set forth (i) as to each person, if any, whom the
stockholder proposes to nominate for election or re-election as a director:
(A) the name, age, business address and residence address of such person,
(B) the principal occupation or employment of such person, (C) the class and
number of shares of the corporation which are beneficially owned by such person,
(D) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the stockholder, and (E) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided pursuant
to paragraph (b) of this Section 5. At the request of the Board of Directors,
any person nominated by a stockholder for election as a director shall furnish
to the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded. (Del. Code Ann., tit. 8,
Sections 212, 214).
(d) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors, shall fix.
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
3.
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notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within
sixty (60) days after the receipt of the request, the person or persons
requesting the meeting may set the time and place of the meeting and give the
notice. Nothing contained in this paragraph (b) shall be construed as limiting,
fixing, or affecting the time when a meeting of stockholders called by action of
the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given. (Del. Code Ann., tit. 8, Sections 222, 229)
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the vote cast,
excluding abstentions, at any meeting at which a quorum is present shall be
valid and binding upon the corporation; PROVIDED, HOWEVER, that directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by the statute or by the Certificate
of Incorporation or these Bylaws, the affirmative vote of the majority
(plurality, in the case of the election of directors) of the votes cast,
including abstentions, by the holders of shares of such class or classes or
series shall be the act of such class or classes or series. (Del. Code Ann.,
tit. 8, Section 216)
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the
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chairman of the meeting or by the vote of a majority of the shares casting
votes, excluding abstentions. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8,
Section 222(c))
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period. (Del. Code Ann., tit. 8, Sections 211(e), 212(b))
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest. (Del. Code Ann., tit. 8, Section
217(b))
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present. (Del. Code Ann., tit. 8, Section 219(a))
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SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(Del. Code Ann., tit. 8, Section 228)
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that written
notice and written consent have been given as provided in Section 228 of the
General Corporation Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules,
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regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, directors shall be elected at each annual meeting of stockholders
for a term of one year. Each director shall serve until his successor is duly
elected and qualified or until his death, resignation or removal. No decrease
in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
SECTION 16. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
(Del. Code Ann., tit. 8, Section 141(a))
SECTION 17. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A
vacancy in the Board of Directors shall be deemed to exist under this Bylaw in
the case of the death, removal or resignation of any director. (Del. Code Ann.,
tit. 8, Section 223(a), (b))
SECTION 18. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no
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such specification is made, it shall be deemed effective at the pleasure of the
Board of Directors. When one or more directors shall resign from the Board of
Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each Director so chosen shall hold
office for the unexpired portion of the term of the Director whose place shall
be vacated and until his successor shall have been duly elected and qualified.
(Del. Code Ann., tit. 8, Sections 141(b), 223(d))
SECTION 19. REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock, no director shall be removed without cause. Subject to any
limitations imposed by law, the Board of Directors or any individual director
may be removed from office at any time with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation, entitled to vote at an election of directors
(the "Voting Stock").
SECTION 20. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors. (Del. Code Ann., tit. 8, Section 141(g))
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors
(Del. Code Ann., tit. 8, Section 141(g))
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting. (Del. Code
Ann., tit. 8, Section 141(i))
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time
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before or after the meeting and will be waived by any director by attendance
thereat, except when the director attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. (Del. Code Ann.,
tit. 8, Section 229)
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting. (Del. Code Ann., tit. 8, Section 229)
SECTION 21. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; PROVIDED, HOWEVER, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting. (Del. Code Ann., tit. 8, Section 141(b))
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws. (Del. Code Ann., tit. 8,
Section 141(b))
SECTION 22. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee. (Del. Code Ann., tit. 8, Section 141(f))
SECTION 23. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8, Section 141(h))
SECTION 24. COMMITTEES.
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(b) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, including without limitation the power or authority
to declare a dividend, to authorize the issuance of stock and to adopt a
certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation. (Del.
Code Ann., tit. 8, Section 141(c))
(b) OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall such committee have the powers denied to the Executive Committee
in these Bylaws. (Del. Code Ann., tit. 8, Section 141(c))
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. (Del. Code Ann., tit. 8, Section 141(c))
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(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of
any committee may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends such special meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee. (Del. Code Ann.,
tit. 8, Sections 141(c), 229)
SECTION 25. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 26. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Chief Operating
Officer, the Treasurer, all of whom shall be elected at the annual
organizational meeting of the Board of Directors. The Board of Directors may
also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant
Controllers and such other officers and agents with such powers and duties as it
shall deem necessary. The Board of Directors may assign such additional titles
to one or more of the officers as it shall deem appropriate. Any one person may
hold any number of offices of the corporation at any one time unless
specifically prohibited therefrom by law. The salaries and other compensation
of the officers of the corporation shall be fixed by or in the manner designated
by the Board of Directors. (Del. Code Ann., tit. 8, Sections 122(5), 142(a),
(b))
SECTION 27. TENURE AND DUTIES OF OFFICERS.
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(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. (Del. Code Ann., tit. 8, Section 141(b), (e))
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28. (Del. Code Ann., tit. 8, Section 142(a))
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. (Del. Code Ann.,
tit. 8, Section 142(a))
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time. (Del. Code Ann., tit. 8,
Section 142(a))
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. (Del. Code Ann., tit. 8, Section 142(a))
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(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order
of the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume and
perform the duties of the Chief Financial Officer in the absence or disability
of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and
each Controller and Assistant Controller shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. (Del. Code Ann., tit. 8, Section 142(a))
SECTION 28. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 29. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer. (Del. Code Ann., tit. 8, Section 142(b))
SECTION 30. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
SECTION 31. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)
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Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors. (Del. Code Ann., tit. 8,
Sections 103(a), 142(a), 158)
All checks and drafts drawn on banks or other depositories on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158).
SECTION 32. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President. (Del. Code Ann., tit. 8, Section 123)
ARTICLE VII
SHARES OF STOCK
SECTION 33. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such
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preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical. (Del. Code Ann., tit. 8, Section 158)
SECTION 34. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
(Del. Code Ann., tit. 8, Section 167)
SECTION 35. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares. (Del. Code Ann., tit. 8, Section 201,
tit. 6, Section 8- 401(1))
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware. (Del. Code Ann., tit. 8,
Section 160 (a))
SECTION 36. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
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stockholders shall apply to any adjournment of the meeting; PROVIDED, HOWEVER,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of record
seeking to have the stockholders authorize or take corporate action by written
consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed by
the Board of Directors within 10 days of the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in the State
of Delaware, its principal place of business or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. (Del. Code Ann., tit. 8, Section 213)
SECTION 37. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
(Del. Code Ann., tit. 8, Sections 213(a), 219)
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
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SECTION 38. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; PROVIDED, HOWEVER, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 39. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation. (Del. Code Ann., tit. 8, Sections 170, 173)
SECTION 40. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created. (Del.
Code Ann., tit. 8, Section 171)
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ARTICLE X
FISCAL YEAR
SECTION 41. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 42. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify its
directors and officers to the fullest extent not prohibited by the Delaware
General Corporation Law; PROVIDED, HOWEVER, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
officers; and, PROVIDED, FURTHER, that the corporation shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the corporation, (iii) such indemnification is provided by the
corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power
to indemnify its employees and other agents as set forth in the Delaware General
Corporation Law.
(c) EXPENSES. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or executive officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
officer of the corporation (except by reason of the fact that such officer is
or was a director of the corporation in which event this paragraph shall not
apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly
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and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the director or officer. Any right to indemnification or advances granted by
this Bylaw to a director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. In connection with any claim by an officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled to
raise a defense as to any such action clear and convincing evidence that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation, or with respect to
any criminal action or proceeding that such person acted without reasonable
cause to believe that his conduct was lawful. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct. In any suit brought by a director or
officer to enforce a right to indemnification or to an advancement of expenses
hereunder, the burden of proving that the director or officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
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(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(i) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(iii) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(iv) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer,
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officer, employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(v) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 43. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent. (Del. Code Ann., tit. 8,
Section 222)
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, Section
222)
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
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(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action
or meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if such
notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom
(i) notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person during
the period between such two consecutive annual meetings, or (ii) all, and at
least two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph. (Del. Code Ann, tit. 8, Section 230)
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ARTICLE XIII
AMENDMENTS
SECTION 44. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 45.LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other
employee of the corporation or of its subsidiaries, including any officer or
employee who is a Director of the corporation or its subsidiaries, whenever,
in the judgment of the Board of Directors, such loan, guarantee or assistance
may reasonably be expected to benefit the corporation. The loan, guarantee
or other assistance may be with or without interest and may be unsecured, or
secured in such manner as the Board of Directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing
in these Bylaws shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
(Del. Code Ann., tit. 8, Section 143)
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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%
Rogue Wave Software UK Ltd......................................... United Kingdom 100%
</TABLE>
