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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1999
REGISTRATION NO. 333-86173
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SAGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 3679 77-0389091
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2460 NORTH FIRST STREET, SUITE 100
SAN JOSE, CA 95131-1023
(408) 383-5300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHANDRASHEKAR M. REDDY
PRESIDENT, CHIEF EXECUTIVE OFFICER
SAGE, INC.
2460 NORTH FIRST STREET, SUITE 100
SAN JOSE, CA 95131-1023
(408) 383-5300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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JOHN W. CAMPBELL III, ESQ. NORA L. GIBSON, ESQ.
RUSSELL J. WOOD, ESQ. PETER S. BUCKLAND, ESQ.
E. JOHN PARK, ESQ. ALAN C. WANG, ESQ.
MORRISON & FOERSTER LLP BROBECK PHLEGER & HARRISON, LLP
425 MARKET STREET ONE MARKET, SPEAR STREET TOWER
SAN FRANCISCO, CA 94105-2482 SAN FRANCISCO, CA 94105
(415) 268-7000 (415) 442-0900
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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. [ ]
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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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for same offering. [ ]
- ---------------
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 28, 1999
[SAGE LOGO]
3,000,000 SHARES
COMMON STOCK
Sage, Inc. is offering 3,000,000 shares of its common stock. This is our
initial public offering, and no public market currently exists for our shares.
We have applied to have the shares we are offering approved for quotation on the
Nasdaq National Market under the symbol "SAGI."
We anticipate that the initial public offering price will be between $8.00
and $10.00 per share.
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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PER SHARE TOTAL
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Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Sage, Inc....................................... $ $
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Sage has granted the underwriters a 30-day option to purchase up to an
additional 450,000 shares of its common stock to cover over-allotments.
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ROBERTSON STEPHENS
PRUDENTIAL SECURITIES
NEEDHAM & COMPANY, INC.
The date of this prospectus is , 1999.
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Front Cover Spread
1. Text:
"Display Processing Technologies"
"Image Processing"
"Flat Panel Displays (FPD) and Digital CRTs have a fixed resolution
(resolution). However, these displays receive input resolutions that are
not specific - in fact, they vary greatly. Sage has the technology to
convert these various types of input resolutions to an optimal resolution
for each particular display, while maintaining clear, crisp images."
2. Picture of the incoming resolution for a "800 x 600 pixels or
phosphorescent dots" display and picture of the converted resolution on an
XGA Monitor for a 1024 x 768 pixels display "Without Sage" processing and
"With Sage" processing.
3. Picture of the incoming resolution for a "1280 x 1024 pixels" display and
picture of the converted resolution on an XGA Monitor "1024 x 768 pixels"
display "Without Sage" processing and "With Sage" processing.
4. Text:
"SmartSet(TM)"
"Image is often misplaced and distorted due to incompatibilities with
Graphics Controller timing signals from PC"
"Image is automatically adjusted to optimize position and all
artifacts/distortion eliminated"
5. Picture of an XGA Monitor for a "1024 x 768 pixels" display "Without Sage"
processing and "With Sage" processing.
6. Text:
"Video Processing"
"Whether viewing a movie or watching TV, the ability to see a crisp, clean,
high-resolution picture is becoming increasingly important. Sage's video
processing technologies dramatically improve video image quality, thus
enhancing viewer experience, through advanced proprietary algorithims."
7. Picture of "Decode" image.
8. Text:
"We DECODE by carefully isolating the key elements of the video signal. The
color content is separated from the luminance or brightness. Our time-base
correction removes picture jitter, which is typical with VCR type sources."
9. Picture of "De Interlace" image.
10. Text:
"We DE-INTERLACE through a complex, motion sensitive process of combining
information from even and odd frames and interpolating to 'fill in the
blanks.' Our intelligent line doubling removes both the scan lines and
motion artifacts found in most television displays."
11. Picture of "Enhance" image.
12. Text:
"We ENHANCE by analyzing the picture details. Edges are sharpened, small
details are increased, and color transitions are enhanced. This improves
the clarity of the picture and adds vibrancy and depth."
Description of Inside Front Cover
1. Sage logo graphic
2. Text:
"High Performance Display Processing Solutions."
"Bridging the World. . .to Displays."
3. Graphic presentation showing input/sources (TV Antenna, Personal Computer,
VCR/DVD, Coax Cable, Terrestrial Digital Broadcasting and Satellite) and
output/applications (Flat Panel Monitor, Digital CRT Monitor, All-in-One
PC, Large Screen Projection TV, Plasma Display and Projector).
Description of Inside Back Cover
1. Text:
"Electronic Information Displays"
"Enabled by Sage, Inc."
"Today's PC/IV conversion resulted in the rapidly growing demand for video
enabled monitors. Sage, Inc. provides interface solutions for image
improved Digital CRT monitors and for space, weight and power saving Flat
Panel monitors, each having a distinct area of applications."
2. Graphic presentations showing Flat Panel display advantages.
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK.
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Note Regarding Forward-Looking Statements................... 15
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Consolidated Financial Data........................ 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 29
Management.................................................. 40
Certain Transactions........................................ 47
Principal Stockholders...................................... 49
Description of Capital Stock................................ 51
Shares Eligible for Future Sale............................. 53
Underwriting................................................ 55
Legal Matters............................................... 57
Experts..................................................... 57
Where You Can Find Additional Information................... 57
Index to Consolidated Financial Statements.................. F-1
</TABLE>
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We own or have rights to trademarks that we use in conjunction with the
sale of our products. Sage, SmartSet, AutoSet, SureSync, Cheetah2, Cheetah3 and
Cheetah4 are trademarks that are owned by us. This prospectus also makes
reference to trademarks and trade names of other companies.
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PROSPECTUS SUMMARY
This summary is not complete and does not contain all of the information
that you should consider before buying shares in the offering. You should read
the following summary together with the more detailed information and
consolidated financial statements, and the notes to those consolidated financial
statements, appearing elsewhere in this prospectus. This prospectus contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from the results anticipated in those
forward-looking statements as a result of the factors described under the
heading "Risk Factors" and elsewhere in this prospectus.
OUR BUSINESS
Sage, Inc. designs, develops and markets high performance display
processors used in digital displays. Our integrated semiconductor solutions are
compatible with existing personal computers and display monitors, and emerging
display devices, including flat panel monitors, flat panel televisions,
projection devices, digital cathode ray vacuum tube displays, Internet
appliances and touch-screen displays used in retail and industrial settings.
Digital displays have substantial advantages over traditional analog displays.
Digital displays offer a more compact form factor, generate less heat, consume
less power and produce less radiation. All displays require that incoming
display signals be processed in order to display images, and there are more than
100 different varieties of display signals in use today. Display manufacturers
seek display processing solutions that can function effectively with the large
number of existing and emerging analog and digital signals, ensure the
compatibility of new displays with the large installed base of personal
computers, or PCs, and provide consumers with plug and play capability.
We offer a family of state-of-the-art digital display processors that
provide highly integrated analog-to-digital conversion, signal reformatting and
color processing capabilities. We design and sell circuit boards that are built
around our semiconductors as turnkey display processing solutions for specific
display applications. Our solutions are designed with a common architecture,
configurable software and modular components that can be easily and rapidly
incorporated into digital display devices. We sell our processing solutions to
leading display manufacturers, including Fujitsu, Ltd. and its subcontractors
and NEC Corporation. Of our total revenues for the six months ended September
30, 1999, Fujitsu and its subcontractors represented 3.6%, and NEC represented
29.3%.
We were the first company to introduce a fully effective automatic display
adjustment feature and the first to integrate mode detection, reformatting,
color depth processing and customized on-screen displays onto a single display
processor. Our objective is to be the leading provider of display signal
processing solutions for display manufacturers by:
- offering the highest performance semiconductor solutions that are fully
compatible with all signal modes and display types;
- focusing our sales efforts on the leading display manufacturers;
- emphasizing our strong customer relationships by providing superior
on-site engineering support as well as easy-to-use custom design tools;
- providing display processors that allow our customers to differentiate
their products through customized features; and
- leading the display signal processing industry in technological advances.
CORPORATE INFORMATION
We were formed as a California corporation in May 1994. In May 1999, we
were reincorporated in Delaware. Our principal executive office is located at
2460 North First Street, Suite 100, San Jose, California 95131-1023, and our
telephone number at this address is (408) 383-5300.
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THE OFFERING
Common stock offered............................ 3,000,000 shares
Common stock to be outstanding after this
offering........................................ 9,805,795 shares
Use of proceeds................................. We intend to use the offering
proceeds for working capital
and general corporate
purposes.
Proposed Nasdaq National Market symbol.......... SAGI
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The common stock outstanding after the offering is based on the number of
shares outstanding as of September 30, 1999 and excludes:
- 1,016,095 shares subject to outstanding options as of September 30, 1999
at a weighted average exercise price of $3.00 per share;
- 578,782 additional shares available for grant under our 1997 Stock Plan
as of September 30, 1999; and
- 189,659 shares subject to outstanding warrants as of September 30, 1999
at a weighted average exercise price of $4.36 per share.
Except as otherwise noted, all information in this prospectus:
- reflects a three-for-one reverse stock split in our common stock,
implemented on October 1, 1999;
- reflects the automatic conversion of our outstanding preferred stock into
common stock immediately prior to the closing of this offering; and
- assumes that the underwriters' over-allotment option will not be
exercised.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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SIX MONTHS
YEAR ENDED MARCH 31, ENDED SEPTEMBER 30,
--------------------------------------------- -------------------
1995 1996 1997 1998 1999 1998 1999
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CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues................ $ -- $ 251 $1,758 $ 1,495 $ 7,132 $ 1,346 $ 7,460
Gross profit (loss)..... -- 68 622 (144) 2,218 469 2,923
Loss from operations.... (57) (383) (701) (2,686) (4,862) (2,669) (4,104)
Net loss................ $ (57) $ (384) $ (708) $(2,775) $ (4,751) $(2,616) $(4,021)
====== ====== ====== ======= ======== ======= =======
Net loss per share:
Basic and diluted..... $(0.04) $(0.19) $(0.32) $ (1.08) $ (2.00) $ (1.07) $ (1.36)
====== ====== ====== ======= ======== ======= =======
Pro forma............. $ (0.96) $ (0.67)
======== ========
Shares used in computing
net loss per share:
Basic and diluted..... 1,400 1,995 2,246 2,578 2,381 2,444 2,953
Pro forma............. 4,965 5,994
</TABLE>
The pro forma net loss per share is calculated assuming that all
outstanding shares of convertible preferred stock are converted into common
stock at the beginning of the periods presented, or on the date of issuance of
the preferred stock, whichever is later.
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SEPTEMBER 30, 1999
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ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $4,033 $28,143
Working capital............................................. 3,332 27,442
Total assets................................................ 7,563 31,673
Total current liabilities................................... 3,311 3,311
Total stockholders' equity.................................. 4,252 28,362
</TABLE>
The consolidated balance sheet data appearing above at September 30, 1999,
as adjusted, gives effect to our receipt of the net proceeds from the sale of
the shares offered hereby at an assumed initial public offering price of $9.00
per share, after deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
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RISK FACTORS
You should carefully consider the risk factors described below, and all
other information contained in this prospectus, before making an investment
decision regarding our common stock. The risks and uncertainties described below
are not the only ones we face. If any of the events or circumstances described
below arise, our business, financial condition or results of operations could be
seriously harmed, the value of our common stock could decline and you could lose
all or part of your investment. Additional risks and uncertainties not presently
known to us, or that may be currently considered by us to be immaterial, may
also impair our business operations.
RISKS RELATED TO OUR OPERATIONS
A SIGNIFICANT AMOUNT OF OUR REVENUES COMES FROM A FEW CUSTOMERS AND ANY DECREASE
IN REVENUES FROM THESE FEW CUSTOMERS COULD SIGNIFICANTLY IMPACT OUR TOTAL
REVENUES
We are and will continue for the foreseeable future to be dependent on a
limited number of large customers for a substantial portion of our revenues. For
the fiscal year ended March 31, 1999, sales of semiconductor products to
Lite-On, Inc. accounted for 48.6% of our revenues. For the six months ended
September 30, 1999, NEC, a semiconductor customer, and Elo TouchSystems, Inc., a
circuit board customer, accounted for 29.3% and 19.9%, respectively, of
revenues. As a result of customer concentration any one of the following factors
could significantly impact our total revenues:
- a significant reduction, delay or cancellation of orders from one or more
of our key customers; or
- a decision by one or more significant customers to select products
manufactured by a competitor, or its own internally developed solution,
for inclusion in future product generations.
The digital display manufacturing market is highly concentrated among
relatively few large manufacturers. We expect our operating results to continue
to depend on revenues from a relatively small number of display manufacturers
and their suppliers.
OUR RELIANCE ON A LIMITED NUMBER OF LARGE CUSTOMERS REDUCES OUR ABILITY TO
NEGOTIATE FAVORABLE PRICING TERMS WITH OUR CUSTOMERS
The digital display manufacturing market is highly concentrated among
relatively few large manufacturers. These manufacturers have significantly
greater financial and other resources than we do, therefore we may be unable to
negotiate favorable pricing terms with them. Any inability to negotiate
favorable pricing terms with our customers could impact our ability to generate
positive earnings.
WE HAVE INCURRED NET LOSSES SINCE OUR INCEPTION, AND WE MAY NOT ACHIEVE OR
SUSTAIN ANNUAL PROFITABILITY
We incurred net losses of $4.0 million for the six months ended September
30, 1999, and $708,000, $2.8 million and $4.8 million for each of the respective
years ended March 31, 1997, 1998 and 1999, and had an accumulated deficit of
$12.7 million as of September 30, 1999. In the future we expect our research and
development and our selling, general and administration expenses to increase.
Accordingly, we expect to continue to incur additional operating losses for at
least the next 12 months. Although we have experienced revenue growth in recent
periods, this growth is not necessarily indicative of future operating results,
and we cannot assure you that we will be able to sustain the growth in our
revenues. If we do achieve profitability, we cannot be certain that we can
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sustain or increase profitability on a quarterly or annual basis in the future
or at all. This may in turn cause our stock price to decline. In addition, if we
do not achieve or sustain profitability in the future, we may be unable to
continue our operations. Please see "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for more detailed information on our historical results of
operations.
WE HAVE A LIMITED OPERATING HISTORY, MAKING IT DIFFICULT FOR YOU TO EVALUATE OUR
BUSINESS AND YOUR INVESTMENT
We commenced operations in January 1995, but we did not generate material
revenues from the sale of our semiconductor products until July 1998. Thus, we
have a limited operating history upon which to evaluate our current business and
prospects. Due to our limited history, it is difficult or impossible for us to
predict our future results of operations with any degree of accuracy. For
example, we cannot accurately forecast expenses based on our projections of
future revenues. Most of our expenses are relatively fixed in the short term,
and we may not be able to quickly reduce spending if our revenues are lower than
our projections. In addition, because substantially all of our present customers
order on a purchase order basis rather than long-term purchase commitments, we
have only a limited ability to project future revenues. Therefore, net losses in
a given quarter may be greater than expected. Moreover, due to our limited
operating history, any evaluation of our business and prospects must be made in
light of the risks and uncertainties often encountered by early stage companies
in technology markets. Many of these risks are discussed elsewhere in this
section. Please see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for more detailed information on our historical
results of operations.
FLUCTUATIONS IN OUR OPERATING RESULTS MAKE IT DIFFICULT TO PREDICT OUR FUTURE
PERFORMANCE AND MAY RESULT IN VOLATILITY IN THE MARKET PRICE OF OUR COMMON STOCK
Our quarterly operating results have fluctuated significantly in the past
and we expect our results to fluctuate significantly in the future based on a
number of factors. Some of these factors arise from decisions we have made with
respect to the timing and magnitude of expenditures and our ability to control
our revenues. Our operating expenses, which include research and development
expenses and selling, general and administration expenses, are relatively fixed
over the short-term. If our revenues are lower than we expect because we sell
fewer display processors, because we delay the release or the announcement of
new products or for other reasons, we may not be able to quickly reduce our
spending in response. In addition, our revenues could fall short of our
expectations if we experience delays or cancellations of even a small number of
orders.
Certain other factors have, in the past, caused fluctuations in our
quarterly operating. These factors are industry risks over which we have no
control, including:
- changes in the available supply of flat panel displays at reasonable
prices;
- changes in our customers' demand for our products;
- the deferral of customer orders in anticipation of new products or
enhancements by us or our competitors; and
- changes in the available production capacity at the semiconductor
fabrication foundries that manufacture our products and changes in the
costs of manufacturing.
- our ability to develop, introduce and market new products in time to meet
the product design cycles of our customers;
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There are additional factors that could, but which have not, affected our
operating results including:
- the growth rate of the overall digital display market;
- incorrect forecasting of future revenues;
- changes in product mix, product costs or pricing; and
- general economic conditions and economic conditions specific to the
personal computer, display and semiconductor markets.
Any one or more of these factors are difficult to forecast and could result
in fluctuations in our future operating results. Any shortfall in our revenues
would have a direct impact on our business. In addition, fluctuations in our
quarterly results could adversely affect the market price of our common stock in
a manner unrelated to our long-term operating performance. Because our operating
results are volatile and difficult to predict, you should not rely on the
results of one quarter as an indication of our future performance. It is likely
that in some future quarter our operating results will fall below the
expectations of securities analysts and investors. In this event, the trading
price of our common stock may decline significantly.
ANY DELAY IN INTRODUCING NEW PRODUCTS OR ENHANCEMENTS TO EXISTING PRODUCTS COULD
REDUCE CUSTOMER ACCEPTANCE OF OUR PRODUCTS AND COULD DECREASE OUR MARKET SHARE
OR REVENUES
Our display manufacturing customers have regular design cycles for their
next display models. Our future success will depend to a substantial degree upon
our ability to develop and introduce new products and enhancements to our
existing products, and to do so on a schedule that makes our products and
enhancements available at the time our customers are making purchasing
decisions. Our products and product enhancements must incorporate technological
changes and innovations to meet evolving customer and industry standards.
Although we expect to continue to make significant investments in research and
development to enhance our current products and to develop products
incorporating new and existing technologies, we cannot assure you that new
products or product enhancements will be successfully developed. If developed,
we cannot assure you that any new products or product enhancements will be
developed in time to capture market opportunities or achieve a significant or
sustainable level of acceptance in new and existing markets.
FAILURE TO MANAGE OUR EXPANSION EFFECTIVELY COULD ADVERSELY AFFECT OUR ABILITY
TO INCREASE OUR REVENUES AND IMPROVE OUR EARNINGS
Our ability to successfully offer our products in a rapidly evolving market
requires effective planning and management processes. We continue to increase
the scope of our operations domestically and internationally and have increased
our headcount substantially. Between September 30, 1998 and September 30, 1999,
we expanded our headcount by over 45%. In addition, we plan to continue to hire
a significant number of employees this year. Our past growth, and our expected
future growth, places a significant strain on our management systems and
resources including our financial and managerial controls, reporting systems and
procedures. In addition, we will need to continue to expand, train and manage
our workforce worldwide.
WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY, AND IF WE ARE
UNABLE TO RETAIN OR HIRE ADDITIONAL PERSONNEL, OUR REVENUES AND PRODUCT
DEVELOPMENT EFFORTS COULD BE HARMED
Our future success depends upon the continued services of our executive
officers and other key engineering, sales, marketing and support personnel, many
of whom would be difficult to replace. We do not have key person life insurance
policies covering any of our employees other than Arun Johary, our Vice
President of Engineering. We intend to hire a significant number of engineering,
sales,
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marketing and support personnel in the future, and we believe our success
depends, in large part, upon our ability to attract and retain our key
employees. Competition for these persons is intense, especially in the San
Francisco Bay Area, and we may not be able to retain our key personnel or
identify, attract or retain other highly qualified personnel in the future. We
have experienced, and may continue to experience, difficulty in hiring and
retaining candidates with appropriate qualifications. If we do not succeed in
hiring and retaining candidates with appropriate qualifications, our revenues
and product development efforts could be harmed.
OUR FOREIGN CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUES, AND IF
WE DO NOT SUCCESSFULLY ADDRESS THE RISKS ASSOCIATED WITH OUR INTERNATIONAL
OPERATIONS, OUR REVENUES COULD DECREASE AND OUR BUSINESS PROSPECTS COULD
DETERIORATE BECAUSE THE MAJORITY OF OUR CUSTOMERS COULD BE LOST AT A SUBSTANTIAL
COST TO OUR BUSINESS PROSPECTS AND OUR REVENUES COULD DECLINE
Sales outside of the U.S. accounted for 69.9% of our revenues in the fiscal
year ended March 31, 1999 and accounted for none of our revenues during the
fiscal years ended March 31, 1997 and 1998. A substantial portion of our OEM
customers are located in Japan, Taiwan and Korea, with aggregate sales from
those three countries accounting for 60.2% of our revenues during the fiscal
year ended March 31, 1999. We anticipate that sales outside of the U.S. could
increase in future periods and may account for an increasing portion of our
revenues. In addition, manufacturers who incorporate our processors into their
displays sell them outside of the U.S., thereby exposing us indirectly to
foreign risks. We are, therefore, subject to many international risks,
including:
- increased transaction costs related to sales transactions conducted
outside of the U.S.;
- difficulties in maintaining sales representatives outside of the U.S.
that are knowledgeable of the display processor industry and our display
processors products;
- changes in the regulatory environment in Japan, Korea and Taiwan that may
significantly impact purchases of our products by our customers;
- difficulties in collecting accounts receivable from our customers located
in Japan, Korea and Taiwan; and
- difficulties related to design piracy of display processing technology
that may exist outside the U.S.
To date, sales of our products have been denominated exclusively in U.S.
dollars. An increase in the value of the U.S. dollar will increase the price of
our products so that they become relatively more expensive to customers in the
local currency of a particular country, potentially leading to a reduction in
our revenues and profitability.
WE CURRENTLY DEPEND ON A LIMITED NUMBER OF CONTRACT MANUFACTURERS FOR OUR
SEMICONDUCTOR AND CIRCUIT BOARD PRODUCTS, AND WE MUST ORDER PRODUCTS FROM THEM
BASED ON FORECASTS FROM OUR CUSTOMERS FROM WHICH WE DO NOT HAVE FIRM PURCHASE
ORDERS
We do not own or operate a semiconductor fabrication facility and we do not
have the resources to manufacture our products internally. Currently, our
Cheetah2 and Cheetah4 chips are being manufactured, assembled and tested by
Kawasaki LSI U.S.A., Inc., and our Cheetah3 chips are being manufactured,
assembled and tested by Fujitsu Microelectronics Inc. Our circuit board products
are manufactured and tested by Topline Electronics, Inc. We do not have a
long-term supply contract with any of our contract manufacturers, and they are
not obligated to supply us with products for any specific period, in any
specific quantity or at any specific price, except as may be provided in a
particular purchase order. We try not to maintain substantial inventories of
products, but we must often place orders for products two to three months before
they are needed and before we have firm purchase orders for those products. None
of our products is currently manufactured by more than one supplier, and all of
our products are expected to be single-source manufactured for the
7
<PAGE> 12
foreseeable future. There are many risks associated with our dependence on
third-party manufacturing, assembling and product testing relationships,
including:
- delays in delivering products in response to purchase orders due to
increased demand, disruptions in operations or other factors;
- lack of control over pricing;
- reduced quality assurance;
- reduced manufacturing yields and costs;
- unavailability or interruption of access to process technologies
necessary to manufacture our products; and
- potential misappropriation of our intellectual property.
If we are unable to obtain our products from manufacturers on schedule,
revenues from the sale of those products may be delayed. If orders for our
products are cancelled, revenues will be lost.
IF WE HAVE TO QUALIFY A NEW CONTRACT MANUFACTURER FOR ANY OF OUR PRODUCTS, WE
MAY LOSE REVENUES AND DAMAGE OUR CUSTOMER RELATIONSHIPS
Our display processors require manufacturing with state-of-the-art
fabrication equipment and techniques. Because the lead time needed to establish
a strategic relationship with a new contract manufacturer is at least three
months, and the estimated time for us to adapt a product's design to a
particular contract manufacturer's processes is an additional three to four
months, there is no readily available alternative source of supply for any
specific product. A manufacturing disruption at any of our contract
manufacturers would impact the production of our display processors for a
substantial period of time, thereby reducing our revenues, and would harm our
customer relationships.
SHORTAGES OF MATERIALS INCLUDED IN OUR SEMICONDUCTOR AND CIRCUIT BOARD PRODUCTS
MAY INCREASE OUR COSTS OR LIMIT OUR REVENUES AND DELAY OUR ABILITY TO SHIP OUR
PRODUCTS ON TIME
From time to time, shortages of certain materials that are used in our
semiconductor and circuit board products may occur. In particular, we may
experience shortages of semiconductor wafers, video random access memory and
analog-to-digital converters. If materials shortages occur, we may incur
additional costs to procure the scarce components or be unable to ship our
products to our customers in a timely fashion, all of which could negatively
impact our earnings.
BY SUBCONTRACTING SEPARATELY FOR THE PRODUCTION OF WAFERS FOR OUR NEXT
GENERATION PROCESSORS, WE ARE ASSUMING RISKS THAT WE DO NOT CURRENTLY FACE
Currently, we purchase packaged, assembled and tested semiconductor
products from contract manufacturers. We expect that we will assume greater
responsibility for this process for our next generation of products by
subcontracting separately for the production of wafers and for their assembly
and testing. If we do so, we will become more responsible for losses arising
from wafer manufacturing yields and for coordination of the manufacturing,
assembly and testing process. Poor yields, or our failure to implement this
approach to manufacturing properly, would reduce our revenues and harm our gross
margin and results of operations.
FAILURE TO MAINTAIN OUR LICENSE WITH FAROUDJA COULD MATERIALLY HARM OUR BUSINESS
BY DELAYING OR PREVENTING NEW PRODUCT INTRODUCTIONS
We hold a license to develop semiconductors based on technology owned by
Faroudja under a joint license and development agreement with Faroudja. Under
the terms of the agreement, we may produce a family of video display processors
incorporating Faroudja technologies that are intended to expand our
semiconductor technology into emerging television and monitor markets. Under the
terms
8
<PAGE> 13
of license agreement, we are required to provide Faroudja with certain favorable
pricing terms in connection with Faroudja's purchase of products developed by us
incorporating their technology. Faroudja is restricted for a limited time to
license to others the technology it has licensed to us. During the term of the
agreement, we are prohibited from developing, for use in products licensed, sold
or distributed by us to third parties or for use in products licensed, sold or
distributed through a private label, any circuit board video display processor
that incorporates a licensed chip and is intended to be used as a standalone
video display processor similar to certain Faroudja products. We are also
required to pay royalties to Faroudja on sales of our semiconductors
incorporating their technology. Faroudja may terminate the agreement if we fail
to perform or violate the terms of the agreement and fail to cure such violation
within 30 days of Faroudja's written notice thereof. Failure to maintain our
license with Faroudja could delay or prevent the introduction of new products
which could limit our ability to compete for new business and negatively impact
our revenues. Even if we could identify and license or develop non-infringing
equivalent technology, which is far from certain, the cost and delays from such
a changeover in our base technology would likely cause material harm to our
business.
PORTIONS OF OUR RESEARCH AND DEVELOPMENT EFFORTS ARE PERFORMED IN INDIA, AND
RISKS RELATED TO THOSE OPERATIONS COULD HARM OUR RESEARCH AND DEVELOPMENT
CAPABILITIES AND NEGATIVELY IMPACT OUR PRODUCT SALES
Any risks related to the political or economic conditions in India and the
surrounding region, including risks relating to India's national security
situation or labor market conditions, may adversely impact our ability to take
advantage of our operations in India. In addition, circumstances beyond our
control at our facilities, related to operating in a developing country, such as
unreliable power supplies, may have a material adverse effect on our research
and development capabilities. We cannot assure you that restrictive laws or
policies on either the part of India or the United States will not constrain our
ability to effectively operate in both countries. If we are required to relocate
our India facilities, we cannot assure you that a relocation will not disrupt
our business.
BECAUSE OUR DISPLAY PROCESSORS ARE COMPLEX, THEY MAY HAVE ERRORS OR DEFECTS THAT
ARE FOUND ONLY AFTER THE PROCESSORS HAVE BEEN INCORPORATED INTO OUR CUSTOMERS'
PRODUCTS, WHICH COULD RESULT IN WARRANTY CLAIMS AND A REDUCTION IN REVENUES
Our display processors are complex products and are designed to be
incorporated into digital display devices, which are themselves complex.
Although we thoroughly test our products, design and manufacturing defects may
not be discovered during the manufacturing and testing process and only be
discovered when the finished display products are connected to a signal source.
Consequently, our customers may discover errors or defects in our hardware or
software after large quantities of our products have been fully incorporated
into their digital display devices. To date, however, our customers have not, to
our knowledge, discovered errors or defects in our products, although a small
number of customers have returned products because the product design did not
meet those customers' needs. If our customers were to discover errors or defects
that may be identified after a display device is connected to a signal source,
we could experience:
- loss of or delay in revenues and loss of market share;
- loss of customers;
- failure to achieve market acceptance;
- diversion of development resources;
- increased warranty costs;
- legal actions by our customers; and
- increased insurance costs.
9
<PAGE> 14
In addition, in the event of a significant number of product returns due to a
defect or recall of our products, our revenues, gross margin and name brand
could be significantly harmed.
IF MONITORS INCORPORATING OUR SOLUTIONS ARE NOT COMPATIBLE WITH PCS AND OTHER
DEVICES FOR WHICH THEY ARE MARKETED, THE MARKET FOR OUR PRODUCTS WILL BE REDUCED
AND OUR BUSINESS PROSPECTS COULD BE SIGNIFICANTLY LIMITED
Our products are incorporated into our customers' display monitors which
have different parts and specifications and utilize multiple protocols that
allow them to be compatible with specific PCs and other devices. If our
customers' products are not compatible with the PCs and other devices for which
they have been marketed and sold, consumers will return those monitors, or
consumers will not purchase those monitors, and the market for our customers'
products could be significantly reduced. As a result, a portion of our market
would be eliminated, and our business would be harmed.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
COULD HARM OUR COMPETITIVE POSITION BY ALLOWING OUR COMPETITORS TO ACCESS OUR
PROPRIETARY TECHNOLOGY AND TO INTRODUCE SIMILAR DISPLAY PROCESSOR PRODUCTS
Our ability to compete effectively with other companies will depend, in
part, on our ability to maintain the proprietary nature of our technology. We
have four pending patent applications filed with the U.S. Patent and Trademark
Office for protection of certain of our significant technologies, but we cannot
assure you that the degree of protection offered by these patents will be
sufficient or that any of our pending patents will be issued. In addition,
competitors in both the U.S. and foreign countries, many of which have
substantially greater resources, may apply for and obtain patents that will
prevent, limit or interfere with our ability to make and sell our products.
We may from time to time receive notifications of claims that we may be
infringing patents or intellectual property rights owned by third parties. While
there is currently no intellectual property rights litigation pending against
us, litigation could result in significant expenses to us and could reduce sales
of our products. Any litigation could also divert the efforts of our technical
and management personnel, whether or not the litigation is determined in our
favor. In addition, we may not be able to develop, license or acquire
non-infringing technology under reasonable terms. These developments could
result in an inability to compete for customers or could adversely affect our
ability to increase our earnings. See "Business -- Intellectual Property."
ALTHOUGH WE ARE NOT PRIMARILY A SUPPLIER OF SOFTWARE, OUR SUPPLIERS COULD BE
ADVERSELY AFFECTED BY YEAR 2000 ISSUES WHICH COULD DISRUPT OUR ABILITY TO
DELIVER PRODUCTS TO OUR CUSTOMERS
The year 2000 problem is the potential for system and processing failure of
date-related data as a result of computer-controlled systems that use two digits
rather than four to define a year in the date field. Many computer hardware
systems and software applications could fail or create erroneous results unless
corrected so that they can correctly process data related to the year 2000 and
beyond. Although we are not primarily a supplier of software, we outsource all
of our semiconductor manufacturing to third party suppliers and, to the extent
such manufacturers may be affected by the year 2000 problem, our supply of
semiconductors could be delayed or eliminated. Any disruption in the supply of
semiconductors related to the year 2000 problem could directly affect our sales
and reduce our results of operations. We are currently seeking assurances from
our suppliers that their manufacturing of our semiconductors will be unaffected
by the year 2000 problem but have not received such assurances to date. We
expect to receive such assurances by December 1999, and, in the event certain
manufacturers fail to provide assurances, we plan to work with each such
manufacturer on an individual basis. The year 2000 problem could also affect our
internal systems, including our information technology systems. We have
initiated an assessment of our material
10
<PAGE> 15
internal information technology systems, which we expect to have completed by
December 1999. We are currently developing contingency plans to address those
year 2000 issues that may pose a significant risk to our ongoing operations. For
additional information concerning the year 2000 risk and our assessment of its
impact on our business, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Readiness."
RISKS RELATED TO THE DISPLAY PROCESSING INDUSTRY
FAILURE OF CONSUMER DEMAND FOR FLAT PANEL DISPLAYS AND OTHER DISPLAY
TECHNOLOGIES TO INCREASE AS WE EXPECT COULD IMPEDE OUR GROWTH PROSPECTS
Our product development strategies anticipate that consumer demand for flat
panel displays and other emerging display products will increase in the future.
The success of our products is dependent on increased demand for these products,
which are at early stages of development. The potential size of the flat panel
display market and the timing of its development are uncertain and will depend
upon a number of factors, all of which are beyond our control.
THERE IS CURRENTLY AN UNDERSUPPLY OF FLAT PANELS, AND IF THE MANUFACTURING
CAPACITY OF FLAT PANELS DOES NOT INCREASE, OUR MARKET GROWTH WILL BE LIMITED
Currently, there is a limited supply of flat panels, and increasing the
supply of flat panels is a costly and lengthy process requiring significant
capital investment. Accordingly, we do not expect the current shortage of flat
panels or their high prices to change in the near term. In the past, the supply
of flat panels has been cyclical. We expect this pattern to continue.
Undercapacity in the flat panel market may limit our ability to increase our
revenues because our customers may limit their purchases of our products if they
cannot obtain sufficient supplies of flat panels. In addition, flat panel
monitor prices may remain high because of limited supply, and consumer demand
may not grow if the supply of flat panels does not increase.
INTENSE COMPETITION MAY REDUCE THE DEMAND OR PRICES FOR OUR PRODUCTS, DECREASING
OUR GROSS MARGIN
The display signal processing industry is intensely competitive. Rapid
technological change, evolving industry standards and declining average selling
prices in these markets could have a material adverse effect on our business,
financial condition and results of operations. As the overall price of flat
panel display screens continues to fall, we may be required to offer solutions
to manufacturers at discounted prices due to increased price competition. At the
same time, new, alternative display processing technologies and industry
standards may emerge that directly compete with technologies that we offer. We
may be required to increase our investment in research and development at the
same time that product prices are falling. In addition, even after making this
investment, we cannot assure you that our technologies will be superior to those
of our competitors or that our products will achieve market acceptance, whether
for performance or price reasons. Failure to effectively respond to these trends
could reduce the demand for our products.
We compete with a range of diversified electronic and semiconductor
companies that offer display processors, some of which have substantially
greater resources than we do. In particular, we compete against Arithmos, Inc.,
Genesis Microchip, Inc., Pixelworks, Inc. and Silicon Image, Inc. We also
compete in some instances against in-house processing solutions designed by
large original equipment manufacturers, or OEMs. In the future, our current or
potential customers may also develop their own proprietary display processors
and become our competitors. In addition, start-up companies that are seeking to
capitalize on business opportunities as a result of the shift from analog to
digital technology may seek to compete in our markets. Our competitors may
develop advanced
11
<PAGE> 16
technologies enabling them to offer more cost-effective and higher quality
solutions to our OEM customers than those offered by us. Increased competition
could harm our business, financial condition and results of operations by, for
example, increasing pressure on our profit margin or causing us to lose sales
opportunities.
BECAUSE OF OUR LONG PRODUCT DEVELOPMENT PROCESS AND SALES CYCLE, WE MAY INCUR
SUBSTANTIAL EXPENSES BEFORE WE EARN ASSOCIATED REVENUES AND MAY NOT ULTIMATELY
SELL AS MANY UNITS OF OUR PRODUCTS AS WE FORECASTED
We develop products based on forecasts of demand and incur substantial
product development expenditures prior to generating associated revenues. Our
customers typically perform numerous tests and extensively evaluate our products
before incorporating them into their systems. The time required for testing,
evaluation and design of our products into a customer's equipment can take up to
six months or more. Because of our relatively limited history in selling our
products, we cannot assure you that the time required for the testing,
evaluation and design of our products by our customers will not exceed six
months. Because of this lengthy development cycle, we may experience a delay
between the time we accrue expenses for research and development and sales and
marketing efforts and the time when we generate revenues, if any, from such
expenditures.
Furthermore, achieving a design win with a customer does not necessarily
mean that this customer will order large volumes of our products. A design win
is not a binding commitment by a customer to purchase our products. Rather, it
is a decision by a customer to use our products in the design process of that
customer's products. In addition, our customers can choose at any time to
discontinue using our products in that customer's designs or product development
efforts. If our products are chosen to be incorporated into a customer's
products, we may still not realize significant revenues from that customer if
that customer's products are not commercially successful.
WE MAY NOT BE ABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN THE MARKETS
IN WHICH WE COMPETE OR TO COMPLY WITH INDUSTRY STANDARDS IN THE FUTURE
The markets in which we compete or seek to compete are subject to rapid
technological change, frequent new product introductions, changing customer
requirements for new products and features, and evolving industry standards. The
introduction of new technologies and the emergence of new industry standards
could render our display processors less desirable or obsolete. If we fail to
produce technologically competitive products in a cost-effective manner and on a
timely basis, and if we are unable to comply with industry standards in the
future, our business and results of operations could be harmed.
IF WE DO NOT ACHIEVE DESIGN WINS WITH LEADING DISPLAY MANUFACTURERS, WE MAY BE
UNABLE TO SECURE ADDITIONAL DESIGN WINS IN THE FUTURE AND OUR ABILITY TO GROW
WOULD BE SERIOUSLY LIMITED
The development of new, technologically advanced products and product
enhancements is a complex and uncertain process requiring accurate anticipation
of technological and market trends, as well as skill in obtaining design wins.
Any failure on our part to obtain additional design wins with leading OEMs and
to successfully design, develop and introduce new products and product
enhancements could harm our business, financial condition and results of
operations. In addition, development and manufacturing schedules for our
products are difficult to predict, and we cannot assure you that we will achieve
timely customer shipments of new products. The timely introduction of these
products and their acceptance by customers are important to our future success.
Any delays in product development, whether due to manufacturing, product design
and development, lack of market acceptance or otherwise, could reduce future
customer acceptance of our products and harm our business, financial condition
and results of operations.
12
<PAGE> 17
RISKS RELATED TO THIS OFFERING
THE SUBSTANTIAL NUMBER OF SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE COULD
CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE
We will have 9,805,795 shares of common stock outstanding immediately after
the offering. The shares sold in the offering will be freely transferable.
Additional shares may be sold in the public market to the extent permitted by
Rule 144 or exemptions under the Securities Act. Lock-up agreements executed by
our stockholders limit the number of shares of common stock that may be sold in
the public markets. However, BancBoston Robertson Stephens Inc., may in its sole
discretion, release all or some portion of the securities subject to the lock-up
agreements. The market price of our common stock could decline as a result of
sales of a large number of shares of our common stock in the market after the
offering, or the perception that such sales could occur. These factors also
could make it more difficult for us to raise funds through future offerings of
common stock. See "Shares Eligible for Future Sale."
MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE
OUR PROFITS OR MARKET VALUE
Our management will have considerable discretion in the application of the
proceeds, and you will not have the opportunity, as part of your investment
decision, to assess whether the proceeds are being used appropriately. The
proceeds may be used for corporate purposes that do not increase our
profitability or our market value. Pending application of the proceeds, they may
be placed in investments that do not produce income or that lose value. See "Use
of Proceeds."
NEW INVESTORS WILL INCUR SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price of our common stock will be substantially
higher than the net tangible book value per share of the outstanding common
stock immediately after this offering. Therefore, based upon an assumed initial
public offering price of $9.00 per share, if you purchase our common stock in
this offering, you will incur substantial and immediate dilution of
approximately $6.11 per share. If additional shares are sold by the underwriters
following the exercise of their overallotment option, or if outstanding options
to purchase shares of common stock are exercised, there will be further dilution
of your investment.
THE ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION COULD ADVERSELY
AFFECT THE RIGHTS OF THE HOLDERS OF OUR COMMON STOCK BY PREVENTING A SALE OR
TAKEOVER OF THE COMPANY AT A PRICE OR PRICES FAVORABLE TO THE HOLDERS OF OUR
COMMON STOCK
Certain anti-takeover provisions of Delaware law and our certificate of
incorporation may make a change in control of Sage more difficult, even if a
change in control would be beneficial to the stockholders. These provisions may
allow the board of directors to prevent changes in the management and control of
Sage. Under Delaware law, our board of directors may adopt additional
anti-takeover measures in the future. One anti-takeover provision that we have
is the ability of our board of directors to determine the terms of preferred
stock and issue such preferred stock without the approval of the holders of the
common stock. At the time of the offering, there are no shares of such preferred
stock outstanding. However, because the rights and preferences of any series of
preferred stock may be set by the board of directors in its sole discretion
without approval of the holders of the common stock, the rights and preferences
of this preferred stock may be superior to those of the common stock.
Accordingly, the rights of the holders of common stock may be adversely
affected.
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<PAGE> 18
OUR PRINCIPAL STOCKHOLDERS HAVE SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS
THAT MAY MAKE IT MORE DIFFICULT TO SELL THE COMPANY AT A PREMIUM TO CERTAIN
TAKEOVER CANDIDATES
Immediately after the offering, our executive officers, directors and other
principal stockholders will, in the aggregate, beneficially own approximately
43.7% of our outstanding common stock. Although these stockholders will not have
majority control, they currently have, and likely will continue to have,
significant influence with respect to the election of our directors and approval
or disapproval of our significant corporate actions. This influence over our
affairs might be adverse to the interests of other stockholders. In addition,
the voting power of these stockholders, under certain circumstances, could have
the effect of delaying or preventing a change in control over our business.
OUR COMMON STOCK HAS NOT BEEN PUBLICLY TRADED, AND WE EXPECT THAT THE PRICE OF
OUR STOCK MAY FLUCTUATE SUBSTANTIALLY
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined through negotiations
between the underwriters and us. You may not be able to sell your shares at or
above the initial public offering price due to a number of factors, including:
- actual or anticipated fluctuations in our operating results;
- changes in expectations as to our future financial performance;
- changes in financial estimates of securities analysts;
- technological innovations by others; and
- the operating and stock price performance of other comparable companies.
In particular, the stock prices of technology companies like Sage have been
highly volatile recently. Therefore, the price of our stock may decline, and the
value of your investment may be reduced.
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<PAGE> 19
NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
prospectus regarding markets for our products and trends in revenues, gross
margin and anticipated expense levels, and any statement that contains the words
"anticipate," "believe," "plan," "estimate," "expect," "intend," "seek" and
other similar expressions, constitute forward-looking statements. These
forward-looking statements are subject to business and economic risks, including
those risks identified in "Risk Factors" and elsewhere in this prospectus and
our actual results of operations may differ significantly from those contained
in the forward-looking statements because of such risks. The cautionary
statements made in this prospectus apply to all forward-looking statements
wherever they appear in this prospectus.
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 3,000,000 shares of
common stock that we are offering will be approximately $24.1 million
(approximately $27.9 million if the underwriters' over-allotment option is
exercised in full) assuming an initial public offering price of $9.00 per share
and after deducting estimated offering expenses and underwriting discounts and
commissions payable by us. We intend to use the net proceeds primarily for
working capital expenditures associated with the purchase of additional
inventory related to the expansion of our product line and increasing our sales
to international customers and for general corporate purposes. Although we may
use a portion of the net proceeds to acquire technology or businesses that are
complimentary to our business, we have no current plans in this regard. Pending
such uses, we plan to invest the net proceeds in short-term, interest-bearing,
investment grade securities. Another purpose of this offering is to create a
public market for our common stock and to facilitate our future access to public
capital markets.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock or other
securities and do not intend to pay dividends in the foreseeable future. We plan
to retain any earnings for use in the operation of our business and to fund
future growth.
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<PAGE> 20
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis; and
- on an as adjusted basis to reflect the application of the estimated net
proceeds from the initial public offering and the conversion of all
outstanding shares of our preferred stock into common stock.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Stockholders' equity:
Convertible Preferred stock, $0.01 par value; 10,000,000
shares authorized; 3,062,697 shares issued and
outstanding, actual; no shares issued and outstanding,
as adjusted............................................ $ 31 --
Common stock, $0.01 par value; 50,000,000 shares
authorized, 3,622,553 shares issued and outstanding,
actual; 9,805,795 shares issued and outstanding, as
adjusted............................................... 36 98
Additional paid in capital................................ 17,640 41,719
Notes receivable from stockholders........................ (113) (113)
Deferred compensation related to stock options and
restricted stock....................................... (646) (646)
Accumulated deficit....................................... (12,696) (12,696)
--------
Total stockholders' equity................................ 4,252 28,362
-------- --------
Total capitalization................................... $ 4,252 $ 28,362
======== ========
</TABLE>
The information in the table above excludes:
- 1,016,095 shares subject to outstanding options as of September 30, 1999
at a weighted average exercise price of $3.00 per share;
- 578,782 additional shares available for grant under our 1997 Stock Plan
as of September 30, 1999; and
- 189,659 shares subject to outstanding warrants as of September 30, 1999
at a weighted average exercise price of $4.36 per share.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Management -- Employee Benefit Plans" and the consolidated financial statements
and the notes thereto included elsewhere in this prospectus.
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<PAGE> 21
DILUTION
Our pro forma net tangible book value at September 30, 1999 was
approximately $4,252,000, or $0.62 per share after giving effect to the
conversion of all outstanding shares of our preferred stock into shares of
common stock upon completion of this offering. Pro forma net tangible book value
per share is equal to our total tangible assets less our total liabilities,
divided by the total number of shares of our common stock outstanding. After
giving effect to the sale of the 3,000,000 shares of our common stock offered in
this offering at an assumed initial public offering price of $9.00 per share
(after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us) our pro forma as adjusted net tangible book
value at September 30, 1999 would have been approximately $28,362,000 or $2.89
per share. This represents an immediate increase in net tangible book value of
$2.27 per share to existing stockholders and an immediate dilution of $6.11 per
share to new investors purchasing shares of our common stock in this offering.
The following table illustrates the per share dilution to the new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 9,00
Pro forma net tangible book value per share at September
30, 1999............................................... $ 0.62
Increase in pro forma net tangible book value per share
attributable to this offering.......................... 2.27
------
Pro forma net tangible book value per share as adjusted
after the offering........................................ 2.89
------
Dilution per share to new investors in this offering........ $ 6.11
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, the total number of stockholders and new investors with respect to the
number of shares our common stock purchased from Sage, the total consideration
paid and the average price per share paid by the existing stockholders and by
the new investors in this offering before deducting the underwriting discounts
and commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 6,805,795 69% $17,887,000 40% $2.63
New investors.......................... 3,000,000 31 27,000,000 60% 9.00
--------- --- ----------- ---
Total................................ 9,805,795 100% $44,887,000 100%
========= === =========== ===
</TABLE>
The information in the table above excludes:
- 1,016,095 shares subject to outstanding options as of September 30, 1999
at a weighted average exercise price of $3.00 per share;
- 578,782 additional shares available for grant under our 1997 Stock Plan
as of September 30, 1999; and
- 189,659 shares subject to outstanding warrants as of September 30, 1999
at a weighted average exercise price of $4.36 per share.
This table should be read in conjunction with "Capitalization,"
"Management -- Employee Benefit Plans" and note 7 of the notes to consolidated
financial statements included elsewhere in this prospectus.
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<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements, the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the fiscal years ended March 31, 1997, 1998 and 1999, and
consolidated balance sheet data at March 31, 1998 and 1999, are derived from our
audited consolidated financial statements included in this prospectus. The
consolidated statement of operations data for the six months ended September 30,
1998 and 1999 and the consolidated balance sheet data at September 30, 1999 are
derived from our unaudited consolidated financial statements included in this
prospectus. The consolidated balance sheet data at March 31, 1997 is derived
from our audited consolidated financial statements not included in this
prospectus. The consolidated statement of operations data for the years ended
March 31, 1995 and 1996, and consolidated balance sheet data at March 31, 1995
and 1996, are derived from our unaudited consolidated financial statements not
included in this prospectus. Our unaudited consolidated financial statements
have been prepared by us on a basis consistent with our audited financial
statements and, in management's opinion, include all adjustments necessary for a
fair presentation of such information. The operating results for the six months
ended September 30, 1999 are not necessarily indicative of results that may be
expected for the year ended March 31, 2000 or any other interim period or future
fiscal year.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED MARCH 31, ENDED SEPTEMBER 30,
------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1998 1999
------ ------ ------ ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues......................... $ -- $ 251 $1,758 $ 1,495 $ 7,132 $ 1,346 $ 7,460
Cost of revenues................. -- 183 1,136 1,639 4,914 877 4,537
------ ------ ------ ------- -------- ------- -------
Gross profit (loss).............. 68 622 (144) 2,218 469 2,923
Operating expenses:
Research and development....... 47 380 994 1,597 2,270 1,039 1,805
Charge for in-process
technology................... -- -- -- -- -- -- 2,500
Selling, general and
administration............... 10 71 329 945 3,214 1,094 2,355
Stock compensation............. -- -- -- -- 1,596 1,005 367
------ ------ ------ ------- -------- ------- -------
Total operating expenses..... 57 451 1,323 2,542 7,080 3,138 7,027
------ ------ ------ ------- -------- ------- -------
Loss from operations............. (57) (383) (701) (2,686) (4,862) (2,669) (4,104)
Interest income (expense), net... -- (1) (7) (89) 111 53 83
------ ------ ------ ------- -------- ------- -------
Net loss......................... $ (57) $ (384) $ (708) $(2,775) $ (4,751) $(2,616) $(4,021)
====== ====== ====== ======= ======== ======= =======
Net loss per share: basic and
diluted........................ $(0.04) $(0.19) $(0.32) $ (1.08) $ (2.00) $ (1.07) $ (1.36)
====== ====== ====== ======= ======== ======= =======
Pro forma net loss per share..... $ (0.96) $ (0.67)
======== =======
Shares used in computing net loss
per
share: basic and diluted....... 1,400 1,995 2,246 2,578 2,381 2,444 2,953
Shares used in computing pro
forma net loss per share....... 4,965 5,994
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
-------------------------------------------- -------------
1995 1996 1997 1998 1999 1999
---- ----- ------ ------- ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $ -- $ 9 $ 908 $ 380 $2,473 $4,033
Working capital............................ (15) (263) 357 (1,440) 1,471 3,332
Total assets............................... -- 126 1,692 1,309 4,293 7,563
Total current liabilities.................. 15 385 1,154 2,281 2,390 3,311
Total stockholders' equity................. (15) (259) 538 (972) 1,903 4,252
</TABLE>
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our
consolidated financial statements and the notes thereto included elsewhere in
this prospectus. The results described below are not necessarily indicative of
the results to be expected in any future period. Certain statements in this
discussion and analysis are forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements are subject to certain
risk and uncertainties that could cause actual results to differ materially from
historical results or our predictions. See "Note Regarding Forward-Looking
Statements."
OVERVIEW
Sage was founded in 1994 and began operations in 1995. We design, develop
and market high performance digital display processors used in digital displays.
Flat panel displays and other emerging digital display devices have substantial
advantages over their traditional analog counterparts, and markets for these
products are beginning to grow rapidly. Display signals are characterized by
several important attributes: resolution, frame refresh rate, scanning format
and color depth. Combinations of these characteristics are called modes, and
there are over 100 different modes used today to display images on PCs and
televisions. These modes must be recognized and processed to produce a high
quality image on a display. Display manufacturers seek display processing
solutions that can function effectively with the large number of existing and
emerging signal modes, ensure the compatibility of new displays with the large
installed base of PCs and provide consumers with plug and play capability.
We offer state-of-the-art digital display processors that provide, highly
integrated analog-to-digital conversion, signal reformatting and color
processing capabilities. Our solutions are compatible with all commercially
available display signal modes and display types and are designed with a common
architecture, configurable software and modular components that can be easily
and rapidly incorporated into digital display devices. We sell our processing
solutions to leading display manufacturers, including Fujitsu, NEC and Sanyo.
Since our inception, we have focused primarily on the design and sale of
high performance display processors. In our early operations we developed
circuit boards assembled with off-the-shelf display processors and other
components. We secured limited sales of these circuit board products through
independent distributors to manufacturers of low volume, embedded display
products, such as medical or measuring equipment, and to systems integrators
developing their own flat panel display monitors.
In November 1996, we introduced our first display processor, Cheetah, as a
prototype based on 0.6 micron technology. In November 1997, we introduced
Cheetah1, based on the prototype Cheetah architecture, but manufactured using
0.35 micron technology. During the fiscal year ended March 31, 1998, we secured
limited orders to incorporate the Cheetah1 into display processing boards
designed by us. Throughout this period, we developed and perfected our core
display processing technology, built our firmware library and identified
qualified semiconductor manufacturing vendors.
In April 1998, we introduced our Cheetah2 display processor, with an
improved scaling engine, an AutoSet feature that automatically adjusts the image
position and quality, and a modular design that allows external memory to be
added as an option to support increased functionality. Cheetah2's features led
to significant design wins with large OEM flat panel display manufacturers. In
July 1998, we achieved our first significant revenues from sales of Cheetah2,
and in April 1999, we released our Cheetah3 and Cheetah4 semiconductor products.
These display processors are designed around the same core technologies as our
Cheetah2 semiconductor and provide advanced functionality for higher performance
and more specialized applications. We have achieved significant design wins for
19
<PAGE> 24
Cheetah3 and Cheetah4. We have commenced shipping of Cheetah3 and expect to
begin shipping Cheetah4 in commercial quantities in the immediate future.
Since July 1998, we have derived our revenues principally through sales of
our semiconductors to large OEM display manufacturers. We recognize revenues
when our products are shipped to our customers or, in cases of sales to
distributors made under agreements permitting the return of unsold products,
when our distributors ship the products to their customers. Generally, we ship
our products within a few weeks after order, and therefore we carry no
significant backlog. Because our semiconductors are purchased for installation
in our OEM customers' products, our ability to recognize revenues depends upon
our customers' product development cycles. Also, our customers may limit our
ability to announce significant design wins if they see competitive advantages
in not disclosing the technology built into their newest display devices.
Currently, we produce packaged, assembled and tested semiconductor
products. However, we expect that we will assume greater responsibility over
this process for our next generations of display processors by separately
subcontracting for the production of wafers, the assembly of the completed
semiconductor and their testing. While this transition to a new manufacturing
model will expose us to greater responsibilities for semiconductor yields and
the coordination of the assembly and testing process, we believe that our gross
margins will improve and that the transition will result in our having greater
control over the manufacturing process.
Historically, sales of display processing circuit boards have represented a
substantial portion of our revenues. In the future, we expect sales of circuit
boards to decline as a percentage of total revenues and sales of display
processors to increase as a percentage of total revenues. From time to time,
however, we may be asked to design and supply our circuit boards to low volume
manufacturers and other OEM manufacturers who are not equipped or prefer not to
design and develop their own circuit boards. Because we generate significantly
lower operating margins on circuit boards as compared to display processors,
fluctuations in our product mix will impact our overall operating margins.
In July 1999, we entered into a joint development agreement with Faroudja
under which we issued 375,000 shares of common stock to Faroudja in exchange for
an aggregate amount of $500,000 in cash and a limited exclusive license to
certain of Faroudja's decoding, deinterlacing and image enhancement technologies
that can only be used in products currently under development. Under the terms
of the agreement, we intend to produce a family of video display processors
incorporating Faroudja technology that are intended to expand our semiconductor
technology into emerging television and monitor markets. We intend to
incorporate Faroudja's technologies into our proprietary display processing
solutions to create a video solution for the mass television market by combining
Faroudja's decoding, deinterlacing and image algorithms with our technology. The
acquired in-process technology was valued at 375,000 shares, issued at $8.00 per
share, less the cash receipt of $500,000. As a result of that transaction, we
recorded an expense of $2.5 million relating to in-process research and
development during the three months ended September 30, 1999. We have completed
approximately five percent of the work involved to date and the project is
proceeding according to our expectations. Faroudja has delivered the licensed
technology, executed several design transfers and conducted meetings with us as
required by the agreement. In addition, we have also met with Faroudja to
discuss the architecture and specifications for our video display processor, and
we hope to complete the architecture and specifications in the fourth quarter of
fiscal year 1999. We estimate incurring costs within the range of $1.8 to $2.5
million to complete the product incorporating the in-process technology acquired
from Faroudja. We will expense the costs incurred prior to establishing
technological feasibility as those costs are incurred. Our successful
development of the product is uncertain due to the challenges of integrating our
technology with the Faroudja technology. If we fail to successfully develop the
product on a timely basis, the introduction of new products could be prevented
or delayed and ultimately decrease our ability to compete for new business. Such
failure would negatively impact our future revenues and net income. We have not
to
20
<PAGE> 25
date encountered any deviations from our cost projections, and we expect to
introduce the new semiconductor in November of 2000. For a more detailed
discussion, see the description provided under the headings "Risk Factors" and
the notes to our consolidated financial statements.
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, certain
consolidated statement of operations data reflected as a percentage of revenues.
Our results of operations are reported as a single business segment.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED MARCH 31, ENDED SEPTEMBER 30,
------------------------ -------------------
1997 1998 1999 1998 1999
----- ------ ----- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................. 64.6 110.6 68.9 65.2 60.8
----- ------ ----- ------ -----
Gross margin (loss).......................... 35.4 (9.6) 31.1 34.8 39.2
----- ------ ----- ------ -----
Operating expenses:
Research and development................... 56.6 106.8 31.8 77.2 24.2
Charge for in-process technology........... -- -- -- -- 33.5
Selling, general and administration........ 18.7 63.2 45.1 81.3 31.6
Stock compensation expense related to
options................................. -- -- 22.4 74.7 4.9
----- ------ ----- ------ -----
Total operating expenses................ 75.3 170.0 99.3 233.2 94.2
----- ------ ----- ------ -----
Loss from operations......................... (39.9) (179.7) (68.2) (198.4) (55.0)
Interest income (expense), net............... (0.4) (6.0) 1.6 3.9 1.1
----- ------ ----- ------ -----
Net loss..................................... (40.3)% (185.6)% (66.6)% (194.5)% (53.9)%
===== ====== ===== ====== =====
</TABLE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues. Our revenues were $7.5 million and $1.3 million in the six months
ended September 30, 1999 and 1998, respectively. Revenues increased due to the
commencement of commercial sales of our new Cheetah3 and Cheetah4 display
processors in September 1999 and to a significant increase in sales of circuit
board products. Revenues from two customers, NEC and Elo TouchSystems, accounted
for 29.3% and 19.9%, respectively, of total revenues for the six months ended
September 30, 1999. Revenues from sales of our display processors increased to
$3.5 million, compared to only $465,000 in the six months ended September 30,
1998. This increase was primarily due to additional sales to NEC, which
accounted for 46.3% of our total revenues in the six months ended September 30,
1999. Revenues from sales of our circuit board products increased to $3.4
million in the six months ended September 30, 1999, compared to $781,000 in the
six months ended September 30, 1998, primarily due to the addition of Elo
TouchSystems as a new circuit board customer. Our circuit board products
represented 45.8% and 58.0% of total revenues in the six months ended September
30, 1999 and September 30, 1998, respectively. For the six months ended
September 30, 1999, we purchased and shipped $343,000 of hard-to-find
components, including memory chips and high-speed analog-to-digital converters,
required as a condition of semiconductor sales, and we recognized $245,000 of
non-recurring engineering, or NRE, revenues following the achievement of certain
OEM board development milestones. No NRE revenues were recognized in the six
months ended September 30, 1998. In future quarters, we expect semiconductor
sales to increase and represent a majority of our revenues.
Gross margin. Our gross margin was 39.2% and 34.8% for the six months ended
September 30, 1999 and 1998, respectively. The increase in gross margin for the
six months ended September 30,
21
<PAGE> 26
1998 to the six months ended September 30, 1999 was due to changes in the mix of
products we sold and the benefit of fixed period costs being spread over a
larger sales volume. Due to the changes in the products we sold in fiscal 1999
as compared to fiscal 1998, there was a higher proportion of sales of higher
margin products for the six months ended September 30, 1999 than for the six
months ended September 30, 1998. For the six months ended September 30, 1999,
our gross margins from sales of semiconductor products, circuit boards and other
products were 56.8%, 32.5% and 5.8%, respectively. For the six months ended
September 30, 1998, our gross margin from sales of semiconductor products and
circuit boards were 42.2% and 59.3%, respectively. We did not sell other
products during the six months ended September 30, 1998.
Research and development. Our research and development expenses were
$1,805,000 and $1,039,000 for the six months ended September 30, 1999 and 1998,
respectively. Research and development expenses represented 24.2% and 77.2% of
revenues for the six months ended September 30, 1999 and 1998, respectively. Our
research and development expenses consist of compensation and personnel related
expenses and costs for purchased materials, designs and tooling, which can
fluctuate significantly from period to period as a result of our product
development cycles. The compensation and personnel related expenses were
approximately 32.8% and 30.9% of the research and development expenses for the
six months ended September 30, 1999 and 1998, respectively. During the six
months ended September 30, 1998, our current generation of semiconductors was in
development and started commercial shipments, and we increased our spending on
purchased materials, designs and tooling. We expect similar increases in future
quarterly research and development expenses as we increase product development
efforts in connection with our next generation of semiconductors.
Selling, general and administration. Selling, general and administration
expenses were $2.4 million and $1.1 million for the six months ended September
30, 1999 and 1998, respectively. Our selling, general and administration
expenses consist primarily of compensation and personnel related expenses and
commissions paid to independent sales representatives. The compensation and
personnel related expenses were 47.3% and 66.5% of selling, general and
administration expenses for the six months ended September 30, 1999 and 1998,
respectively. Commissions paid to independent sales representatives represented
15.6% and 5.1% of total selling, general and administration expenses for the six
months ended September 30, 1999 and 1998. As a percentage of revenues, our
selling, general and administration expenses decreased to 31.6% of revenues for
the six months ended September 30, 1999, from 81.3% of revenues for the six
months ended September 30, 1998. This decrease in selling, general and
administration expenses in proportion to revenues was largely the result of a
significant increase in sales volume partially offset by increased payroll.
Stock compensation. Stock compensation expenses amounted to $367,000 and
$1.0 million, for the six months ended September 30, 1999 and 1998,
respectively. Deferred compensation, representing the difference between the
deemed fair market value of our common stock on the date of grant and the
exercise price of stock options on the date of grant, is amortized on an
accelerated basis as the options vest. We expect deferred compensation expenses
of $646,000 as of September 30, 1999 to be amortized on an accelerated basis
over the vesting period of generally four years.
Provision for income taxes. We incurred operating losses for the six months
ended September 30, 1999 and 1998 and therefore had no provision for income tax
in either period. As of March 31, 1999, we had $5.1 million in net operating
losses, which are available to offset future taxable income. If not used, the
net operating losses will expire between 2010 and 2019.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 1999, 1998 AND 1997
Revenues. Revenues for the fiscal years ended March 31, 1999, 1998 and 1997
were $7.1 million, $1.5 million and $1.8 million, respectively. Revenues
increased $5.6 million from fiscal year 1998 to fiscal year 1999 as a result of
$4.9 million increase of sales of our newly introduced
22
<PAGE> 27
Cheetah2 processor and circuit boards built around the Cheetah2. The remaining
increase represented the increase in sales to our semiconductor customers of
hard-to-find components. Revenues from sales of our semiconductors represented
approximately 48.2% of total revenues for the fiscal year 1999. During fiscal
year 1998 and fiscal year 1997, revenues from the sale of semiconductors were
not significant. Revenues from sales of our circuit board products represented
28.2% for the fiscal year 1999 and almost all of sales for the fiscal year 1998
and fiscal year 1997. Revenues from sales of our circuit board products declined
from fiscal year 1997 to fiscal year 1998 due to a shift in the focus of our
business from circuit boards to semiconductors, resulting in a greater emphasis
on semiconductor product development as opposed to sales of circuit board
products.
Gross margin. Gross margin for the fiscal years ended March 31, 1999, 1998
and 1997 was 31.1%, (9.6)% and 35.4%, respectively. Our negative gross margin
for the fiscal year ended March 31, 1998 reflected the $600,000 write-off of
obsolete circuit board inventories. During fiscal year 1999, the increase in our
gross margin was the result of increased revenues from higher margin
semiconductor products.
Research and development. Research and development expenses increased to
$2.3 million, in the fiscal year ended March 31, 1999, from $1.6 million and
$994,000, in the fiscal years ended March 31, 1998 and 1997, respectively. As a
percentage of revenues, research and development expenses represented 31.8%,
106.8% and 56.6% of revenues during the fiscal years ended March 31, 1999, 1998,
and 1997, respectively. Our fiscal year 1998 research and development expenses
increased compared to the fiscal year 1997 primarily because of the engineering
research and prototype development of Cheetah2. As a result, the compensation
and personnel related expenses increased from 21.4% in 1997 to 37.6% in 1998 as
of the total research and development expenses. The costs for the purchased
materials, designs and tooling increased from 10.1% in fiscal year 1997 to 30.8%
in fiscal year 1998. Our fiscal year 1999 research and development expenses
increased compared to the fiscal year 1998 research and development expenses as
a result of an increase in engineers employed in our research and development
efforts. However, as revenues increased from fiscal year 1998 to fiscal year
1999, research and development expenses, as a percentage of revenues, declined.
Although we expect absolute expenses to increase, we expect research and
development expenses as a percentage of revenues to decrease.
Selling, general and administration. For the fiscal years ended March 31,
1999, 1998 and 1997, selling, general and administration expenses were $3.2
million, $945,000 and $329,000, respectively. Selling, general and
administration expenses represented 45.1%, 63.2% and 18.7% of revenues in the
years ended March 31, 1999, 1998 and 1997, respectively. The overall increase in
our selling, general and administration expenses was principally related to the
introduction of the Cheetah2 in 1998 and the related increase in salaries,
commissions to independent sales representatives, travel and promotional
expenses. In the future, we anticipate that our expenditures will decline as a
percentage of revenues increase from our semiconductor products.
Stock compensation. We incurred stock compensation expenses of $1.6 million
for fiscal year 1999. Stock compensation expenses were not incurred in fiscal
year 1998 and fiscal year 1997.
Interest income (expense), net. For the fiscal years ended March 31, 1999,
1998 and 1997, interest income and interest expense were minor. We have financed
our business operations primarily through a series of relatively small private
equity transactions.
Provision for income taxes. We incurred operating losses for each of the
fiscal years ended March 31, 1999, 1998, or 1997, and therefore made no
provision for income tax in these fiscal years. As of March 31, 1999, we had
$5.1 million in net operating losses which are available to offset future
taxable income earned until between 2010 and 2019.
23
<PAGE> 28
QUARTERLY RESULTS OF OPERATION
The following table sets forth certain unaudited selected quarterly results
of operations data for the eight quarters ended September 30, 1999, as well as
such data expressed as a percentage of revenues. This data has been derived from
our unaudited consolidated financial statements that, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of such information for the
periods presented. Such statements of operations data should be read in
conjunction with our annual consolidated financial statements, and the related
notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30,
1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS AND AS A PERCENTAGE OF REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS:
Revenues............................... $ 352 $ 249 $ 465 $ 881 $ 2,283 $ 3,503 $ 3,775 $ 3,685
Cost of revenues....................... 374 507 352 525 1,335 2,702 2,443 2,094
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss).................... (22) (258) 113 356 948 801 1,332 1,591
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development............. 417 435 465 574 524 707 715 1,090
Charge for in-process technology..... -- -- -- -- -- -- -- 2,500
Selling, general and
administration..................... 272 250 511 583 868 1,252 1,058 1,297
Stock compensation expense related to
options............................ -- -- 610 395 333 258 202 165
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses....... 689 685 1,586 1,552 1,725 2,217 1,975 5,052
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations................... (711) (943) (1,473) (1,196) (777) (1,416) (643) (3,461)
Interest income (expense), net......... (6) (91) 19 34 30 28 26 57
------- ------- ------- ------- ------- ------- ------- -------
Net loss............................... $ (717) $(1,034) $(1,454) $(1,162) $ (747) $(1,388) $ (617) $(3,404)
======= ======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF REVENUES:
Revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....................... 106.3 203.6 75.7 59.6 58.5 77.1 64.7 56.8
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss).................... (6.3) (103.6) 24.3 40.4 41.5 22.9 35.3 43.2
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development............. 118.4 174.7 100.0 65.2 23.0 20.2 19.0 29.6
Charge for in-process technology..... 67.8
Selling, general and
administration..................... 77.3 100.4 109.9 66.2 38.0 35.7 28.0 35.2
Stock compensation expense related to
options............................ -- -- 131.2 44.8 14.6 7.4 5.4 4.5
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses....... 195.7 275.1 341.1 176.2 75.6 63.3 52.3 137.1
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations................... (202.0) (378.7) (316.8) (135.8) (34.0) (40.4) (17.0) (93.9)
Interest income (expense), net......... (1.7) (36.5) 4.1 3.9 1.3 0.8 0.7 1.6
------- ------- ------- ------- ------- ------- ------- -------
Net loss............................... (203.7)% (415.2)% (312.7)% (131.9)% (32.7)% (39.6)% (16.3)% (92.3)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Our gross margin increased from 35.3% for the three months ended June 30,
1999 to 43.2% for the three months ended September 30, 1999. The increase in our
gross margin was a result of an increase in sales of display processors over our
lower margin circuit board products as a percentage of total revenues in the
three months ended September 30, 1999.
For the three months ended June 30, 1999, our gross margin was adversely
impacted by revenues from increased sales of low margin hard-to-find resale
components. Our gross margin for the three months ended March 31, 1999 was
adversely impacted by an inventory provision related to the transition from our
Cheetah2 to our Cheetah3 and Cheetah4 display processors. For the periods prior
to June 30, 1998, our gross margins were negatively impacted by low sales
volumes, relatively high fixed period costs and inventory write-downs associated
with modifications to the design of our circuit boards.
24
<PAGE> 29
Since the commencement in July 1998 of sales of our semiconductor products,
we have added sales and marketing and engineering personnel. This increase in
headcount resulted in increased payroll, travel, engineering, design and
materials costs in each of the three months ended September 30, 1999, June 30,
1999, March 31, 1999, December 31, 1998, and September 30, 1998.
We believe that period-to-period comparisons of our operating results
should not be relied upon as an indication of our future performance. In the
past, our results of operations have fluctuated significantly, and we expect
similar quarterly fluctuations in the future as a result of a number of factors
beyond our control. Among other things, these factors include the rate of growth
in the market for our products and changes in the demand for our products. In
addition, because a significant percentage of our revenues has been and is
expected to continue to be derived from a limited number of large customers, any
variation in the timing of orders from those large customer or design wins or
losses can result in significant fluctuations in our quarterly operating
results. Our anticipated research and development, selling and marketing, and
general and administrative expenses are based, in part, on future projections of
revenues. As a result of these and other factors, it is likely that in some
future period our operating results or business outlook will be below the
expectations of securities analysts or investors, which would likely result in a
significant reduction in the market price for our common stock. For a more
detailed discussion of these and other factors, see the description provided
under the headings "Risk Factors -- Fluctuations in our operating results make
it difficult to predict our future performance and may result in volatility in
the market price of our common stock" and "-- A significant amount of our
revenues come from a few customers and any decrease in revenues from these
customers could harm our business."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have satisfied our liquidity requirements principally
through the issuance and sale of equity securities, totaling approximately $17.7
million. For the six months ended September 30, 1999, we used $1.3 million in
cash from operating activities. During the fiscal years ended March 31, 1999 and
March 31, 1998, we used $3.2 million and $1.9 million, respectively, for
operating activities, primarily due to operating losses and increased working
capital requirements as sales increased. Net cash used from investing activities
was $680,000 and $214,000, for the six months ended September 30, 1999 and the
fiscal year ended March 31, 1999, respectively. As of September 30, 1999, we did
not have any significant capital expenditure commitments. Net cash provided from
financing activities was $6.0 million from the issuance and sale of Common Stock
Series E preferred stock during the six months ended September 30, 1999, and
$5.5 million, net of repayment of notes payable totalling $190,000, from the
issuance of Series D preferred stock in the fiscal year ended March 31, 1999. We
have received a commitment from General Bank to provide up to $2.0 million
pursuant to a revolving loan and security agreement secured by our property and
accounts. Under the terms of the revolving loan and security agreement, General
Bank will extend credit to our account at an interest rate equal to 0.5% above
the prime rate published in the money section of the New York edition of The
Wall Street Journal. The agreement terminates on June 30, 2000.
As of September 30, 1999, we had $4.0 million in cash and cash equivalents.
In addition, we had a $2.0 million credit facility under which no borrowings had
been made. We believe that the net proceeds of the sale of common stock offered
in this offering, together with our existing cash resources, will be sufficient
to meet our capital requirements through the next twelve months. On a short term
basis, we anticipate using approximately $1.0 million of cash during the three
months ended December 31, 1999 to fund operating losses and believe that our
existing cash resources together with the net proceeds of the sale of common
stock offered in this offering are sufficient to meet these needs. On a long
term basis, we anticipate using approximately $5.0 million during the twelve
months ended October 31, 2000 to fund general operating expenses and increases
in our inventory and receivables as sales of our display processors increase.
Based on our current forecasts,
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and assuming the successful completion of this offering, we believe that our
cash resources will be sufficient to meet these needs over the next twelve
months. However, we could be required or could choose to raise additional
capital during the next twelve months. Our future capital requirements will
depend on many factors, including the rate of revenue growth, profitability,
timing and extent of spending to support research and development programs,
expansion of selling and marketing and administrative activities, timing or
introductions of new products and product enhancements and market acceptance of
our products. We expect that we may need to raise additional equity or debt
financing in the future, although we are not currently negotiating for
additional financing nor do we have any plans to obtain additional financing
following our initial public offering. We cannot assure you that additional
equity or debt financing, if required, will be available on acceptable terms, or
at all. If we are unable to obtain additional capital, we may be required to
reduce the scope of our planned product development, selling and marketing
activities, which could harm our business, financial condition and results of
operations. In the event that we do raise additional equity financing, investors
in this offering will be further diluted.
From time to time, we may evaluate acquisitions of businesses, products or
technologies that complement our business. Although we have no current plans in
this regard, any transactions, if consummated, may consume a portion of our
working capital or require the issuance of equity securities that may result in
further dilution to existing stockholders.
QUANTITATIVE AND QUALITATIVE DISCUSSION OF MARKET INTEREST RATE RISK
Our cash equivalents and short-term investments are exposed to financial
market risk due to fluctuation in interest rates, which may affect our interest
income and, in the future, the fair market value of our investments. We manage
the exposure to financial market risk by performing ongoing evaluations of our
investment portfolio and presently invest entirely in certificates of deposit
issued by banks, the value of which does not change based on changes in interest
rates. As our cash balances increase, we anticipate investing in short-term
investment-grade government and corporate securities. These securities will be
highly liquid and generally mature within 12 months from our purchase date. Due
to the short maturities of our investments, the carrying value should
approximate the fair value. In addition, we do not use our investments for
trading or other speculative purposes. We have performed an analysis to assess
the potential effect of reasonably possible near-term changes in interest and
foreign currency exchange rates. The effect of any change in foreign currency
exchange rates is not expected to be material to our results of operations, cash
flows or financial condition. Due to the short duration of our investment
portfolio, an immediate 10% change in interest rates would not have a material
effect on the fair market value of our portfolio. Therefore, we would not expect
our operating results or cash flows to be affected to any significant degree by
the effect of a sudden change in market interest rates on our securities
portfolio.
FOREIGN CURRENCY EXCHANGE RISK
We are an international company, selling our products globally and, in
particular, in Japan, Taiwan and Korea. Although we transact our business in
U.S. dollars, we cannot assure you that future fluctuations in the value of the
U.S. dollar would not affect the competitiveness of our products, gross profits
realized, and results of operations. Further, we incur expenses in India, Japan,
Taiwan and other countries that are denominated in currencies other than U.S.
dollars. We cannot estimate the effect that an immediate 10% change in foreign
currency exchange rates would have on our future operating results or cash flows
as a direct result of changes in exchange rates. However, we do not believe that
we currently have any significant direct foreign currency exchange rate risk and
have not hedged exposures denominated in foreign currencies or any other
derivative financial instruments.
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INFLATION
The impact of inflation on our business has not been material for the six
months ended September 30, 1999 or the fiscal years ended March 31, 1999, 1998
and 1997.
YEAR 2000 READINESS
We are aware of the widely publicized problems associated with computer
systems as they relate to the year 2000. Many existing computer hardware systems
and software applications, and embedded computer chips, software and firmware in
control devices use only two digits to identify a year in the date field,
without considering the impact of the upcoming change in the century. Others do
not correctly process leap year dates. As a result, system applications and
devices could fail or create erroneous results unless corrected so that they can
correctly process data related to the year 2000 and beyond. These problems are
expected to increase in frequency and severity as the year 2000 approaches. We
have commenced our business risk assessment of the impact that the year 2000
problem may have on our operations. As business conditions warrant, this
assessment may be revised as new information is made available to us. To date,
we have identified the following five key areas of our business that may be
affected:
Supplier relationships. We rely, directly and indirectly, on external
systems utilized by our suppliers for the management and control of fabrication,
assembly and test of our products. If our manufacturers are not year 2000
compliant, our products might not be manufactured on a timely basis or might
fail to be manufactured. Any disruption in our supply could seriously harm our
business, financial condition and results of operations. We have had discussions
with our manufacturers concerning their readiness for year 2000. We are
currently seeking assurances from our manufacturers that they are year 2000
compliant with respect to the manufacture of our products but have not received
such assurances to date. We expect to receive such assurances by December 1999,
and, in the event certain manufacturers fail to provide assurances, we plan to
work with each such manufacturer on an individual basis.
Internal infrastructure. Based upon our internal review to date, we do not
believe that our material internal information technology and non-information
technology systems will be affected by the year 2000 date change. We acquired
most of these systems after year 2000 compliance became an important issue for
third party systems vendors. Because most of the software applications used by
us are generally recent versions of vendor supported, commercially available
products, we have not incurred, and do not expect in the future to incur,
significant costs to upgrade these applications if the respective vendors
determine that a year 2000 compliant release is necessary. We will continue to
seek certifications that products installed are year 2000 ready, and are
targeting October 1, 1999 to complete this process.
Products. Our products do not contain two digit date codes and would
therefore be generally unaffected by the year 2000 date change. However, once
shipped, our products are incorporated into display devices and circuit board
products developed by others. The performance of our products could be affected
if a different component of these display devices is not year 2000 compliant. We
have not, and will not, assess the existence of these potential problems in our
customers' products.
Customers. We do not currently have any information concerning the year
2000 compliance status of our customers. Our current or future customers may
incur significant expenses to achieve year 2000 compliance. If our customers are
not year 2000 compliant, they may incur significant costs to remedy problems and
as a result of litigation. In either case, the year 2000 date change could
reduce or eliminate the budgets that current or potential customers could have
for purchases of our products. As a result, our business, financial condition
and results of operations could be harmed.
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Other third party relationships. We rely on outside vendors for utilities
and telecommunications services, in addition to climate control, building access
and other infrastructure services. We are not capable of independently
evaluating the year 2000 compliance of the systems utilized to supply these
services. We cannot assure you that these suppliers are or will become year 2000
compliant with respect to these systems and that our business will not be
materially disrupted as a result.
We presently estimate that the total cost of addressing our year 2000
issues will not exceed $25,000. This estimate was derived utilizing numerous
assumptions, including the assumption that we have not identified any additional
internal significant year 2000 issues and that the plans of our third party
suppliers, distributors and customers will be fulfilled in a timely manner
without cost to us. However, these assumptions may not be accurate, and actual
results could differ materially and adversely from those anticipated after
completion of required remediation and testing.
In the event that we discover year 2000 issues in our internal systems, we
will endeavor to resolve these problems on a timely basis. We have not yet
developed any contingency plans for year 2000. The responses we receive from
third-party vendors and service providers will be taken into account in
determining the nature and extent of contingency plans we develop, if any. As
our worst case scenario, we expect significant reductions in orders for our
processors as well as delays in the delivery of our processors.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement on
Financial Accounting Standards, or SFAS, No. 133, Accounting For Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. SFAS No. 133 requires that all
derivatives be recognized in the balance sheet at their fair market value, and
the corresponding derivative gains or losses be either reported in the statement
of operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. SFAS No. 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. We do not
expect the adoption of SFAS No. 133 to have a material impact on our financial
position or results of operations.
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BUSINESS
OVERVIEW
Sage designs, develops and markets high performance display processors used
in digital displays. Our integrated semiconductor solutions are compatible with
existing personal computers and display monitors, and emerging display devices,
including flat panel monitors, flat panel televisions, projection devices,
digital CRTs, Internet appliances and touch-screen displays in retail and
industrial settings. Flat panel displays and other emerging digital display
devices have substantial advantages over their traditional analog counterparts,
and markets for these products are beginning to grow rapidly. International Data
Corporation forecasts that worldwide shipments of desktop flat panel monitors
will increase at a 69.3% compounded annual growth rate from 1.4 million units in
1998 to 11.5 million units in 2002.
Display signals are characterized by several important attributes:
resolution, frame refresh rate, scanning format and color depth. Combinations of
these characteristics are called modes, and there are over 100 different modes
used today to display images on PCs and televisions. These modes must be
recognized and processed to produce a high quality image on a display. Display
manufacturers seek display processing solutions that can function effectively
with the large number of existing and emerging signal modes, ensure the
compatibility of new displays with the large installed base of PCs and provide
consumers with plug and play capability.
We offer a family of state-of-the-art digital display processors that
provide highly integrated analog-to-digital conversion, signal reformatting and
color processing capabilities. Our solutions are designed with a common
architecture, configurable software and modular components that can be easily
and rapidly incorporated into digital display devices. We sell our processing
solutions to leading display manufacturers, including Fujitsu and NEC.
INDUSTRY BACKGROUND
Electronic displays have become part of our daily lives as our computing,
communications and entertainment needs are increasingly being met by familiar
technologies, such as personal computers and televisions, and emerging
technologies, such as personal digital assistants, Internet appliances and
touch-screen displays used in retail and industrial settings. Historically, most
desktop PC monitors and all television screens displayed images on a cathode ray
vacuum tube, or CRT. A CRT displays images that are transmitted to it by an
analog signal. The display signal controls a beam of electrons that creates the
image by illuminating phosphorescent dots, or pixels, on the back of the CRT
screen. The quality of the image is a function of the mode of the input signal,
which consists of the following four principal parameters:
- Resolution: the number of horizontal and vertical lines on the display
screen into which the image is divided;
- Frame refresh rate: the number of times per second that the image is
displayed on the screen;
- Scanning format: the order in which the lines comprising the image are
displayed on the screen, either in sequence, known as progressive
scanning format, or alternating, known as interlaced scanning format; and
- Color depth: the number of colors used to display the image.
The emergence of digital displays
Digital flat panel display devices have been developed as an alternative to
traditional analog CRTs. Flat panel displays render images by digitally
switching pixels on or off on the surface of the
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display screen. Flat panel displays offer significant advantages over
traditional CRTs because they have a more compact form factor, generate less
heat, consume less power and produce less radiation. Flat panel displays also
produce images that do not flicker and that are more sharply defined than the
images displayed on CRT monitors. Flat panel displays were first incorporated
into laptop computers and, as panel sizes increased, they were incorporated into
desktop displays. Flat panel displays for PCs, originally deployed primarily in
situations where space was limited, are gaining widespread market acceptance as
prices decline, as manufacturing capacities increase and as manufacturing yields
improve.
The emergence of a significant digital flat panel display market has led PC
manufacturers to introduce PCs that produce both conventional analog as well as
digital display signals. Some PC manufacturers have begun to sell flat panel
displays incorporating the PC into its base, known as all-in-one PCs. The
introduction of digital display signal outputs has also provided manufacturers
of analog CRT monitors with an opportunity to develop new products that
incorporate digital signal processing capabilities into CRTs. These displays,
commonly referred to as digital CRTs, display images using the same technology
employed by traditional analog CRTs but by incorporating internal digital
processing they can have new display features, such as picture-in-picture
display and enhanced compatibility with multiple display signals. By adding
digital signal input features, manufacturers can differentiate digital CRTs from
the highly commoditized, price-sensitive analog CRT displays. Additionally, it
is expected that digital CRTs will be less expensive to manufacture than
traditional CRTs.
The digital television market
Television signals have traditionally been broadcast in analog form and
displayed in an interlaced scanning format on analog television CRTs. Recent
developments in the television industry have mirrored the changes that have
taken place in the PC display market. Traditional analog CRT televisions are
being manufactured in larger sizes, and displays with a progressive scanning
format are being introduced to improve the quality of images on larger screens.
Flat panel and plasma displays, which are digital, have been introduced to offer
the same form factor and image quality advantages as flat panel PC monitors. We
believe the worldwide trend toward broadcasting digital signals will lead to
increasing demand for HDTV sets that can produce higher quality images in
varying aspect ratios, such as the wider format, cinema-style aspect ratio of 16
x 9 in addition to the traditional television-style 4 x 3 aspect ratio.
International Data Corporation forecasts that annual shipments of digital
televisions in the U.S. will grow to 7.2 million units in 2002. Display
processing functionality, which is not currently included in traditional analog
televisions, will increasingly be needed to process HDTV signals as well as
analog signals for display on digital and progressive scanning televisions.
Display processing challenges
Display signals, which can be analog or digital, are generated in numerous
non-compatible modes for both personal computing and television applications.
The challenges of processing a signal to render a high quality image on a
digital display in this environment include:
- Recognizing and properly converting an analog or digital signal type. In
order for a display device to generate an image, the incoming display
signal must match the type accepted by the device. An analog display
device cannot display a digital signal and vice versa. Most PCs produced
today are configured to output analog signals because they are connected
to analog CRTs. The introduction of digital displays requires processors
that are capable of identifying whether the input type is analog or
digital and converting it, if necessary, in real time.
- Reformatting the mode of the input signal. The mode of each input signal,
whether analog or digital, must be reformatted to properly display the
image on the screen. The display processor
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must recognize the signal's mode and process it in real time in order to
match the particular resolution, scanning format, refresh rate and color
depth specifications of the display. If the signal is not correctly
processed, the screen will fail to display an image, or will produce an
image that is distorted, flickers or contains shadows or other flaws.
- Displaying true-to-life colors. Each display device displays colors
differently in response to the same signal. Display processors must
compensate for these different characteristics to ensure consistent
true-to-life color quality. In addition, certain digital display devices
can only display a limited number of colors. In such cases, the display
signal must be specially processed to simulate a full range of colors on
the display screen.
The challenge to display manufacturers
Display manufacturers face significant challenges and opportunities in
responding to developments in the PC and television display markets. The
emergence of new digital display devices and the proliferation of signal modes
increasingly require manufacturers to incorporate more powerful and flexible
display processors into their displays. Displays must be designed to function
with digital signals and remain compatible with the large installed base of
existing PCs and other appliances that transmit analog display signals. The
large number of different signal modes and types, the growing trend towards plug
and play devices in the PC market and the established easy-to-use
characteristics of the television market make it essential that displays operate
properly with minimal consumer configuration or adjustment in order to achieve
widespread market acceptance. At the same time, manufacturers are seeking ways
to take advantage of the capabilities of digital displays by developing
differentiating product features and associated brand recognition, all while
maintaining short design and manufacturing cycles and recognizing cost
constraints.
OUR SOLUTION
Sage is a leading global provider of high performance digital display
processors. Our advanced technology offers state-of-the-art display processing,
highly integrated analog-to-digital conversion, signal reformatting and color
processing capabilities. Our solutions are compatible with all commercially
available display signal modes and display types. We provide manufacturers with
a highly integrated and efficient display processing solution equipped with
custom design features. The principal benefits of our solution include:
Support for all commercially available signal modes and display types. We
provide display processors that enable any input display signal mode to be
displayed on all commercially available digital displays, including flat panel
monitors, flat panel televisions, projection devices, digital CRTs, Internet
appliances and touch-screen displays used in retail and industrial settings. Our
display processors, which incorporate our SureSync and SmartSet algorithm
features, produce high quality images by recognizing the characteristics of the
input signal and automatically reformatting an image as needed, in real time, to
match the type of signal accepted by the device. These features provide optimal
plug and play capabilities between the computing platform and the display
device.
Highly integrated and manufacturable display processing solution. Our
display processors are designed to perform analog-to-digital conversion, mode
detection, reformatting and color depth processing in a highly integrated
semiconductor with associated software. Our processors employ a common
architecture across our family of products. In addition, we provide
software-based design and test tools and offer manufacturers our extensive
system-level design and hardware experience and support. These features of our
products enable manufacturers to reduce the time required to design and
manufacture a wide range of display devices.
Highly customizable products. We support display manufacturers with a suite
of product and screen display configuration software design tools that allow
manufacturers to easily enhance their
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ability to brand their products by facilitating the creation of customized
on-screen interfaces for consumers. Our software tools accelerate display
manufacturers' product development cycles and their time to market. Our display
processors are modular, allowing display manufacturers to add or delete memory
as needed to reduce costs, while minimizing reengineering and redesign.
OUR STRATEGY
Our goal is to be the leading provider of display signal processing
solutions for display manufacturers. Our strategy consists of the following key
elements:
- Offer highly integrated semiconductor solutions compatible with all
signal modes and display types. We intend to provide increasingly
integrated, high performance semiconductor solutions that are fully
compatible with all PC display monitors, televisions, flat panel
monitors, flat panel televisions, projection devices, digital CRTs,
Internet appliances and touch-screen displays in retail and industrial
settings. We plan to develop our products to support digital CRTs and
other emerging digital displays and to design products that are
compatible with all developing industry display signal standards.
- Target leading OEM manufacturers. We will continue to focus our sales
efforts on the leading global display manufacturers. Working with these
customers will allow us to reach a wider number of consumers and helps us
to maintain and enhance our technological capabilities. Securing design
wins with leading manufacturers provides references for our products,
helping to secure future sales to these and other manufacturers.
Furthermore, achieving a broad number of design wins with leading OEMs
creates an opportunity to capitalize on the success of their products. In
addition, these manufacturers have more reliable product development
cycles, better forecasting and greater panel supply.
- Continue to offer OEM customers high quality products and superior levels
of engineering support. We aim to develop the strongest possible customer
relationships by providing OEM manufacturers with easy-to-use solutions
and superior engineering support. We will continue to offer our OEM
customers a range of easy-to-use, custom design tools to simplify their
product design and development processes and provide them with the
ability to differentiate their products through customized features. We
intend to deliver greater value to manufacturers by helping them design
new product features and to bring their products to market more rapidly.
- Maintain technology leadership. We intend to make significant investments
in research and development in order to further develop our display
processing technology. We were the first company to introduce a fully
effective automatic display adjustment feature and the first to integrate
mode detection, reformatting, color depth processing and customized
on-screen displays onto a single display processor. We will also seek to
enter into strategic relationships with companies whose technology is
complementary to ours. For example, we recently entered into a joint
license and development arrangement with Faroudja to develop a display
processor integrating Faroudja's video decoding, deinterlacing and image
enhancement technologies. We expect that the combinations of our
technology with Faroudja's technology will enable us to expand our
semiconductor technology into emerging television and monitor markets.
- Maintain a flexible engineering and manufacturing model. We intend to
maintain our established engineering and design operations in India and
in the U.S., allowing us to access a larger pool of highly educated and
motivated employees. We will continue to reduce our capital requirements
and increase our operating leverage by maintaining a fabless
manufacturing model, which gives us significant operating leverage
without the need for large capital expenditures.
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OUR PRODUCTS
We design and sell display processors for use by manufacturers of digital
display devices. We also sell circuit boards designed around our semiconductors
as turnkey display processing solutions for specific display applications. Our
customers include leading display manufacturers, such as Fujitsu, NEC and Sanyo.
Semiconductor products. We design and sell a family of display processors
to display manufacturers, PC manufacturers and third party subsystem
manufacturers who design and manufacture monitors and PCs on behalf of brand
name companies. Some of the world's leading display and PC manufacturers have
chosen our Cheetah2, Cheetah3 and Cheetah4 processors for use in their products.
Cheetah2, our first mass production product, supports resolutions up to
1,024 x 768 pixels, or XGA, and uses an external analog-to-digital converter, or
ADC. Our new products, Cheetah3 and Cheetah4, are based on the same core design,
and support higher performance resolutions up to 1,280 x 1,024 pixels, or SXGA.
Cheetah3 integrates a ADC and is designed for displays that will accept either
an analog or digital input signal. Cheetah4 is optimized for displays that
accept only digital signals. Cheetah3 and Cheetah4 operate on a common software
platform, enabling our customers to support both products with common
board-level software. All of our products can process television signals using
an external video decoder chip and are compliant with widely used standards,
such as VESA, and emerging display standards, such as DVI. All of our products
include our proprietary SureSync and SmartSet mode recognition and adjustment
technologies, our high
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performance scaling engine and our software-configurable on-screen display
features. The following table illustrates the key features of our display
processors.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
PRODUCT NAME SUPPORTED
(DATE OF INTRODUCTION) SIGNAL INPUTS FEATURES AND TECHNOLOGY APPLICATIONS
- ---------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Cheetah2 - Analog PC - Maximum display - Analog input monitor
(April 1998) - Digital PC output: - Digital input monitor
- Television 100M pixels per second - Television display
- Computing speed: 800M - All-in-one PC
operations per second
- Technology: 0.35
micron,
3 layer metal
- ---------------------------------------------------------------------------------------------------
Cheetah3 - Analog PC - Internal ADC - Analog input monitor
(February 1999) - Digital PC - Image enhancement - Dual analog and
- Television - Color depth processing digital input
- Dual analog and - Maximum display monitor
digital input output: - Dual analog and
- Dual analog and 135M pixels per second television monitor
television input - Computing speed: 1600M
operations per second
- Technology: 0.35
micron,
4 layer metal
- ---------------------------------------------------------------------------------------------------
Cheetah4 - Digital PC - Image enhancement - Digital input monitor
(March 1999) - Television - Color depth processing - Television display
- Maximum display - All-in-one PC
output:
110M pixels per second
- Computing speed: 1300M
operations per second
- Technology: 0.35
micron,
3 layer metal
- ---------------------------------------------------------------------------------------------------
</TABLE>
Our Cheetah3 display processor provides maximum display output at faster
speeds and can be used in a wider ranger of display devices than most display
processors that are currently available. We believe that our display processors
also offer greater scaling and image enhancement features than those of our
competitors. In addition, we were the first company to develop and make widely
available a display processor that incorporated the auto adjust feature.
We are currently in the process of developing a new line of more integrated
digital display processors. We expect that this new line of processors will
offer enhanced display quality and support resolutions up to 1,600 x 1,200
pixels, or UXGA, and HDTV. We intend to develop a family of derivative
semiconductors and circuit boards built around this core technology. We cannot
assure you that we will successfully develop new products or product
enhancements based on our research and development activities. In addition, we
cannot assure you that, if new products or product enhancements are developed,
any such new product or product enhancements will be developed in time to
capture market opportunities or achieve a significant or substantial level of
acceptance in new and existing markets.
Circuit board products. We design and market both custom and standard
display processing circuit boards, built around our semiconductors, as turnkey
display processing solutions for specific display applications. Our custom
circuit boards address the unique needs of display manufacturers that want to
support several control and output capabilities on a single circuit board. These
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capabilities include video display, touch-screen controls and the ability to
support specialized forms of data input such as credit card or bar code readers.
Our custom circuit boards take advantage of our highly integrated display
processing solution to eliminate the need for multiple cable connections, reduce
physical system dimensions and improve system quality, while lowering overall
system cost. We offer these circuit boards to our OEM customers in optional kit
form. Our standard controller circuit boards provide an effective off-the-shelf
solution to our low volume display OEM customers.
TECHNOLOGY
Processing display signals requires large data streams to be recognized,
sampled, formatted and converted in real time. For example, operating a flat
panel SXGA digital display requires the digital processor to perform more than
1.5 billion operations per second.
The following diagram shows an example of the flow of data though our
Cheetah3 processor and some of the key steps required to generate a digital
display signal from an analog display signal input.
[FLOW CHART]
Our processors convert signals from a broad range of sources into a format
that can be displayed on different display devices with minimal need for
consumers to adjust operating device parameters. To accomplish this, our
processors must identify the input signal type and mode, convert it into a
digital form and then process it to match the display device. Our processors
respond and automatically adjust in real time to changes in the type and mode of
the incoming display signal. We have developed significant proprietary
architecture and design features to support the processes implemented by our
chips. These processes include:
Analog-to-digital conversion. Most PCs and televisions generate analog
display signals. In order to display this signal on a digital screen, the analog
data stream must be correctly identified, rapidly and accurately sampled and
converted to a digital signal with no measurable error in the timing of the
sampling. With our Cheetah3 processor, we have successfully addressed the
significant technical challenges of integrating analog-to-digital conversion
onto a single semiconductor. This enables us to lower costs and improve display
performance.
Mode detection. Our processors are designed to identify the resolution,
scanning format and frame refresh rate of the incoming display signal. Analog
display signals do not contain explicit information about these parameters. Our
SureSync technology measures the frequency of horizontal and vertical
synchronization signals contained within the incoming signal to deduce its mode.
The timing of these signals is not uniform and varies depending upon the
architecture and implementation of the PC graphics subsystem. We regularly
examine and incorporate information about these characteristics into the
software that supports our products, enabling them to detect and synchronize
with the PC graphics subsystems of virtually all manufacturers worldwide.
Spatial processing. Spatial processing, or scaling, is the process of
reformatting the resolution of an image to properly match the resolution of a
display. We have developed several generations of scaling technology that
increase and reduce the size of images as needed using efficient processing
algorithms.
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Temporal processing. Each type of digital display supports a single, fixed
frame refresh rate, requiring adjustment of the flow of data to be matched to
the display device. Typically, the adjustment is performed through the use of
external memory. Our Cheetah3 display processors provide maximum flexibility by
being the first product on the market to provide integrated support for external
frame memory on a single chip and to provide an option to exclude memory, if
desired, to reduce cost.
Color depth processing. Display devices often render the colors of the same
image differently because of variations in technologies and manufacturing
techniques used by different display manufacturers. Our processors incorporate
hardware and software that allows manufacturers to compensate for these
differences and to adjust the image being displayed. In addition, many digital
displays generate far fewer than the 16 million colors which traditional CRTs
are capable of displaying. In the case of certain older flat panel displays,
colors are limited to as few as eight. Our color processing technology simulates
additional colors so that the human eye perceives a far larger number of colors
than are supported by the display device. Our processors also include circuitry
that can enhance the details in the image, compensating for certain losses and
degradation of signal data resulting from the physical transmission of the
analog signals.
Display formatting. Digital displays have differences in their internal
architecture to which a signal must be adapted in order for the image to appear
on the screen. These differences can affect the characteristics of display
processing output signals that operate them. These variations include
differences in the number of bits or information that must be transmitted to the
display at one time and in the format and timing of signals that control certain
display functions. The format of these display signals from our processors is
programmable in software. Our processors can support all available types of
digital displays, including all types of plasma displays, projector devices and
liquid crystal displays, including active and passive matrix. This offers our
customers flexibility because they can change the manufacturing source of a
particular size of panel, or even change the size of the panel, without
redesigning a new display processing circuit board.
Software technology. The operation and internal configuration of our
processors is controlled by embedded software running on the display
manufacturer's circuit board. Our embedded software and easy-to-use software
utilities allow us to offer significant custom design features to display
manufacturers, including the design of the on-screen display user interface. In
addition, our SureSync and Smart-Set technologies enable consumers to optimize
image quality by clicking a single button or setting and are implemented using a
combination of hardware and software.
CUSTOMERS, MARKETING AND TECHNICAL SUPPORT
The digital display manufacturing market is dominated by a few
manufacturers and suppliers. We have achieved initial success in this
concentrated market. Our customers include Fujitsu, GES Singapore PTE. Ltd., Elo
TouchSystems, Korea Computer Incorporated, Lite-On, NEC, NewComm World Co.,
Ltd., Sanyo and Sony Corporation, which each accounted for at least 2.0% of our
revenues for the three months ended September 30, 1999. NEC and Elo TouchSystems
accounted for 29.3% and 19.9%, respectively, of our revenues for the six months
ended September 30, 1999. We do not have purchase contracts with any of our
customers that obligate them to continue to purchase our display processors, and
these customers could stop purchasing our display processors at any time.
As of September 30, 1999, we employed 31 individuals in sales and marketing
and as field applications engineers and maintained relationships with seven
independent regional sales representatives. Our sales and marketing strategy
focuses on achieving design wins from leading OEM display manufacturers. We
market and sell our semiconductor products in the U.S. through distributors and
independent regional sales representatives and in Asia through independent
regional sales representatives in Japan, Korea, Taiwan and elsewhere, with
direct support from our U.S. and Indian offices. We market and sell our circuit
board products in the U.S. through distributors and our
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<PAGE> 41
direct sales personnel, and in Asia through sales representatives, with direct
support from our U.S. and Indian offices. We believe that providing customers
with comprehensive product support is critical to remaining competitive in the
markets we serve. We provide technical support through our sales representatives
and from our office in San Jose, California. We currently provide full-time,
on-site field applications engineers to support major customers in Japan, Korea,
Singapore and Taiwan.
RESEARCH AND DEVELOPMENT
Our future success will depend to a large extent on our ability to rapidly
develop and introduce new products and enhancements to our existing products
that meet emerging industry standards and satisfy changing customer
requirements. We have made and expect to continue to make substantial
investments in research and development and to participate in the development of
new and existing industry standards.
Our research and development has been focused in high speed
analog-to-digital signal display processors and advanced display processing
algorithms. We also conduct research and development in custom semiconductor
design. The majority of our engineers are involved in high speed, mixed signal
integrated circuit design and verification, with the remaining engineers
involved in algorithm development and software and system design. Before
development of a new product commences, our marketing managers work closely with
research and development engineers and customers to develop comprehensive
requirement specifications. In addition, our marketing managers and engineers
review the applicable industry standards and incorporate desired changes into
new product specifications. After a product is designed and becomes commercially
available, our engineers continue to work with various customers on specific
design issues to understand emerging requirements that may be incorporated into
future product generations or product upgrades.
In July 1999, we entered into a joint license and development agreement
with Faroudja under which we obtained a license to develop semiconductors using
Faroudja's video decoding, deinterlacing and image enhancement technologies.
Under the terms of the agreement, we may develop display processors that are
intended to expand our semiconductor technology into emerging television and
monitor markets. Faroudja may not transfer the licensed technology to others
until October 27, 2000 or eight months after we have the technology or ten
months following the delivery of the technology (depending upon our achieving
certain development milestones). The agreement will continue perpetually until
terminated by a breach by either party. We are prohibited from developing, for
use in products licensed, sold or distributed by us to third parties or for use
in products licensed, sold or distributed through a private label, any circuit
board video display processor that incorporates a licensed chip and is intended
to be used as a standalone video display processor similar to certain Faroudja
products. Under the terms of the license agreement, we are required to provide
Faroudja with certain favorable pricing terms in connection with Faroudja's
purchase of products developed by us incorporating their technology. We are also
required to pay royalties to Faroudja on sales of our semiconductors
incorporating their technology. Faroudja may terminate the agreement if we fail
to perform or violate the terms of the agreement and fail to cure such violation
within 30 days of Faroudja's written notice thereof. We issued shares of our
common stock to Faroudja in connection with the grant of the license under the
agreement.
Our research and development expenditures totaled $2.3 million in the
fiscal year ended March 31, 1999 and $1.6 million in the fiscal year ended March
31, 1998. Research and development expenses consist primarily of salaries and
related costs of employees engaged in research, design, and development
activities. In addition, expenses for outside engineering consultants and NRE
are included in research and development expenses. As of September 30, 1999,
there were 34 employees engaged in research and development. We perform our
research and development activities at our headquarters in San Jose, California
and at our facility in Bangalore, India. As of September 30, 1999, 32 of our
employees were based at our facility in India.
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<PAGE> 42
MANUFACTURING
We have adopted a fabless semiconductor manufacturing model and outsource
all of our semiconductor manufacturing, assembly and testing. This approach
allows us to focus our resources on the design, development and marketing of our
products and significantly reduces our capital requirements. As of September 30,
1999, we had a staff of five operations personnel responsible for inventory
shipping, purchasing and quality control. We subcontract all of our
semiconductor manufacturing to Fujitsu Microelectronics and Kawasaki LSI U.S.A..
All of our products have been and are expected to continue to be single-source
manufactured for the foreseeable future. Currently, we must place orders three
to four months in advance of expected delivery. We maintain our inventory levels
based on current lead times from foundries plus safety stock to account for
fluctuations in demand that we anticipate on the basis of our customers'
forecasts.
If we lose or decide to change a key supplier or foundry, it could take
several months to qualify a new supplier or foundry. Changing or qualifying a
new supplier or foundry, would likely involve delay and expenses, resulting in
foregone revenues, reduced operating margins and possible detriment to customer
relationships. Since we place our orders on a purchase order basis and do not
have a long term volume purchase agreement with any of our existing suppliers,
any of these suppliers may allocate capacity to the production of other products
while reducing deliveries to us on short notice. While we believe that we
currently have good relationships with our foundries and adequate capacity to
support our current sales levels, there can be no assurance that adequate
foundry capacity will be available in the future on acceptable terms, if at all.
Our semiconductor products are currently fabricated using a range of
process technologies. We must continuously develop our products using new
sub-micron technologies to remain competitive on a cost and performance basis.
Migrating to new technologies is a challenging task requiring new design skills,
methods and tools. We believe that the transition of our products to smaller
geometries will be important for us to remain competitive. Our business could be
harmed if any transition is delayed or inefficiently implemented.
INTELLECTUAL PROPERTY
We rely on a combination of non-disclosure agreements and copyright,
trademark and trade secret laws to protect the algorithms, design and
architecture of our semiconductor technology. We currently have four pending
applications for patents filed with the U.S. Patent and Trademark Office for
protection of certain of our significant technologies, including our video
adapter circuit, on-screen user interface, dual spatial and temporal scaling
system, video signal processing and channel equalization technology. In the
future, we expect to seek patent protection for our technologies as necessary.
Any future patents may not be granted and if granted may be invalidated,
circumvented, challenged or licensed to others.
To supplement the technologies that we develop internally, we have licensed
rights to use certain patents held by third parties, and we may license
additional technology rights in the future. In July 1999, we licensed certain
patents and trade secrets from Faroudja relating to its video decoding,
deinterlacing and image enhancement technologies. If the agreement is terminated
due to a material breach by us, the license of technology under the agreement
will terminate. In this event, we would be required to exclude the licensed
technology from our existing and future product lines.
The semiconductor industry is characterized by frequent litigation
regarding patent and other intellectual property rights. We have certain
indemnification obligations with respect to the infringement of third-party
intellectual property rights. There is no intellectual property litigation
currently pending against us. However, we may from time to time receive
notifications of claims that we may be infringing patents or other intellectual
property rights owned by third parties. If it is necessary or desirable, we may
seek licenses under those patents or intellectual property rights.
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However, we cannot be sure that licenses will be offered or that the terms of
any offered licenses will be acceptable to us.
COMPETITION
The display signal processing industry is very competitive. The markets in
which we operate are characterized by rapid technological change, evolving
industry standards and declining average selling prices, and we expect them to
become increasingly competitive. We believe that the key competitive factors in
our markets are product design, performance, price, features, size, reliability,
time to market and customer support. Our ability to successfully compete in our
target markets also depends on our continued success in the development of high
performance display processors at optimal price points. In addition, our
competitiveness may be affected by the development of competing technologies,
the emergence of new industry standards and consumer demand for specific display
features on the display device. Failure to monitor and effectively respond to
these trends could reduce demand for our products.
Our competitors include a range of diversified electronic and semiconductor
companies that offer display processing products. In particular, we compete
against Arithmos, Genesis, Pixelworks and Silicon Image. In some instances, we
also compete with internally designed processing solutions, developed by OEM
display manufacturers. In the future, our current or potential customers may
also develop their own proprietary display processors and become our
competitors. In addition, start-up companies that are seeking to capitalize on
business opportunities as a result of the shift from analog to digital
technology may seek to compete in our markets. Our competitors may develop
advanced technologies enabling them to offer more cost-effective and higher
quality solutions to OEM customers than those offered by us. Increased
competition could harm our business, financial condition and results of
operations by, for example, increasing pressure on our profit margins or causing
us to lose sales opportunities.
EMPLOYEES
As of September 30, 1999, we employed 74 full-time employees, including 34
in research and development, five in operations, 31 in sales and marketing and
four in general and administration. Our employees are not represented by a
collective bargaining organization, and we believe that our relations with our
employees are good.
FACILITIES
We maintain a 9,300 square foot facility in San Jose, California, pursuant
to a sublease that expires in September 2000. This facility comprises our
headquarters and includes our research and development, sales and marketing and
administration departments. We also maintain a facility in Bangalore, India
pursuant to a lease that will expire in March 2000. We believe that our existing
facilities are adequate for our current needs and that additional space
sufficient to meet our needs for the foreseeable future will be available on
reasonable terms.
LEGAL PROCEEDINGS
As of September 30, 1999, we are not a party to any legal proceeding.
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<PAGE> 44
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Sage, and their ages as of August
23, 1999, are as follows:
<TABLE>
<CAPTION>
NAME(1) AGE POSITION
------- --- --------
<S> <C> <C>
Chandrashekar M. Reddy(2)(3).................... 39 President, Chief Executive Officer and
Director
Simon P. Westbrook.............................. 50 Chief Financial Officer, Secretary and
Treasurer
Arun Johary..................................... 41 Vice President of Engineering and
Chief Technical Officer
Vijay P. Desai.................................. 39 Vice President and General Manager,
Systems Business Unit
Pratap G. Reddy................................. 40 Vice President and General Manager, IC
Business Unit
Michael A. Gumport(3)........................... 47 Director
N. Damodar Reddy(2)............................. 61 Director
Kenneth Tai(2)(3)............................... 49 Director
</TABLE>
- -------------------------
(1) There is no familial relationship between Chandrashekar M. Reddy, N. Damodar
Reddy or Pratap G. Reddy.
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Chandrashekar M. Reddy has served as President and Chief Executive Officer
since our inception. From January 1986 to January 1995, Mr. Reddy held several
design and program management positions at Intel Corporation. Mr. Reddy received
a BS in Electrical Engineering from the Indian Institute of Technology and an MS
in Electrical Engineering from the University of Wisconsin, Madison.
Simon P. Westbrook has served as Chief Financial Officer, Secretary and
Treasurer of Sage since April 1997. From March 1996 to January 1997, Mr.
Westbrook was Chief Financial Officer of Virtual I-O, Inc. From February 1992 to
March 1996, Mr. Westbrook was Controller at Creative Technology, Ltd. Mr.
Westbrook received an MA degree in Economics from Trinity College, Cambridge
University.
Arun Johary has served as Vice President of Engineering and Chief Technical
Officer of Sage since April 1997. From January 1995 to January 1997, Mr. Johary
was a Vice President for Technology at Armedia Inc., a company Mr. Johary
co-founded in 1995, that developed high-performance MPEG-2 decoder chips for a
large Japanese broadcast equipment company. From June 1986 to January 1995, Mr.
Johary served as a Senior Engineer of Graphics and Multimedia Architecture at
Chips & Technologies, Inc. From August 1982 to June 1986, Mr. Johary was an
Applications Engineer at Intel Corporation. Mr. Johary received a BS in
Electrical Engineering from the Indian Institute of Technology and an MS in
Electrical Engineering from the University of Southern California.
Vijay P. Desai has served as Vice President and General Manager, Systems
Business Unit, of Sage since August 1996. From October 1989 to August 1996, Mr.
Desai held a business development and management position at Sharp Electronics.
From September 1983 to October 1989, Mr. Desai held several technical sales and
marketing positions at Intel Corporation, AT&T Corporation and Siemens
Corporation. Mr. Desai received a BS in Electrical Engineering from the
University Baroda in India, a M.S. in Computer Science from Stevens Institute of
Technology and an MBA from the University of Phoenix.
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<PAGE> 45
Pratap G. Reddy has served as Vice President and General Manager, IC
Business Unit, of Sage since April 1998. From June 1983 to March 1988, Mr. Reddy
held a design and management position at Data General, Inc. From March 1988 to
March 1998, Mr. Reddy served as the Group Director for Management and Business
Development at Synopsys, Inc. Mr. Reddy received a BS degree in Electrical
Engineering from Kakatiya University and an MS degree in Engineering Management
from the University of Iowa.
Michael A. Gumport has served as a Director of Sage since October 1996.
Since September 1998, Mr. Gumport has been the Chief Financial Officer of FED
Corporation, an optoelectronics company. From February 1990 to September 1998,
Mr. Gumport served as a Senior Vice President for Semiconductor Equity Research
at Lehman Brothers. Mr. Gumport received a BA degree from Amherst College and an
MBA from Columbia University.
N. Damodar Reddy has served as a Director of Sage since October 1996. Since
April 1985, Mr. Reddy has served as the President of Alliance Semiconductor. Mr.
Reddy received an MS in Electrical Engineering from North Dakota State
University and an MBA from the University of Santa Clara.
Kenneth Tai has served as a Director of Sage since August 1999. Since April
1998 Mr. Tai has served as the Chairman of Digitimes Publications, Inc., and
since March 1996 Mr. Tai has also served as the Chairman of Investar Capital,
Inc. From April 1993 to December 1995, Mr. Tai served as the Vice Chairman of
UMAX (USA), Inc. Prior to joining UMAX, Mr. Tai was one of the co-founders of
Acer Group where he served as Vice President of Worldwide Sales and Marketing as
well as President of the Acer Group USA. Mr. Tai received a BS degree in
Electrical Engineering from National Chiao Tung University and an MBA from
Tamkang University.
BOARD OF DIRECTORS AND COMMITTEES
Our bylaws require that our board of directors be comprised of between
three and five members. There are currently four directors on our board.
Directors are elected at our annual meeting of stockholders by a vote of the
holders of a majority of the voting power represented at such meeting. A
director may be re-elected for subsequent terms. The board of directors has a
compensation committee and an audit committee.
Compensation Committee. The compensation committee of the board of
directors is responsible for reviewing and recommending to the board regarding
our compensation policies and all forms of compensation to be provided to our
executive officers and directors, including annual salaries, bonuses, stock
option and other incentive compensation arrangements. The compensation committee
also administers our 1997 Stock Plan. The current members of the compensation
committee are Chandrashekar M. Reddy, Kenneth Tai and N. Damodar Reddy.
Audit Committee. The audit committee of the board of directors is
responsible for reviewing and monitoring our corporate financial reporting and
external audits, including our internal control functions, the results and scope
of the annual audit and other services provided by our independent auditors and
our compliance with legal matters that have a significant impact on our
financial reports. The audit committee also consults with our management and our
independent auditors prior to the presentation of financial statements to
stockholders and, as appropriate, initiate inquiries into aspects of our
financial affairs. The current members of our audit committee are Chandrashekar
M. Reddy, Kenneth Tai and Michael A. Gumport.
DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS
Our non-employee directors do not receive cash compensation for their
service as directors. On appointment, each non-employee director received a
one-time grant of options to purchase shares of
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<PAGE> 46
our common stock in amounts ranging from 30,333 to 31,666 shares. In each case,
the options vest over a four-year period. See "Stock Option Plans -- 1997 Stock
Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently comprised of Chandrashekar M.
Reddy, Kenneth Tai and N. Damodar Reddy. Chandrashekar M. Reddy also serves as
our President and Chief Executive Officer. Prior to the establishment of the
compensation committee on March 18, 1999, the board of directors as a whole made
all decisions relating to executive compensation. For a description of the
transactions between us and members of the compensation committee, and entities
affiliated with such members, see the transactions described under the heading
"Certain Transactions" in this prospectus. None of our executive officers serves
as a member of the board of directors or the compensation committee of any
entity that has one or more executive officers serving as a member of our board
of directors or compensation committee. There is no familial relationship
between Chandrashekar M. Reddy, N. Damodar Reddy or Pratap G. Reddy.
EXECUTIVE COMPENSATION
The following table sets forth compensation information for the fiscal year
ended March 31, 1999 paid by us for the services provided by our President and
Chief Executive Officer and the other executive officers whose total salary and
bonus for such fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
--------------------------- -------- -------- ------------------ ------------
<S> <C> <C> <C> <C>
Chandrashekar M. Reddy
President and Chief Executive Officer... $140,000 $123,278 -- $107,211(1)
Simon P. Westbrook
Chief Financial Officer,
Secretary and Treasurer................. 125,000 96,325 -- --
Arun Johary
Vice President of Engineering and
Chief Technical Officer................. 135,000 153,227 48,333 --
Vijay P. Desai
Vice President and General Manager,
Systems Business Unit................... 125,000 -- 47,667 11,844(1)
Pratap G. Reddy(2)
Vice President and General Manager IC
Business Unit........................... 125,000 70,352 72,333 --
</TABLE>
- -------------------------
(1) Includes amounts paid in fiscal year 1999 as salary deferred in fiscal years
1996 and 1997.
(2) Pratap Reddy started employment with us in April 1998.
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<PAGE> 47
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended March 31, 1999 to each of our executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED OPTION TERM(4)
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION ----------------------------
NAME GRANTED(1) FISCAL 1999(2) PRICE(3) DATE 5% 10%
---- ---------- --------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Chandrashekar M.
Reddy................ -- --% $ -- -- $ -- $ --
Simon P. Westbrook..... -- -- -- -- -- --
Aron Johary............ -- -- -- -- -- --
Vijay P. Desai......... -- -- -- -- -- --
Pratap G. Reddy........ 64,000 4.27% 0.564 04/01/08 22,656 65,280
</TABLE>
- -------------------------
(1) Each of the options vested as to 25% of the shares on April 1, 1999 and
2.08% shall vest monthly over the following three years thereafter.
(2) Based on a total of 306,181 option shares granted to our employees under our
1997 Stock Plan during fiscal year 1999.
(3) The exercise price was equal to the fair market value of our common stock as
valued by our board of directors on the date of grant. The exercise price
may be paid in cash or through a cashless exercise procedure involving a
same-day sale of the purchased shares.
(4) The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price
performance. The potential realizable value at 5% and 10% appreciation is
calculated by assuming that the exercise price on the date of grant
appreciates at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the depreciated price.
AGGREGATE OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding options that were
exercised by the executive officers during fiscal year 1999 and the number and
value of unexercised, in the money options, at June 30, 1999:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF
UNEXERCISED OPTIONS UNEXERCISED IN-THE-
HELD AT MONEY OPTIONS HELD AT
SHARES JUNE 30, 1999(1) JUNE 30, 1999(2)
ACQUIRED ON VALUE --------------------- ---------------------
NAME EXERCISED(1) REALIZED($) VESTED UNVESTED VESTED UNVESTED
---- ------------ ----------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Chandrashekar M. Reddy....... 160,666 $ -- -- -- $ -- $ --
Simon P. Westbrook........... 149,000 -- -- -- -- --
Arun Johary.................. 200,000 -- -- 48,333 -- 552,451
Vijay P. Desai............... -- -- 16,881 30,785 192,957 351,873
Pratap G. Reddy.............. -- -- 25,784 46,548 294,719 532,051
</TABLE>
- -------------------------
(1) The options are immediately exercisable for all of the option shares, but
any shares purchased under those options may be repurchased by us at the
original exercise price paid per share, if the optionee ceases service with
us before vesting in such shares. The heading Vested refers to
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<PAGE> 48
shares that are no longer subject to repurchase. The heading Unvested refers
to shares subject to repurchase as of June 30, 1999.
(2) Based on the fair market value of our common stock as determined by our
board of directors as of July 31, 1999 of $12.00 per share as estimated at
the time, less the exercise price payable for such shares.
EMPLOYEE BENEFIT PLANS
Stock Option Plans
Our 1997 Stock Plan was approved our board of directors and our
stockholders on November 4, 1997. The 1997 Stock Plan permits the grant of
securities of Sage, including options intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1984, as amended, or
the Code, and nonqualified stock options to employees, officers, directors,
independent contractors and consultants; provided, however that incentive stock
options may be granted only to our employees. As of September 30, 1999, options
to purchase 643,454 shares of common stock granted under the 1997 Stock Plan had
been exercised, option to purchase 1,016,095 shares of common stock were
outstanding and options to purchase 578,782 shares of common stock remained
available for grant.
The board of directors or a committee designated by the board or the
administrator is authorized to administer the 1997 Stock Plan, including the
selection of persons to whom options may be granted and the interpretation and
implementation of the 1997 Stock Plan. Options granted under the 1997 Stock Plan
will vest and become exercisable as determined by the administrator at the time
of the option grant. The term of each option will be as determined by the
administrator; provided, however, that the maximum term of an option granted
under the 1997 Stock Plan is ten years (five years in the case of an incentive
stock option granted to a 10% stockholder). The aggregate fair market value, on
the date of grant, of our common stock for which incentive stock options are
exercisable for the first time by an employee during any calendar year may not
exceed $100,000 and such excess shall be treated as nonstatutory stock options.
The exercise price of each option granted under the 1997 Stock Plan shall be as
set forth in the applicable agreement, but shall not, in the case of an
incentive stock option that is granted to an employee who owns stock
representing more than 10% of the voting power, be less than 110% of the fair
market value, or granted to any other employee, be less than 85% of the fair
market value, in the case of a nonqualified stock option that is granted to a
person who owns stock representing more than 10% of the voting power, be less
than the 110% of the fair market value, or granted to any other person, be less
than 100% of the fair market value. In the event of a sale of all our assets or
merger with or into another corporation, all of the options granted under the
1997 Stock Plan will terminate unless assumed or substituted. The 1997 Stock
Plan may be amended at any time by the board of directors, although certain
amendments require stockholder approval. The 1997 Stock Plan will terminate in
November 2007 unless earlier terminated by the Board.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan, which is expected to be approved by
our board of directors and by our stockholders in October 1999, is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Code and
to provide our employees with an opportunity to purchase common stock through
payroll deductions.
Our board of directors or a committee designated by the board from time to
time shall grant to eligible employees the right to participate in an offering
of common stock under the plan during certain offering periods. We expect that
on the first day of each offer period, a participating employee will be granted
purchase rights which are a form of option to be automatically exercised on the
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<PAGE> 49
forthcoming exercise dates within the offer period during which deductions will
be made from the pay of the participants. When a purchase right is exercised,
the participant's withheld salary will be used to purchase shares of our common
stock. The price per share at which our shares of common stock are to be
purchased under our employee stock purchase plan during any offering period will
be the lesser of:
- 85% of the fair market value of our common stock on the date of the grant
of the option (the commencement of the offer period); or
- 85% of the fair market value of our common stock on the exercise date.
All our employees whose customary employment is for more than five months in any
calendar year and more than 20 hours per week are eligible to participate.
Employees subject to the rules or laws of a foreign jurisdiction that prohibit
or make impractical the participation of such individuals in the plan will not
be eligible to participate. Certain additional limitations on the amount of
common stock which may be purchased during any calendar year are imposed by the
Code.
Our employee stock purchase plan will be administered by our board of
directors or a committee designated by our board, which will have the authority
to administer our employee stock purchase plan and to resolve all questions
relating to its administration.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that a director
of a corporation will not be personally liable for monetary damages for breach
of such individual's fiduciary duties as a director except for liability:
- for any breach of such director's duty of loyalty to us or to you, our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- for unlawful payments of dividends or unlawful stock repurchases as
provided in Section 174 of the Delaware General Corporation Law; or
- for any transaction from which a director derives an improper personal
benefit.
Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our officers, employees and other agents to the full
extent permitted by law and in excess of that expressly permitted by Section 145
of the DGCL, as authorized in our certificate of incorporation.
We believe that indemnification under our bylaws covers at least negligence
and gross negligence on the part of an indemnified party. Our bylaws also permit
us to advance expenses incurred by an indemnified party in connection with the
defenses of any action or proceeding arising out of such party's status or
service for us as a director, officer or employee or other agent upon an
undertaking by such party to repay such advances if it is ultimately determined
that such party is not entitled to indemnification except that any agent with
respect to such expenses shall be authorized by the board of directors.
In addition to indemnification provided for in our charter documents, upon
the closing of this offering, we will have entered into agreements to indemnify
our directors and officers. To the fullest extent permitted by the DGCL, these
agreements, among other things, provide for the indemnification of our directors
and officers for some of the expenses, including attorneys' fees, judgments,
fines and settlement amounts incurred by any such person in any action or
proceeding, including any action by us or in the right of the company, arising
out of person's services as one of
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our directors or officers, any of our subsidiaries or any other company or
enterprise to which such person provides services at our request. Furthermore,
we plan to purchase and maintain insurance on behalf of our directors and
officers to insure them against liabilities that they may incur in their
capacities as or arising out of their status as directors and officers. We
believe that these provisions and agreements will assist us in attracting and
retaining qualified persons to serve as directors and officers.
At present we are not aware of any pending or threatened litigation or
proceeding involving any of our directors, officers, employees or agents in
which indemnification will be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
46
<PAGE> 51
CERTAIN TRANSACTIONS
Since April 1, 1996, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we or any of our
subsidiaries was or is to be party in which the amount involved exceeded or will
exceed $60,000 and in which any director, executive officer, holder of more than
5% of our capital stock or any member of the immediate family of any of the
foregoing persons had or will have a direct or indirect material interest, other
than compensation agreements and other arrangements described below or under the
heading "Management" in this prospectus.
RELATIONSHIP WITH OTHER INVESTORS
Private Placement Transactions
Since our inception, we have issued certain shares of our preferred stock
to directors, executive officers and 5% stockholders in the private placement
transactions described below:
- an aggregate of 886,666 shares of Series A preferred stock at $0.564 per
share on September 20, 1996 to investors including 366,916 shares to N.
Damodar Reddy and 129,500 shares to Michael A. Gumport; and
- an aggregate of 1,534,962 shares of Series D preferred stock at $3.861
per share from May 1, 1998 to August 31, 1998 to investors, including
647,500 shares to entities affiliated with the Investar Group.
We also issued an aggregate of 312,333 shares of common stock for $3.00 per
share in a private placement of shares in 1997, including 28,666 shares of
common stock to Chandrashekar M. Reddy on June 30, 1997.
From May 1, 1998 to May 15, 1998 we issued warrants to purchase an
aggregate of 166,192 shares of Series D preferred stock at an exercise price of
$3.861 to investors, including entities affiliated with the Investar Group.
These warrants will terminate upon the closing of the sale of common stock
offered in this offering, if not exercised on or before the time of closing.
Investors' Rights Agreements
Each of the Series D and Series E investors and Faroudja Laboratories, Inc.
acquired the following registration rights:
- two demands for registration at any time after six months following the
consummation of this offering. This demand registration right may be made
by the holders that own at least 20% of the registrable securities. If
our board of directors determines in good faith that the demand
registration would be seriously detrimental to us, we are entitled to
postpone the filing of the registration statement for a period not to
exceed 120 days, provided that we may not utilize this right more than
once in any twelve-month period;
- piggyback registration rights, if we propose to register any securities
under the Securities Act in connection with any public offering of our
securities other than a registration relating solely to the sale of
securities to participants in our stock plan or transaction covered by
Rule 145 under the Securities Act, a registration in which the stock
being registered is common stock issuable upon conversion of debt
securities which are also being registered, or any registration on any
form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale
of the registrable securities, subject to quantity limitations determined
by underwriters if the offering involves an underwriting; and
47
<PAGE> 52
- demand registration rights at any time after we become eligible to
register our securities on Form S-3, provided, among other limitations,
that the proposed aggregate price to the public is at least $500,000 and
that we have not effected two of these registrations in any twelve-month
period preceding the date of such request. This demand registration right
may be made by the holders of Series D and Series E preferred stock, as
the case may be, that own at least 10% of the shares of common stock into
which such preferred stock converts, or by Faroudja Laboratories, Inc.
Except for expenses incurred in connection with a registration of common
stock on Form S-3, which will be borne pro rata by the participants in the Form
S-3 registration, we have agreed to bear all fees, costs and expenses of these
registrations, other than underwriting discounts and commissions. We have also
agreed, to the extent permitted by law, to indemnify each of the Series D and
Series E investors and Faroudja Laboratories, Inc. against some liabilities in
connection with the offering of the shares, including liabilities arising under
the Securities Act.
The registration rights of each of the Series D and Series E investors and
Faroudja Laboratories, Inc. terminate on the earlier of;
- the fourth anniversary of the date of this offering; or
- the date when the shares held by them may be sold under Rule 144 or
another similar exemption under the Securities Act during any three-month
period without registration.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested outside directors on the board of directors, and
will be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
48
<PAGE> 53
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of our common stock as of August 19, 1999, by the following individuals or
groups:
- each person or entity who is known by us to own beneficially more than 5%
of the outstanding shares of our common stock;
- each of our executive officers;
- each of our directors; and
- all directors and executive officers as a group.
Unless otherwise indicated, the address of each of the individuals listed
in the table is c/o Sage, Inc., 2460 North First Street, Suite 100, San Jose,
California 95131. Except as otherwise indicated, and subject to community
property laws where applicable, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown held by
them.
To the extent that any shares of common stock are issued upon exercise of
options, warrants or other rights that are presently outstanding or granted in
the future or reserved for future issuance under our stock plans, there will be
further dilution to new public investors. 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,
subject to community property laws, where applicable. Shares of our common stock
subject to options that are presently exercisable or exercisable within 60 days
of August 19, 1999 are deemed to be outstanding and beneficially owned by the
person holding such options for the purpose of computing the percentage of
ownership of such persons but are not treated as outstanding for the purpose of
computing the percentage of any other person.
The numbers shown in the table below assume no exercise by the underwriters
of their over-allotment option.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF SHARES OF COMMON STOCK BENEFICIALLY OWNED AS OF AUGUST 19, 1999
---------------------------------------------------------------------------------------------
PERCENT OF
SHARES SUBJECT TO SHARES ISSUABLE OUTSTANDING SHARES
A RIGHT OF PURSUANT TO OPTIONS ----------------------
OUTSTANDING SHARES REPURCHASE AS OF EXERCISABLE WITHIN 60 DAYS BEFORE THE AFTER THE
OF COMMON STOCK AUGUST 19, 1999(2) OF AUGUST 19, 1999 OFFERING OFFERING
------------------ ------------------ -------------------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS:
Entities affiliated with
Investar Group(1)........ 848,968 -- -- 12.9% 8.5%
DIRECTORS AND EXECUTIVE
OFFICERS:
Chandrashekar M. Reddy..... 905,304 -- -- 13.8% 9.2%
Simon P. Westbrook......... 157,236 70,565 -- 2.4% 1.6%
Arun Johary................ 204,836 107,205 -- 3.1% 2.1%
Vijay P. Desai............. 353,194 54,028 19,861 5.4% 3.6%
Pratap G. Reddy............ 362,965 54,028 32,565 5.5% 3.7%
N. Damodar Reddy........... 412,863 -- 29,280 6.3% 4.2%
Michael A. Gumport......... 274,641 -- 30,587 4.1% 2.8%
Kenneth Tai(1)............. 848,968 -- -- 12.9% 8.5%
All executive officers and
directors as a group (8
persons)................. 2,671,039 -- -- 53.7% 27.2%
</TABLE>
- -------------------------
(1) Includes 1,388,500 shares and 28,321 shares subject to warrants exercisable
within 60 days of August 19, 1999 held by Investar Semiconductor Development
Fund, Inc., 129,500 shares and 9,442 shares subject to warrants within 60
days of August 19, 1999 held by Investar Excelsus Venture Capital
(International) Inc., 129,500 shares and 9,442 shares subject to warrants
within 60 days of August 19, 1999 held by Forefront Venture Partners, L.P.
and 129,500 shares and 9,440 shares subject to warrants within 60 days of
August 19, 1999 held by Investar Dayspring
49
<PAGE> 54
Venture Capital, Inc. The address of Investar Group is Room 1201, TWTC
International Trade Building, 12F, 333 Keelung Rd., Sec. 1, Taipei, Taiwan,
Republic of China. Investar Capital, Inc. retains voting and management
control of Investar Group. Kenneth Tai and Herbert Chang retain voting and
management control of Investar Capital, Inc.
(2) Shares of common stock issued under a stock repurchase agreement under which
we retained the right to repurchase those shares at a per share purchase
price equal to the original per share purchase price if the holder's
employment is terminated.
50
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $0.01 per share, and 10,000,000 shares of preferred stock, par value
$0.01 per share. Upon consummation of this offering, no shares of preferred
stock and 9,805,795 shares of common stock (10,255,795 shares if the
underwriters' over-allotment option is exercised in full) will be outstanding.
The following summary is qualified in its entirety by reference to our
certificate of incorporation and Bylaws, copies of which are filed as exhibits
to the registration statement of which this prospectus is a part.
Under our 1997 Stock Plan, 578,782 shares of common stock have been
reserved for issuance and options to purchase 1,016,095 shares were outstanding
as of September 30, 1999.
COMMON STOCK
As of September 30, 1999, there were 3,622,553 shares of our common stock
outstanding held of record by approximately 57 stockholders, not including
3,183,242 shares that will be issued upon the automatic conversion of the
outstanding shares of our preferred stock into common stock upon the closing of
the offering. As of September 30, 1999, 578,782 shares of our common stock were
reserved for issuance pursuant to the 1997 Stock Plan. Upon completion of the
offering, there will be 9,805,795 shares of common stock outstanding.
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any of our outstanding preferred stock, the holders of our common
stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the board of directors out of funds legally available
therefor. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of Sage, the holders of our common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. Our common
stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to our common stock. All
outstanding shares of our common stock are fully paid and nonassessable, and the
shares of our common stock to be issued upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
As of the closing of this offering, no shares of our preferred stock will
be outstanding. Effective at such time and pursuant to our certificate of
incorporation, the board of directors will have the authority, without further
action by the stockholders, to issue the preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of Sage
without further action by the stockholders and may adversely affect the voting
and other rights of the holders of our common stock. The issuance of preferred
stock with voting and conversion rights may have the effect of decreasing the
market price of our common stock, and may adversely affect the voting power of
the holders of our common stock, including the loss of voting control to others.
At present, we have no plans to issue any shares of preferred stock.
51
<PAGE> 56
CERTAIN ANTI-TAKEOVER, LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS; SECTION
203 OF THE DELAWARE GENERAL CORPORATION LAW
We are subject to Section 203 of the Delaware General Corporation Law, as
amended ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (a) by persons who are
directors and also officers and (b) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combinations to include:
- any merger or consolidation involving the corporation or any
majority-owned subsidiary of the corporation and any other person or
entity;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation or any majority-owned subsidiary of the
corporation involving the interested stockholder;
- any transaction that results in the issuance or transfer by the
corporation or any majority-owned subsidiary of the corporation of any
stock of the corporation to the interested stockholder;
- any transaction involving the corporation or any majority-owned
subsidiary of the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the
corporation or any majority-owned subsidiary of the corporation
beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation or any majority-owned subsidiary of the
corporation. In general, Section 203 defines an interested stockholder as
any entity or person beneficially owning 15% or more or the outstanding
voting stock of the corporation and any entity or person affiliated with
or controlling or controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Chase Mellon
Shareholder Services. The transfer agent's address is 400 South Hope Street, 4th
Floor, Los Angeles, California and its telephone number is (213) 553-9730.
52
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
We cannot provide any assurance that a significant public market for our
common shares will develop or be sustained after this offering has been
completed. The sale of substantial numbers of common shares in the public
market, or the possibility of such a sale, could adversely affect prevailing
market prices for our common shares. Upon completion of this offering, there
will be 9,805,795 shares of our common stock outstanding. This assumes
conversion of all outstanding shares of our preferred stock, the surrender for
shares of our common stock of all outstanding warranties to purchase common
stock, no exercise of the underwriters' over-allotment option and no exercise of
outstanding compensatory stock options under our option plans. Of such shares,
the 3,000,000 shares sold in this offering will be freely transferable without
restriction or further registration under the Securities Act, except for any
shares held by our "affiliates", as that term is defined by the Securities Act,
which shares will be subject to the resale limitations of Rule 144 adopted under
the Securities Act.
All of our officers, directors and all other stockholders have agreed not
to offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock, or enter into any swap or similar
agreement that transfers, in whole or in part, the economic risk of ownership of
the common stock until 180 days after the offering. BancBoston Robertson
Stephens Inc. may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements.
BancBoston Robertson Stephens Inc. currently has no plans to release any portion
of the securities subject to lock-up agreements. As a result of these
contractual restrictions and the provisions of Rules 144(k), 144 and 701, the
restricted shares will be available for sale in the public market as follows:
- no shares will be eligible for immediate sale on the date of this
Prospectus;
- no shares will be eligible for sale 90 days after the date of this
Prospectus; and
- approximately 8,620,844 shares will be eligible for sale 180 days after
the date of the offering.
In general, under Rule 144 as currently in effect, beginning 90 days after
the offering, a person or persons whose shares are aggregated, who owns shares
that were purchased from us or any affiliate at least one year previously
(including a person who may be deemed an affiliate) is entitled to sell within
any three-month period that a number of shares that does not exceed the greater
of (a) 1% of the then outstanding shares of our common stock (93,940 shares
immediately after the offering) or (b) the average weekly trading volume of our
common stock on the Nasdaq National Market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about us. Any person (or persons whose shares are aggregated) who is
not deemed to have been our affiliate at any time during the 90 days preceding a
sale, and who owns shares within the definition of "restricted securities" under
Rule 144 under the Securities Act that were purchased from us (or any affiliate)
at least two years previously, would be entitled to sell such shares under Rule
144(k) without regard to the volume limitations, manner of sale provisions,
public information requirements or notice requirements.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from us by our employees,
directors, officers, consultants or advisers prior to the date the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934 pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Securities and
Exchange Commission has indicated that Rule 701 will apply to typical
compensatory stock options granted by an issuer before the issuer becomes
subject to the
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<PAGE> 58
reporting requirements of the Exchange Act, along with the shares acquired upon
exercise of such options, including exercises after the date of this prospectus.
Securities issued in reliance on Rule 701 are restricted securities and
beginning 90 days after the date of this prospectus, may be sold:
- by persons other than affiliates, subject only to the manner of sale
provisions of Rule 144; and
- by affiliates under Rule 144 without compliance with its one-year holding
period requirement.
After the offering, the holders of 2,029,295 shares of our common stock or
their respective transferees, will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. See "Description of
Capital Stock -- Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for shares purchased by affiliates)
immediately upon the effectiveness of such registration.
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<PAGE> 59
UNDERWRITING
The underwriters name below, acting through their representatives,
BancBoston Robertson Stephens Inc., Prudential Securities Incorporated and
Needham & Company, Inc. have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of common stock indicated opposite their names below. The underwriters
are committed to purchase and pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
Prudential Securities Incorporated..........................
Needham & Company, Inc. ....................................
---------
Total............................................. 3,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession not in
excess of per share, of which may be reallowed to other dealers.
After the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No reduction in
this price will change the amount of proceeds to be received by us as indicated
on the cover page of this prospectus.
Over-Allotment Option. We have granted to the underwriters an option
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 450,000 additional shares of common stock at the same price per
share as we will receive for the 3,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of additional shares that the number of shares of common
stock to be purchased by it shown in the above table represents as a percentage
of the 3,000,000 shares offered by this prospectus. If purchased, the additional
shares will be sold by the underwriters on the same terms as those on which the
3,000,000 shares are being sold. We will be obligated, under this option, to
sell shares to the extent the option is exercised. The underwriters may exercise
the option only to cover over-allotments made in connection with the sale of
3,000,000 shares of common stock offered by this prospectus.
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise of full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
PER WITHOUT WITH
SHARE OPTION OPTION
-------- -------- --------
<S> <C> <C> <C>
Public offering price.................. $ $ $
Underwriting discounts and
commissions.......................... $ $ $
Proceeds, before expenses, to us....... $ $ $
</TABLE>
The expenses of the offering are estimated at $1,000,000 and are payable
entirely by us. BancBoston Robertson Stephens Inc. expects to deliver the shares
of common stock to purchasers on November , 1999.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of representation
and warranties contained in the underwriting agreement.
Future Sales. Each of our executive officers, directors and other
significant stockholders of record has agreed with the representatives, for a
period of 180 days after the date of this prospectus, not to offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights
with
55
<PAGE> 60
respect to any shares of common stock, any options or warrants to purchase any
shares of common stock, or any securities convertible into or exchangeable for
shares of common stock owned as of the date of this prospectus or acquired
directly from us by these holders or with respect to which they have or may
acquire the power of disposition, without the prior written consent of
BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc.
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements. There are no agreements
between the representatives and any of our stockholders providing consent by the
representatives to the sale of shares prior to the expiration of the 180-day
lock-up period. In addition, we have generally agreed that, during the 180-day
lock-up period, we will not, without the prior written consent of BancBoston
Robertson Stephens, Inc., (a) consent to the disposition of any shares held by
stockholders prior to the expiration of the 180-day lock-up period or (b) issue,
sell, contract to sell or otherwise dispose of, any shares of common stock, any
options or warrants to purchase any shares of common stock, or any securities
convertible into, exercisable for or exchangeable for shares of common stock,
other than our sale of shares in the offering, our issuance of common stock upon
the exercise of currently outstanding options and warrants, and our issuance of
incentive awards under our stock incentive plans. See "Shares Eligible for
Future Sale."
Directed Shares. At our request, the underwriters will reserve up to
150,000 shares of common stock to be issued by us and offered hereby for sale,
at the initial public offering price, to directors, officers, employees,
business associates and related persons of Sage. The number of shares of common
stock available for sale to the general public will be reduced to the extent
that such individuals purchase all or a portion of these reserved shares. Any
reserved shares which are not purchased will be offered by the underwriters to
the general public on the same basis as the shares of common stock offered
hereby.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
No Prior Public Market. Prior to this offering, there has been no public
market for the common stock. Consequently, the initial public offering price for
the common stock offered by this prospectus will be determined through
negotiations between us and the representatives. Among the factors to be
considered in these negotiations were prevailing market conditions, our
financial information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives have advised us that, under Regulation M
under the Securities Exchange Act, some participants in the offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A stabilizing bid is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of fixing or maintaining the price of the common stock. A syndicate covering
transaction is the bid for or purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A penalty bid is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by the underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not been
effectively placed by the underwriter or syndicate member. The representatives
have advised us that these transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
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<PAGE> 61
LEGAL MATTERS
The validity of the shares of our common stock being offered hereby will be
passed upon for us by Morrison & Foerster LLP, San Francisco, California.
Certain legal matters in connection with the offering will be passed upon for
the underwriters by Brobeck Phleger & Harrison LLP, San Francisco, California.
EXPERTS
The consolidated financial statements as of March 31, 1998 and 1999, and
for each of the three years in the period ended March 31, 1999, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the shares of our common stock being offered hereby. This prospectus
does not contain all of the information set forth in that registration statement
or the exhibits and schedules to that registration statement. For further
information with respect to Sage and the common stock offered hereby, reference
is made to the registration statement and the exhibits and schedules filed as a
part of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document are not
necessarily complete; reference is made in each instance to the copy of such
contract or any other document filed as an exhibit to the registration
statement. Each such statement is qualified in all respects by such reference to
such exhibit.
You may inspect a copy of the registration statement without charge at the
Securities and Exchange Commission's principal office in Washington, D.C. and
obtain copies of all or any part thereof upon payment of certain fees from the
Public Reference Room of the Securities and Exchange Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
in New York, located at 7 World Trade Center, 13th Floor, New York, New York
10048, or in Chicago, located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at after payment of fees prescribed by the Commission. You
may obtain information on the operation of the Public Reference Room by calling
1-800-SEC-0300. The Commission also maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission. The Securities and Exchange Commission's World Wide Web address is
www.sec.gov.
We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. We intend to furnish our stockholders with such other reports as we may
determine or as may be required by law.
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<PAGE> 62
SAGE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Sage, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Sage, Inc. and its subsidiary at March 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1999, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
June 30, 1999, except for Note 13,
as to which the date is October 5, 1999
F-2
<PAGE> 64
SAGE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
MARCH 31, SEPTEMBER 30,
------------------ SEPTEMBER 30, 1999
1998 1999 1999 (NOTE 1)
------- ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 380 $ 2,473 $ 4,033
Accounts receivable, net.............. 230 804 2,221
Inventories........................... 68 412 62
Prepaid expenses and other assets..... 163 172 327
------- ------- --------
Total current assets.......... 841 3,861 6,643
Property and equipment, net............. 468 432 920
------- ------- --------
Total assets.................. $ 1,309 $ 4,293 $ 7,563
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 324 $ 638 $ 1,607
Accrued expenses and other
liabilities........................ 1,457 1,752 1,704
Notes payable......................... 500 -- --
------- ------- --------
Total current liabilities..... 2,281 2,390 3,311
------- ------- --------
Commitments (Note 11)
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 par
value; 10,000 shares authorized;
1,029, 2,564 and 3,063 shares
issued and outstanding actual; no
shares issued and outstanding pro
forma.............................. 11 26 31 $ --
Common stock, $0.01 par value; 23,000,
23,000 and 50,000 shares
authorized; 2,602, 3,176 and 3,623
shares issued and outstanding
actual; 6,806 shares issued and
outstanding pro forma.............. 26 32 36 68
Additional paid-in capital............ 2,915 11,646 17,640 17,639
Notes receivable from stockholders.... -- (113) (113) (113)
Deferred compensation related to stock
options and restricted stock....... -- (1,013) (646) (646)
Accumulated deficit................... (3,924) (8,675) (12,696) (12,696)
------- ------- -------- --------
Total stockholders' equity.... (972) 1,903 4,252 $ 4,252
------- ------- -------- ========
Total liabilities and
stockholders' equity....... $ 1,309 $ 4,293 $ 7,563
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 65
SAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------------- ------------------
1997 1998 1999 1998 1999
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $1,758 $ 1,495 $ 7,132 $ 1,346 $ 7,460
Cost of revenues...................... 1,136 1,639 4,914 877 4,537
------ ------- ------- ------- -------
Gross profit (loss)................... 622 (144) 2,218 469 2,923
------ ------- ------- ------- -------
Operating expenses:
Research and development............ 994 1,597 2,270 1,039 1,805
Charge for in-process technology.... -- -- -- -- 2,500
Selling, general and
administration................... 329 945 3,214 1,094 2,355
Stock compensation.................. -- -- 1,596 1,005 367
------ ------- ------- ------- -------
Total operating expenses......... 1,323 2,542 7,080 3,138 7,027
------ ------- ------- ------- -------
Loss from operations.................. (701) (2,686) (4,862) (2,669) (4,104)
Interest income (expense), net........ (7) (89) 111 53 83
------ ------- ------- ------- -------
Net loss.............................. $ (708) $(2,775) $(4,751) $(2,616) $(4,021)
====== ======= ======= ======= =======
Net loss per share:
Basic and diluted................... $(0.32) $ (1.08) $ (2.00) $ (1.07) $ (1.36)
====== ======= ======= ======= =======
Pro forma net loss per share
(unaudited)......................... $ (0.96) $ (0.67)
======= =======
Shares used in computing net loss per
share:
Basic and diluted................... 2,246 2,578 2,381 2,444 2,953
====== ======= ======= ======= =======
Shares used in computing pro forma net
loss per share (unaudited).......... 4,965 5,994
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 66
SAGE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES DEFERRED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE COMPENSATION
--------------- --------------- PAID-IN FROM RELATED TO ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL SHAREHOLDERS STOCK OPTIONS DEFICIT TOTAL
------ ------ ------ ------ ---------- ------------ ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1996.................... -- $-- 2,160 $22 $ 160 $ -- $ -- $ (441) $ (259)
Issuance of Series A
preferred stock......... 887 9 -- -- 491 -- -- -- 500
Issuance of common stock
for cash, net of
repurchases............. -- -- 317 3 1,002 -- -- -- 1,005
Net loss.................. -- -- -- -- -- -- -- (708) (708)
----- --- ----- --- ------- ----- ------- ------- -------
Balance at March 31,
1997.................... 887 9 2,477 25 1,653 -- -- (1,149) 538
Issuance of common stock
for cash, net of
repurchases............. -- -- 125 1 314 -- -- -- 315
Issuance of Series B
preferred stock......... 83 1 -- -- 499 -- -- -- 500
Issuance of Series C
preferred stock......... 59 1 -- -- 399 -- -- -- 400
Issuance of warrants of
Series D preferred stock
in connection with notes
payable................. -- -- -- -- 50 -- -- -- 50
Net loss.................. -- -- -- -- -- -- -- (2,775) (2,775)
----- --- ----- --- ------- ----- ------- ------- -------
Balance at March 31,
1998.................... 1,029 11 2,602 26 2,915 -- -- (3,924) (972)
Issuance of common stock
upon exercise of stock
options................. -- -- 571 6 323 (113) -- -- 216
Issuance of common stock
for consulting services,
net..................... -- -- 3 -- 8 -- -- -- 8
Issuance of Series D
preferred stock, net of
issuance cost of $150... 1,453 14 -- -- 5,444 -- -- -- 5,458
Issuance of Series D
preferred stock for
settlement of notes
payable................. 82 1 -- -- 317 -- -- -- 318
Issuance of Series D
preferred stock warrants
in connection with line
of credit............... -- -- -- -- 30 -- -- -- 30
Deferred compensation
related to restrictions
placed in common
stock................... -- -- -- -- 393 -- (393) -- --
Deferred compensation
related to stock option
grants.................. -- -- -- -- 2,216 -- (2,216) -- --
Amortization of deferred
compensation related to
stock options and
restricted stock........ -- -- -- -- -- -- 1,596 -- 1,596
Net loss.................. -- -- -- -- -- -- -- (4,751) (4,751)
----- --- ----- --- ------- ----- ------- ------- -------
Balance at March 31,
1999.................... 2,564 26 3,176 32 11,646 (113) (1,013) (8,675) 1,903
Exercise of preferred
stock
warrants (unaudited).... 6 -- -- -- 35 -- -- -- 35
Issuance of Series E
preferred stock, net of
issuance cost of $30
(unaudited)............. 493 5 -- -- 2,919 -- -- -- 2,924
Issuance of Series E
preferred stock warrants
(unaudited)............. -- -- -- -- 4 -- -- -- 4
Issuance of common stock
upon exercise of stock
options (unaudited)..... -- -- 72 -- 40 -- -- -- 40
Issuance of common stock
in connection with
license agreement
(unaudited)............. -- -- 375 4 2,996 -- -- -- 3,000
Amortization of deferred
compensation related to
stock options and
restricted stock
(unaudited)............. -- -- -- -- -- -- 367 -- 367
Net loss (unaudited)...... -- -- -- -- -- -- -- (4,021) (4,021)
----- --- ----- --- ------- ----- ------- ------- -------
Balance at September 30,
1999 (unaudited)........ 3,063 $31 3,623 $36 $17,640 $(113) $ (646) $12,696 $ 4,252
===== === ===== === ======= ===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 67
SAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------------- ------------------
1997 1998 1999 1998 1999
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................ $ (708) $(2,775) $(4,751) $(2,616) $(4,021)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Charge for in-process
technology..................... -- -- -- -- 2,500
Depreciation and amortization.... 27 137 250 112 192
Stock compensation............... -- -- 1,596 1,005 367
Warrant expense.................. -- 50 4 -- 4
Changes in assets and
liabilities:
Accounts receivable............ (352) 209 (574) (140) (1,417)
Inventories.................... (72) 26 (344) (171) 350
Prepaid expenses and other
assets...................... (66) (93) 17 (11) (155)
Accounts payable............... 442 (130) 314 122 969
Accrued expenses and other
liabilities................. 327 649 303 (271) (48)
------ ------- ------- ------- -------
Net cash used in operating
activities............... (402) (1,927) (3,185) (1,970) (1,259)
------ ------- ------- ------- -------
Cash flows from investing activities:
Acquisition of property and
equipment........................ (204) (316) (214) (134) (680)
------ ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance (repayments)
of notes payable................. -- 500 (190) (190) --
Net proceeds from issuance of common
stock............................ 1,005 315 224 133 540
Net proceeds from issuance of
preferred stock.................. 500 900 5,458 5,458 2,959
------ ------- ------- ------- -------
Net cash provided by financing
activities....................... 1,505 1,715 5,492 5,401 3,499
------ ------- ------- ------- -------
Net increase (decrease) in cash and
cash equivalents.................... 899 (528) 2,093 3,297 1,560
Cash and cash equivalents at beginning
of year............................. 9 908 380 380 2,473
------ ------- ------- ------- -------
Cash and cash equivalents at end of
year................................ $ 908 $ 380 $ 2,473 $ 3,677 $ 4,033
====== ======= ======= ======= =======
Supplemental disclosures of cash flow
information:
Interest paid.................... $ 7 $ 27 $ 17 $ 17 $ 8
====== ======= ======= ======= =======
Noncash investing and financing
activities:
Issuance of convertible preferred
stock in lieu of debt
repayments....................... $ -- $ -- $ 318 $ 318 $ --
====== ======= ======= ======= =======
Issuance of common and preferred
stock in exchange for notes
receivable....................... $ -- $ -- $ 113 $ 113 $ 30
====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 68
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SAGE AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
Sage, Inc. ("Sage") was established in California in May 1994 and
re-incorporated in Delaware in May 1999. Sage designs, develops and markets
digital display processors. Sage offers a family of display signal processing
solutions that provide display processing, highly integrated analog-to-digital
conversion, signal reformatting and color processing and that are compatible
with all commercially available display signal modes and display types. Sage has
established a wholly owned subsidiary located in Bangalore, India.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts. Actual results could differ from
those estimates.
CONSOLIDATION
The financial statements herein presented include the results and financial
position of Sage and its wholly owned subsidiary. All intercompany transactions
and balances have been eliminated in consolidation.
FOREIGN EXCHANGE
The functional currency of Sage is the U.S. dollar and the functional
currency of its subsidiary is the Indian rupee.
Transactions in currencies other than the functional currency are measured
and recorded in the functional currency using the exchange rate in effect at the
date of the transaction. At the balance sheet date, monetary assets and
liabilities that are denominated in currencies other than the functional
currency are remeasured using the exchange rate at the balance sheet date. All
gains and losses arising from foreign currency transactions and remeasurement of
foreign currency denominated accounts are included in the determination of net
income in the year in which they occur and were not material for the years ended
March 31, 1997, 1998 and 1999.
The financial statements of the subsidiary company are translated into U.S.
dollars for consolidation as follows: assets and liabilities at the exchange
rate as of the balance sheet date, shareholders' equity at the historical rates
of exchange, and income and expense amounts at the average monthly exchange rate
during the year. The translation differences were not material for the three
years ended March 31, 1997, 1998 and 1999.
REVENUE RECOGNITION
Revenue is recognized upon product shipment except for shipments to
distributors with right of return, in which case revenues are deferred until the
distributor resells the inventories.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
F-7
<PAGE> 69
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH AND CASH EQUIVALENTS
Sage considers all highly liquid debt instruments purchased with a maturity
of three months or less at the date of purchase to be cash equivalents.
Currently all deposits are in short-term deposit and money market accounts with
various banks.
INVENTORIES
Inventories are stated at the lower of cost, determined on first-in,
first-out ("FIFO") basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally of three years.
IMPAIRMENT OF LONG-LIVED ASSETS
Sage reviews long-lived assets based upon a gross cash flow basis and will
reserve for impairment whenever events or changes in circumstances indicate the
carrying amount of the assets may not be fully recoverable. Based on its most
recent analysis, the Company believes that there was no impairment of its
property and equipment as of March 31, 1999.
INCOME TAXES
Sage accounts for income taxes under the asset and liability approach
whereby the expected future tax consequences of temporary differences between
the book and tax basis of assets and liabilities are recognized as deferred tax
assets and liabilities. A valuation allowance is established for any deferred
tax assets for which realization is uncertain.
STOCK-BASED COMPENSATION
Sage accounts for stock-based compensation arrangements in accordance with
the provisions of Accounting Principles Board's Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and complies with the disclosure
provisions of Statement of Financial Accounting Standard No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." Under APB 25 and subject to certain
conditions, deferred compensation is recognized based on the excess, if any, of
the estimated fair market value of Sage's stock on the date of grant and the
amount an employee must pay to acquire the stock. Deferred compensation is
amortized over the vesting period on an accelerated basic using the model
presented in paragraph 24 of FASB Interpretation No. 28. Accordingly, the
percentages of the deferred compensation amortized in the first, second, third
and fourth years following the option grant date are 52%, 27%, 15% and 6%,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of Sage's financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses, the
carrying amounts approximate fair value due to their short maturities.
F-8
<PAGE> 70
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMPREHENSIVE INCOME
In the fiscal year ended March 31, 1999, Sage adopted Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS
130"). Comprehensive income is defined as the change in equity of a company
during a period from transactions and other events and circumstances excluding
transactions resulting from investment by owners and distribution to owners. For
the years ended March 31, 1997, 1998 and 1999, the comprehensive loss did not
differ significantly from the net loss.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities and is
effective for all fiscal years beginning after June 15, 2000. Sage anticipates
that, due to its limited use of derivative instruments, the adoption of SFAS 133
will not have a significant effect on Sage's results of operations or its
financial position.
BASIC AND DILUTED NET LOSS PER SHARE
Basic net loss per share is computed by dividing net income available to
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share is calculated using
the weighted average number of outstanding shares of common stock plus dilutive
common stock equivalents. Shares of common stock that are subject to Sage's
right to repurchase are excluded from the basic and diluted net loss per share
computations. Options and warrants to purchase shares, and convertible preferred
stock outstanding were not included in the computation of diluted net loss per
share, as their effect was antidilutive for the periods presented. Therefore,
both the basic and diluted net loss per share computations resulted in the same
number and there were no reconciling items.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
The pro forma net loss per share is calculated assuming that all
outstanding shares of convertible preferred stock are converted into common
stock at the beginning of the periods presented, or on the date of issuance of
the Preferred Stock, whichever is later.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
If the offering is consummated, all shares of convertible preferred stock
outstanding will automatically convert into an aggregate of 3,183,242 shares of
common stock. The pro forma effect of this conversion has been reflected in the
accompanying financial statements as of September 30, 1999.
INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet as of September 30, 1999, the
consolidated statements of operations and of cash flows for the six months ended
September 30, 1998 and 1999 and the consolidated statement of stockholders'
equity for the six months ended September 30, 1999 are unaudited. In the opinion
of management, these statements have been prepared on the same basis
F-9
<PAGE> 71
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
as the audited consolidated financial statements and include all adjustments,
consisting of only normal recurring adjustments, necessary for the fair
presentation of the results for the interim periods. The data disclosed in the
notes to the consolidated financial statements as of such dates and for such
periods are unaudited.
NOTE 2 -- BALANCE SHEET ACCOUNTS (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
---------------- SEPTEMBER 30,
1998 1999 1999
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable:
Accounts receivable.................................... $ 248 $ 893 $2,310
Less: allowance for doubtful accounts.................. (18) (89) (89)
------ ------ ------
$ 230 $ 804 $2,221
====== ====== ======
Inventories:
Raw materials.......................................... $ 12 $ 71 $ 29
Finished goods......................................... 56 341 33
------ ------ ------
$ 68 $ 412 $ 62
====== ====== ======
Property and equipment:
Equipment, computers and software...................... $ 504 $ 725 $1,425
Furniture and fixtures................................. 128 121 121
------ ------ ------
632 846 1,546
Less: accumulated depreciation and amortization........ (164) (414) (626)
------ ------ ------
$ 468 $ 432 $ 920
====== ====== ======
Accrued expenses and other liabilities:
Margin on deferred sales to distributors............... $ 323 $ 171 $ 171
Other deferred revenue................................. 350 169 --
Accrued compensation costs............................. 309 512 138
Reserve for adverse purchases commitment............... 146 33 40
Accrued warranty....................................... 61 61 60
Advances from shareholders............................. 31 -- --
Payable on development projects........................ -- 192 380
Commission payable to sales agents..................... -- 62 99
Deferred payment for software purchased................ -- -- 299
Other accruals......................................... 237 552 517
------ ------ ------
$1,457 $1,752 $1,704
====== ====== ======
</TABLE>
NOTE 3 -- LINE OF CREDIT:
As of March 31, 1999, Sage had a credit facility with a bank which allowed
Sage to borrow up to $2,000,000 or $600,000 plus 85% of eligible accounts
receivable, whichever is less, at an interest rate of 0.5% plus prime rate (8.5%
per annum on March 31, 1999). The credit facility expires on June 30, 2000 and
is secured by all of Sage's assets. As of March 31, 1999, Sage did not have any
borrowings outstanding under the credit facility. The line of credit requires
Sage to achieve certain financial ratios and operating results. At September 30,
1999, Sage was in compliance with the covenants.
F-10
<PAGE> 72
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Sage issued six year warrants to subscribe for 25,000 shares of Series D
preferred stock at an exercise price of $3.861 per share to the bank in
connection with the credit facility received. The warrants were valued at
$30,000 which was included as interest expense.
NOTE 4 -- NOTES PAYABLE:
In August 1997, Sage issued $500,000 of unsecured redeemable notes bearing
interest at 8% per annum, payable quarterly. The Notes carried three year
warrants to subscribe for 100,000 shares of Series D preferred stock at $4.80
per share, expiring May 15, 2001. In May 1998, in conjunction with the closing
of the Series D round of financing, $310,000 of the Notes, together with $8,000
of accrued interest thereon, were converted into Series D preferred stock, and
the remaining notes, together with accrued interest of $6,000, were repaid.
Warrants were valued at $50,000, which was included as interest expense.
NOTE 5 -- INCOME TAXES:
There was no income tax provision for the years ended March 31, 1997, 1998
and 1999 because operations resulted in pre-tax losses. As of March 31, 1999,
Sage had net operating loss carryforwards of approximately $5,125,000 for
federal income tax purposes. These losses are available to reduce taxable income
and expire from 2010 through 2019. Because of certain changes in the ownership
of Sage, there is a limitation on the use of the net operating loss
carryforwards of approximately $800,000 per year pursuant to Section 382 of the
Internal Revenue Code.
Deferred tax assets at March 31, 1997, 1998 and 1999 relate primarily to
net operating losses, inventory reserves and accruals. A valuation allowance has
been provided in an amount equal to these assets due to the uncertainty of their
realization.
The following is an analysis of Sage's deferred tax assets:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss carryforward................... $ 71 $ 700 $ 1,895
Inventory reserve................................. 195 258 360
Accrued liabilities not currently deductible...... 159 512 665
------- ------- -------
425 1,470 2,920
Deferred tax assets valuation allowance........... (425) (1,470) (2,920)
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
F-11
<PAGE> 73
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- NET LOSS PER SHARE:
The following table sets forth the computations of basic and diluted net
loss per share for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED MARCH 31, ENDED SEPTEMBER 30,
---------------------------- ----------------------
1997 1998 1999 1998 1999
------ ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss........................... $ (708) $(2,775) $(4,751) $(2,616) $(4,021)
Denominator:
Weighted average common stock
shares outstanding............... 2,246 2,578 2,841 2,716 3,290
Less weighted average restricted
common stock shares subject to
the company's repurchase
option........................... (461) (272) (337)
------ ------- ------- ------- -------
Shares used in computing basic and
diluted net loss per share....... 2,246 2,578 2,380 2,444 2,953
====== ======= ======= ======= =======
Basic and diluted net loss per
share............................ $(0.32) $ (1.08) $ (2.00) $ (1.07) $ (1.36)
====== ======= ======= ======= =======
</TABLE>
NOTE 7 -- SHAREHOLDERS' EQUITY:
COMMON STOCK
As of September 30, 1999 Sage is authorized to issue up to 23,000,000
shares of common stock. Of the shares authorized, 1,666,666 shares of common
stock have been reserved for issuance under the Sage's employee stock option
plans.
RESTRICTED COMMON STOCK
Certain shares of common stock were sold to the founders and other
investors under the term of a restricted stock purchase agreement in May 1998.
These agreements contain provisions for the repurchase of unvested shares by
Sage for individuals who terminate employment prior to full vesting. The common
stock subject to repurchase will vest over four years.
As a condition to the issuance of Series D preferred stock in May 1998,
certain founders entered into stock restriction agreements with Sage pursuant to
which 1.37 million of the outstanding common shares were restricted and were
made subject to monthly vesting (over a 4 year period beginning when the shares
were originally issued and ending in April 2000) based on the founders continued
employment with Sage. Under the terms of the restricted stock agreement, Sage
has the right to repurchase the unvested shares at the original issuance price
in the event the founder ceases to be an employee of Sage. Sage recorded
deferred stock compensation amounting to $393,000 for the shares covered under
the restricted stock agreement. The deferred amount is recognized as
compensation expense over the vesting period on an accelerated basis. During the
fiscal year ended March 31, 1999 and the six months ended September 30, 1999,
such compensation expense included in stock compensation in the statement of
operations amounted to $274,000 and $58,000 (unaudited), respectively.
F-12
<PAGE> 74
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of March 31, 1999, Sage had a total of 397,145 shares of common stock
subject to repurchase rights.
CONVERTIBLE PREFERRED STOCK
Sage is authorized to issue 10,000,000 shares of convertible preferred
stock without par value, of which 886,666, 83,333, 266,666 and 2,000,000 shares
were designated Series A, B, C and D preferred stock, respectively. At March 31,
1999, Sage had issued 886,666, 83,333, 59,233 and 1,534,962 shares of Series A,
B, C and D preferred stock, respectively.
Of the preferred stock shares authorized, 100,000, 62,859 and 25,000 shares
have been reserved for issuance of Series D preferred shares for the warrants
issued in connection with the issuance of the 8% unsecured redeemable notes, the
Series D preferred stock and a credit facility, respectively. The outstanding
warrants have a weighted average remaining contractual life of 2.23 years, and a
weighted average exercise price of $4.35 per share.
All warrants are issued with exercise price equal to fair value of
respective preferred stock at issuance dates and are exercisable upon issuance.
The weighted average fair value of warrant issued during fiscal year 1999 was
$1.04. The fair value of each warrant was determined using the Black-Scholes
model with the following assumptions: dividend yield of 0%, risk-free interest
rate of 5% to 6%, a term equal to the period of the warrant and a volatility
factor of 65%.
In connection with the sale of Series D preferred stock, Sage issued three
year warrants to subscribe for 62,859 shares of Series D preferred stock at
$3.861 per share.
The rights, preferences and privileges of Sage's preferred stock are as
follows:
Dividends. Holders of Series A, B, C and D preferred stock are entitled to
receive noncumulative annual dividends of $0.06, $0.48, $0.54 and $0.30 per
share, respectively, when and if declared by the board of directors. Sage may
not distribute to common shareholders until the dividends for preferred stock
have been paid. No dividends on preferred stock or common stock have been
declared by the board of directors since inception.
Conversion. Each share of Series A, B, C and D preferred stock outstanding
is convertible at the option of the holder into common stock, subject to
adjustment for dilution. Such conversion is automatic upon the completion of a
public offering with aggregate proceeds of not less than $7,500,000.
The conversion ratio of preferred stock into shares of common stock is:
<TABLE>
<S> <C>
Series A........................... 1.000 = 1.000
Series B........................... 1.000 = 1.580
Series C........................... 1.000 = 1.778
Series D........................... 1.000 = 1.017
Series E........................... 1.000 = 1.000
</TABLE>
Voting. Each share of Series A, B, C and D preferred stock entitles its
holder to one vote for each common share into which the shares would convert.
Liquidation. In the event of a liquidation, dissolution or winding up of
Sage, the holders of A, B, C and D preferred stock are entitled to be paid, in
preference to common shareholders, a per share distribution of $0.57, $6.00,
$6.75 and $3.87, respectively, plus all declared but unpaid
F-13
<PAGE> 75
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
dividends. After payment to the holders of preferred stock, the remaining assets
and funds of Sage shall be distributed ratably to the holders of common stock
and preferred stock on an as if converted basis until the holders of the Series
A, B, C and D preferred stock shall have received an aggregate of $1.092,
$18.00, $20.25 and $11.613 per share, respectively (in each case, including the
aforesaid liquidation preference). Thereafter, any remaining assets shall be
distributed ratably to the holders of common stock.
NOTE 8 -- STOCK OPTIONS:
In September 1995 the stockholders of Sage approved the 1995 Stock Plan. In
November 1997 the shareholders of Sage approved the 1997 Stock Plan, terminating
the 1995 Plan and transferring the balance of the option pool from the 1995
Stock Plan to the 1997 Stock Plan. In the fiscal year ended March 31, 1999, Sage
cancelled all options outstanding under the 1995 Stock Plan and reissued them
under the 1997 Stock Plan.
Under the 1997 Stock Plan, nonqualified and incentive stock options may be
granted at prices not less than 85% and 100%, respectively, of the fair market
value at the date of grant, as determined by the board of directors. However,
the option price granted to a person who owns stock greater than 10% of the
total combined voting power of all classes of stock of Sage shall not be less
than 110% of the fair market value on the date of grant. Options granted under
the 1997 Stock Plan vest over five years or at such rate as may be determined by
the board of directors. The options are exercisable during the period the
participant has the same relationship with Sage as an employee, consultant or
outside director as the participant had when the option was granted and within
90 days after the termination of the relationship, but not longer than ten years
after the date the option is granted.
In May 1998 the board of directors repriced all outstanding option grants
with an exercise price in excess of $0.57 per share. The number of repriced
stock options was 966,320.
During the fiscal year ended March 31, 1999, Sage granted options for the
purchase of 306,181 shares of common stock to employees at a weighted average
exercise price of $0.69 per share. Management recognized deferred compensation
of $2,216,000 related to options repriced or granted during the year ended March
31, 1999. The estimates of the fair value of common stock used to calculate
deferred compensation increased from $2.40 per share in April 1998 to $4.26 per
share in March 1999. These estimates were based on several factors including the
per share price of the Series D and E preferred stock issuances, discounts to
reflect the value of the preferences and improved operating results of the
Company over that period. In addition, the Company recorded deferred
compensation of $393,000 related to restrictions placed on common shares of
founders as described in Note 6 above. Such deferred compensation is being
amortized on an accelerated basis over the vesting period, generally four years.
The amortization of deferred compensation for the year ended March 31, 1999 and
the six months ended September 30, 1999 amounted to $1,596,000 and $367,000
(unaudited).
Had compensation cost for the Sage's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method prescribed by SFAS 123, the effect on fiscal
1997, 1998, and 1999 net losses would have been immaterial. The fair value of
each option grant during the fiscal years ended March 31, 1997, 1998 and 1999 is
estimated on the date of grant using the Black-Scholes method with the following
assumptions: dividend yield of 0%, risk-free interest rate of 6.40%, 5.95% and
4.96%, respectively, a weighted average expected option term of five years, and
a volatility factor of 0. The weighted average value per share under SFAS 123 of
options granted during the fiscal years 1997, 1998 and 1999 were $0.24, $0.37
and $1.71, respectively.
F-14
<PAGE> 76
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The plans' activities for the years ended March 31, 1997, 1998 and 1999 and
the six months ended September 30, 1999 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------
WEIGHTED
SHARES NUMBER AVERAGE
AVAILABLE OF PRICE EXERCISE
FOR GRANT SHARES PER SHARE PRICE
--------- ------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at March 31, 1996.................... 633 34 $ 0.57 $ 0.57
Options granted.............................. (341) 341 $0.57-$ 3.00 $ 1.02
------ -----
Balance at March 31, 1997.................... 292 375 $0.57-$ 3.00 $ 1.02
Increase in option pool, net................. 691 -- -- --
Options granted.............................. (953) 953 $0.57-$ 3.00 $ 2.61
Options canceled............................. 218 (218) $0.57-$ 3.00 $ 3.00
------ -----
Balance at March 31, 1998.................... 248 1,110 $0.57-$ 3.00 $ 1.98
Increase in option pool, net................. 166 -- -- --
Options granted.............................. (1,272) 1,272 $0.57-$ 9.00 $ 0.69
Options exercised............................ -- (571) $0.57-$ 3.60 $ 0.57
Options canceled............................. 966 (966) $0.57-$ 9.00 $ 1.11
------ -----
Balance at March 31, 1999.................... 108 845 $0.57-$ 9.00 $ 0.75
Increase in option pool...................... 713 -- -- --
Options granted (unaudited).................. (336) 336 $5.10-$12.00 $ 8.08
Options exercised (unaudited)................ -- (71) $ 0.57 $ 0.57
Options cancelled (unaudited)................ 94 (94) $0.57-$12.00 $ 2.81
------ -----
Balance at September 30, 1999 (unaudited).... 579 1,016 $0.57-$ 9.00 $ 3.00
====== ===== ============ ======
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- -------------- ----------- -------- -------------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$0.57 710 9.22 $0.57 259 $0.57
$1.05 36 9.55 $1.05 -- --
$1.50 70 9.79 $1.50 -- --
$1.95 24 9.88 $1.95 -- --
$9.00 5 9.96 $9.00 -- --
--- ---
$0.57-$9.00 845 9.30 $0.75 259 $0.57
=== ===
</TABLE>
NOTE 9 -- EMPLOYEE BENEFITS PLAN:
Sage has a salary savings plan, which qualifies under Section 401(k) of the
Internal Revenue Code. Under the plan, participating employees may defer up to
15% of their pretax salary, but not more than statutory limits. There were no
matching contributions for the years ended March 31, 1997, 1998 and 1999.
F-15
<PAGE> 77
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
Two customers represented 37% and 17% of revenues for the year ended March
31, 1997. Three customers represented 44%, 20% and 17% of revenues for the year
ended March 31, 1998. One customer represented 49% of revenues for the year
ended March 31, 1999. Three customers represented 32%, 18% and 15% of the
accounts receivable balance at March 31, 1998. Three customers represented 25%,
15% and 13% of the accounts receivable balance at March 31, 1999.
Financial instruments that potentially subject Sage to significant
concentrations of credit risk consist primarily of cash, cash equivalents and
accounts receivable. Ongoing credit evaluations are performed and reserves for
potential credit losses are maintained. Certain sales were made under letters of
credit, which further reduces Sage's overall credit risk.
NOTE 11 -- SEGMENT AND GEOGRAPHIC INFORMATION:
Sage operates in one reportable segment which is the development and sales
of display processors and accompanying software to support the display industry.
Sage has operations in the United States and India. The India operation was
established in January 1996. The results of the India operation for the years
ended March 31, 1997, 1998 and 1999 and its total assets as of the respective
dates were not material to Sage's consolidated financial statements.
Sage sells its products primarily in the United States and to the Asia
Pacific region. Revenues by geographic location based on the country of the
customer were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1997 1998 1999
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
United States........................................ $1,758 $1,495 $2,131
Taiwan............................................... -- -- 3,535
Other Asia Pacific countries......................... -- -- 1,365
Europe............................................... -- -- 101
------ ------ ------
$1,758 $1,495 $7,132
====== ====== ======
</TABLE>
NOTE 12 -- COMMITMENTS:
Sage leases its facilities under noncancelable operating leases which
expire on various dates through September 2000. Future minimum lease payments as
of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR LEASES
----------- --------------
(IN THOUSANDS)
<S> <C>
2000................................ $218
2001................................ 106
----
Total minimum lease payments........ $324
====
</TABLE>
Total rent expenses under operating leases for fiscal years 1997, 1998 and
1999 were $48,000, $84,000 and $150,000, respectively.
F-16
<PAGE> 78
SAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- SUBSEQUENT EVENT:
In May 1999 Sage sold 492,333 shares of Series E preferred stock for an
aggregate of $2.9 million.
On July 24, 1999, Sage entered into a joint license and development
agreement with Faroudja under which Sage issued 375,000 shares of common stock
to Faroudja in exchange for $500,000 cash and a limited exclusive license to
certain of Faroudja's video processing and image enhancement technologies. Under
the terms of the agreement, the licensed technologies can only be used to
develop new chip solutions that incorporate both Faroudja's and Sage's
technologies. The in-process technology was valued at 375,000 shares, issued at
$8.00 per share, less the cash receipt of $500,000. As a result of that
transaction, Sage recorded an expense of $2.5 million relating to in-process
research and development during the six months ended September 30, 1999.
On October 1, 1999, Sage implemented a three-for-one reverse stock split.
Shares and per share amounts have been retroactively restated for all periods
presented.
F-17
<PAGE> 79
[SAGE LOGO]
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
AMOUNT*
----------
<S> <C>
Securities and Exchange Commission Filing Fee............... $ 9,591
NASD Filing Fee............................................. 3,950
Nasdaq National Market Listing Fee.......................... 95,000
Accounting Fees and Expenses................................ 230,000
Blue Sky Fees and Expenses.................................. 3,000
Legal Fees and Expenses..................................... 300,000
Transfer Agent and Registrar Fees and Expenses.............. 10,000
Printing Expenses........................................... 330,000
Miscellaneous Expenses...................................... 18,459
----------
Total.................................................. $1,000,000
==========
</TABLE>
- -------------------------
* All amounts are estimates except the Commission filing fee, the NASD filing
fee and the Nasdaq National Market listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate Law of the State of Delaware,
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
Bylaws (Exhibit 3.2 hereto) also provide for indemnification of its directors,
executive officers, employees and agents, to the fullest extent permissible
under Delaware law.
The Registrant's certificate of incorporation (Exhibit 3.1 hereto) provides
that the liability of its directors for monetary damages shall be eliminated to
the fullest extent permissible under Delaware law. Pursuant to Delaware law,
this includes 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 also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Prior to the effective date of the registration statement, the Registrant
will have entered into agreements with its directors and certain of its
executive 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
II-1
<PAGE> 81
indemnification agreements also set forth certain procedures that will apply in
the event of a claim for indemnification thereunder.
The Registrant intends to obtain in conjunction with the effectiveness of
the registration statement a policy of directors' and officers' liability
insurance that insures the Company's directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances.
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 15. RECENT SALES OF UNREGISTERED SECURITIES
During the period from August 19, 1996 to August 19, 1999, the Registrant
has issued and sold the following unregistered securities:
(1) On September 30, 1996, Registrant issued an aggregate of 886,666
shares in a private placement of its Series A Preferred Stock at a purchase
price of $0.564 per share, for cash in the aggregate amount of $500,080, to
investors.
(2) On February 10, 1997, Registrant issued an aggregate of 382,978
shares in a private placement of its common stock, at a purchase price of
$0.564 per share, for cash in the aggregate amount of $216,000, to
investors.
(3) On March 11, 1997, Registrant issued an aggregate of 270,333
shares in a private placement of its common stock for an aggregate purchase
price of $811,000 to officers, directors and consultants and investors.
(4) On July 30, 1997, Registrant issued an aggregate of 125,000 shares
in a private placement of its common stock for an aggregate purchase price
of $271,564 to officers, directors and consultants.
(5) On September 4, 1997, Registrant issued 1,461,454 shares of
warrants to purchase up to 100,000 shares of our common stock for a price
of $1.60 to employees, directors and consultants.
(6) On January 29, 1998, Registrant issued 83,333 shares in a private
placement of its Series B Preferred Stock at a purchase price of $6.00 per
share, for cash in the aggregate amount of $500,000, to Krishnan Shah
Limited Family Partnership and 59,233 shares of its Series C Preferred
Stock at a purchase price of $6.75, for cash in the aggregate amount of
$399,825 to Grand Wide Technology Ltd. and Richview Ltd.
(7) On May 1 and May 15, 1998, Registrant issued 1,245,537 shares in a
private placement of its Series D Preferred Stock at a purchase price of
$3.86, for cash in the aggregate amount of $4,809,021 to 28 investors.
(8) On May 1, 1999, Registrant issued 487,333 shares in a private
placement of its Series E Preferred Stock at a purchase price of $6.00 per
share, for cash in the aggregate amount of $2,924,000 to 47 accredited
investors pursuant to Rule 506 of Regulation D.
(9) On July 27, 1999, Registrant issued 375,000 shares in a private
placement of its common shares to Faroudja Laboratories, Inc. in a
transaction valued at $12.00 per share in exchange for an aggregate amount
of $500,000 and certain licensed technology from Faroudja.
The sale of the above securities was deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Rule 701 promulgated under Section 3(b)
II-2
<PAGE> 82
of the Securities Act as transactions by an issuer not involving any public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Registrant, to information about the
Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The exhibits are as set forth in the Exhibit Index.
(b) FINANCIAL STATEMENT SCHEDULES
None.
Schedules have been omitted since they are not required or are not
applicable or the required information is shown in the financial statements or
related notes.
ITEM 17. 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 foregoing provisions, 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 Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the 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 Act and will be governed by the final adjudication of such
issue.
The Registrant hereby undertakes that:
(1) For purposes of 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 a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of 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
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused Amendment No. 4 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Jose, State of California on the 4th day of November, 1999.
SAGE, INC.
By: /s/ CHANDRASHEKAR M. REDDY
------------------------------------
Chandrashekar M. Reddy
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
Amendment No. 4 to this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CHANDRASHEKAR M. REDDY President, Chief Executive November 4, 1999
- --------------------------------------------------- Officer and Director
Chandrashekar M. Reddy (Principal Executive Officer)
/s/ SIMON P. WESTBROOK* Chief Financial Officer November 4, 1999
- --------------------------------------------------- (Principal Financial and
Simon P. Westbrook Accounting Officer)
/s/ MICHAEL A. GUMPORT* Director November 4, 1999
- ---------------------------------------------------
Michael A. Gumport
/s/ N. DAMODAR REDDY* Director November 4, 1999
- ---------------------------------------------------
N. Damodar Reddy
/s/ KENNETH TAI* Director November 4, 1999
- ---------------------------------------------------
Kenneth Tai
* By: /s/ CHANDRASHEKAR M. REDDY
-------------------------------------------
Chandrashekar M. Reddy
Attorney-in-fact
</TABLE>
II-4
<PAGE> 84
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<S> <C>
1.1 Form of Underwriting Agreement+
3.1 Certificate of Incorporation of the Registrant
3.2 Registrant's Bylaws
4.1 Reference is made to Exhibit 3.1
4.2 Series D Investors' Rights Agreement dated May 1, 1998 with
certain Investors+
4.3 Series E Investors' Rights Agreement dated May 1, 1999 with
certain Investors+
4.4 Faroudja Laboratories, Inc. Investors' Rights Agreement
dated July 27, 1999+
4.5 Specimen Stock Certificate of Registrant
5.1 Opinion of Morrison & Foerster LLP as to the legality of the
Common Stock being registered.
10.1 Form of Indemnification Agreement between the Company and
each of its Officers and Directors+
10.2 Registrant's 1997 Stock Option Plan+
10.3 Faroudja Laboratories, Inc. Joint Development and License
Agreement dated July 27, 1997+
10.4 Master Distributor Agreement with Avnet, Inc.+
10.5 Authorized Reseller Agreement with Reptron Electronics,
Inc.+
10.6 Authorized Reseller Agreement with Jaco Electronics, Inc.+
10.7 Hardware Distribution Agreement with Bell Microproducts,
Inc.+
10.8 Form of Representative Agreement+
10.9 Credit Agreement with General Bank+
21.1 List of Subsidiaries+
23.1 Consent of Morrison & Foerster LLP. Reference is made to
Exhibit 5.1.
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Powers of Attorney. Reference is made to the signature page
hereof.
27.1 Financial Data Schedule+
</TABLE>
- ---------------
+ Exhibit previously filed.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
SAGE-DELAWARE, INC.
Sage-Delaware, Inc., a corporation duly organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
1. That the name of the corporation is Sage-Delaware, Inc. The
Corporation was originally incorporated under the same name, and the original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of Delaware on September 22, 1998.
2. That by written consent of the Board of Directors of the
Corporation, filed with the minutes of the Corporation, resolutions were duly
adopted setting forth the proposed amendment and restatement of the Certificate
of Incorporation of the Corporation and declaring said amendment and restatement
to be advisable. The resolution setting forth the proposed amendment and
restatement is as follows:
RESOLVED, that the Certificate of Incorporation be, and hereby
is, amended and restated in its entirety to read as set forth attached
hereto.
3. That said amendment and restatement was duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has cause this Restated Certificate
of Incorporation to be signed as of this 7th day of May, 1999.
SAGE-DELAWARE, INC.
/s/ Chandrashekar M. Reddy
Name: Chandrashekar M. Reddy
Title: President
1
<PAGE> 2
RESTATED CERTIFICATE OF INCORPORATION
OF
SAGE-DELAWARE, INC.
ARTICLE I
(A) The name of this corporation is Sage-Delaware, Inc. (the
"Corporation").
(B) The address of its registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, 19801, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
(C) Subject to Article VI, the Board of Directors of the Corporation
(the "Board of Directors") is expressly authorized to make, alter, or repeal the
bylaws of the Corporation.
(D) Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware General Corporation Law
("DGCL") or on the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of Section 279 of
Title 8 of the DGCL order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
(E) 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, and all rights conferred upon
stockholders herein are granted subject to this reservation.
2
<PAGE> 3
ARTICLE II
The nature of the business of the Corporation and the objects or
purposes to be transacted, promoted or carried on by it are as follows: To
engage in any lawful act or activity for which corporations may be organized
under the DGCL.
ARTICLE III
(A) AUTHORIZED STOCK. The Corporation is authorized to issue two
classes of shares to be designated respectively "Preferred Stock" and "Common
Stock", and each class shall have a par value of $0.01 per share. The total
number of shares which the corporation is authorized to issue is thirty-three
million (33,000,000) shares. The total number of shares of Common Stock
authorized is twenty-three million (23,000,000) shares. The total number of
shares of Preferred Stock authorized is ten million (10,000,000) shares.
(B) SERIES A, SERIES B, SERIES C, SERIES D AND SERIES E PREFERRED
STOCK. The Preferred Stock may be divided into such number of series as the
Board of Directors may determine. The rights, preferences, privileges and
restrictions granted to or imposed upon the first of such series, designated
"Series A Preferred Stock," of which the Corporation is authorized to issue
2,660,000 shares; the second of such series, designated "Series B Preferred
Stock," of which the Corporation is authorized to issue 250,000 shares; the
third of such series, designated "Series C Preferred Stock," of which the
Corporation is authorized to issue 177,700 shares; the fourth of such series,
designated "Series D Preferred Stock," of which the Corporation is authorized to
issue 5,168,164 shares; and the five of such series, designated "Series E
Preferred Stock," of which the Corporation is authorized to issue 1,500,000
shares, are set forth in Article IV below.
(C) ADDITIONAL SERIES. Subject to the restrictions set forth in
Article IV below, any shares of Preferred Stock, other than the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, may be issued from time to time in
one or more series. The Board of Directors is authorized to determine the
designation and the number of shares of any such series. The Board of Directors
is also authorized to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock, including, without limitation, the dividend rights (and whether dividends
are cumulative), conversion rights, if any, voting rights, rights and terms of
redemption (including sinking fund provisions, if any), redemption price and
liquidation preferences, and, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series, to increase or decrease (but not below the
number of shares of such series then outstanding), the number of shares of any
such series subsequent to the issuance of shares of that series. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
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ARTICLE IV
The relative rights, preferences, privileges and restrictions granted to
or imposed upon the respective classes or series of Common Stock or Preferred
Stock or holders thereof are as follows:
(A) DIVIDENDS.
(i) Dividends will be paid if and when declared by the Board
of Directors, in its sole discretion. The holders of outstanding shares of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock (as a single class) shall
be entitled to receive dividends, if, when and as declared by the Board of
Directors, out of assets of the Corporation pursuant to the provisions of
Chapter 5 of the DGCL, in cash at the rate of $0.02 per share of Series A
Preferred Stock per annum, $0.16 per share of Series B Preferred Stock per
annum, $0.18 per share of Series C Preferred Stock per annum, $0.10 per share of
Series D Preferred Stock per annum and $0.16 per share of Series E Preferred
Stock per annum (as appropriately adjusted for any stock dividends, stock
splits, recapitalizations and the like), payable prior and in preference to any
declaration or payment of any Distribution (as defined below) on the Common
Stock. Subject to subsection (H) below, Distributions may be declared and paid
upon shares of Common Stock in any fiscal year of the Corporation only if
dividends shall have been paid to, or declared and set apart for, all
outstanding shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
in the preference amounts stated above. The right to such dividends on the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock shall not be cumulative,
and no right to such dividends shall accrue to the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock by reason of the Board of Director's
failure to declare dividends on said shares in any prior year, nor shall any
undeclared or unpaid dividends bear or accrue interest.
(ii) For purposes of this subsection (A), unless the context
otherwise requires, "Distribution" shall mean the transfer of cash or property
without consideration, whether by way of dividend or otherwise, payable other
than in stock, or the purchase or redemption of shares of capital stock of the
Corporation (other than repurchases of Common Stock held by employees of the
Corporation upon termination of their employment pursuant to agreements
providing for such repurchases, subject to the provisions of subsection (H)) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of the Corporation, if any.
(iii) Each holder of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall be deemed to have consented to Distributions made
by the Corporation in connection with the repurchase of shares of Common Stock
issued to or held by certain employees upon termination of their employment
pursuant to agreements providing for such repurchase.
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(B) LIQUIDATION.
(i) PREFERENCE. In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, subject to
the rights of holders of any other series of Preferred Stock which may be issued
by the Corporation from time to time, the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock then outstanding (the "Preferred Stock")
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of Common Stock by reason of
their ownership thereof, an amount per share equal to (i) $0.188 per share for
each share of Series A Preferred Stock then held by them, (ii) $2.00 per share
for each share of Series B Preferred Stock then held by them, (iii) $2.25 per
share for each share of Series C Preferred Stock then held by them, (iv) $1.287
per share for each share of Series D Preferred Stock then held by them and (v)
$2.00 per share for each share of Series E Preferred Stock then held by them (in
each case, as adjusted for any combinations, consolidations, stock distributions
or stock dividends with respect to such shares), plus declared but unpaid
dividends thereon to the date fixed for distribution of assets (respectively,
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock "Liquidation
Preference Amount"). If, upon the occurrence of such event, the assets of the
Corporation available for such distribution shall be insufficient to permit the
payment to the holders of the Preferred Stock the full amount to which they
should be entitled, the holders of the Preferred Stock shall share ratably in
any distribution of assets according to the respective amounts which would be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full.
(ii) REMAINING ASSETS. Upon the completion of the
distribution of the Liquidation Preference Amounts and any other distribution
that may be required with respect to any series of Preferred Stock that may from
time to time come into existence, the remaining assets of the Corporation
legally available for distribution to stockholders shall be distributed among
the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Common
Stock pro rata based on the number of shares of Common Stock held by each
(assuming conversion of all such Preferred Stock to Common Stock) until the
holders of the Series A Preferred Stock shall have received an aggregate of
$0.564 per share, the holders of the Series B Preferred Stock shall have
received an aggregate of $6.00 per share, the holders of the Series C Preferred
Stock shall have received an aggregate of $6.75 per share, the holders of the
Series D Preferred Stock shall have received an aggregate of $3.871 per share
and the holder of the Series E Preferred Stock shall have received an aggregate
of $6.00 per share (in each case, including amounts paid pursuant to subsection
B(i) above, and with the holders of the relevant series of Preferred Stock no
longer receiving any proceeds when the relevant dollar amount limitation has
been distributed with respect to that series); thereafter, subject to the rights
of series of Preferred Stock that may from time to time come into existence, if
assets remain in the Corporation, the holders of the Common Stock of the
Corporation shall receive all of the
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remaining assets of the Corporation pro rata based on the number of shares of
Common Stock held by each.
(iii) CERTAIN ACQUISITIONS.
(a) DEEMED LIQUIDATION. For purposes of this Section
(B), a liquidation, dissolution or winding up of the Corporation shall be deemed
to occur if the Corporation shall sell, convey, or otherwise dispose of or
encumber all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any other transaction or series of related transactions
in which more than 50% of the voting power of the Corporation is disposed of;
provided, however, that this Section (B)(iii)(a) shall not apply to a merger
effected exclusively for the purpose of changing the domicile of the
Corporation.
(b) VALUATION OF CONSIDERATION. In the event of a
deemed liquidation as described in Section (B)(iii)(a) above, if the
consideration received by the Corporation is other than cash, its value will be
deemed its fair market value. Any securities shall be valued as follows:
(1) Securities not subject to investment
letter or other similar restrictions on free marketability:
(I) If traded on a securities
exchange or The Nasdaq Stock Market, the value shall be deemed to be the average
of the closing prices of the securities on such exchange over the 30-day period
ending three days prior to the closing;
(II) If actively traded
over-the-counter, the value shall be deemed to be the average of the closing bid
or sale prices (whichever is applicable) over the 30-day period ending three
days prior to the closing; and
(III) If there is no active public
market, the value shall be the fair market value thereof, as mutually determined
by the Corporation and the holders of at least a majority of the voting power of
all then outstanding shares of Preferred Stock.
(2) The method of valuation of securities
subject to investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a shareholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from the
market value determined as above in Section (B)(iii)(b)(1) to reflect the
approximate fair market value thereof, as mutually determined by the Corporation
and the holders of at least a majority of the voting power of all then
outstanding shares of Preferred Stock.
(c) NOTICE OF TRANSACTION. The Corporation shall
give each holder of record of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock written notice of such impending transaction not later than 10 days prior
to the shareholders' meeting called to
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approve such transaction, or 10 days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section (B)(iii), and the Corporation shall thereafter give such holders
prompt notice of any material changes. The transaction shall in no event take
place sooner than 10 days after the Corporation has given the first notice
provided for herein or sooner than 10 days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of such Preferred Stock.
(d) EFFECT OF NONCOMPLIANCE. In the event the
requirements of this Section (B)(iii) are not complied with, the Corporation
shall forthwith either cause the closing of the transaction to be postponed
until such time as the requirements of this Section (B)(iii) have been complied
with, or cancel such transaction, in which event the rights, preferences and
privileges of the holders of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
Section (B)(iii)(c) hereof.
(C) CONVERSION RIGHTS. The Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall be subject to conversion into Common Stock upon the
following terms and conditions:
(i) CONVERSION AT ELECTION OF HOLDER. The shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock held by any holder may be converted
into Common Stock as set forth herein, at the option of the holder and at any
time.
(ii) AUTOMATIC CONVERSION. Each share of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall automatically be converted
into that number of fully paid and nonassessable shares of the Common Stock
determined pursuant to Section (C)(iii)(b) below immediately upon the occurrence
of the earlier of the following events:
(a) The closing of a firm commitment underwritten
public offering of shares of the Common Stock solely for cash pursuant to an
effective registration statement filed with the Securities and Exchange
Commission (other than in a registration effected solely to implement any
employee benefit plan) with aggregate gross proceeds to the Corporation of at
least $7,500,000 and with a per share public offering price of at least $5.00
(subject to adjustment for stock splits, etc.); or
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(b) Upon closing of a firm commitment underwritten
offering of shares of the Common Stock solely for cash pursuant to an effective
registration statement filed with the Securities and Exchange Commission (other
than in a registration effected solely to implement any employee benefit plan)
with aggregate gross proceeds to the Company of at least $7,500,000 and the
written consent of the holders of the outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock, voting as a single class.
(iii) MECHANICS OF CONVERSION.
(a) VOLUNTARY CONVERSION. As a condition to any
conversion of shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
as the case may be, pursuant to Section (C)(i) above, the holder of the shares
to be converted shall surrender the certificate or certificates therefor, duly
endorsed, at the principal office of the Corporation or of any transfer agent
for such stock, and shall deliver a written notice to the Secretary of the
Corporation at the Corporation's principal office stating the number of such
shares of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, as the
case may be, to be converted. Promptly thereafter, the Corporation shall issue
and deliver to such holder a certificate for the number of shares of the Common
Stock to which such holder shall be thereby entitled. In addition, if less than
all the shares represented by such certificate(s) are surrendered for
conversion, the Corporation shall issue and deliver to such holder a new
certificate for the balance of the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, as the case may be, not so converted. The effective date of
such conversion shall be the close of business on the later of the date on which
a proper notice is received by the Secretary of the Corporation or the date the
duly endorsed certificate(s) is (are) received by the Corporation or the
transfer agent, and the person or persons entitled to receive the shares of the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares on such effective date.
(b) AUTOMATIC CONVERSION. In the case of conversion
pursuant to Section (C)(ii) above, every outstanding share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be converted automatically without any
further action by the holder of such share and whether or not the certificate
representing such share shall be surrendered to the Corporation or the transfer
agent for such stock; provided, however, that the Corporation shall not be
obligated to issue a certificate evidencing the shares of the Common Stock
issuable upon such conversion unless the certificate evidencing such shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, as applicable, shall be
surrendered at the principal office of the Corporation or at the principal
office of such transfer agent. Upon such surrender, the Corporation shall
promptly issue and deliver to such holder a certificate for the number of shares
of the Common Stock to which such holder shall be thereby entitled. The
effective date of such conversion shall be the close of business on
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the date of the occurrence of the event described in Section (C)(ii)(a) or
Section (C)(ii)(b) above. The person or persons entitled to receive the shares
of the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares on such effective date.
(iv) CONVERSION PRICE. Each share of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock to be converted into shares of Common Stock
shall be converted into that number of fully paid and nonassessable shares of
Common Stock determined by dividing $0.188 in the case of Series A Preferred
Stock, $2.00 in the case of Series B Preferred Stock, $2.25 in the case of
Series C Preferred Stock, $1.287 in the case of Series D Preferred Stock and
$2.00 in the case of Series E Preferred Stock by the conversion price(the
"Conversion Price") in effect as of the effective date of such conversion, which
shall be the initial Conversion Price as adjusted pursuant to the provisions of
Section (D) below. The initial Conversion Price shall be $0.188 in the case of
the Series A Preferred Stock and $1.287 in the case of the Series B Preferred
Stock, the Series C Preferred Stock, and the Series D Preferred Stock, and $2.00
in the case of the Series E Preferred Stock.
(D) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price of the
Preferred Stock in effect shall be subject to adjustment from time to time as
follows:
(i) STOCK SPLITS, DIVIDENDS AND COMBINATIONS. If the
Corporation shall at any time subdivide the outstanding shares of Common Stock
or make a distribution of stock on its outstanding Common Stock, the Conversion
Price in effect immediately prior to such subdivision of such distribution shall
be proportionately decreased and, in case the Corporation shall at any time
combine the outstanding shares of Common Stock, the Conversion Price (of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock ) in effect immediately
prior to such combination shall be proportionately increased, effective at the
close of business on the date of such subdivision, dividend or combination, as
the case may be.
(ii) RECLASSIFICATION AND REORGANIZATION. If the Common Stock
issuable upon conversion of the Preferred Stock shall be changed into the same
or a different number of shares of any other classes of stock, whether by
capital reorganization, reclassification or otherwise (other than a subdivision
or combination of shares provided for in subsection (D)(i) above or a merger or
other reorganization referred to in subsection (D)(i) above), the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock Conversion Price then in effect
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be convertible into, in lieu of the
number of shares of Common Stock which the holders would otherwise have been
entitled to receive, a number of shares of such other class or classes of stock
equivalent to the
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number of shares of Common Stock that would have been subject to receipt by the
holders upon conversion of the Preferred Stock immediately before that change.
(E) ADJUSTMENTS TO CONVERSION PRICE FOR CERTAIN ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this Section (E) of
Article IV, the following definitions apply:
"Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock, Nonconvertible
Preferred Stock (as defined below) or Convertible Securities (as defined below).
"Original Issue Date" shall mean the first date on which
a share of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, as the
case may be, was issued.
"Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock, Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock) or other securities convertible into or exchangeable for
Common Stock or Nonconvertible Preferred Stock.
"Additional Shares of Common Stock" shall mean all
shares of Common Stock and Nonconvertible Preferred Stock issued (or, pursuant
to Section (E)(iii), deemed to be issued) by the Corporation after the Original
Issue Date, other than shares of Common Stock issued or issuable: (a) upon
conversion of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock;
(b) as a dividend or distribution on Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock; (c) to officers, employees and consultants of the Corporation
pursuant to stock purchase or stock option agreements or plans approved by the
Board of Directors of the Corporation, provided that the aggregate number of
shares excluded from the definition of Additional Shares of Common Stock by
reason of this subparagraph (c) shall not exceed 4,072,960; and (d) to financial
institutions or lessors in connection with commercial credit arrangements,
equipment financings or similar transactions.
"Nonconvertible Preferred Stock" shall mean Preferred
Stock that is not convertible into Common Stock.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. Any provision herein
to the contrary notwithstanding, no adjustment in the Conversion Price shall be
made in respect of the issuance of Additional Shares of Common Stock unless the
aggregate consideration for all the Additional Shares of Common Stock so issued,
or deemed to be issued, is less than the Conversion Price in effect on the date
of, and immediately prior to, such issue.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In
the event the Corporation at any time or from time to time after the Original
Issue Date shall
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issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock or
Nonconvertible Preferred Stock issuable upon the exercise of such Options or, in
the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a record
date shall have been fixed, as of the close of business on such record date,
provided that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(a) no further adjustments in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock or Nonconvertible Preferred Stock upon the exercise of such Options
or conversion or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or decrease or
increase in the number of shares of Common Stock or Nonconvertible Preferred
Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of the
Conversion Price shall affect Common Stock previously issued upon conversion of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock);
(c) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or
Options for Common Stock or Nonconvertible Preferred Stock, the only Additional
Shares of Common Stock issued were the shares of Common Stock or Nonconvertible
Preferred Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange; and
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(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(d) no readjustment pursuant to subsections (b) or
(c) above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (1) the Conversion Price that would have resulted
from any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date, or (2) the Conversion Price on the
original adjustment date; and
(e) in the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the same manner provided in
subsection (c) above.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event this Corporation, at any time
after the Original Issue Date, shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section (E)(iii) without consideration or for a consideration per share less
than the Conversion Price in effect on the date of and immediately prior to such
issue, then and in each such event, the Conversion Price then in effect shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock which
the aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price in effect immediately prior to such issuance, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock so issued.
For the purpose of the above calculation, the number of shares of Common Stock
outstanding immediately prior to such issue shall be calculated on a fully
diluted basis, as if all shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock and all Convertible Securities had been fully converted into shares of
Common Stock immediately prior to such issuance and any outstanding warrants,
options or other rights for the purchase of shares of stock or convertible
securities had been fully converted into shares of Common Stock immediately
prior to such issuance and any outstanding warrants, options or other rights for
the purchase of shares of stock or convertible securities had been fully
exercised immediately prior to such issuance (and the resulting securities fully
converted into shares of Common Stock, if so convertible) as of such date, but
not including in such calculation any additional shares of Common Stock issuable
with respect to shares of Series A Preferred Stock, Series B Preferred
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Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock, Convertible Securities or outstanding options, warrants or other rights
for the purchase of shares of stock or convertible securities, solely as a
result of the adjustment of the Conversion Price resulting from the issuance of
the Additional Shares of Common Stock causing the adjustment in question.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Section (E), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(a) CASH AND PROPERTY. Such consideration shall:
(1) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(3) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors.
(b) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section (E)(iii), relating
to Options and Convertible Securities shall be determined by dividing:
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against dilution) payable
to the Corporation upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities, by:
(2) the maximum number of shares of Common
Stock or Nonconvertible Preferred Stock (as set forth in the instruments
relating thereto, without regard to any provision contained therein designed to
protect against the dilution) issuable upon the exercise of such Options or
conversion or exchange of such Convertible Securities.
(F) NOTICES. Any notice required by the provisions of this
Certificate of Incorporation to be given to holders of shares of the Series A
Preferred Stock, Series B
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Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock shall be deemed given when mailed by certified mail, return
receipt requested, postage prepaid, addressed to such holder at the address last
appearing on the books of the Corporation for such holder or given by such
holder to the Corporation for the purpose of notice, or if no such address
appears or is so given, at the principal office of the Corporation, or upon
personal delivery to the aforementioned address.
(G) VOTING RIGHTS. Except as otherwise required under applicable law
or as set forth herein, the shares of Preferred Stock shall be voted with the
shares of Common Stock at any annual or special meeting of stockholders of the
Corporation, or may act by written consent in the same manner as the Common
Stock, upon the following basis: each holder of shares of the Preferred Stock
shall be entitled to such number of votes for the Preferred Stock held by it on
the record date fixed for such meeting, or on the effective date of such written
consent, as shall be equal to the largest number of whole shares of the Common
Stock into which all of its shares of Preferred Stock are convertible
immediately after the close of business on the record date fixed for such
meeting or the effective date of such written consent.
(H) PROTECTIVE PROVISIONS.
(i) SERIES A, B AND C PREFERRED STOCK. So long as any shares
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock shall remain outstanding, the Corporation shall not, without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, voting
together as a single class:
(a) Alter or change the rights, preferences or
privileges of the shares of Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock so as to affect adversely such shares; or
(b) Create any new class or series of stock having
rights, preferences or privileges prior to the Series A Preferred Stock, Series
B Preferred Stock or Series C Preferred Stock.
(ii) SERIES D AND E PREFERRED STOCK. So long as any shares of
Series D Preferred Stock or Series E Preferred Stock shall remain outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by law) of the holders of at least a majority of
the then outstanding shares of Series D Preferred Stock or Series E Preferred
Stock, as the case may be:
(a) Alter or change the rights, preferences or
privileges of the shares of Series D Preferred Stock or Series E Preferred
Stock, as the case may be, so as to affect adversely such shares;
(b) Create any new class or series of stock having
rights, preferences or privileges prior to the Series D Preferred Stock or
Series E Preferred Stock, as the case may be;
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(c) increase or decrease the number of authorized
shares of Series D Preferred Stock or Series E Preferred Stock, as the case may
be;
(d) effect a liquidation, dissolution or winding up
of the Corporation in which the Corporation sells, conveys, or otherwise
disposes of all or substantially all of its property or business or merges into
or consolidates with any other corporation (other than a wholly-owned subsidiary
corporation), except a merger effected exclusively for the purpose of changing
the domicile of the Corporation or a merger or sale of assets in which the
aggregate consideration exceeds $75 million;
(e) redeem shares of capital stock (excluding Common
Stock repurchased upon termination of an officer, employee or director or
consultant pursuant to a restricted stock purchase agreement);
(f) reclassify or recapitalize any of the Company's
outstanding capital stock.
(iii) SERIES A, B, C, D AND E PREFERRED STOCK. So long as any
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock shall remain
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock, voting together as a single class, amend its Certificate of
Incorporation or Bylaws.
(iv) STATUS OF CONVERTED STOCK. In the event any shares of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock shall be converted
pursuant to Section (C) above, the shares so converted shall be canceled and
shall revert to the Corporation's authorized but unissued Preferred Stock.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, adopt, alter, amend or
repeal the Bylaws of the Corporation.
ARTICLE VII
The number of directors which shall constitute the whole Board of
Directors of the Corporation shall be as specified in the Bylaws of the
Corporation.
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ARTICLE VIII
The election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
ARTICLE IX
Meetings of stockholders may be held within or outside the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statute) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE X
If at any time the Corporation shall have a class of stock registered
pursuant to the provisions of the Securities Exchange Act of 1934, for so long
as such class is so registered, any action by the stockholders of such class
must be taken at an annual or special meeting of stockholders and may not be
taken by written consent. This provision shall supersede any provision to the
contrary in the Bylaws of the Corporation.
ARTICLE XI
Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
Bylaws of the Corporation), the affirmative vote of 66-2/3% of the total number
of the then outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required to amend or repeal, or to adopt any provision inconsistent
with the purpose or intent of, Articles VI through XII. Notice of any such
proposed amendment, repeal or adoption, shall be contained in the notice of the
meeting at which it is to be considered. Subject to the provisions set forth
herein, 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, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XII
To the fullest extent permitted by the DGCL as the same exists or as may
hereafter be amended, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Neither any amendment nor repeal of this Article
XII, nor the adoption of any provision of this Certificate of Incorporation
inconsistent with this Article XII, shall eliminate or reduce the effect of this
Article XII in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article XII, would accrue or arise, prior to such
amendment, repeal or adoption of any inconsistent provision.
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CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION
OF
SAGE-DELAWARE, INC.
Sage-Delaware, Inc., a corporation duly organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
1. That the name of the Corporation is Sage-Delaware, Inc. The
Corporation was originally incorporated under the same name and the
Corporation's original Certificate of Incorporation was filed with the Secretary
of State of Delaware on September 22, 1998. The Corporation filed a Restated
Certificate of Incorporation with the Secretary of State of Delaware on May 10,
1999.
2. That Article I, Section (A) of the Corporation's Restated
Certificate of Incorporation be amended to read in full as follows:
The name of this corporation is Sage, Inc. (the "Corporation").
3. That the foregoing amendment of Restated Certificate of
Incorporation has been duly approved by the Board of Directors of the
Corporation.
4. That the foregoing amendment of the Restated Certificate of
Incorporation has been duly approved by the required vote of the stockholders of
the Corporation in accordance with Section 242 of the Delaware General
Corporations Law.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Restated Certificate of Incorporation to be signed as of this 11th
day of May, 1999.
/s/ Chandrashekar M. Reddy
Chandrashekar M. Reddy, President
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CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION
OF
SAGE-DELAWARE, INC.
Sage, Inc., a corporation duly organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"),
DOES HEREBY CERTIFY:
1. That the name of the Corporation is Sage, Inc. The Corporation's
original Certificate of Incorporation was filed with the Secretary of State of
Delaware on September 22, 1998. The Corporation filed a Restated Certificate of
Incorporation with the Secretary of State of Delaware on May 10, 1999, filed a
Certificate of Amendment on June 18, 1999 and filed a Certificate of Amendment
on September 15, 1999.
2. That Article IV, Section (C)(ii)(a), of the Corporation's
Restated Certificate of Incorporation be amended to read in full as follows:
The closing a firm commitment underwritten public offering of
shares of the Common Stock solely for cash pursuant to an
effective registration statement filed with the Securities and
Exchange Commission (other than in a registration effected
solely to implement any employee benefit plan) with aggregate
gross proceeds to the Corporation of at least $7,500,000 and
with a per share public offering price of at least $2.00
(subject to adjustment for stock splits, etc.); or
3. That the foregoing amendment of Restated Certificate of
Incorporation has been duly approved by the Board of Directors of the
Corporation.
4. That the foregoing amendment of the Restated Certificate of
Incorporation has been duly approved by the required vote of the stockholders of
the Corporation in accordance with Section 242 of the Delaware General
Corporations Law.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Restated Certificate of Incorporation to be signed as of this 14th
day of September, 1999.
/s/ Chandrashekar M. Reddy
Chandrashekar M. Reddy, President
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EXHIBIT 3.2
BYLAWS
OF
SAGE, INC.
1. OFFICES
1.1. Principal office.
The registered office of the corporation in the State of Delaware shall
be in the City of Wilmington, County of New Castle.
1.2. Other Offices.
The corporation shall also have and maintain an office or principal
place of business at 4633 Old Ironsides Drive, Suite 420, Santa Clara, CA 95054,
and may also have offices at such other places, both within and outside the
State of Delaware as the Board of Directors may from time to time determine or
the business of the corporation may require.
2. MEETINGS OF STOCKHOLDERS
2.1. Place of Meetings.
Meetings of the stockholders of the corporation shall be held at such
place, either within or outside 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 1.2 of
Article 1 hereof.
2.2. Annual Meeting.
The annual meeting of stockholders shall be held at such date and time
as the Board of Directors may designate. At such meeting, Directors shall be
elected, reports of the affairs of the corporation shall be considered, and any
other proper business may be transacted.
2.3. Special Meetings.
Special meetings of the stockholders of the corporation may be called at
any time by the Board of Directors, the Chairman of the Board, the President, or
by the holders of shares entitled, in the aggregate, to cast not less than ten
percent (10%) of the votes at the meeting. No other person or persons are
permitted to call a special meeting. No business may be conducted at a special
meeting other than the business brought before the meeting
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by the Board of Directors, the Chairman of the Board, the President or the
holders of shares entitled, in the aggregate, to cast not less than ten percent
(10%) of the votes at the meeting.
2.4. Notice of Meeting.
(a) Except as otherwise provided by law or the Certificate
of Incorporation, written notice of each meeting of stockholders, specifying the
place, date and hour and purpose or purposes of the meeting, 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, directed to his address as
it appears upon the books of the corporation; except that where the matter to be
acted on is a merger or consolidation of the corporation or a sale, lease or
exchange of all or substantially all of its assets, such notice shall be given
not less than twenty (20) nor more than sixty (60) days prior to such meeting.
(b) If at any meeting action is proposed to be taken which,
if taken, would entitle shareholders fulfilling the requirements of section
262(d) of the Delaware General Corporation Law ("DGCL") to an appraisal of the
fair value of their shares, the notice of such meeting shall contain a statement
of that purpose and to that effect and shall be accompanied by a copy of that
statutory section.
(c) 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 unless the
adjournment is for more than thirty days, or unless after the adjournment a new
record date is fixed for the adjourned meeting, in which event a notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting.
(d) Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, either before or after such meeting, and
to the extent permitted by law, will be waived by any stockholder by his
attendance thereat, in person or by proxy. 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.
(e) Unless and until voted, every proxy shall be revocable
at the pleasure of the person who executed it or of his legal representatives or
assigns, except in those cases where an irrevocable proxy permitted by statute
has been given.
2.5. Quorum and Voting.
(a) At all meetings of stockholders, except where otherwise
provided by law, the Certificate of Incorporation or 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. Shares, the voting of which at said meeting have been
enjoined, or which for any reason cannot be lawfully voted at such meeting,
shall not be counted to determine a quorum at said
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meeting. In the absence of a quorum, any meeting of stockholders may be
adjourned, from time to time, by vote of the holders of a majority of the shares
represented at such meeting, but no other business shall be transacted at such
meeting. At such adjourned meeting at which a quorum is present or represented
any business may be transacted which might have been transacted at the original
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.
(b) Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, all action taken by the holders of a majority of
the voting power represented at any meeting at which a quorum is present shall
be valid and binding upon the corporation.
(c) Where a separate vote by a class or classes is required,
a majority of the outstanding shares of such class or classes, present in person
or represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class.
2.6. Voting Rights.
(a) Except as otherwise provided by law, only persons in
whose names shares entitled to vote stand on the stock records of the
corporation on the record date for determining the stockholders entitled to vote
at said meeting shall be entitled to vote at such meeting. Shares standing in
the names of two or more persons shall be voted or represented in accordance
with the determination of the majority of such persons, or, if only one of such
persons is present in person or represented by proxy, such person shall have the
right to vote such shares and such shares shall be deemed to be represented for
the purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall
have the right to do so either in person or by an agent or agents authorized by
a written proxy executed by such person or his duly authorized agent, which
proxy shall be filed with the Secretary of the corporation at or before the
meeting at which it is to be used. Said proxy so appointed need not be a
stockholder. No proxy shall be voted on after three years from its date unless
the proxy provides for a longer period.
(c) Without limiting the manner in which a stockholder may
authorize another person or persons to act for him as proxy pursuant to
subsection (b) of this section, the following shall constitute a valid means by
which a stockholder may grant such authority:
(i) A stockholder may execute a writing authorizing
another person or persons to act for him as proxy. Execution may be accomplished
by the stockholder or his authorized officer, director, employee or agent
signing such writing or
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causing his or her signature to be affixed to such writing by any reasonable
means including, but not limited to, by facsimile signature.
(ii) A stockholder may authorize another person or
persons to act for him as proxy by transmitting or authorizing the transmission
of a telegram, cablegram, or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation firm,
proxy support service organization or like agent duly authorized by the person
who will be the holder of the proxy to receive such transmission, provided that
any such telegram, cablegram or other means of electronic transmission must
either set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. Such authorization can be established by the
signature of the stockholder on the proxy, either in writing or by a signature
stamp or facsimile signature, or by a number or symbol from which the identity
of the stockholder can be determined, or by any other procedure deemed
appropriate by the inspectors or other persons making the determination as to
due authorization. If it is determined that such telegrams, cablegrams or other
electronic transmissions are valid, the inspectors or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied.
(d) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (c)
of this section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
2.7. Voting Procedures and Inspectors of Elections.
(a) The corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors.
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(c) The date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at a meeting shall
be announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in accordance
with Section 212(c)(2) of the DGCL, ballots and the regular books and records of
the corporation, except that the inspectors may consider other reliable
information for the limited purpose of reconciling proxies and ballots submitted
by or on behalf of banks, brokers, their nominees or similar persons which
represent more votes than the holder of a proxy is authorized by the record
owner to cast or more votes than the stockholder holds of record. If the
inspectors consider other reliable information for the limited purpose permitted
herein, the inspectors at the time they make their certification pursuant to
subsection (b)(v) of this section shall specify the precise information
considered by them including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
2.8. List of Stockholders.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of 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 days prior to the meeting, either
at a place within the city where the meeting is to be held and which place shall
be specified in the notice of the meeting, or, if not specified, at the place
where said meeting is to be held, and 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.
2.9. Stockholder Proposals at Annual Meetings.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, otherwise properly brought before the meeting by or at the direction
of the Board of Directors or otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, 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 less
than
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thirty (30) days nor more than sixty (60) days prior to the meeting; provided,
however, that in the event that less than forty (40) days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. 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 record
address of the stockholder proposing such business, (iii) the class and number
of shares of the corporation which are beneficially owned by the stockholder,
and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.9, provided, however, that nothing in
this Section 2.9 shall be deemed to preclude discussion by any stockholder of
any business properly brought before the annual meeting in accordance with said
procedure.
2.10. Nominations of Persons for Election to the Board of Directors.
In addition to any other applicable requirements, only persons who are
nominated in accordance with the following procedures 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, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 2.10. 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. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the corporation not less than thirty (30)
days nor more than sixty (60) days prior to the meeting; provided, however, that
in the event that less than forty (40) days' notice or prior public disclosure
of the date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address and residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of the
corporation which are beneficially owned by the person, and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Rule 14a under
the Securities Exchange Act of 1934; and (b) as to the stockholder giving the
notice, (i) the name and record address of the stockholder, and (ii) the class
and number of shares of the corporation which are beneficially owned by the
stockholder. The corporation may require any proposed nominee to furnish such
other information as may reasonably be
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required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation. No person shall be eligible
for election as a director of the corporation unless nominated in accordance
with the procedures set forth herein. These provisions shall not apply to
nomination of any persons entitled to be separately elected by holders of
preferred stock.
2.11. Action Without Meeting.
Unless otherwise provided in the Certificate of Incorporation, any
action required by statute to be taken at any annual or special meeting of
stockholders of the corporation, or any action which may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, are 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. To be effective, a written consent must be delivered to
the corporation by delivery to its registered office in 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. 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 in the
manner required by this section to the corporation, written consents signed by a
sufficient number of holders to take action are delivered to the corporation in
accordance with this section. 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.
3. DIRECTORS
3.1. Powers.
Subject to the provisions of the DGCL and any limitations in the
Certificate of Incorporation and these Bylaws relating to action required to be
approved by the stockholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board of Directors.
Without prejudice to these general powers, and subject to the same
limitations, the Directors shall have the power to:
(a) Select and remove all officers, agents and employees of
the corporation; prescribe any powers and duties for them that are consistent
with law, with the Certificate of Incorporation and with these Bylaws; fix their
compensation; and require from them security for faithful service.
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(b) Conduct, manage and control the affairs and business of
the corporation, and to make such rules and regulations therefor not
inconsistent with law, or with the Certificate of Incorporation or these Bylaws,
as they may deem to be in the best interests of the corporation.
(c) Change the principal executive office or the principal
business office from one location to another; cause the corporation to be
qualified to do business in any other state, territory, dependency or country
and conduct business within or without the State of Delaware; and designate any
place within or without the State of Delaware for the holding of any
stockholders, meeting or meetings, including annual meetings.
(d) Adopt, make and use a corporate seal; prescribe the
forms of certificates of stock; and alter the forms of the seal and
certificates.
(e) Authorize the issuance of shares of stock of the
corporation on any lawful terms, in consideration of all lawful consideration
actually received.
(f) Borrow money and incur indebtedness on behalf of the
corporation, and cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations and other evidences of debt and
securities.
3.2. Number of Directors.
The number of Directors of the corporation shall be not less than three
(3) nor more than five (5) until changed by amendment of the Certificate of
Incorporation or by a Bylaw amending this Section 3.2 duly adopted by the vote
or written consent of holders of a majority of the outstanding shares of the
Board of Directors. The exact number of directors shall be fixed from time to
time, within the limits specified in the Certificate of Incorporation or in this
Section 3.2, by a bylaw or amendment thereof duly adopted by the vote of a
majority of the shares entitled to vote represented at a duly held meeting at
which a quorum is present, or by the written consent of the holders of a
majority of the outstanding shares entitled to vote, or by the Board of
Directors. The initial number of Directors of the Corporation shall be five (5).
With the exception of the first Board of Directors, which shall be
elected by the incorporators, and except as provided in Section 3.3, the
directors shall be elected by a plurality vote of the shares represented in
person or by proxy, at the stockholders annual meeting in each year and entitled
to vote on the election of directors. Elected directors shall hold office until
the next annual meeting and until their successors shall be duly elected and
qualified. Directors need not be stockholders. If, for any cause, the Board of
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.
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3.3. Vacancies.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director,
and each director so elected shall hold office for the unexpired portion of the
term of the director whose place shall be vacant, and until his successor shall
have been duly elected and qualified. A vacancy in the Board of Directors shall
be deemed to exist under this section in the case of the death, removal or
resignation of any director, or if the stockholders fail at any meeting of
stockholders at which directors are to be elected (including any meeting
referred to in Section 3.4 below) to elect the number of directors then
constituting the whole Board.
3.4. Resignations and Removals.
(a) Any director may resign at any time by delivering his
written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made it shall be
deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board, 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.
(b) At a special meeting of stockholders called for the
purpose in the manner hereinabove provided, the Board of Directors, or any
individual director, may be removed from office, with or without cause, and a
new director or directors elected by a vote of stockholders holding a majority
of the outstanding shares entitled to vote at an election of directors.
(c) Unless the certificate of incorporation otherwise
provides, if the Board of Directors is classified, shareholders may effect
removal only for cause.
3.5. Meetings.
(a) 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 1.2 hereof or in any
place within or outside the State of Delaware that has been designated from time
to time by resolution of the Board. Special meetings of the Board shall be held
at any place within or outside the State of Delaware that has been designated in
the notice of the meeting or, if not stated in the notice or there is no notice,
at the principal executive office of the corporation.
(b) Any meeting, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
Directors participating in the meeting can hear one another, and all such
Directors shall be deemed to be present in person at such meeting.
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(c) Immediately following each annual meeting of
stockholders, the Board of Directors shall hold a regular meeting for the
purpose of organization, any desired election of officers and the transaction of
other business. Notice of this meeting shall not be required.
(d) Other regular meetings of the Board of Directors shall
be held without call at such time as shall from time to time be fixed by the
Board of Directors; provided, however, that if any regular meeting falls on a
legal holiday, then said meeting shall be held at the same time and place on the
next day thereafter which is not a legal holiday. Such regular meetings may be
held without notice.
(e) Special meetings of the Board of Directors for any
purpose or purposes may be called at any time by the Chairman of the Board, the
President or any two Directors.
(f) Written notice of the time and place of all regular and
special meetings of the Board of Directors shall be delivered personally to each
director or sent by telegram or facsimile transmission at least 48 hours before
the start of the meeting, or sent by first class mail at least 120 hours before
the start of the meeting. Notice of any meeting may be waived in writing at any
time before or after the meeting and will be waived by any director by
attendance thereat.
3.6. Quorum and Voting.
(a) A quorum of the Board of Directors shall consist of a
majority of the exact number of directors fixed from time to time in accordance
with Section 3.2 of Article III of these Bylaws, but not less than one;
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.
(b) At each meeting of the Board at which a quorum is
present all questions and business shall be determined by a vote of a majority
of the directors present, unless a different vote be required by law, the
Certificate of Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communication 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.
(d) The transactions of 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, or a
consent to holding such meeting, or an approval of the
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minutes thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
3.7. 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 or of such 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 or committee.
3.8. Fees and Compensation.
Directors and members of committees may receive such compensation, if
any, for their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
4. COMMITTEES
4.1. Executive Committee.
The Board of Directors may appoint an Executive Committee of not less
than one member, each of whom shall be a director. The Executive Committee, to
the extent permitted by law, shall have and may exercise when the Board of
Directors is not in session all powers of the Board in the management of the
business and affairs of the Corporation, except such committee shall not have
the power or authority to amend these Bylaws or to approve or recommend to the
stockholders any action which must be submitted to stockholders for approval
under the DGCL.
4.2. Other Committees of Directors.
The Board of Directors may, by resolution passed by a majority of the
whole Board, from time to time appoint such other committees as may be permitted
by law. Such other committees appointed by the Board of Directors shall have
such powers and perform such duties as may be prescribed by the resolution or
resolutions creating such committee, but in no event shall any such committee
have the powers denied to the Executive Committee in these Bylaws.
4.3. Term.
The members of all committees of the Board of Directors shall serve a
term coexistent with that of the Board of Directors which shall have appointed
such committee. The Board, subject to the provisions of Sections 4.1 and 4.2,
may at any time increase or decrease the number of members of a committee or
terminate the existence of a committee; provided, that no committee shall
consist of less than one member. The membership of a committee member shall
terminate on the date of his death or voluntary resignation, but the Board may
at any time for any reason remove any individual committee member and the Board
may fill any committee vacancy created by death,
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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.
4.4. Meetings.
Unless the Board of Directors shall otherwise provide, regular meetings
of the Executive Committee or any other committee appointed pursuant to this
Section 3.9 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 the principal office of the corporation required to be maintained
pursuant to Section 1.2 hereof; or at any place which has been designated from
time to time by resolution of such committee or by written consent of all
members thereof, 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 after the meeting and will be
waived by any director by attendance thereat. 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.
5. OFFICERS
5.1. Officers Designated.
The officers of the corporation shall be a President, a Secretary, and a
Treasurer. The Board of Directors or the President may also appoint a Chairman
of the Board, one or more Vice-Presidents, assistant secretaries, assistant
treasurers, and such other officers and agents with such powers and duties as it
or he shall deem necessary. The order of the seniority of the Vice- Presidents
shall be in the order of their nomination, unless otherwise determined by the
Board of Directors. The Board of Directors may assign such additional titles to
one or more of the officers as they 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.
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5.2. Tenure and Duties of Officers.
(a) 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. Nothing in these Bylaws shall be construed as creating any
kind of contractual right to employment with the corporation.
(b) The Chairman of the Board of Directors (if there be such
an officer appointed) shall be the chief executive officer of the corporation
and, when present, shall preside at all meetings of the shareholders and the
Board of Directors. The Chairman of the Board of Directors shall perform such
other duties and have such other powers as the Board of Directors shall
designate from time to time.
(c) The President shall be the chief executive officer of
the corporation in the absence of the Chairman of the Board and shall preside at
all meetings of the shareholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
The President shall perform such other duties and have such other powers as the
Board of Directors shall designate from time to time.
(d) The Vice-Presidents, in the order of their seniority,
may assume and perform the duties of the President in the absence or disability
of the President or whenever the office of the President is vacant. The
Vice-President shall perform such other duties and have such other powers as the
Board of Directors or the President shall designate from time to time.
(e) The Secretary shall attend all meetings of the
shareholders and of the Board of Directors and any committee thereof, 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 shareholders, and of all meetings of the Board of Directors and
any Committee thereof requiring notice. The Secretary shall 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 such other duties and have
such other powers as the Board of Directors or the President shall designate
from time to time.
(f) The Treasurer shall keep or cause to be kept the books
of account of the corporation in a thorough and proper manner, and shall render
statements of the financial affairs of the corporation in such form and as often
as required by the Board of Directors or the President. The Treasurer, subject
to the order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Treasurer shall perform all other duties
commonly incident to his office and shall perform such other duties and have
such other powers as the Board of Directors or the President shall
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designate from time to time. The President may direct any Assistant Treasurer to
assume and perform the duties of the Treasurer in the absence or disability of
the Treasurer, and each Assistant Treasurer shall perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time.
6. INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
6.1. Right to Indemnification.
Each person who was or is a party or is threatened to be made a party to
or is involved (as a party, witness, or otherwise), in any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereafter a "Proceeding"), by reason of the
fact that he, or a person of whom he is the legal representative, is or was a
director, officer, employee, or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust, or
other enterprise, or was a director, officer, employee, or agent of a foreign or
domestic corporation that was a predecessor corporation of the corporation or of
another enterprise at the request of such predecessor corporation, including
service with respect to employee benefit plans, whether the basis of the
Proceeding is alleged action in an official capacity as a director, officer,
employee, or agent or in any other capacity while serving as a director,
officer, employee, or agent (hereafter an "Agent"), shall be indemnified and
held harmless by the corporation to the fullest extent authorized by statutory
and decisional law, as the same exists or may hereafter be interpreted or
amended (but, in the case of any such amendment or interpretation, only to the
extent that such amendment or interpretation permits the corporation to provide
broader indemnification rights than were permitted prior thereto) against all
expenses, liability, and loss (including attorneys, fees, judgments, fines,
ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any
interest, assessments, or other charges imposed on any Agent as a result of the
actual or deemed receipt of any Agent as a result of the actual or deemed
receipt of any payments under this Article) reasonably incurred or suffered by
such person in connection with investigating, defending, being a witness in, or
participating in (including on appeal), or preparing for any of the foregoing
in, any Proceeding (hereafter "Expenses"); provided, however, that except as to
actions to enforce indemnification rights pursuant to Section 6.3 of these
Bylaws, the corporation shall indemnify any Agent seeking indemnification in
connection with a Proceeding (or part thereof) initiated by such person only if
the Proceeding (or part thereof) was authorized by the Board of Directors of the
corporation. The right to indemnification conferred in this Article shall be a
contract right. It is the corporation's intention that these Bylaws provide
indemnification in excess of that expressly permitted by Section 145 of the
DGCL, as authorized by the corporation's Certificate of Incorporation.
6.2. Authority to Advance Expenses.
Expenses incurred by an officer or director (acting in his capacity as
such) in defending a Proceeding shall be paid by the corporation in advance of
the final
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disposition of such Proceeding, provided, however, that if required by the DGCL,
such Expenses shall be advanced only upon delivery to the corporation of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Article or otherwise. Expenses incurred by
other Agents of the corporation (or by the directors or officers not acting in
their capacity as such, including service with respect to employee benefit
plans) may be advanced upon the receipt of a similar undertaking, if required by
law, and upon such other terms and conditions as the Board of Directors deems
appropriate. Any obligation to reimburse the corporation for Expense advances
shall be unsecured and no interest shall be charged thereon.
6.3. Right to Claimant to Bring Suit.
If a claim under Section 6.1 or 6.2 of these Bylaws is not paid in full
by the corporation within thirty (30) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense (including attorneys, fees) of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending a Proceeding in advance of its final disposition
where the required undertaking has been tendered to the corporation) that the
claimant has not met the standards of conduct that make it permissible under the
DGCL for the corporation to indemnify the claimant for the amount claimed. The
burden of proving such a defense shall be on the corporation. 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 under
the circumstances because he has met the applicable standard of conduct set
forth in the DGCL, nor an actual determination by the corporation (including its
Board of Directors, independent legal counsel, or its stockholders) that the
claimant had not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
6.4. Provision Nonexclusive.
The rights conferred on any person by this Article shall not be
exclusive of any other rights that such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, agreement,
vote of stockholders or disinterested directors, or otherwise, both as to action
in an official capacity and as to action in another capacity while holding such
office. To the extent that any provision of the Certificate of Incorporation,
agreement, or vote of the stockholders or disinterested directors is
inconsistent with these Bylaws, the provisions, agreement, or vote shall take
precedence.
6.5. Authority to Insure.
The corporation may purchase and maintain insurance to protect itself
and any Agent against any Expense asserted against or incurred by such person,
whether or not
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the corporation would have the power to indemnify the Agent against such Expense
under applicable law or the provisions of this Article.
6.6. Survival of Rights.
The rights provided by this Article shall continue as to a person who
has ceased to be an Agent and shall inure to the benefit of the heirs,
executors, and administrators of such person.
6.7. Settlement of Claims.
The corporation shall not be liable to indemnify any Agent under this
Article (a) for any amounts paid in settlement of any action or claim effected
without the corporation's written consent, which consent shall not be
unreasonably withheld; or (b) for any judicial award, if the corporation was not
given a reasonable and timely opportunity, at its expense, to participate in the
defense of such action.
6.8. Effect of Amendment.
Any amendment, repeal, or modification of this Article shall not
adversely affect any right or protection of any Agent existing at the time of
such amendment, repeal, or modification.
6.9. Subrogation.
In the event of payment under this Article, the corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of the
Agent, who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the corporation effectively to bring suit to enforce such
rights.
6.10. No Duplication of Payments.
The corporation shall not be liable under this Article to make any
payment in connection with any claim made against the Agent to the extent the
Agent has otherwise actually received payment (under any insurance policy,
agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
7. EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
7.1. Execution of Corporate Instruments.
(a) 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 any corporate instrument or document, or to sign the
corporate name without limitation, except where otherwise provided by law, and
such execution or signature shall be binding upon the corporation.
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(b) Unless otherwise specifically determined by the Board of
Directors or otherwise required by law, formal contracts of the corporation,
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 (if there be
such an officer appointed) or by the President; such documents may also be
executed by 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.
(c) All checks and drafts drawn on banks or other
depositaries on funds to the credit of the corporation, or in special accounts
of the corporation, shall be signed by such person or persons as the Board of
Directors shall authorize so to do.
7.2. Voting of Securities Owned by 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 (if there be such an officer
appointed), or by the President, or by any Vice-President.
8. SHARES OF STOCK
8.1. 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 (if
there be such an officer appointed), or by 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 a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue. If the corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to
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represent such class or series of stock, provided that, except as otherwise
provided in section 202 of the Delaware General Corporation Law, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or series
of stock, a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
8.2. Lost Certificates.
The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to indemnify the
corporation in such manner as it shall require and/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 or destroyed.
8.3. Transfers.
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 certificate or certificates for a like
number of shares, properly endorsed.
8.4. 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 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 nor less than ten 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 date on which the meeting is held. A determination of
stockholders of record entitled notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to 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 ten days after
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. If no record date has been fixed by the Board of Directors,
the record date for determining stockholders entitled to consent to corporate
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action in writing without a meeting, when no prior action by the Board of
Directors is required by the Delaware General Corporation 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 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. 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 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 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.
8.5. 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.
9. OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the corporation,
other than stock certificates, may be signed by the Chairman of the Board (if
there be such an officer appointed), or 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
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature of a trustee under an indenture pursuant to which such bond, debenture
or other corporate security shall be issued, the signature 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
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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 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.
10. NOTICES
Whenever, under any provisions of these Bylaws, notice is required to be
given to any stockholder, the same 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. Any notice required to be given to any director may be given by
the method hereinabove stated, or by telegram or other means of electronic
transmission, except that such notice other than one which is delivered
personally, shall be sent to such address or (in the case of facsimile
telecommunication) facsimile telephone number as such director shall have filed
in writing with the Secretary of the corporation, or, in the absence of such
filing, to the last known post office address of such director. If no address of
a stockholder or director be known, such notice may be sent to the office of the
corporation required to be maintained pursuant to Section 1.2 of Article 1
hereof. 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, director or directors, to whom any
such notice or notices was or were given, and the time and method of giving the
same, shall be conclusive evidence of the statements therein contained. 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 telegram or other means of
electronic transmission shall be deemed to have been given as at the sending
time recorded by the telegraph company or other electronic transmission
equipment operator transmitting the same. It shall not be necessary that the
same method of giving 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.
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 a stockholder
or such director to receive such notice. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation, or of these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. 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
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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.
11. AMENDMENTS
These Bylaws may be repealed, altered or amended or new Bylaws adopted
by written consent of stockholders in the manner authorized by Section 2.11 of
Article 2, or at any meeting of the stockholders, either annual or special, by
the affirmative vote of a majority of the stock entitled to vote at such
meeting, unless a larger vote is required by these Bylaws or the Certificate of
Incorporation. The Board of Directors shall also have the authority to repeal,
alter or amend these Bylaws or adopt new Bylaws (including, without limitation,
the amendment of any Bylaws setting forth the number of directors who shall
constitute the whole Board of Directors) by unanimous written consent or at any
annual, regular, or special meeting by the affirmative vote of a majority of the
whole number of directors, subject to the power of the stockholders to change or
repeal such Bylaws and provided that the Board of Directors shall not make or
alter any Bylaws fixing the qualifications, classifications, or term of office
of directors.
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CERTIFICATION
I, the undersigned, do hereby certify that:
(1) 1 am the duly elected and acting Secretary of SAGE, INC., Inc.,
a Delaware corporation; and
(2) The foregoing Bylaws constitute the Bylaws of said corporation
as duly adopted by the Board of Directors of the corporation by unanimous
written consent on September 22, 1998.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 22nd day of
September, 1998.
/s/ Simon Westbrook
Secretary
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<PAGE> 1
EXHIBIT 4.5
SAG
COMMON STOCK COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE
IN RIDGEFIELD PARK, NJ OR NEW YORK, NY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 786632 10 9
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $0.01 PAR VALUE PER
SHARE, OF
Sage, Inc.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned vt the transfer
agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
CHASEMELLION SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
BACK
A statement of 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 as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of designation, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - .........................
Custodian.........................
(Cust) (Minor)
under Uniform Gifts to Minors Act
.........................................
(State)
UNIF TRF MIN ACT - ................. Custodian (until age ................)
(Cust)
............................ under Uniform Transfers
(Minor)
to Minors Act ..............................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
Signature(s) Guaranteed
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 5.1
November 4, 1999
Sage, Inc.
2460 North First Street, Suite 100
San Jose, CA 95131-1023
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-1
of Sage, Inc., a Delaware corporation (the "Company"), filed with the Securities
and Exchange Commission (the "Registration Statement") on August 30, 1999, as
amended, relating to the registration under the Securities Act of 1933, as
amended, of up to 3,450,000 shares of the Company's common stock, $.01 par
value, all of which are authorized but unissued shares of common stock to be
offered and sold by the Company (including up to 450,000 shares of common stock
subject to the underwriters' over-allotment option) (the "Common Stock"). The
Common Stock is to be sold to the underwriters named in the Registration
Statement for resale to the public.
As counsel to the Company, we have examined the proceedings taken by the
Company in connection with the issuance and sale by the Company of the Common
Stock.
We are of the opinion that the Common Stock being registered to be
offered and sold by the Company have been duly authorized and, when issued and
sold by the Company in the manner described in the Registration Statement and in
accordance with the resolutions adopted by the board of directors of the
Company, will be legally issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the prospectus constituting a part thereof and any amendments
thereto.
Very truly yours,
/s/ Morrison & Foerster LLP
Morrison & Foerster LLP
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
of our report dated June 30, 1999 except for Note 13, as to which the date is
October 5, 1999, relating to the consolidated financial statements of Sage,
Inc., which appears in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers
San Jose, California
October 26, 1999
