<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1997.
REGISTRATION NO. 333-35629
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LANDMARK SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
VIRGINIA 7372, 7379 54-1221302
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
</TABLE>
LANDMARK SYSTEMS CORPORATION
8000 TOWERS CRESCENT DRIVE
VIENNA, VIRGINIA 22182
(703) 902-8000
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RALPH E. ALEXANDER
PRESIDENT, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER
LANDMARK SYSTEMS CORPORATION
8000 TOWERS CRESCENT DRIVE
VIENNA, VIRGINIA 22182
(703) 902-8000
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT OF SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
STEVEN L. MELTZER, ESQ. BRUCE S. MENDELSOHN, ESQ.
DANIELLE R. SROUR, ESQ. KAY TATUM, ESQ.
SHAW PITTMAN POTTS & TROWBRIDGE AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
2300 N STREET, N.W. 1333 NEW HAMPSHIRE AVE., N.W.
WASHINGTON, D.C. 20037 WASHINGTON, D.C. 20036
(202) 663-8000 (202) 887-4000
</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,
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,
please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] If delivery of the prospectus is expected
to be made pursuant to Rule 434, please check the following box. [ ] 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
number of the earlier effective registration statement for the same offering.
[ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 23, 1997
PROSPECTUS
3,200,000 SHARES
[LANDMARK LOGO]
COMMON STOCK
------------------------
Of the 3,200,000 shares of Common Stock offered hereby, 2,000,000 shares
are being offered by Landmark Systems Corporation (the "Company") and 1,200,000
shares are being offered by the selling stockholders (the "Selling
Stockholders"). The Company will not receive any proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock of the Company. It is currently estimated that the initial
public offering price will be between $8.00 and $10.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Common Stock has been approved for
quotation on the Nasdaq National Market under the symbol "LDMK."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(3)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
- ------------------------------------------------------------------------------------------------
Total(4)................ $ $ $ $
================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be $620,000.
(3) The Company will not receive any proceeds from the sale of the shares of
Common Stock offered by the Selling Stockholders.
(4) The Selling Stockholders have granted to the Underwriters an option,
exercisable within 30 days of the date of this Prospectus, to purchase up to
480,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Selling Stockholders will be
$ , $ and $ , respectively. See "Underwriting."
The Common Stock offered by the Underwriters is subject to receipt and
acceptance by them. The Underwriters reserve the right to reject any order in
whole or in part. It is expected that the Common Stock will be ready for
delivery on or about , 1997.
------------------------
UNTERBERG HARRIS WHEAT FIRST BUTCHER SINGER
, 1997
<PAGE> 3
[INSIDE FRONT COVER]
[LANDMARK LOGO]
Focused on Performance
PerformanceWorks enables organizations to model
or predict system and application performance,
and allows businesses to increase system
availability, improve user productivity, reduce
computing costs and limit the adverse business
effects of system degradation.
Businesses and other
organizations
are increasingly relying
upon computer
systems to run and manage
their
key business processes.
[PHOTO OF
COMPUTER
USER]
[GRAPHIC REPRESENTATION
OF COMPUTER TERMINAL
AND END-USER
TRANSACTIONS]
Computing environments are
increasingly
complex and dynamic--users,
hardware
and software are often added,
moved or
changed, and new,
business-critical
applications are developed and
deployed on an ongoing basis.
As businesses place
greater reliance
on complex computer
systems, the
cost of suboptimal
performance
increases dramatically.
[PHOTO OF
SUPERMARKET
COMPUTERIZED
CHECK-OUT]
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES AND THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
PerformanceWorks and The Monitor are trademarks of the Company. This
Prospectus also contains trademarks and trade names of companies other than the
Company.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. The shares of the Company's common
stock, $.01 par value per share (the "Common Stock"), offered hereby involve a
high degree of risk. See "Risk Factors." Unless otherwise indicated, the
information in this Prospectus (i) assumes no exercise of the Underwriters'
over-allotment option, (ii) reflects a 3-for-2 split of the Common Stock to take
effect immediately prior to the date of this Prospectus, (iii) reflects the
mandatory redemption on November 1, 1997 of 54,944 shares of Series A Preferred
Stock, (iv) reflects the conversion, upon the closing of the Offering, of
855,165 shares of Series A Preferred Stock into 648,500 shares of Common Stock
and of 395,195 shares of Series B Preferred Stock into 592,793 shares of Common
Stock and (v) reflects the lapse, upon the closing of the Offering, of the
rights of certain holders of 234,858 shares of Common Stock and options to
acquire 194,820 shares of Common Stock to require the Company to repurchase such
shares (collectively, the "Redeemable Common Stock Instruments"). References in
this Prospectus to "Landmark" or the "Company" mean Landmark Systems Corporation
and its subsidiaries.
THE COMPANY
Landmark is a leading provider of performance management software products
which measure, analyze, report and predict performance for both mainframe and
client/server computing environments. Landmark's PerformanceWorks product family
is distinct in its ability to monitor the key components of a computing
environment, provide early warning of potential system problems and enable
effective planning for changes in the computing environment. The Company
believes these capabilities improve user productivity, reduce computing costs,
increase system availability and optimize use of system resources. Landmark's
products address performance management across leading hardware platforms,
operating systems from DEC, Hewlett-Packard, IBM, Microsoft and Sun and
databases consisting of DB2, Oracle, SQL Server and Sybase. As of September 30,
1997, Landmark had licensed over 15,300 copies of its products to over 3,900
customers worldwide.
Businesses and other organizations are increasingly relying upon computer
systems to run and manage their key business processes. As a result of the
growing dependence on, and increasing complexity of, computing environments
(consisting of both mainframe systems in which processing is conducted centrally
and client/server systems in which processing takes place by both personal
computers or workstations and by networked servers) to run business-critical
applications, demand has increased for comprehensive software solutions capable
of planning, implementing and optimizing these information technology resources.
According to International Data Corporation ("IDC"), a leading provider of
information technology data, revenues from the overall system management
software market are expected to rise to $17 billion by 2000. Performance
management is the largest sector of this market and is expected by IDC to grow
from $1.8 billion in 1996 to $3.1 billion by 2000.
The ability to monitor performance data, or "metrics," from each system
component in a complex, heterogeneous computing environment is a key feature of
Landmark's software, particularly because performance problems in these
environments can originate from any one or a combination of components. The
Company's PerformanceWorks products use software agents to gather performance
metrics automatically from a system's pressure points -- including the central
processing unit ("CPU"), memory and storage, input/output ("I/O"), disk space,
workload, operating system and network. The agent-based architectures of the
Company's products allow users to manage computing environments that are
large-scale, distributed and multi-platform. By monitoring performance data from
each component of a system from real-time, recent past and historical
perspectives, Landmark's products allow users to identify the source of a
problem so a solution can be implemented and to anticipate potential problems so
that they can be avoided.
Landmark's solutions are based on its "lifecycle" view of performance
management and are designed to allow customers to address each stage of the
application lifecycle: planning, development and production. The Company's
PerformanceWorks products cover a broad range of functionality, including
monitoring, reporting, exception handling (notification that a threshold has
been exceeded), trend analysis, tuning (adjustment of
3
<PAGE> 5
system resources to optimize performance) and capacity planning. Landmark's
products provide its customers with the ability to transform raw data into
useful information through an intelligent aggregation and automatic
summarization process which collects data on a continuous basis and generates
summary information at prescribed intervals.
The Company's strategy is to enhance, extend and expand its product
offerings, to capitalize on its large installed customer base, to strengthen its
distribution capability and to grow through acquisitions and partnering
arrangements.
The Company's customers consist of organizations across a wide variety of
industries that are developing or have deployed business-critical applications
in complex, multi-user environments. Representative customers of the Company
include ABN-AMRO, Amoco, BMW, Foundation Health, IBM, Kodak, Lockheed Martin,
Putnam Investor Services, Wachovia Bank, Wells Fargo Bank and Whirlpool. See
"Business -- Customers." Historically, over 90% of Landmark's customers have
renewed their maintenance and support arrangements with the Company.
The Company was incorporated in Virginia on November 3, 1982. The Company's
principal executive offices are located at 8000 Towers Crescent Drive, Vienna,
Virginia 22182. Its telephone number is (703) 902-8000.
THE OFFERING
Common Stock offered by the
Company............................. 2,000,000 shares
Common Stock offered by the Selling
Stockholders...................... 1,200,000 shares
Common Stock to be outstanding after
the Offering........................ 10,860,161 shares (1)
Use of proceeds..................... For general corporate purposes,
including sales and marketing, working
capital, research and development,
capital expenditures and potential
acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol....... LDMK
- ---------------
(1) Based on the number of shares of Common Stock outstanding as of September
30, 1997. Excludes a total of 3,140,259 shares subject to outstanding
options and warrants and 1,232,363 shares available for future issuance
pursuant to the Company's stock option plans as of September 30, 1997. The
sale of certain of these shares in the public market is limited by
restrictions under the Securities Act of 1933 and lock-up agreements with
the Underwriters. See "Shares Eligible for Future Sale," "Management" and
Notes 10 and 12 of Notes to Consolidated Financial Statements.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................... $32,674 $34,460 $36,556 $26,200 $30,377
Gross profit........................ 24,830 26,797 27,643 19,185 26,045
Operating expenses
Sales and marketing................. 11,716 13,092 11,671 8,522 10,275
Product research and development.... 9,094 12,490 13,924 10,773 10,079
General and administrative.......... 7,800 6,872 4,776 3,501 3,970
------- ------- ------- ------- -------
Total operating expenses....... 28,610 32,454 30,371 22,796 24,324
------- ------- ------- ------- -------
Operating (loss) income.................. (3,780) (5,657) (2,728) (3,611) 1,721
Net (loss) income........................ (1,921) (4,169) (1,202) (1,897) 1,222
Pro forma primary net (loss) income per
share(1)............................... $ (0.13) $ (0.20) $ 0.12
Shares used to compute pro forma primary
net (loss) income per share(1)......... 9,480 9,480 10,253
OTHER FINANCIAL DATA:
EBITDA(2)................................ $ 406 $(1,700) $ 3,138 $ 1,214 $ 4,034
Cash flow from operations................ 1,311 (362) 4,144 3,443 4,125
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 4,168 $ 19,913
Working capital (deficit)........................................... (2,578) 13,167
Total assets........................................................ 28,635 44,380
Long-term debt (less current portion)............................... 191 191
Mandatorily redeemable securities(4)................................ 10,333 --
Stockholders' (deficit) equity...................................... (5,860) 20,219
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute pro
forma primary net (loss) income per share.
(2) EBITDA represents earnings before net interest and other income, income
taxes, depreciation and amortization expense. EBITDA does not represent cash
flows as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all the
Company's cash needs. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operations or other measures of
liquidity determined in accordance with generally accepted accounting
principles. EBITDA may not be comparable to other similarly titled measures
of other companies.
(3) Adjusted to reflect the sale of the 2,000,000 shares offered by the Company
hereby at an assumed initial public offering price of $9.00 per share and
the application of the estimated net proceeds therefrom as set forth under
"Use of Proceeds." Includes the effect of the mandatory redemption on
November 1, 1997 of 54,944 shares of Series A Preferred Stock, and, upon the
closing of the Offering, the conversion of the Series A and Series B
Preferred Stock into Common Stock and the lapse of the rights of holders of
the Redeemable Common Stock Instruments to require the Company to repurchase
the Redeemable Common Stock Instruments.
(4) Includes Series A Preferred Stock, Series B Preferred Stock and Redeemable
Common Stock Instruments.
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus.
Risk of Significant Fluctuations in Operating Results; Timing of
Revenues. The Company has experienced, and expects to continue to experience,
significant fluctuations in operating results, on an annual and a quarterly
basis, which may result in volatility in the price of the Company's Common
Stock. Such fluctuations may result from a number of factors, many of which are
outside of the Company's control. These factors include the size and timing of
customer orders; changes in the level of operating expenses; customer budget
cycles; the timing of introductions or enhancements of products by the Company
or its competitors; customer order deferrals in anticipation of new products or
product enhancements; customer renewal of maintenance and support agreements;
changes in pricing policy of the Company or its competitors; the mix of
distribution channels and products sold; increased competition; technological
changes; the ability of Landmark to develop or acquire, introduce and market on
a timely basis new products or enhancements to its existing products; the
quality of products sold; market acceptance of new products and product
enhancements; seasonality of revenues; the Company's ability to expand its sales
and marketing programs; personnel changes; foreign currency exchange rates;
costs or other nonrecurring charges in connection with the acquisition of or
investment in companies, products or technologies; and general economic
conditions.
Order backlog at the beginning of any quarter has represented only a small
portion of that quarter's total revenues because products are typically shipped
on a trial basis prior to the receipt of customer orders. As a result, total
revenues in any quarter are substantially dependent on orders obtained during
that quarter. Because Landmark's expense levels are based in significant part on
expectations as to future revenues, expense levels are relatively fixed in the
short run. If near-term demand for the Company's products weakens or if sales do
not close in any quarter as anticipated, the Company's results of operations for
that quarter would be adversely affected. Even though sales activities, such as
product demonstrations, presentations and trials, are conducted throughout each
quarterly period, in the Company's experience, most license transactions come to
closure at or near the end of a quarter. Accordingly, Landmark has often
recognized a significant portion of its license revenues in the last weeks of a
quarter. As a result, the magnitude of quarterly fluctuations may not become
evident until late in, or after the close of, a quarter.
Landmark believes that its annual and quarterly revenues, expenses and
operating results may vary significantly in the future, that period-to-period
comparisons of its results of operations are not necessarily meaningful and
that, in any event, such comparisons should not be relied upon as indications of
future performance. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results."
History of Operating Losses. Although the Company had operating profits in
the fourth quarter of 1996 and the first, second and third quarters of 1997, the
Company has experienced operating losses for the years ended December 31, 1992,
1993, 1994, 1995 and 1996. In recent years, the Company has expanded its product
line to include products for the client/server computing environment, has
increased its research and development expenditures, has established an
international direct sales force to supplement or replace certain third party
distributors and has instituted company-wide cost controls. As a result of these
various initiatives and their potential impact on the Company's financial
condition, prediction of the Company's future operating results is difficult.
There can be no assurance that the Company will be able to continue generating
operating profits on a quarterly basis or achieve consistent operating
profitability on an annual basis. See "-- Risk of Significant Fluctuations in
Operating Results; Timing of Revenues" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Intense Competition. The market for the Company's performance management
software products is highly competitive, fragmented and characterized by
increasingly rapid technological developments, evolving standards and rapid
changes in customer requirements. To maintain and improve its position in this
market, the Company must continue to enhance current products and develop new
products in a timely fashion. The Company competes primarily with vendors that
provide mainframe performance management software and vendors that provide
performance management software for client/server computing environments.
Landmark
6
<PAGE> 8
believes that its principal competitors with respect to mainframe performance
management software products include Candle Corporation and Boole and Babbage,
Inc. In the client/server market, the Company believes that its principal
competitors include BMC Software, Inc., Compuware Corporation, BGS Systems Inc.
and Platinum technology, inc. See "Business -- Competition."
Some of Landmark's competitors have longer operating histories and
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger customer base, than
those of the Company. The Company's current and future competitors could
introduce products with more features, greater scalability, increased
functionality and lower prices than the Company's products. These competitors
could also bundle existing or new products with other, more established products
in order to compete with Landmark. In addition, current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Moreover, there can be no assurance that the Company will be able to
differentiate its products from the products of its competitors. Due to
potentially lower barriers to entry for platform-specific niche products in the
performance management software market, the Company believes that emerging
companies may enter this market, particularly in the client/server environment.
Increased competition may result in price reductions, reduced gross margins and
loss of market share, any of which could materially and adversely affect the
Company's business, financial condition and results of operations. Any material
reductions in the prices of Landmark's products would negatively affect gross
margins and would require the Company to increase sales in order to maintain
gross profits. There can be no assurance that the Company will be able to
compete successfully against current or future competitors, and the failure to
do so could have a material adverse effect upon Landmark's business, financial
condition and results of operations. See "Business -- Competition."
Rapid Technological Change; Product Development. The market for
performance management software products is increasingly characterized by rapid
technological advances, changes in customer requirements and frequent new
product introductions and product enhancements. Landmark's future success will
depend in large part on its ability to enhance its current products and to
develop and introduce new products that keep pace with technological
developments, achieve market acceptance and respond to increasingly complex
customer requirements. Landmark believes that its future operating results will
be dependent upon the continued market acceptance of its products, the timing of
orders for such products and the level and effectiveness of research and
development expenses incurred in connection with the Company's ongoing and
planned product development programs. Responding to rapid technological change
and the need to develop and introduce new products quickly to meet its
customers' evolving needs will require the Company to make substantial
investments in research and product development. Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements or any significant delays in product development or introduction
could result in a loss of competitiveness and could materially and adversely
affect the Company's business, financial condition and results of operations.
There can be no assurance that new products will be successfully developed or
marketed by the Company, that any new products will achieve market acceptance or
that other software vendors will not develop and market products which are
superior to Landmark's products or that such products will not achieve greater
market acceptance. See "Business -- Product Development."
Dependence on Certain Products. Landmark has historically derived, and in
the foreseeable future expects to continue to derive, a substantial majority of
its revenues from performance management software products and services for use
in mainframe-based computing environments. The Company derived 93.0%, 90.3%,
89.2% and 87.8% of its revenues from mainframe products and services in 1994,
1995, 1996 and for the nine months ended September 30, 1997, respectively.
Accordingly, Landmark's future success will depend in part on the continued
market acceptance of its performance management software products and services
for mainframe-based systems. A decline in demand for these products and
services, whether as a result of an actual or a perceived decline in the use of
mainframe-based systems, new product introductions, increased competition,
technological change, failure of the Company's existing and new products to
address customer requirements or otherwise, could have a material adverse effect
on the Company's business, financial condition and results of operations.
7
<PAGE> 9
Dependence on New Products and Markets. Landmark has recently introduced a
number of performance management software products for use in client/server
computing environments. The Company expects these products to generate a
significant portion of the Company's future revenue growth. Landmark's client/
server products are designed for use in complex, distributed computing
environments comprised of a variety of hardware platforms, operating systems and
databases, each of which may come from a different vendor. The market for
performance management software in the client/server computing environment is
relatively new and still emerging. The Company's future financial performance
will depend in part on continued growth in the market for performance management
products in complex, heterogeneous environments, which in turn will depend on
growth in the number of large and medium sized organizations with such computing
environments which deploy performance management solutions. There can be no
assurance that the market for performance management products in the
client/server computing environment will continue to grow or that Landmark will
be able to respond effectively to the evolving requirements of this market.
Moreover, if the Company's recently introduced products for client/server
computing environments, or future releases of new products or product
enhancements for client/server systems, do not achieve meaningful market
acceptance, Landmark's business, financial condition and results of operations
could be materially and adversely affected.
Need to Attract and Retain Qualified Technical Personnel. The Company's
future success will depend in large part on its ability to hire, train and
retain technical personnel who have expertise in a wide array of network and
computer systems and a broad understanding of the markets Landmark serves.
Competition for such technical personnel is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. Although the Company to date has not experienced significant employee
turnover, there can be no assurance that it will not experience such turnover in
the future. Any inability of the Company to hire, train and retain a sufficient
number of qualified technical personnel could, among other things, impair the
Company's ability to develop new products and enhance existing products in a
timely manner, which, in turn, would have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Key Personnel. Landmark's future success will depend on the
continued contributions of its executive officers and key employees. The loss of
the services of any one of the Company's executive officers or other key
employees or the decision of one or more of such officers or employees to join a
competitor or otherwise compete directly or indirectly with the Company could
have a material adverse effect on the business, financial condition and results
of operations of the Company. With the exception of Ralph E. Alexander, who is
President, Chief Operating Officer and Chief Financial Officer of the Company,
Landmark does not have employment contracts with any of its executive officers.
Mr. Alexander's employment agreement is for a term of three years beginning
April 9, 1997.
The Company's future success will also depend on its continuing ability to
identify, hire, train and retain highly qualified sales, marketing and
managerial personnel. Competition for such personnel is intense, and there can
be no assurance that Landmark will be able to attract, assimilate or retain such
highly skilled personnel in the future. The inability to attract, hire and
retain the necessary sales, marketing and managerial personnel could have a
material adverse effect upon the Company's business, financial condition and
results of operations. See "Business -- Employees" and "Management."
Potential Acquisitions. As part of its business strategy, the Company
intends to acquire or invest in complementary companies, products and
technologies, although the Company is not engaged in any negotiations and has no
current or pending arrangements, agreements or understandings with respect to
any acquisitions or investments. Any such future transactions would be
accompanied by the risks commonly encountered in making acquisitions of
companies, products and technologies. Such risks include, among other things,
the difficulty associated with assimilating the personnel and operations of the
acquired companies, the potential disruption of the Company's ongoing business,
the distraction of management and other resources, the inability of management
to maximize the financial and strategic position of the Company through the
successful integration of acquired personnel and technology rights, the
maintenance of uniform standards, controls, procedures and policies and the
impairment of relationships with employees and customers of both the Company and
the acquired business as a result of the integration of new management
personnel. There can be no assurance that the Company will be successful in
overcoming these risks or any other problems
8
<PAGE> 10
encountered in connection with any such acquisitions. In addition, future
acquisitions by the Company could result in the issuance of dilutive equity
securities, the incurrence of debt or contingent liabilities and the
amortization of goodwill and other intangible assets, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations and on the market price of the Company's Common Stock. See
"Business -- Strategy."
International Sales. Revenues from customers outside the United States and
Canada were 27.6%, 32.4%, 32.4% and 34.2% of total revenues in 1994, 1995, 1996
and for the nine months ended September 30, 1997, respectively. Landmark intends
to continue to expand its operations outside of the United States and Canada and
to enter additional international markets, which will require significant
management attention and financial resources. The Company intends to establish
additional international operations and hire additional personnel in order to
increase its sales levels and gross margins on products sold in these markets.
To the extent that the Company is unable to do so, the Company's growth, if any,
in international sales could be limited, and the Company's business, financial
condition and results of operations could be materially and adversely affected.
There can be no assurance that the Company will be able to maintain or increase
international market demand for its products. International revenue transactions
are denominated in local currencies. Any future unfavorable changes in the
exchange rates of foreign currencies would reduce the U.S. dollar amount of the
Company's revenues from international sales, and would therefore adversely
affect the year to year comparisons of the Company's results of operations. The
Company has not sustained material foreign currency exchange losses and
presently does not attempt to hedge its exposure to fluctuations in foreign
currency exchange rates because this exposure has historically been minimal. The
Company could experience foreign currency exchange losses based upon the amount
of cash and receivables denominated in local currencies held by the Company's
subsidiaries. These amounts have not been significant. Furthermore, the Company
is not exposed to foreign currency exchange losses with respect to its
receivables from international distributors because the distributor's obligation
to the Company is denominated in U.S. dollars at the time a transaction occurs.
Additional risks inherent in Landmark's international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs and risks of localizing products for foreign
countries, longer accounts receivable payment cycles in certain territories,
adverse tax consequences, restrictions on repatriating earnings and the burdens
of complying with a wide variety of foreign laws. There can be no assurance that
such factors will not have a material adverse effect upon the Company's future
international revenues and, consequently, the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Sales and
Marketing."
Reliance on Third Party Distributors. Landmark has historically relied
primarily on third-party distributors to market its products internationally.
Revenues attributable to such distributors were 27.6%, 28.9%, 27.5% and 19.0% of
total revenues in 1994, 1995, 1996 and for the nine months ended September 30,
1997, respectively. Any material increase in the Company's sales through such
third-party distributors as a percentage of total revenues will adversely affect
the Company's average selling prices and gross margins due to the lower unit
prices the Company receives when selling through such distributors. The
Company's agreements with its distributors generally permit the distributor to
market software products in addition to Landmark's. As a result, there can be no
assurance that these distributors will give a priority to marketing the
Company's products or that they will continue to carry the Company's products.
In addition, some agreements allow the distributor to terminate the relationship
without cause or restrict Landmark's ability to terminate the relationship.
There can be no assurance that Landmark will retain any of its current
distributors or that the Company could successfully replace such distributors.
Any of the foregoing changes in Landmark's distribution channels could
materially adversely affect the Company's business, financial condition and
results of operations. See "Business -- Sales and Marketing." In addition,
although the Company employs certain controls to ensure an accurate accounting
of revenues generated by distributors, there can be no assurance that all such
revenues will be properly reported to the Company.
Trademarks and Proprietary Rights; Risks of Infringement. The Company
regards its products and technology as proprietary and attempts to protect them
with licensing agreements, patents, trademark and trade secret laws, copyrights,
restrictions on disclosure and confidentiality procedures. Although Landmark
generally enters into license agreements with its customers, distributors and
corporate partners, and
9
<PAGE> 11
confidentiality agreements with its employees and other third parties and
controls access to and distribution of its documentation and other proprietary
information, there can be no assurance that any such person will not copy or
otherwise obtain and use the Company's proprietary technology or products
without its permission, or develop similar technology independently. Landmark
pursues the registration of its trademarks in the United States and
internationally, and has registered certain of its trademarks, including "The
Monitor," and has applied for registration of "Performance Works." Landmark also
pursues U.S. registrations of certain of its copyrights, particularly of the
Company's software products. It is difficult to police unauthorized use of
Landmark's technology, products and trademarks and the Company is unable to
determine the extent to which piracy and misappropriation of its products,
technology and trademarks occur. Software piracy and misappropriation may
adversely affect the Company's results of operations. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. The Company may in the future
rely on "shrink wrap" licenses that are not signed by licensees and, therefore,
may be unenforceable under the laws of certain jurisdictions. Accordingly, there
can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate or that third parties will not infringe or
misappropriate the Company's trademarks, trade secrets and proprietary
technology and rights.
The Company is not aware that any of its software products infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to its
current or future products. The Company expects that software product developers
will increasingly be subject to infringement claims as the number of products
and competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Intellectual Property."
Risk of Software Defects. Software products as complex as those offered by
Landmark may contain errors or defects, especially when first introduced or when
new versions or enhancements are released. The Company has in the past
discovered software errors in certain of its products and has experienced delays
in shipments of products during the period required to correct these errors.
Despite testing by the Company and by current and potential customers, there can
be no assurance that defects and errors will not be found in new versions or
enhancements of existing products or in new products, after commencement of
commercial shipments. Any such defects and errors could result in adverse
customer reactions, delays in market acceptance, expensive product changes or
loss of revenues, any of which could have a material adverse effect upon the
Company's business, financial condition and results of operations.
Benefits of the Offering to Current Shareholders. Patrick H. McGettigan, a
director and Chairman of the Board of the Company, Katherine K. Clark, a
director and Chief Executive Officer of the Company, Jeffrey H. Bergman, a
director of the Company, and the Bergman Family Trust are offering for sale in
the Offering an aggregate of 1,200,000 shares of Common Stock (1,680,000 shares
of Common Stock if the over-allotment option is exercised in full). The Selling
Stockholders will receive an aggregate of approximately $10.0 million in net
proceeds ($14.1 million in net proceeds if the over-allotment option is
exercised in full), based upon an assumed initial offering price of $9.00 per
share and after deducting the estimated underwriting discount. In addition, all
of the current shareholders of the Company will benefit from the creation of a
public market for the Common Stock held by them. Immediately following the
Offering, the executive officers and directors of the Company will beneficially
own shares of Common Stock having a market value of $71.2 million, based on an
assumed initial offering price of $9.00 per share. The average price per share
paid to the Company upon issuance of the shares held by the current shareholders
was $0.37. See "Dilution" and "Principal and Selling Stockholders."
Control by Existing Shareholders. Following the Offering, the Company's
officers, directors and their affiliated entities together will beneficially own
approximately 69.1% of the outstanding shares of Common Stock (64.9% if the
Underwriters' over-allotment option is exercised in full). Accordingly, such
persons, if they were to act as a group, would be able to elect all of the
Company's directors and to otherwise control the
10
<PAGE> 12
outcome of corporate actions requiring stockholder approval, regardless of how
other stockholders of the Company may vote. In addition, this concentration of
ownership may have the effect of delaying or preventing a change of control of
the Company. See "Principal and Selling Stockholders."
Shares Eligible for Future Sale; Registration Rights. Sales of a
substantial number of shares of Common Stock in the public market following the
Offering could adversely affect the market price for the Company's Common Stock.
The sale of Common Stock in the public market is limited by restrictions under
the Securities Act of 1933, as amended (the "Securities Act"), and lock-up
agreements (the "Lock-Up Agreements") under which the holders of such shares
have agreed not to sell or otherwise dispose of any of their shares for a period
of 180 days after the date of this Prospectus (the "Lock-Up Period") without the
prior written consent of Unterberg Harris. However, Unterberg Harris may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to the Lock-Up Agreements. Any such release could have a
material adverse effect upon the market price of Landmark's Common Stock.
Based on shares of Common Stock outstanding as of September 30, 1997 and
assuming the date of this Prospectus is November 1, 1997, on the date of this
Prospectus, 68,096 shares not subject to Lock-Up Agreements will be eligible for
sale in the public market in reliance or Rule 144(k) and 49,170 shares will be
eligible for sale in the public market beginning 90 days after the date of this
Prospectus in reliance on Rule 701. Upon expiration of the Lock-Up Period,
7,542,895 shares will be eligible for sale in the public market subject to
compliance with Rule 144 or Rule 701, of which 7,324,237 are held by affiliates
of the Company and will be subject to the volume and other resale limitations of
Rule 144, other than the one-year holding period. The remaining 218,658 shares
not held by Affiliates will be freely tradeable after expiration of the Lock-Up
Period. On September 30, 1997, options to acquire a total of 2,915,259 shares of
Common Stock were outstanding. Of this amount, options to acquire 2,242,186
shares are subject to Lock-Up Agreements, and options to acquire the remaining
673,073 shares are not subject to the Lock-Up Agreements and will be eligible
for sale in the public market beginning 90 days after the date of this
Prospectus, subject to applicable vesting requirements and compliance with the
Securities Act and applicable state securities laws.
The Company intends to file a registration statement on Form S-8 under the
Securities Act (the "Form S-8") covering approximately 3,920,603 shares issued
or reserved under its stock incentive and stock purchase plans. Of the shares
covered by the Form S-8, 986,541 shares are subject to vested options as of
September 30, 1997. Of these options, options to acquire 915,808 shares are
subject to Lock-Up Agreements and options to acquire 70,734 shares are not
subject to Lock-Up Agreements. The Form S-8 is expected to be filed
approximately 90 days after the date of this Prospectus and will become
effective automatically upon filing.
Further, upon expiration of the Lock-Up Period, holders of approximately
7,316,293 shares of Common Stock will be entitled to certain demand and
piggyback registration rights with respect to such shares. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have a material
adverse effect on the market price of the Company's Common Stock. See
"Description of Capital Stock -- Registration Rights" and "Shares Eligible for
Future Sale."
No Prior Public Market; Potential Volatility of Stock Price. Prior to this
Offering, there has been no public market for the Company's Common Stock, and
there can be no assurance that an active trading market will develop or be
sustained after the Offering. The public offering price has been determined
through negotiations among the Company, the Selling Stockholders and the
representatives of the Underwriters based on several factors and may not be
indicative of the market price of the Common Stock after the Offering. The
market price of the shares of Common Stock is likely to be highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's results of operations, announcements of
technological innovations or new products by the Company or its competitors,
developments with respect to patents, copyrights or proprietary rights,
conditions and trends in the mainframe and client/server computing environments
and other technology industries, general market conditions and other factors. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices for
the common stock of technology companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. See
"Underwriting."
11
<PAGE> 13
Dilution. Investors participating in the Offering will incur immediate and
substantial dilution. To the extent outstanding options or warrants to purchase
Common Stock are exercised, there will be further dilution. See "Dilution" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Anti-Takeover Effects of Certain Charter Provisions. Landmark's Board of
Directors has the authority to issue up to 8,000,000 shares of Preferred Stock
and to determine the price, rights, preferences and privileges of those shares
without any further vote or action by the stockholders of the Company. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, also could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. After giving effect to
the mandatory redemption of 54,944 shares of Series A Preferred Stock on
November 1, 1997, Landmark currently has two series of Preferred Stock
outstanding, including 855,165 shares of Series A Preferred Stock and 395,195
shares of Series B Preferred Stock. Upon completion of the Offering, all shares
of Series A and Series B Preferred Stock will be converted into Common Stock
and, as a result, no Preferred Stock will be outstanding after the Offering. The
Company has no present intention to issue additional shares of Preferred Stock.
In addition, certain provisions of the Company's Articles of Incorporation and
Bylaws and of Virginia law could delay or make more difficult a merger, tender
offer or proxy contest involving the Company. See "Management" and "Description
of Capital Stock."
12
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby at an assumed initial public offering price of $9.00
per share are estimated to be approximately $16.1 million, after deducting the
underwriting discount and estimated offering expenses.
The Company intends to use the net proceeds of the Offering primarily for
working capital and other general corporate purposes, including expansion of the
Company's product development and sales and marketing efforts and potential
acquisitions. The amounts actually expended by the Company for working capital
purposes will vary significantly depending upon a number of factors, including
future revenue growth, the amount of cash generated by the Company's operations
and the progress of the Company's product development efforts. The principal
purposes of the Offering include increasing the Company's equity capital,
creating a public market for the Common Stock and facilitating future access by
the Company to public equity markets. In addition, the Company may acquire or
invest in complementary technologies, products or businesses to broaden or
enhance the Company's current product offerings. However, the Company is not
engaged in any negotiations and has no current or pending arrangements,
agreements or understandings with respect to any such acquisition or investment.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Pending the uses described above, the net proceeds from the Offering will
be invested in deposits with banks and in short-term investment grade,
interest-bearing securities, including government obligations and money market
instruments.
The Company will not receive any proceeds from the sale of the shares of
Common Stock offered by the Selling Stockholders. See "Principal and Selling
Stockholders."
DIVIDEND POLICY
The Company has never paid or declared any cash dividends and does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
The Company currently intends to retain its future earnings, if any, to fund the
development and finance the growth of its business. The amount and timing of any
future dividends will depend on general business conditions encountered by the
Company, as well as the financial condition, earnings and capital requirements
of the Company and such other factors as the Board of Directors (the "Board")
may deem relevant. Pursuant to an agreement between the Company and the lender
of its term note, the Company may not pay a cash dividend on the Common Stock
without the consent of the lender so long as the term note is outstanding. The
outstanding balance of the term note as of September 30, 1997 was $719,000 and
is payable through January 1999.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis after giving effect to the 3-for-2
split of the Company's Common Stock, (ii) on a pro forma basis after giving
effect to the mandatory redemption on November 1, 1997 of 54,944 shares of
Series A Preferred Stock and, upon the closing of the Offering, the conversion
of the remaining 855,165 shares of Series A Preferred Stock into 648,500 shares
of Common Stock, the conversion of 395,195 shares of Series B Preferred Stock
into 592,793 shares of Common Stock and the lapse of the rights of the holders
of the Redeemable Common Stock Instruments to require the Company to repurchase
the Redeemable Common Stock Instruments, and (iii) as adjusted to reflect the
receipt of the estimated net proceeds from the sale of 2,000,000 shares of
Common Stock in the Offering at an assumed initial public offering price of
$9.00 per share, after deducting the underwriting discount and estimated
offering expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Short-term debt..................................... $ 528,515 $ 528,515 $ 528,515
Long-term debt, net of current portion.............. 190,588 190,588 190,588
Redeemable common stock instruments(1).............. 1,512,002 -- --
Mandatorily redeemable Series A Preferred Stock,
$0.01 par value; 1,300,000 shares authorized;
910,109 shares issued and outstanding, actual..... 6,211,494 -- --
Mandatorily redeemable Series B Preferred Stock,
$0.01 par value; 1,580,779 shares authorized;
395,195 shares issued and outstanding, actual..... 2,609,778 -- --
Stockholders' equity (deficit):
Common Stock, $.01 par value; 30,000,000 shares
authorized; 7,384,010 shares issued and
outstanding, actual; 8,860,161 shares issued
and outstanding, pro forma; 10,860,161 shares
issued and outstanding, pro forma and as
adjusted(2).................................. 73,840 88,602 108,602
Additional paid-in capital..................... 993,981 10,937,500 27,037,500
Accumulated deficit............................ (6,952,847) (6,952,847) (6,952,847)
Foreign currency translation................... 25,483 25,483 25,483
---------- ----------- -----------
Total stockholders' equity (deficit)........... (5,859,543) 4,098,738 20,218,738
---------- ----------- -----------
Total capitalization...................... $ 5,192,834 $ 4,817,841 $20,937,841
========== =========== ===========
</TABLE>
- ---------------
(1) The Redeemable Common Stock Instruments represent 234,858 shares of Common
Stock and options to acquire 194,820 shares of Common Stock issued by the
Company to certain employees pursuant to agreements whereby each holder has
the right to require the Company to repurchase such shares at then current
fair market value as determined by the Board. The right of holders of
Redeemable Common Stock Instruments to require the Company to repurchase
such shares automatically lapses on the closing of the Offering.
(2) Excludes shares of Common Stock reserved for future issuance pursuant to the
Company's stock option plans, other option arrangements and an outstanding
warrant. As of September 30, 1997, 4,372,622 shares were reserved for
issuance under the Company's stock option plans, other option arrangements
and an outstanding warrant, of which options and warrants to purchase
3,140,259 shares at a weighted average exercise price of $3.76 per share
were outstanding. The sale of certain of these shares in the public market
is limited by restrictions under the Securities Act and Lock-Up Agreements.
See "Shares Eligible for Future Sale," "Management," and Notes 10 and 12 of
Notes to Consolidated Financial Statements.
14
<PAGE> 16
DILUTION
As of September 30, 1997, the pro forma net tangible book value of the
Company (the "net tangible book value") was approximately $2,044,572, or $0.23
per share. Net tangible book value per share represents the amount of total
tangible assets of the Company reduced by the amount of total liabilities,
divided by the pro forma number of shares of Common Stock outstanding. After
giving effect to the sale of 2,000,000 shares of Common Stock by the Company at
an assumed initial public offering price of $9.00 per share and after deducting
the underwriting discount and estimated offering expenses payable by the
Company, the net tangible book value of the Company at September 30, 1997 would
have been $18,164,572, or $1.67 per share. This represents an immediate increase
in net tangible book value of $1.44 per share to existing stockholders and an
immediate dilution of $7.33 per share to new investors purchasing Common Stock
in the Offering. Dilution per share represents the difference between the price
per share to be paid by new investors and the net tangible book value per share
after the Offering. The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $9.00
-----
Net tangible book value per share as of September 30, 1997....... $0.23
Net tangible book value per share attributable to new
investors....................................................... 1.44
-----
Net tangible book value per share after the Offering.................. 1.67
-----
Dilution per share to new investors................................... $7.33
=====
</TABLE>
The following table sets forth, as of September 30, 1997, the differences
in the total consideration paid and the average price per share paid by the
Company's existing stockholders and the purchasers of shares in the Offering (at
an assumed initial public offering price of $9.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 8,860,161 81.6% $ 3,302,606 15.5% $0.37
New investors................ 2,000,000 18.4% 18,000,000 84.5% 9.00
---------- ----- ----------- -----
Total.............. 10,860,161 100.0% $21,302,606 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
The above computations assume the pro forma adjustments described in
"Capitalization" and no exercise of options or warrants after September 30,
1997. At September 30, 1997, there were outstanding options and warrants to
purchase an aggregate of 3,140,259 shares of Common Stock at a weighted average
exercise price of $3.76 per share. If all of such options and warrants were
exercised, the net tangible book value of the Company as of September 30, 1997
would have been $13,845,614 or $1.15 per share, the increase in net tangible
book value to existing stockholders would have been $0.99 per share and the
dilution in net tangible book value to purchasers of Common Stock in the
Offering would have been $6.86 per share. See "Capitalization,"
"Management -- Executive Compensation," "Management -- Stock Option Plans" and
Notes 10 and 12 of Notes to Consolidated Financial Statements.
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data of the Company are qualified by
reference to and should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere herein. The
consolidated statements of operations data for the years ended December 31,
1994, 1995 and 1996 and the consolidated balance sheet data at December 31, 1995
and 1996 are derived from, and are qualified by reference to, Consolidated
Financial Statements of the Company which were audited by Price Waterhouse LLP
and are included elsewhere in this Prospectus. The consolidated statements of
operations data for the years ended December 31, 1992 and 1993 and the
consolidated balance sheet data at December 31, 1992, 1993 and 1994 are derived
from the Company's audited financial statements not included in this Prospectus.
The data at September 30, 1997 and for the nine month periods ended September
30, 1996 and 1997 are derived from the Company's unaudited financial statements
for such periods and, in the opinion of the Company's management, contain all
adjustments (consisting of only normal recurring accruals) necessary to present
fairly the financial position at September 30, 1997 and the results of
operations for such interim periods.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues
License revenues..................... $13,221 $11,643 $11,268 $10,392 $11,268 $ 7,524 $10,549
Services revenues.................... 18,684 18,860 21,406 24,068 25,288 18,676 19,828
------- ------- ------- ------- ------- ------- -------
Total revenues.................. 31,905 30,503 32,674 34,460 36,556 26,200 30,377
Cost of revenues......................... 6,878 7,267 7,844 7,663 8,913 7,015 4,332
------- ------- ------- ------- ------- ------- -------
Gross profit......................... 25,027 23,236 24,830 26,797 27,643 19,185 26,045
------- ------- ------- ------- ------- ------- -------
Operating expenses
Sales and marketing.................. 10,819 13,219 11,716 13,092 11,671 8,522 10,275
Product research and development..... 7,539 7,780 9,094 12,490 13,924 10,773 10,079
General and administrative........... 7,528 7,319 7,800 6,872 4,776 3,501 3,970
------- ------- ------- ------- ------- ------- -------
Total operating expenses........ 25,886 28,318 28,610 32,454 30,371 22,796 24,324
------- ------- ------- ------- ------- ------- -------
Operating (loss) income.................. (859) (5,082) (3,780) (5,657) (2,728) (3,611) 1,721
Net interest and other income............ 1,537 12,059 701 548 713 596 317
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes........ 678 6,977 (3,079) (5,109) (2,015) (3,015) 2,038
Provision for (benefit from) income
taxes.................................. 274 2,651 (1,158) (940) (813) (1,118) 816
------- ------- ------- ------- ------- ------- -------
Net income (loss)........................ $ 404 $ 4,326 $(1,921) $(4,169) $(1,202) $(1,897) $ 1,222
======= ======= ======= ======= ======= ======= =======
Pro forma primary net income (loss) per
share (1).............................. $ (0.13) $ (0.20) $ 0.12
Shares used to compute pro forma primary
net income (loss) per share (1)........ 9,480 9,480 10,253
OTHER FINANCIAL DATA:
EBITDA (2)............................... $ 2,859 $ (999) $ 406 $(1,700) $ 3,138 $ 1,214 $ 4,034
Cash flow from operations................ $ 6,552 $ 9,876 $ 1,311 $ (362) $ 4,144 $ 3,443 $ 4,125
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------- SEPTEMBER 30,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 677 $ 1,197 $ 800 $ 316 $ 339 $ 4,168
Working capital (deficit)........................ (7,327) (3,160) (1,544) (5,985) (4,138) (2,578)
Total assets..................................... 28,294 31,487 33,172 31,479 25,076 28,635
Long-term debt (less current portion)............ 18 4 -- 1,084 592 191
Redeemable Common Stock Instruments.............. 261 311 319 1,049 704 1,512
Mandatorily redeemable preferred stock........... 6,500 5,391 5,391 5,865 5,865 8,821
Stockholders' (deficit) equity................... (1,313) 1,852 (204) (4,915) (6,290) (5,860)
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute pro
forma primary net income (loss) per share.
(2) EBITDA represents earnings before net interest and other income, income
taxes, depreciation and amortization expense. EBITDA does not represent cash
flows as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all the
Company's cash needs. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operations or other measures of
liquidity determined in accordance with generally accepted accounting
principles. EBITDA may not be comparable to other similarly titled measures
of other companies.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Landmark commenced operations in 1983 with the release of its first
product, a performance monitor for IBM's on-line transaction processing system,
CICS. Since 1983, the Company has introduced a number of additional performance
management products for a variety of mainframe computing environments. In 1993,
financed by the sale of a complementary product line to another software vendor,
Landmark broadened the scope of the environments supported by its performance
management products when it released products which operate in certain
client/server computing environments. Since inception, the Company has financed
its product development activities using cash generated from operations and term
and revolving credit facilities.
During 1996, Landmark re-focused its development efforts in support of
client/server computing environments with the goal of introducing new and
enhanced products, broader platform coverage and additional functionality. In
addition, the Company increased its mainframe development activities, commencing
several new product offerings. Concurrent with these development investments,
the Company's management implemented several initiatives to improve Landmark's
financial performance, including re-negotiation of property leases and employee
benefit plans and tighter cost controls. The Company also refined its sales and
marketing strategy, particularly related to its client/server products, and
accelerated the amortization of capitalized software costs to reflect the
increasingly rapid pace of technology change in the software industry. These
efforts resulted in increased license revenues, increased cost of license
revenues, reduced operating expenses and improved operating results beginning in
1996.
The Company derives its revenues from software licensing and related
services. Service revenues include fees for software maintenance and support,
consulting and training provided by the Company. The Company's maintenance fees
have provided a stable and recurring revenue stream due to relatively high
maintenance renewal rates, which have exceeded 90% each year since inception.
Service revenues were $21.4 million, $24.1 million and $25.3 million, or 65.5%,
69.8% and 69.2% of total revenues, in 1994, 1995 and 1996, respectively.
Revenues are recognized in accordance with AICPA Statement of Position
91-1, "Software Revenue Recognition." Accordingly, sales of perpetual software
licenses are recognized as license revenues when performance under the related
contract is completed, collection is probable and no significant vendor
obligations remain. Service revenues, which primarily consist of maintenance
fees collected prior to the performance of the related services, are recorded as
deferred revenue and recognized ratably over the period during which the
services are performed, generally twelve months.
In certain instances, primarily where the Company is replacing its
competitors' mainframe products, the Company enters into a long-term payment
arrangement with a licensee. Under this type of arrangement, licensees may pay
the license fees plus service fees over a three to five year period, generally
in annual installments. If collectibility by the Company is probable, the
Company recognizes the present value of the contracted stream of payments as an
unbilled receivable in its financial statements. Of this amount, the Company
recognizes the underlying license fee as license revenues and defers the
underlying service fees. As installments are invoiced to the licensee in
accordance with the payment arrangement, the Company reflects a reduction in its
unbilled receivable and an increase in its accounts receivable. In addition, the
Company records service revenues over the related maintenance service period.
Historically, the Company has not granted concessions nor experienced any
significant bad debts associated with these long-term arrangements.
The Company accounts for its software development activities in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Cost of Computer Software to be Sold, Leased or Otherwise Marketed." The Company
capitalizes significant development costs incurred subsequent to the point of
demonstrated technological feasibility and up to the time the product is
available for release to customers. Effective January 1, 1996, the Company
prospectively decreased the estimated economic life of its capitalized software
products from three to five years to 18 months. This reduction in estimated
economic life is considered by management to be necessary in light of (i) the
increasingly rapid pace of change in
17
<PAGE> 19
technology in the market, (ii) the changes implemented by management in early
1996 regarding the Company's pace of development efforts and product
enhancements and introductions, (iii) the fact that shortened development cycles
do not afford the opportunity to use a detail program design, and (iv) the
increased need for the Company to constantly update its products for the latest
technological innovations. Amortization expense recorded in 1996 and the nine
months ended September 30, 1997 would have been $2.3 million lower and $610,000
higher, respectively, if this change had not been made. The effect of the change
was to decrease net income in 1996 by $1.5 million ($0.15 per share) and
increase net income for the nine months ended September 30, 1997 by $370,000
($0.03 per share).
The Company classifies revenue transactions occurring within the United
States and Canada as "North American" transactions and all other transactions as
"international" transactions. The Company records international revenues net of
commissions paid to distributors. International revenue transactions are
denominated in local currencies. Revenues generated by the Company's
international distributors are translated into U.S. dollars at the time the
transaction occurs. The Company has not sustained material foreign currency
exchange losses, and presently does not attempt to hedge its exposure to
fluctuations in foreign currency exchange rates. International revenues
generated by the Company during 1994, 1995 and 1996 totaled $9.0 million, $11.2
million and $11.8 million, respectively, contributing 27.6%, 32.4% and 32.4% of
total revenues in 1994, 1995 and 1996, respectively.
The Company replaced certain of its international distributors with direct
international operations through wholly owned subsidiaries in Australia and
Southeast Asia effective January 1, 1995, in Spain effective April 1, 1996, and
in Austria, the Benelux countries, Germany and Switzerland effective January 1,
1997. The Company's direct international operations contributed $1.2 million and
$1.8 million in revenues in 1995 and 1996, respectively.
18
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth the Company's Consolidated Statements of
Operations expressed as percentages of total revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues
License revenues.................. 34.5% 30.2% 30.8% 28.7% 34.7%
Service revenues.................. 65.5 69.8 69.2 71.3 65.3
----- ----- ----- ----- -----
Total revenues............... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues
Cost of license revenues.......... 13.6 12.4 15.8 17.9 6.3
Cost of service revenues.......... 10.4 9.8 8.6 8.9 8.0
----- ----- ----- ----- -----
Total cost of revenues....... 24.0 22.2 24.4 26.8 14.3
----- ----- ----- ----- -----
Gross profit...................... 76.0 77.8 75.6 73.2 85.7
----- ----- ----- ----- -----
Operating expenses
Sales and marketing............... 35.9 38.0 31.9 32.5 33.8
Product research and
development..................... 27.8 36.3 38.1 41.1 33.2
General and administrative........ 23.9 19.9 13.1 13.4 13.0
----- ----- ----- ----- -----
Total operating expenses..... 87.6 94.2 83.1 87.0 80.0
----- ----- ----- ----- -----
Operating (loss) income................ (11.6) (16.4) (7.5) (13.8) 5.7
Net interest and other income.......... 2.2 1.6 2.0 2.3 1.0
----- ----- ----- ----- -----
(Loss) income before income taxes...... (9.4) (14.8) (5.5) (11.5) 6.7
(Benefit from) provision for income
taxes................................ (3.5) (2.7) (2.2) (4.3) 2.7
----- ----- ----- ----- -----
Net (loss) income...................... (5.9)% (12.1)% (3.3)% (7.2)% 4.0%
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
Total revenues. Total revenues increased 15.9% from $26.2 million for the
nine months ended September 30, 1996, to $30.4 million for the nine months ended
September 30, 1997. The increase was attributable to increases in both license
and service revenues.
License revenues. License revenues increased 40.2% from $7.5 million for
the nine months ended September 30, 1996, to $10.5 million for the nine months
ended September 30, 1997. The increase in license revenues is attributable to
increased customer acceptance of existing products, impacted by additional
personnel involved in direct sales activities, the introduction of new products
and product enhancements, and the commencement of direct operations in Austria,
the Benelux countries, Germany and Switzerland on January 1, 1997.
Service revenues. Service revenues increased 6.2% from $18.7 million for
the nine months ended September 30, 1996, to $19.8 million for the nine months
ended September 30, 1997. This increase is a result of growth in North American
service revenues, due to normal price increases and maintenance renewals on
prior year's license transactions, which were partially offset by reduced
international service revenues.
Cost of license revenues. Cost of license revenues includes amortization
of capitalized software costs, product royalties, materials and packaging
expenses. Costs of license revenues were $4.7 million and $1.9 million for the
nine months ended September 30, 1996 and 1997, respectively, representing 62.3%
and 18.0% of license revenues, respectively. The decrease of $2.8 million is
attributable to a reduction in the amortization expense from $4.1 million to
$1.0 million for the nine months ended September 30, 1996 and 1997,
respectively, partially offset by amortization, beginning in 1997, of the
intangible assets acquired from
19
<PAGE> 21
the Company's former distributor in Austria, the Benelux countries, Germany, and
Switzerland. The decrease in amortization expense is due to the completion of
amortization on certain capitalized software costs recorded by the Company in
prior years.
Cost of service revenues. Cost of service revenues consists of personnel
and related costs for customer support, training and consulting services. Costs
of service revenues were $2.3 million and $2.4 million for the nine months ended
September 30, 1996 and 1997, respectively, representing 12.5% and 12.3% of
service revenues.
Sales and marketing. Sales and marketing includes personnel and related
costs for the Company's direct sales organization, marketing staff and
promotional expenses. Sales and marketing expenses were $8.5 million and $10.3
million for the nine months ended September 30, 1996 and 1997, respectively,
representing 32.5% and 33.8% of total revenues. The increase of $1.8 million is
attributable to the expansion of the North American and international direct
sales forces and the creation of the telesales organization within the North
American sales force, offset by a reduction in costs of marketing personnel.
Product research and development. Product research and development
includes personnel and related costs for the Company's development staff.
Product research and development expenses were $10.8 million and $10.1 million
for the nine months ended September 30, 1996 and 1997, respectively,
representing 41.1% and 33.2% of total revenues. The decrease of $700,000 is
comprised of a reduction in the Company's investment in client/server product
development and a reduction in office and technical support expenses, offset by
an increase in the Company's investment in mainframe product development and a
reduction in the amount of development costs qualifying for capitalization.
General and administrative. General and administrative includes salaries
and related costs of administration, finance and management personnel, as well
as legal and accounting fees. General and administrative expenses were $3.5
million and $4.0 million for the nine months ended September 30, 1996 and 1997,
respectively, representing 13.4% and 13.0% of total revenues. The increase of
$500,000 is a result of the favorable settlement in 1996 of an estimated lease
obligation accrued in a prior year, which reduced 1996 expenses by $350,000, and
the recording in 1997 of $570,000 in stock compensation expense, offset by the
impact of management's cost containment efforts.
Net interest and other income. Net interest and other income includes
interest recorded on installment receivables, interest income earned by the
Company on its excess cash balances, interest expense incurred on term and
revolving credit facilities, and exchange gains (losses) incurred by the Company
on foreign exchange transactions. The amount for the nine months ended September
30, 1996 included interest received on a federal tax refund.
Provision for income taxes. The Company records interim period tax
provisions utilizing management's estimate of the approximate effective tax rate
for the year. The Company recorded interim tax provisions of 37.1% and 40.0% for
the nine months ended September 30, 1996 and 1997, respectively.
FISCAL 1994, 1995 AND 1996
Total revenues. Total revenues increased 5.5% from $32.7 million in 1994
to $34.5 million in 1995, and increased 6.1% to $36.6 million in 1996. Increases
in service revenues from 1994 to 1995 were partially offset by reductions in
license revenues during this period; from 1995 to 1996, both license revenues
and service revenues increased.
License revenues. License revenues decreased 7.8% from $11.3 million in
1994 to $10.4 million in 1995, and increased 8.4% to $11.3 million in 1996. The
decline in 1995 license revenues was a result of a temporary decline in sales of
the Company's mainframe products, impacted by reduced emphasis on these products
by the Company's direct sales force as the Company increased its focus on the
client/server market. The increase in 1996 license revenues reflects a focusing
of the Company's direct sales force on larger dollar amount transactions, and
greater success in selling additional products to existing customers.
20
<PAGE> 22
Service revenues. Service revenues increased 12.4% from $21.4 million in
1994 to $24.1 million in 1995, and increased 5.1% to $25.3 million in 1996.
Service revenues were impacted by customer maintenance renewals, the volume of
prior year's license sales, and the effects of increases in the Company's
maintenance prices.
Cost of license revenues. Costs of license revenues were $4.5 million,
$4.3 million and $5.8 million in 1994, 1995 and 1996, respectively, representing
39.5%, 41.3% and 51.3% of license revenues. The decline of $200,000 from 1994 to
1995 is attributable to a 1994 royalty charge of $560,000 resulting from the re-
negotiation of prior year obligations, offset by a 1995 write-off of $510,000 of
previously capitalized software costs after management concluded such amount was
not recoverable. The increase of $1.5 million from 1995 to 1996 is the result
primarily of increased amortization of capitalized software costs and, to a
lesser extent, of product royalties on client/server products which vary with
revenues generated.
Amortization of capitalized software costs totaled $3.2 million, $3.1
million and $4.8 million in 1994, 1995 and 1996, respectively. The increase
between 1995 and 1996 principally is a result of the reduction, effective
January 1, 1996, of the estimated economic life of capitalized software
products. Amortization expense recorded in 1996 would have been $2.3 million
lower without this change.
Cost of service revenues. Costs of service revenues were $3.4 million,
$3.4 million and $3.1 million in 1994, 1995 and 1996, respectively, representing
15.8%, 14.0% and 12.4% of service revenues. In 1995, reductions in personnel
deployed in the Company's technical support center were offset by increased
costs associated with the Company's commencement of direct international
operations in Australia and Southeast Asia. The decline of $300,000 from 1995 to
1996 is a result of further reductions in personnel deployed in the Company's
technical support center and reduced office and other support costs, offset by
increased costs associated with the Company's commencement of direct
international operations in Spain.
Sales and marketing. Sales and marketing expenses were $11.7 million,
$13.1 million and $11.7 million in 1994, 1995 and 1996 respectively,
representing 35.9%, 38.0% and 31.9% of total revenues. The $1.4 million increase
in these expenses from 1994 to 1995 was primarily a result of the Company's
commencement of direct international operations in Australia and Southeast Asia.
The $1.4 million decrease from 1995 to 1996 resulted from elimination of several
sales and marketing programs, consolidation of functions previously spread over
several groups, and reduced office and other support costs.
Product research and development. Product research and development
expenses were $9.1 million, $12.5 million and $13.9 million in 1994, 1995 and
1996, respectively, representing 27.8%, 36.3% and 38.1% of total revenues. The
increase from 1994 to 1995 is a result of significant increases in resources
deployed for the development of the Company's client/server products and
reductions in the amount of software development costs qualifying for
capitalization. The increase in product research and development expenses from
1995 to 1996 reflects increased investments in both mainframe and client/server
products and reductions in the amount of software development costs capitalized.
The Company capitalized software development costs of $1.5 million, $1.1
million and $730,000 in 1994, 1995 and 1996, respectively. The effect of
capitalization of software development costs is to reduce the current period
expenses by such amounts.
General and administrative. General and administrative expenses were $7.8
million, $6.9 million and $4.8 million in 1994, 1995 and 1996, respectively,
representing 23.9%, 19.9% and 13.1% of total revenues. The decline from 1994 to
1995 is a result of the impact of several charges recorded by the Company in
1994, including a $780,000 reserve for a lease obligation and $1.0 million paid
to a former international distributor to resolve a dispute regarding the
termination of the distribution agreement. The 1995 expenses include $770,000 in
stock compensation expense, offset by a credit for the favorable resolution of
certain previously accrued obligations. The decline from 1995 to 1996 is a
result of the Company's cost control efforts including reductions in general
management and legal expenses, reduced severance costs, the favorable settlement
in 1996 of an estimated lease obligation accrued in a prior year, and a reversal
of accruals relating to forfeitures of stock options.
21
<PAGE> 23
Net interest and other income. During the three year period ending
December 31, 1996, these amounts were not material. The 1995 amount includes
foreign exchange losses of $100,000 recorded during the year. The 1996 amount
includes interest received on a federal tax refund.
Provision for (benefit from) income taxes. The Company's effective rates
were 37.6%, 18.4% and 40.3% for 1994, 1995 and 1996, respectively, and differ
from the federal and state statutory income tax rate primarily as a result of
the adjustments of valuation allowances to reflect management's judgment as to
whether certain tax credit carryforwards would expire before utilization by the
Company, and as to the likelihood that foreign subsidiary net operating losses
would not be recovered.
QUARTERLY RESULTS
The following tables set forth consolidated statements of operations data
for each of the eight quarters ended September 30, 1997, both in dollar amounts
and as percentages of total revenues represented by each item of the respective
quarter. This information has been derived from unaudited consolidated financial
statements that, in the opinion of management, reflect all adjustments
(consisting only of normal recurring accruals) necessary to fairly present this
information when read in conjunction with the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus. The results of
operations for any quarter are not necessarily indicative of the results to be
expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
DEC 31, MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, SEP 30,
1995 1996 1996 1996 1996 1997 1997 1997
------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
License revenues.......... $ 4,112 $ 1,847 $2,909 $2,768 $3,744 $3,513 $3,319 $ 3,717
Service revenues.......... 5,972 6,201 6,324 6,151 6,612 6,482 6,641 6,705
-------- -------- ------ ------ ------- ------ ------ -------
Total revenues........ 10,084 8,048 9,233 8,919 10,356 9,995 9,960 10,422
-------- -------- ------ ------ ------- ------ ------ -------
Cost of revenues
Cost of license
revenues................ 944 1,643 1,594 1,451 1,087 640 652 607
Cost of service
revenues................ 885 789 770 768 811 782 833 818
-------- -------- ------ ------ ------- ------ ------ -------
Total cost of
revenues............ 1,829 2,432 2,364 2,219 1,898 1,422 1,485 1,425
-------- -------- ------ ------ ------- ------ ------ -------
Gross profit.............. 8,255 5,616 6,869 6,700 8,458 8,573 8,475 8,997
-------- -------- ------ ------ ------- ------ ------ -------
Operating expenses
Sales and marketing....... 3,931 2,680 2,995 2,847 3,149 3,366 3,373 3,536
Product research and
development............. 3,674 3,729 3,811 3,233 3,151 3,231 3,457 3,391
General and
administrative.......... 1,615 1,492 816 1,193 1,275 1,398 1,500 1,072
-------- -------- ------ ------ ------- ------ ------ -------
Total operating
expenses............ 9,220 7,901 7,622 7,273 7,575 7,995 8,330 7,999
-------- -------- ------ ------ ------- ------ ------ -------
Operating (loss) income....... (965) (2,285) (753) (573) 883 578 145 998
Net interest and other
income...................... 18 395 139 62 117 18 138 161
-------- -------- ------ ------ ------- ------ ------ -------
(Loss) income before income
taxes....................... (947) (1,890) (614) (511) 1,000 596 283 1,159
(Benefit from) provision for
income taxes................ 387 (701) (228) (189) 305 239 113 464
-------- -------- ------ ------ ------- ------ ------ -------
Net (loss) income............. $(1,334) $(1,189) $ (386) $ (322) $ 695 $ 357 $ 170 $ 695
======== ======== ====== ====== ======= ====== ====== =======
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
DEC 31, MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, SEP 30,
1995 1996 1996 1996 1996 1997 1997 1997
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
License revenues........... 40.8% 22.9% 31.5% 31.0% 36.2% 35.1% 33.3% 35.7%
Service revenues........... 59.2 77.1 68.5 69.0 63.8 64.9 66.7 64.3
------ ------ ------ ------ ------ ------ ------ ------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenues
Cost of license revenues... 9.4 20.4 17.3 16.3 10.5 6.4 6.5 5.8
Cost of service revenues... 8.8 9.8 8.3 8.6 7.8 7.8 8.4 7.9
------ ------ ------ ------ ------ ------ ------ ------
Total cost of
revenues............. 18.2 30.2 25.6 24.9 18.3 14.2 14.9 13.7
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............... 81.8 69.8 74.4 75.1 81.7 85.8 85.1 86.3
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses
Sales and marketing........ 39.0 33.3 32.4 31.9 30.4 33.7 33.9 33.9
Product research and
development.............. 36.4 46.3 41.3 36.2 30.4 32.3 34.7 32.5
General and
administrative........... 16.0 18.5 8.8 13.4 12.3 14.0 15.1 10.3
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............. 91.4 98.1 82.5 81.5 73.1 80.0 83.7 76.7
------ ------ ------ ------ ------ ------ ------ ------
Operating (loss) income........ (9.6) (28.3) (8.1) (6.4) 8.6 5.8 1.4 9.6
Net interest and other
income....................... 0.2 4.9 1.5 0.7 1.1 0.2 1.3 1.5
------ ------ ------ ------ ------ ------ ------ ------
(Loss) income before income
taxes........................ (9.4) (23.4) (6.6) (5.7) 9.7 6.0 2.7 11.1
(Benefit from) provision for
income taxes................. 3.8 (8.7) (2.5) (2.1) 2.9 2.4 1.1 4.4
------ ------ ------ ------ ------ ------ ------ ------
Net (loss) income.............. (13.2)% (14.7)% (4.1)% (3.6)% 6.8% 3.6% 1.6% 6.7%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The Company has historically experienced a seasonal pattern in its license
revenues, and expects this pattern to continue. Historically, the fourth quarter
has higher license revenues than the other three quarters, and the second half
of a year has higher license revenues than the first half. However, these
patterns will be affected by events both within and outside of the Company's
control, including economic conditions, the Company's new product release
schedules and those of its competitors, the timing of customer expenditures, and
the timing of delivery of new hardware platforms, operating systems and
databases by third party vendors.
Cost of license revenues historically has not fluctuated significantly with
revenue. The expense level is primarily impacted by amortization of capitalized
software costs. The amount of research and development costs being capitalized
has been, and likely will continue to be, reduced due to the increasingly rapid
pace of development and technological change. As a result, the relative
amortization expense will, over time, be reduced and therefore have a positive
impact on profits. From 1997 to 2000, cost of license revenues will be impacted
by the amortization of the intangible assets acquired from the Company's former
distributor in Austria, the Benelux countries, Germany and Switzerland. Cost of
service revenues has not historically varied with revenue.
Sales and marketing expenses vary both with revenue and as a result of
changes in the Company's distribution strategy and approach. The Company
believes further expansion of the Company's direct international operations will
increase sales and marketing expenses. Product research and development expenses
vary with the Company's level of investment in new products and the proportion
of such investment which is capitalized by the Company. Beginning in late 1995
and continuing through mid-1996, as a result of the increasingly rapid changes
in technology and anticipated demands of the Company's customers, the Company's
investment in client/server product research and development increased
significantly.
LIQUIDITY AND CAPITAL RESOURCES
Through December 31, 1996, the Company financed its activities through cash
flow generated by operations and through term and revolving credit facilities.
In March and April 1997, the Company obtained $2.5 million in outside equity
through the issuance of shares of Series B Preferred Stock and repaid in full
the
23
<PAGE> 25
outstanding balance on its revolving credit facilities. As of September 30,
1997, the Company had cash and cash equivalents totaling $4.2 million. The
Company's revolving credit facilities, which expired on June 30, 1997, have not
been utilized by the Company since March 1997.
As a result of significant non-cash expenses, such as depreciation and
amortization, and the advanced billing and collection of annual maintenance
fees, the Company has generated operating cash flow significantly in excess of
its net income. During 1995, the Company's operating cash outflow totaled
$360,000 on net losses of $4.2 million. During 1996, operating cash flow totaled
$4.1 million on net losses of $1.2 million. During the nine months ended
September 30, 1997, operating cash flow totaled $4.1 million on net income of
$1.2 million.
The Company's investing activities include primarily expenditures for fixed
assets in support of the Company's product development activities and
infrastructure, and for capitalized software costs. During 1995, the Company
invested $2.2 million in fixed assets, consisting of computer equipment to
expand and upgrade the Company's development environments and infrastructure.
Continuing this program, the Company invested $730,000 in fixed assets in 1996
and $1.3 million in the nine months ended September 30, 1997. The Company
expects to upgrade, on an ongoing basis, its development environments to meet
changing customer and market requirements.
The Company's investing activities also include amounts recorded as
capitalized software. Of the total research and development expenditures of
$10.6 million, $13.6 million, $14.7 million and $10.1 million for 1994, 1995,
1996 and the nine months ended September 30, 1997, $1.5 million, $1.1 million
and $730,000 were capitalized for the years ended December 31, 1994, 1995 and
1996, respectively.
In 1995, the Company borrowed $1.5 million under a term loan, with interest
at 9% payable monthly and principal due in monthly installments of $47,700
beginning in February 1996 through January 1999, secured by fixed assets. The
balance of this term loan at September 30, 1997 was $719,000. While in the past
the Company has been in default on certain profitability and net worth covenants
associated with its term loan and revolving credit facilities, the lender waived
these defaults in each instance. No financial covenants currently govern the
outstanding term note and the Company is in compliance with the non-financial
covenants associated with the term note.
On May 1, 1997 and on August 1, 1997, the Company made mandatory
redemptions of Series A Preferred Stock each in the amount of $375,000. The
Company will continue to make quarterly redemptions until the Series A Preferred
Stock is either fully redeemed or converted to Common Stock. The Company paid
$153,000 in 1995 and 1996, and $198,000 during the nine months ended September
30, 1997 in dividends to holders of its Series A Preferred Stock. Upon the
closing of the Offering, all the outstanding Series A Preferred Stock will be
converted to Common Stock.
The Company has received a letter from the lender of its term note offering
a commitment for a revolving credit facility. Although it has not accepted or
rejected this offer and there can be no assurance that additional credit
facilities will be available to the Company in amounts or on terms acceptable to
the Company, the Company believes that it will be able to obtain credit
facilities in the future.
The Company believes that cash on hand at September 30, 1997, the net
proceeds from the sale of shares of Common Stock in the Offering and cash flow
generated from operations will provide sufficient liquidity to meet its needs
for at least the next twelve months. To the extent the Company makes
acquisitions of other companies, products or technologies, the Company may use
working capital, sell additional equity or debt securities (which could result
in dilution to the purchasers of the Common Stock offered hereby) or use credit
facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128) entitled "Earnings per
Share". This statement establishes standards for computing and presenting
earnings per share (EPS), simplifying previous standards for computing EPS and
making them comparable to international standards. SFAS 128 replaces the
presentation of primary EPS with
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<PAGE> 26
a presentation of basic EPS, and requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures. Basic EPS excludes dilution and is computed by dividing income
available for common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. SFAS 128 requires
restatement of all prior period earnings per share presented, and is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. Early application of SFAS 128 is not permitted.
The Company will adopt SFAS 128 for its December 31, 1997 financial
statements and will restate all prior period EPS data. To illustrate the effect
of adoption, the pro forma basic and diluted EPS for the year ended December 31,
1996, and for the nine months ended September 30, 1996 and 1997, are set forth
below:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DEC 31, ------------------------
1996 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Pro forma basic (loss) earnings per share........ $ (0.13) $ (0.20) $ 0.13
Pro forma diluted (loss) earnings per share...... $ (0.13) $ (0.20) $ 0.12
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and No.
131, "Disclosures about Segments of an Enterprise and Related Information."
These statements become effective for the Company's 1998 financial statements.
The Company is evaluating these statements to determine the impact on its
reporting and disclosure requirements.
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<PAGE> 27
BUSINESS
OVERVIEW
Landmark is a leading provider of performance management software products
which measure, analyze, report and predict performance for both mainframe and
client/server computing environments. Landmark's PerformanceWorks product family
is distinct in its ability to monitor the key components of a computing
environment, provide early warning of potential system problems and enable
effective planning for changes in the computing environment. The Company
believes these capabilities improve user productivity, reduce computing costs,
increase system availability and optimize use of system resources. Landmark's
products address performance management across leading hardware platforms,
operating systems from DEC, Hewlett-Packard, IBM, Microsoft and Sun and
databases consisting of DB2, Oracle, SQL Server and Sybase. As of September 30,
1997, Landmark had licensed over 15,300 copies of its products to over 3,900
customers worldwide.
INDUSTRY BACKGROUND
Businesses and other organizations are increasingly relying upon computer
systems to run and manage their key business processes. These processes include
transactions such as credit card validation, electronic commerce, point-of-sale
processing, supply chain management and call center processing and fulfillment.
In doing so, these organizations are able to compete more effectively by
processing transactions more quickly and accurately, responding to customers
more rapidly and achieving lower cost structures. Because of this increased
reliance on computing resources to support business-critical applications, poor
system performance or system failure can have an immediate and substantial
impact on an organization's competitiveness and financial results.
As computer systems are being used increasingly to gain competitive
advantage, they are also becoming more complex. These systems may be comprised
of a variety of inter-operable hardware platforms, operating systems, databases,
networks and applications, each potentially from different vendors, deployed
across widely dispersed geographical locations. Moreover, computing environments
are increasingly dynamic -- users, hardware and software are often added, moved
or changed, and new, business-critical applications are developed and deployed
on an ongoing basis.
As businesses place greater reliance on complex computer systems, the cost
of suboptimal performance increases dramatically. For example, an operator at a
catalog clothing company processing incoming telephone orders uses the system to
enter customer information and the items ordered, check inventory and verify
credit information. The operator waits for a system response after each step in
this process. If the system experiences a degradation in response time, each
order takes longer to process, fewer orders can be processed in a given amount
of time, and potential customers have to wait longer before they can reach an
operator and have their transactions completed. As the effect of a slowdown in
system response time is compounded over tens or hundreds of operators, the
overall impact could adversely affect the business' competitive advantage and
market share.
Performance management software can provide early warning and facilitate
resolution of system problems by monitoring a system's key components, including
the CPU, memory and storage, I/O, disk space, workload, operating system and
network. Identifying and addressing system problems allows businesses to
increase system availability, improve user productivity, reduce computing costs
and limit the adverse business effects of system degradation. Performance
management tools also enable organizations to model or predict system and
application performance which improves the acquisition, development and
implementation of new or changed applications and hardware.
As a result of the increasing need to effectively manage complex computing
environments, revenues from the overall system management software market are
expected to rise to $17 billion by 2000, according to IDC. Performance
management is the largest sector of this market and is expected by IDC to grow
from $1.8 billion
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in 1996 to $3.1 billion by 2000. For the IBM mainframe operating environment,
IDC estimates that worldwide performance management software revenues will grow
from $1.1 billion in 1996 to $1.4 billion by 2000. For multi-user UNIX and
Windows NT server operating environments, IDC estimates that worldwide
performance management software revenues will grow from $400 million in 1996 to
$1.2 billion by 2000.
Landmark believes that businesses are seeking comprehensive performance
management software products with the ability to support heterogeneous computing
environments consisting of numerous types of applications and platforms. These
products must be scalable to support the rapid growth of computing environments
and flexible to accommodate the dynamic nature of these systems. Additionally,
these products should automatically retrieve and manage performance data to
produce useful information for system planning and management decision-making.
This information should be accessible and relevant to real-time, recent past and
historical analyses. Finally, these products should be easy to use, consume
minimal computing resources and adhere to industry standards.
THE LANDMARK SOLUTION
Landmark's PerformanceWorks product family enables businesses to optimize
system performance and resource utilization while maintaining a high and
consistent level of user productivity. Landmark's products provide the ability
to transform raw data into useful information through an intelligent aggregation
and automatic summarization process, which collects data on a continuous basis
and generates summary information at prescribed intervals. This data can be
measured against a variety of performance thresholds and easily formatted into
understandable reports to facilitate the quick identification and resolution of
performance problems. In addition, Landmark's products self-manage the
collection, summarization and distribution of performance data, and consequently
require minimal computing and personnel resources. As a result of this efficient
gathering, storage and presentation of performance data, Landmark's products are
scalable to accommodate system growth.
Landmark's solutions are based on its "lifecycle" view of performance
management and are designed to allow customers to address each stage of the
application lifecycle: planning, development and production. Landmark views
performance management as a continuous process in which each stage of the
application lifecycle provides input and feedback for the next.
[This picture shows three arrows, each identifying a stage in the application
lifecycle, forming a circle. The activities performed at each stage of the
lifecycle are identified.]
Planning stage. Landmark's products are used to identify resource
requirements and to establish appropriate service levels through modeling,
trend analysis and load simulation (simulating use of computing resources
at different percentage levels of total capacity).
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<PAGE> 29
Development stage. Landmark's products perform application tuning
(adjusting applications to optimize performance), assist in stress testing
(simulation of maximum workloads on computing resources) and conduct
resource impact analysis to assess application performance prior to
deployment.
Production stage. Landmark's products provide data collection, real-time
monitoring and troubleshooting to provide optimal system operation.
After the initial deployment is completed, the application lifecycle begins
again with planning for additional deployments or modifications to the computing
environment.
Landmark's products address performance management across leading hardware
platforms, operating systems from DEC, Hewlett-Packard, IBM, Microsoft and Sun
and databases consisting of DB2, Oracle, SQL Server and Sybase. Each of
Landmark's products has been developed to work with different configurations of
system components from multiple vendors while providing comparable functionality
across each platform.
Through its maintenance and support program, Landmark offers its customers
extensive technical support, including telephone consultation, product
maintenance and product upgrades. Landmark also provides its customers with
consulting and training services. Historically, over 90% of Landmark's customers
have renewed their support and maintenance arrangements with the Company.
STRATEGY
Landmark's objective is to strengthen its position as a worldwide leader in
providing performance management software solutions by addressing customers'
performance management needs throughout the application lifecycle. By
establishing relationships at the beginning of the application lifecycle, the
Company positions itself to continue providing products and services to the
customer in the future.
Landmark's strategy includes the following key elements:
Enhance, Extend and Expand Performance Management Products. Landmark
is leveraging its 14 years of experience providing performance management
solutions to enhance the functionality of and extend the hardware
platforms, operating systems and databases supported by existing mainframe
and client/server products. In addition, the Company plans to develop new
products providing performance management solutions in support of different
application vendors. As a result of its relationships with major vendors of
hardware platforms, operating systems and databases, Landmark is often
selected to participate in beta testing of new products and upgrades. The
Company believes that this early access to new technologies gives it a
strategically important opportunity to upgrade its existing products and to
develop new products. The Company plans to enhance, extend and expand its
product offerings through internal development and through acquisitions.
See "-- Grow Through Acquisitions and Partnering Arrangements."
Capitalize on Large Installed Customer Base. As of September 30,
1997, Landmark had over 3,700 customers licensing performance management
products for the mainframe environment and 200 customers licensing its
client/server products. The Company expects to continue selling additional
products to its current customers as they upgrade their computing systems
by adding new hardware and software to address evolving business-critical
needs. Landmark also plans to sell client/server products to existing
mainframe customers who are expanding their computing environments to
include distributed systems.
Strengthen Worldwide Distribution Capability. Landmark provides
performance management products and services to customers worldwide. In the
United States and Canada, the Company employs a direct sales force
comprised of field sales representatives and systems engineers. In January
1997, the Company established a telesales force to support and complement
its North American field sales operations. The Company believes that the
telesales force permits the field sales force to focus on account
opportunities with major businesses involving larger dollar transactions,
and on establishing and maintaining relationships with these organizations,
thereby increasing the productivity of the direct sales effort. Although
the majority of the Company's international sales are currently conducted
through third party distributors, the Company has in place a direct sales
force in Australia, the Benelux countries,
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<PAGE> 30
Germany, Hong Kong, Spain and the U.K. Landmark intends to expand its
world-wide distribution capability by growing its direct sales force and by
establishing additional relationships and joint marketing programs with
system integrators and original equipment manufacturers ("OEMs").
Grow Through Acquisitions and Partnering Arrangements. Landmark
intends to accelerate its growth by acquiring or licensing products and
technologies that enhance or expand the Company's current product
offerings. In addition, Landmark intends to selectively acquire or partner
with companies offering complementary products and businesses. The Company
believes that this growth strategy will allow it to enhance the
functionality of its PerformanceWorks products, extend the number of
platforms which the Company's products support and expand the number of
products it offers. Although Landmark evaluates opportunities on an ongoing
basis, it is not engaged in any negotiations and has no current or pending
arrangements, agreements or understandings with respect to any acquisitions
or investments.
TECHNOLOGY AND PRODUCTS
The PerformanceWorks family of products is comprised of PerformanceWorks
for MVS, PerformanceWorks for VSE, PerformanceWorks for UNIX and
PerformanceWorks for Windows NT. PerformanceWorks enables a user to monitor and
analyze performance metrics in three different timeframes: real-time,
recent-past and historical.
- Real-time monitoring. Real-time monitoring allows users to view the
current status of the computing environment. To do this, performance
metrics are collected from throughout the system and displayed
graphically at a single workstation. The real-time monitoring feature can
be used as an early warning tool by establishing thresholds against which
critical performance metrics are measured. If a metric or combination of
metrics exceeds the established threshold, an alarm is generated to
notify the user of a potential system or application problem. The user is
then guided through increasingly detailed levels of performance data
until the cause of the problem is identified. The user can then either
solve the problem or an automated action can be triggered to correct the
problem.
- Recent-past monitoring. Recent-past monitoring displays the performance
metrics collected within the past few minutes or hours. If a system has
experienced a degradation in performance, recent-past monitoring can be
used to review the performance metrics leading up to the occurrence of
the problem to help identify its source and to facilitate a resolution.
Recent-past monitoring can also be used to identify trends in system
utilization and performance which may result in system errors. These
trends can be used to predict and prevent future system problems.
- Historical data analysis. Historical data analysis is used to review
performance metrics collected over days, weeks and months to understand
how system resources have been used and whether trends have developed
which could lead to future performance problems. Landmark's products
automatically store and aggregate performance data so users can quickly
retrieve and view information over the desired period of time from
multiple systems on one report.
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<PAGE> 31
TECHNOLOGY. The technology underlying the PerformanceWorks family of
products is based on a multi-tiered architecture which can be represented by a
data collection layer, a core services layer and a user interface and external
tools layer.
[This picture provides a conceptual representation of PerformanceWorks
architecture, showing user interface and external tools layer, core services
layer and data collection layer.]
Data Collection Layer. The data collection layer consists of
PerformanceWorks agents, referred to as "SmartAgents," designed to collect
performance data automatically for on-line analysis and historical data storage
and to translate the data into useable information. SmartAgents are installed on
each element in the computing environment for which performance metrics will be
monitored and automatically collect performance data at set intervals. After
collection, SmartAgents compare the collected information against defined
thresholds. If any threshold is exceeded, the SmartAgent will generate a warning
or error message.
Core Services Layer. The core services layer is comprised of three key
components: data management, data brokering and network services.
Data Management. The data management component manages the storage
and retention of performance data throughout the system and includes the
following functionalities:
- Data normalization gathers disparate performance data and normalizes it
into common categories, such as CPU, memory, disk I/O, workload, disk
space and network. Users can view similar performance data from different
hardware platforms, operating systems and databases and easily make
comparisons and draw conclusions.
- Data summarization averages performance data into logical intervals of
minutes, hours, days, weeks, months and years. Without time-consuming
preparation, users can view data in various formats in order to identify
trends quickly.
- Data administration records all information in a data store, allowing
users to manage and protect performance data. Data administration also
provides efficient storage of collected performance data.
Data Brokering. The data brokering component receives all incoming
requests and routes them either to the appropriate SmartAgent for real-time
data or to a data store for historical data without requiring that the
end-user have knowledge of where these components are located.
Network Services. The network services component provides a registry
and look-up service that allows transmission of real-time, recent past and
historical performance data from where it is collected to
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<PAGE> 32
where it is used. Since the architecture of a distributed computing
environment frequently changes with the addition or deletion of servers,
applications and users, the registry is designed to communicate changes in
system configuration automatically.
Landmark supports third party applications and access to performance data
by publishing detailed record formats and by providing application programming
interfaces ("APIs") for standard Open Data Base Connectivity ("ODBC")
applications and Simple Network Management Protocol ("SNMP") interface modules
for industry leading systems and network management frameworks.
User Interface and External Tools Layer. The user interface for
PerformanceWorks allows users to view and analyze the status of their critical
applications. Performance management data for each application can be viewed
statistically and graphically to show consumption of system resources, proximity
to critical threshold values and alarm situations requiring immediate attention.
In addition, users can generate customized reports incorporating any combination
of real-time, recent-past and historical performance data analyses. The
available user interfaces operate using Motif (UNIX), Windows 95/NT (NT), OS/2
(MVS-NaviPlex) and 3270 (MVS and VSE).
In addition to the user interfaces provided directly by Landmark's
products, customers can also gain access to PerformanceWorks data through the
use of external tools provided by third party vendors. Published record formats
are utilized by third party vendor products such as Computer Associates MICS,
Merrill Consultants MXG, IBM SNAPSHOT, SAS and BGS Systems Best/1. ODBC
connectivity permits a multitude of applications, including Microsoft Excel and
Lotus 1-2-3, to be used to process, analyze, and report on Landmark's
performance data. In addition, SNMP integration modules allow PerformanceWorks
products to operate within leading systems management frameworks including IBM
Netview, Tivoli TME, Hewlett-Packard OpenView, Computer Associates Unicenter,
Cabletron Spectrum and Sun Solstice.
PRODUCTS. The ability to monitor performance metrics from each system
component in a complex, heterogeneous computing environment is a key feature of
Landmark's software, particularly because performance problems in these
environments can originate from any one or a combination of components.
[Illustration of components in a complex, heterogenous computing environment
consisting of an application client, middleware, application server and
relational database management system.]
If applications running in a distributed environment are experiencing slow
response time, the cause of the problem could be a memory problem on the
distributed application server, a disk contention problem (where two or more
applications are attempting to access the same data simultaneously) on the
mainframe database server, an overloaded network, a poorly written application
or any combination of these conditions. By monitoring performance data from each
of the system components, Landmark's products are able to efficiently identify
the source of the problem so a solution can be implemented quickly or the
potential problem can be anticipated and avoided altogether by taking immediate
corrective actions. The Company believes its users
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benefit from the ease of use, depth of metrics and diagnostic tools it provides,
as well as the level of intelligent integration which allows enhanced
manageability in production environments.
Landmark's products are easily installed and implemented and generally do
not require additional customization before the products can be used by the
customer. The Company's products are also easily tailored so that the
performance metrics, data retention standards and data storage locations are
appropriate for each customer.
LANDMARK'S FAMILY OF PERFORMANCEWORKS PRODUCTS
<TABLE>
<CAPTION>
MVS VSE UNIX WINDOWS NT
<S> <C> <C> <C> <C>
Core Performance Monitor MVS VSE HP-UX Windows NT
CICS/MVS CICS/VSE DEC SQL Server
CICS/ESA VM Contention IBM/AIX
VTAM Monitor SUN/OS
DB2 Sun Solaris
SQL/Capture Oracle
Sybase
Capacity Planning Interface to third Interface to third Predictor
party software party software
User Interface NaviGraph NaviGraph SmartStation SmartStation
NaviPlex
Integrated Interfaces SNMP SNMP SNMP
Vendor API's ODBC ODBC
Number of licenses (as of
September 30, 1997) 6,500 1,900 5,900 1,000
Average transaction size (during
the nine months ended
September 30, 1997) $60,500 $14,100 $26,500 $33,300
</TABLE>
The Company derived 93.0%, 90.3%, 89.2% and 87.8% of its revenues from
mainframe products and services in fiscal years 1994, 1995, and 1996 and the
nine months ended September 30, 1997, respectively. See "Risk
Factors -- Dependence on Certain Products."
PerformanceWorks for MVS. PerformanceWorks for MVS is Landmark's
integrated set of performance management tools for use in the MVS environment
and consists of The Monitor for CICS, The Monitor for DB2, The Monitor for MVS,
The Monitor for VTAM, NaviGraph and NaviPlex. Landmark's family of MVS products
provide a complete solution for optimizing and monitoring environments running
the MVS operating system.
The Monitor products support data collection in the mainframe
environment for real-time, recent-past and historical performance
management monitoring. Each of these products incorporates Landmark's
Navigate technology which provides intelligent transfer of control from one
monitor to another, facilitating intuitive problem solving.
NaviGraph provides users with a graphical display of the performance
of key applications and system resources. NaviGraph is an easy-to-use,
Windows-based display providing a single point of access and control for
monitoring and analysis of the data collected by The Monitor products.
NaviPlex is designed for IBM's Parallel Sysplex technology which
introduces to mainframe environments performance complexities similar to
those of a distributed processing environment. NaviPlex consolidates
performance information from all MVS system environments into a single
workstation for managing performance issues, handling exception conditions
and trending information.
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PerformanceWorks for VSE. PerformanceWorks for VSE is similar to
PerformanceWorks for MVS in terms of the performance management functionality.
PerformanceWorks for VSE includes The Monitor for VSE, The Monitor for CICS,
NaviGraph and VM Contention Monitor.
PerformanceWorks for UNIX. PerformanceWorks for UNIX is Landmark's
integrated set of performance management tools for use in the UNIX environment
and consists of SmartAgent for UNIX, SmartAgent for Oracle, SmartAgent for
Sybase, SmartStation and Predictor.
SmartAgent for UNIX, SmartAgent for Oracle and SmartAgent for Sybase
provide collection of performance metrics for each UNIX operating system
and database supported. Specific metrics collected vary with the individual
platforms. SmartAgents employ the Core Services features of the
PerformanceWorks architecture to manage, analyze and present performance
data across tens or hundreds of locations operating with hundreds or
thousands of servers.
SmartStation provides a central control point to access performance
information collected by SmartAgents. Information is presented in
easy-to-understand charts, graphs, reports and gauges. Alarms warn of
potential system problems before they become serious. SmartStation provides
a complete set of pre-configured reports and graphics which can be tailored
to users' specific needs. Users can also define exception conditions, and
SmartStation will provide an alarm when performance thresholds are
exceeded. The alarms provide the user with an explanation of the error,
sending notifications through email systems, alphanumeric pagers and
management platforms. In addition, the alarms can be configured to take
corrective actions automatically.
Predictor is a capacity planning tool designed to help planners in
determining the types and quantities of new equipment and software required
to handle increased system utilization and performance requirements. Based
on the performance metrics stored for historical data analysis, Predictor
can predict the impact of adding new applications, modifying an existing
application, removing an application, adding users, changing the server
hardware configuration or changing the server entirely.
PerformanceWorks for Windows NT. PerformanceWorks for Windows NT is
similar to PerformanceWorks for UNIX in terms of the performance management
functionality of products currently available in the Windows NT environment.
PerformanceWorks for Windows NT includes SmartAgent for NT, SmartAgent for SQL
Server and SmartStation.
SERVICES
Landmark offers its customers a maintenance and support program which
provides telephone consultation, product maintenance and product upgrades.
Customers can communicate with Landmark technical support representatives 24
hours-per-day, 7 days-per-week. In addition, Landmark provides its customers and
distributors access to on-line maintenance information through an Internet-based
application. Landmark's maintenance and support program entitles participants to
product enhancements and upgrades as well as maintenance information. The first
year of maintenance and support is typically included in the license fee and
thereafter may be renewed for an annual fee. Historically, over 90% of
Landmark's customers have renewed their maintenance and support arrangements
with the Company.
In January 1997, Landmark established a Professional Services organization
to offer consulting services to users of its products. These consulting services
are designed to support the effective deployment and implementation of
Landmark's products by assisting in the location of appropriate components on
which to run Landmark's software, identifying which performance metrics to
monitor, establishing rules concerning how to aggregate, retain and store data,
and customizing the presentation of reports generated from the collected
information. The demand for these consulting services has grown as
business-critical applications are increasingly deployed in complex,
heterogeneous computing environments. Moreover, many businesses lack sufficient
technical staff to fully implement Landmark's performance management solution
and require external assistance. The Professional Services organization offers a
variety of training programs to assist customers in implementing Landmark's
performance management tools, including a number of standard programs and custom
presentations to fulfill specific requests. Training courses are held at
Landmark's Vienna, Virginia training center as well as on-site at customers'
facilities.
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CUSTOMERS
The Company's target customers consist of organizations across a wide
variety of industries that are developing or have deployed business-critical
applications in complex, multi-user environments. The following table lists
certain customers of the Company that have purchased at least $50,000 of the
Company's products and services during the twelve months ended September 30,
1997:
ABN-AMRO
Alpine Computer Services
American Electric Power Service Co.
Amoco
Beiersdorf AG
Blue Cross Blue Shield of Georgia
BMW AG
J.I. Case Corporation
Centraal Beheer Holding BV
ChoicePoint
CSC Australia
Deutsche Bahn AG
First American National Bank
First of America Computer Services
Foundation Health Corporation
Frontier Information Technologies
Great West Life Assurance
IBM and ISSC
Ikon Capital
ING US Insurance Holding
Kodak
Lockheed Martin
Mercantile Bank
MicroAge Computer Centers
Old Mutual
Physicians Mutual Insurance
Proffitt's
Putnam Investor Services
Sony Nederland BV
Spartan Stores
Thrift Drug
Wachovia Bank
Wells Fargo Bank
Westpac Banking
Whirlpool Corporation
Zurich Kemper
SALES AND MARKETING
Landmark markets its products and services through its North American and
international sales organizations. The North American direct sales force, which
covers the United States and Canada, consists of field sales representatives,
mainframe and client/server system engineers and telesales personnel. The
telesales force was established in January 1997 to increase the productivity of
the field sales representatives by undertaking a variety of support activities.
These include generating and following up on leads, handling and closing smaller
transactions, maintaining a current database of existing and potential customers
and providing general assistance and account management. Each telesales
representative supports the efforts of two direct sales representatives. The
Company believes that the telesales force permits the field sales force to focus
on account opportunities with major businesses involving larger dollar
transactions, and on establishing and maintaining relationships with these
organizations. Landmark intends to establish additional relationships with
system integrators and OEMs to expand the breath of its sales channel. See
"Business -- Strategy."
Landmark has historically relied primarily on third-party distributors to
market and sell the Company's products internationally. Revenues from
international sales accounted for 27.6%, 32.4%, 32.4% and 34.2% of total
revenues in 1994, 1995, 1996 and for the nine months ended September 30, 1997,
respectively. Of those amounts, 27.6%, 28.9%, 27.5% and 19.0%, respectively,
were attributable to third party distributors. Landmark has recently established
a direct sales force in certain strategic international markets to increase
sales levels and gross margins on products sold in such markets. To date,
Landmark's international direct sales efforts consist of six sales offices
located in London, Dusseldorf, Utrecht (Netherlands), Madrid, Melbourne and Hong
Kong.
The Company also maintains relationships with leading vendors including
DEC, Hewlett-Packard, IBM, Microsoft, Oracle, Sun, Sybase and Tivoli. These
relationships afford the Company opportunities to participate in joint marketing
programs with the vendors such as sales seminars, trade shows and other
promotional activities.
Revenues received from individual customers of the Company vary
significantly based on the size of the product installation. The sales cycle for
Landmark's products is lengthy and unpredictable, and may range from a few
months to over a year, depending upon the interest of the prospective customer
in the Company's products, the size of the order (which may involve a
significant commitment of capital by the customer), the decision-making and
acceptance procedures within the customer's organization and other factors.
PRODUCT DEVELOPMENT
Since its inception in 1983, Landmark has made substantial investments in
performance management software development. In 1994, 1995, 1996 and for the
nine months ended September 30, 1997, Landmark's product development
expenditures, including amounts capitalized, totaled $10.6 million, $13.6
million,
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$14.7 million and $10.1 million, respectively. The Company anticipates that, in
the future, it will continue to commit substantial resources to research and
development. Landmark maintains mainframe, UNIX and Windows NT development labs
which it uses to develop, enhance and test its products. Landmark believes that
its future success will depend in large part on its ability to continue to
enhance the functionality of its existing products, extend its product line to
support additional hardware and software platforms, respond to changing customer
requirements and develop and introduce in a timely manner new products that keep
pace with technological developments and emerging industry standards. See "Risk
Factors -- Rapid Technological Change; Product Development."
As of September 30, 1997, the Company had 97 employees engaged in product
development. As it continues to implement its growth strategies, Landmark
intends to increase the size and depth of its product development operation.
However, competition for highly qualified technical employees is intense and
there can be no assurance that the Company will be successful in recruiting or
retaining product development employees. See "Risk Factors -- Need to Attract
and Retain Qualified Technical Personnel."
INTELLECTUAL PROPERTY
Landmark relies on a combination of copyright, trademark and trade secret
laws, confidentiality procedures and licensing arrangements to establish and
protect its proprietary rights. As part of its confidentiality procedures, the
Company generally enters into non-disclosure agreements with its employees,
distributors and corporate partners, and license agreements with its customers,
distributors and corporate partners with respect to its software, product
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization, or to develop similar
technology independently. Policing unauthorized use of the Company's products is
difficult, and Landmark is unable to determine the extent to which piracy of its
software products and misappropriation of its technology occur. Software piracy
and misappropriation may adversely affect the Company's results of operations.
Landmark currently relies on signed license agreements, but may in the future
rely on "shrink wrap" licenses that are not signed by licensees and, therefore,
may be unenforceable under the laws of certain jurisdictions. In addition,
effective protection of intellectual property rights is unavailable or limited
in certain foreign countries. There can be no assurance that the Company's
protection of its proprietary rights, including any patent that may be issued,
will be adequate or that the Company's competitors will not independently
develop similar technology, duplicate the Company's products or design around
any patents issued to the Company or other intellectual property rights.
Landmark is not aware that any of its products infringes the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by the Company with respect to current or
future products. The Company expects that software product developers will
increasingly be subject to such claims as the number of products and competitors
in the Company's industry segment grows and the functionality of products in the
industry segment overlaps. Any such claims, with or without merit, could result
in costly litigation that could absorb significant management time, which could
have a material adverse effect on Landmark's business, financial condition and
results of operations. Such claims might require the Company to enter into
royalty or license agreements. Such royalty or license agreements, if required,
may not be available on terms acceptable to Landmark or at all, which could have
a material adverse effect upon the Company's business, financial condition and
results of operations. See "Risk Factors -- Trademarks and Proprietary Rights;
Risks of Infringement."
COMPETITION
The market for performance management software is intensely competitive,
fragmented and characterized by increasingly rapid technological developments,
evolving standards and rapid changes in customer requirements. To maintain and
improve its position in this market, Landmark is enhancing current products and
the inter-operability of its products with one another and developing new
products. Landmark competes primarily with vendors that provide mainframe
performance management software and vendors that provide client/server
performance management software. The Company believes that principal competitors
with respect to mainframe performance management software products include
Candle Corporation and Boole and Babbage, Inc. In the client/server market,
Landmark believes that its principal competitors include BMC Software, Inc.,
Compuware Corporation, BGS Systems Inc. and Platinum technologies, inc. The
Company
35
<PAGE> 37
believes that no single principal competitor currently offers products in each
of the mainframe, UNIX and Windows NT operating environments.
Some of the Company's competitors have longer operating histories and
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger customer base, than
those of the Company. The Company's current and future competitors could
introduce products with more features, greater scalability, increased
functionality and lower prices than the Company's products. These competitors
could also bundle existing or new products with other, more established products
in order to compete with the Company. The Company's focus on performance
management software may be a disadvantage competing with vendors that offer a
broader range of products. Moreover, as the client/server performance management
software market develops, a number of companies with significantly greater
resources than those of the Company could increase their presence in this market
by acquiring or forming strategic alliances with competitors or business
partners of the Company. In addition, due to potentially lower barriers to entry
for platform-specific niche products in the performance management software
market, the Company believes that emerging companies may enter this market,
particularly in the client/server environment. Increased competition is likely
to result in price reductions, reduced gross margins and loss of market share,
any of which could materially and adversely affect the Company's business,
financial condition and results of operations. Any material reduction in the
price of the Company's products would negatively affect gross margins and would
require the Company to increase software unit sales in order to maintain gross
profits. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would have a material adverse effect upon the Company's business, financial
condition and results of operation.
The principal competitive factors affecting the market for Landmark's
products are functionality and features (including breadth of data collection,
data management, integration and modeling), product quality, platform coverage,
product architecture, price, customer support and name recognition. Based on
these factors, the Company believes that it has competed effectively to date. In
the future, Landmark will be required to respond promptly and effectively to the
challenges of technological change, its competitors' innovations and customer
requirements. There can be no assurance that Landmark will be able to provide
products that compare favorably with the products of the Company's competitors
or that competitive pressures will not require the Company to reduce its prices.
See "Risk Factors -- Intense Competition."
EMPLOYEES
As of September 30, 1997, the Company employed 247 full time personnel,
including 97 in product development, 28 in technical support, 82 in sales and
marketing, and 40 in finance and administration. The Company's employees are not
represented by any collective bargaining organization, and the Company has never
experienced a work stoppage. The Company believes its success will depend in
part on its continued ability to attract and retain highly qualified personnel
in an intensely competitive market for experienced and talented software
engineers and sales and marketing personnel. The Company believes that its
relationship with its employees is satisfactory. See "Risk Factors -- Dependence
on Key Personnel" and "-- Need to Attract and Retain Qualified Technical
Personnel."
FACILITIES
Landmark's headquarters are located in 88,000 square feet of office space
in Vienna, Virginia, under a lease expiring in June 2003, with a renewal option
for an additional five years. The Company also leases approximately 4,000 square
feet of office space in Oak Brook, Illinois under a lease expiring in April
1999. In addition, Landmark leases office space in London, Dusseldorf, Utrecht
(Netherlands), Madrid, Melbourne and Hong Kong. Landmark believes that its
existing facilities and offices are adequate to meet its requirements for the
foreseeable future.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation and proceedings
arising out of the ordinary course of its business. There are no pending legal
proceedings to which the Company is a party or to which the property of the
Company is subject.
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<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------------
<S> <C> <C>
Patrick H. McGettigan.............. 56 Chairman of the Board of Directors
Katherine K. Clark................. 40 Chief Executive Officer and Director
Ralph E. Alexander................. 51 President, Chief Operating Officer, Chief
Financial Officer, Treasurer, Secretary and
Director
Leslie J. Collins.................. 41 Vice President, Finance and Controller
Theodore L. Cruse.................. 39 Vice President, North American Sales
John D. Hunter..................... 51 Vice President, Mainframe Products
Mark E. Knecht..................... 47 Vice President, Marketing and Business Development
Andrew L. McCasker................. 34 Vice President, Distributed Products
Roger A. Philips................... 51 Vice President, International Sales
Henry D. Barratt, Jr.(2)........... 45 Director
Jeffrey H. Bergman(1).............. 53 Director
T. Eugene Blanchard(1)(2).......... 66 Director
Patrick W. Gross(2)................ 53 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
PATRICK H. MCGETTIGAN, a co-founder of the Company, has served as Chairman
of the Board of Directors since 1982. Mr. McGettigan is the author of Landmark's
initial product, The Monitor for CICS. Mr. McGettigan served as President of the
Company from 1982 to 1989 and as Chief Executive Officer from 1982 to 1994.
Prior to founding Landmark, Mr. McGettigan held a variety of technical and
systems programming positions over a 17 year career at Blue Cross and Blue
Shield of the National Capital Area.
KATHERINE K. CLARK, a co-founder of Landmark, has headed product
development, technical support, finance and human resources at various times
over Landmark's history, has been a director of Landmark since 1983 and from
November 1993 to September 1997 was President of the Company. In 1994, Ms. Clark
assumed her current role as Chief Executive Officer of the Company and is
responsible for the long-term strategic direction of the Company.
RALPH E. ALEXANDER joined Landmark in November 1995 as Chief Financial
Officer, became Chief Operating Officer in March 1996, a director in March 1997
and President in September 1997. Prior to his employment with Landmark, Mr.
Alexander served as Executive Vice President and Chief Financial Officer of
Rational Software Corporation, a software development company, from 1994 to
1995. From 1991 to 1994, Mr. Alexander served as President and Chief Executive
Officer of Verdix Corporation, a software development company, which merged with
Rational in 1994.
LESLIE J. COLLINS has served as Vice President, Finance and Controller
since September 1993, with responsibility for financial planning, operations and
reporting, contracting and purchasing activities, and information systems. From
March 1990 to September 1993, Ms. Collins was Landmark's Director of Finance.
THEODORE L. CRUSE has served as Landmark's Vice President, North American
Sales since May 1996, with responsibility for sales and sales support within the
United States and Canada. Mr. Cruse served as Landmark's Director, North
American Sales, from June 1995 to May 1996 and as a Regional Sales Manager from
February 1993 to June 1995. Prior to joining Landmark, Mr. Cruse served as
Director, North American Sales, at Platinum technology, inc. from November 1991
to February 1993.
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<PAGE> 39
JOHN D. HUNTER has served as Landmark's Vice President, Mainframe Products
since June 1994. Mr. Hunter is responsible for strategy, development,
maintenance and planning for Landmark's mainframe product lines. Mr. Hunter
joined Landmark in August 1992 as Vice President, Development and Technology
after 24 years with IBM, during which time he held management roles in various
IBM development labs and was responsible for IBM's worldwide standards
participation as director of architecture and telecommunications.
MARK E. KNECHT has served as Vice President, Marketing and Business
Development since March 1997, and is responsible for Landmark's marketing and
business development efforts. Prior to joining Landmark, Mr. Knecht served as
Vice President/General Manager, Software Division, of DataFocus, a software
development company, from October 1995 to February 1997. Mr. Knecht worked at
NCR Corporation, and its successors, from 1975 to 1995 where he held various
positions in marketing, management and engineering.
ANDREW L. MCCASKER has served as Vice President, Distributed Products since
April 1996, and is responsible for product strategy, development, maintenance
and planning for Landmark's client/server product lines. From January 1995 to
April 1996, Mr. McCasker served as Landmark's Director of Strategic Marketing.
Prior to joining Landmark in 1995, Mr. McCasker served as Director, Technology
and Planning for the Enterprise Network Applications Division of Legent
Corporation, a software development company, from October 1993 to January 1995
and also served on Legent's Architecture Board from June 1994 to January 1995.
Mr. McCasker served as Manager of Product Development at Systems Center, Inc., a
software development company, from September 1989 to October 1993.
ROGER A. PHILIPS has served as Landmark's Vice President, International
Sales since September 1994, with responsibility for sales and operations outside
of the United States and Canada. Prior to joining Landmark, Mr. Philips was
General Manager, International for Viasoft, Inc., a software development
company, from 1988 to 1994.
HENRY D. BARRATT, JR. has served as a director of Landmark since March
1997. Since January 1996, Mr. Barratt has been Managing Director of Blue Water
Capital, LLC, a venture capital management company. From September 1994 to
January 1996, Mr. Barratt was President of The Drayton Company, an investment
banking firm, and from March 1990 to August 1994 was a partner with CEO Venture
Fund, a venture capital company. In addition, Mr. Barratt is a director of
Powerway, Inc., a work flow management software company, and Sirius Corporation,
a developer of medical imaging solutions.
JEFFREY H. BERGMAN, a director of Landmark since 1983, has served as a
principal of Interboard, a division of the Interface Group Ltd./Boyden, an
executive placement company, since 1996. From 1991 to 1996, Mr. Bergman was
President of Celedon Technologies, a technology consulting firm. From 1989 to
1991, Mr. Bergman held various positions within Landmark, including that of
President.
T. EUGENE BLANCHARD has been associated with Landmark as a member of the
Advisory Board (the "Advisory Board") since 1993 and was elected to the Board in
March 1997. From 1979 to February 1997, Mr. Blanchard served as Senior Vice
President, Chief Financial Officer and a director of DynCorp, a provider of
technical and professional services to government agencies and the airline
industry. Mr. Blanchard continues to serve as a director of DynCorp.
PATRICK W. GROSS has been associated with Landmark as a member of the
Advisory Board since 1993 and was elected to the Board in March 1997. Mr. Gross
is a founder of American Management Systems, Inc. ("AMS"), an international
business and information technology consulting firm, and has served as a
Director of AMS since 1974 and as Vice Chairman of the board of directors of AMS
since 1989. Mr. Gross is also a director of Capital One Financial Corporation
and Computer Network Technology Corporation.
The members of the Board are elected at the annual meeting of shareholders
and serve until their successors are duly elected and shall qualify or until
their earlier resignation or removal. Mr. Alexander has entered into an
employment agreement with the Company which is for a term of three years
beginning April 9, 1997. The remaining executive officers of the Company are
appointed by the Board and serve at the Board's discretion. See "-- Employment
Agreements."
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<PAGE> 40
BOARD OF DIRECTORS
Each director, other than those directors employed by Landmark, Henry D.
Barratt, Jr. and Jeffrey H. Bergman receives a fee of $1,250 for each Board
meeting attended, $500 for each committee meeting attended and reimbursement of
expenses incurred in attending meetings. Pursuant to an agreement between Mr.
Bergman and the Company in connection with the discontinuation of his employment
as an officer of Landmark, Mr. Bergman received a fee for his services as a
director of the Company of $50,000 annually from May 1992 to January 1993 and
$15,000 annually from February 1993 to April 1997. As of May 1, 1997, Mr.
Bergman no longer received payments from the Company for services as a director.
See "Certain Transactions -- Transactions With Mr. Bergman." Directors who are
employees of the Company are eligible to participate in each of the Company's
stock incentive and stock purchase plans, other than the 1996 Advisory Board and
Directors Stock Incentive Plan (the "Board Plan"). See "-- Stock Incentive
Plans." Directors who are not employees of the Company are not eligible to
participate in any of the Company's stock incentive or stock purchase plans
other than the Board Plan.
In 1993, the Board established an Advisory Board to make recommendations to
the Board concerning the business and policies of the Company. Advisory Board
members are not employees of the Company, and have no authority to make final
decisions in matters concerning the business of the Company. The number and
composition of the Advisory Board, and the term of Advisory Board members, was
determined by the Board of Directors. The Advisory Board was terminated in
October 1997. As a member of the Advisory Board, in 1996 Messrs. Blanchard and
Gross received a total of $7,250 and $6,500, respectively, in fees for attending
meetings of the Board. Prior to becoming members of the Board, in December 1996
T. Eugene Blanchard and Patrick W. Gross were each granted nonqualified stock
options to acquire 24,000 shares of Common Stock as members of the Advisory
Board under the Board Plan. See "Benefit Plans -- Board Plan."
The Board has standing Audit and Compensation Committees. The Audit
Committee consists of Messrs. Bergman and Blanchard, and the Compensation
Committee consists of Messrs. Barratt, Blanchard and Gross. The Audit Committee
makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, reviews the independence of the independent
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of the Company's internal controls. The Compensation Committee is
responsible for establishing salaries, bonuses and other compensation for the
Company's officers and administering the Company's stock option and stock
purchase plans.
VOTING ARRANGEMENTS
In May 1990, Messrs. McGettigan and Bergman and Ms. Clark (the "Original
Shareholders") entered into an agreement (the "Shareholders' Agreement") whereby
each agreed to vote his or her Common Stock and Series A Preferred Stock
(collectively, the "Shares"), and to cause their respective family members to
vote their Shares, to elect each of Messrs. McGettigan and Bergman and Ms. Clark
(or a designee acceptable to all of the Original Shareholders) and the then
current President of the Company as directors of the Company. Pursuant to the
Shareholders' Agreement, the Original Shareholders also agreed not to vote their
Shares, and to ensure that their family members not vote their Shares, for the
election of any person other than as specified in the agreement unless holders
of at least two-thirds of all Shares held by the Original Shareholders and their
family members consent in writing to the election of such person as a director.
In addition, the Original Shareholders agreed not to vote any of their Shares,
and to ensure that their family members do not vote any of their Shares, to
amend the Company's Articles of Incorporation or Bylaws to change the number of
directors of the Company or the power of the Board to determine the number of
directors of the Company, unless holders of at least two-thirds of all Shares
held by the Original Shareholders and their family members consent in writing to
such an amendment. The Shareholders' Agreement will terminate on the closing of
the Offering.
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<PAGE> 41
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth summary information
concerning the compensation paid or earned for services rendered to Landmark in
all capacities during fiscal year 1996 by the Company's Chief Executive Officer
and each of the four other most highly compensated officers (the "Named
Executive Officers").
1996 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- ------------------------------------------ -------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Katherine K. Clark(1)..................... $210,000 $12,500 -- --
Chief Executive Officer
Patrick H. McGettigan..................... $300,000(2) $12,500 -- $ 493(3)
Chairman of the Board
John D. Hunter............................ $200,000 $12,500 -- --
Vice President, Mainframe Products
Ralph E. Alexander(1)..................... $171,250 $12,500 174,375 --
President, Chief Operating Officer and
Chief Financial Officer
Theodore L. Cruse......................... $ 95,040 $66,166 38,250 $ 4,085(4)
Vice President, North American Sales
</TABLE>
- ---------------
(1) Ms. Clark was President from November 1993 to September 1997. Mr. Alexander
became President in September 1997.
(2) To be reduced to $100,000 per year upon the closing of the Offering.
(3) Represents insurance premiums paid on behalf of executive.
(4) Represents the cost of a sales incentive award.
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<PAGE> 42
The following table sets forth certain information concerning grants of
options to acquire Common Stock to each of the Company's Named Executive
Officers during the fiscal year ended December 31, 1996. In addition, in
accordance with the rules and regulations of the Securities and Exchange
Commission, the following table sets forth the hypothetical gains or "option
spreads" that would exist for the options. Such gains are based on assumed rates
of annual compound stock appreciation of 5% and 10% from the date on which the
options were granted over the full term of the options. The rates do not
represent the Company's estimate or projection of future Common Stock prices and
no assurance can be given that the rates of annual compound stock appreciation
assumed for the purposes of the following table will be achieved.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------- ANNUAL RATE OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME GRANTED(1) 1996(2) PRICE($/SH) DATE 5%($) 10%($)
- ----------------------- ---------- ------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Katherine K.
Clark(4)............. -- -- -- -- -- --
Chief Executive
Officer
Patrick H.
McGettigan........... -- -- -- -- -- --
Chairman of the Board
John D. Hunter......... -- -- -- -- -- --
Vice President,
Mainframe Products
Ralph E.
Alexander(4)......... 174,375 14.95% $ 4.00 4/23/01 $1,161,998 $1,488,435
President, Chief
Operating Officer and
Chief Financial
Officer
Theodore L. Cruse...... 7,500 0.64% $ 4.00 4/23/01 $ 49,978 $ 64,019
Vice President, North 30,750 2.64% $ 4.00 8/27/06 $ 302,673 $ 518,747
American Sales
</TABLE>
- ---------------
(1) All options were granted at an exercise price equal to the fair market value
of the Common Stock as determined by the Board of Directors. The Common
Stock was not publicly traded at the time the options were granted. All
options vest ratably over four years beginning on the first anniversary of
the date of grant and are fully vested on the fourth anniversary of the date
of grant.
(2) Based on an aggregate of 1,166,010 options granted in 1996.
(3) Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock, overall market conditions and the
option holders' continued employment through the vesting period.
(4) Ms. Clark was President from November 1993 to September 1997. Mr. Alexander
became President in September 1997.
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<PAGE> 43
The following table sets forth certain information with respect to stock
options held by the Named Executive Officers as of December 31, 1996. None of
the Named Executive Officers exercised options during fiscal 1996.
AGGREGATE OPTION EXERCISES IN FISCAL 1996 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END(#) YEAR-END($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Katherine K. Clark(2)...................... 213,915 8,805 $ 198,418 $ 3,639
Chief Executive Officer
Patrick H. McGettigan...................... -- -- -- --
Chairman of the Board
John D. Hunter............................. 235,010 1,773 $ 231,887 $ 733
Vice President, Mainframe Products
Ralph E. Alexander(2)...................... 39,845 262,031 $0 $0
President, Chief Operating Officer and
Chief Financial Officer
Theodore L. Cruse.......................... 13,266 46,734 $ 2,383 $ 407
Vice President, North American Sales
</TABLE>
- ---------------
(1) Based on the deemed fair market value of the Common Stock at December 31,
1996 of $4.00 per share, as determined by the Company's Board of Directors,
less the exercise price payable for such shares.
(2) Ms. Clark was President from November 1993 to September 1997. Mr. Alexander
became President in September 1997.
EMPLOYMENT AGREEMENTS
In April 1997, the Company entered into an employment agreement with Ralph
E. Alexander, President, Chief Operating Officer and Chief Financial Officer of
the Company. The agreement has an initial term of three years and renews
automatically thereafter for consecutive terms of one year unless either party
elects not to renew the agreement by providing the other with 90 days prior
written notice. The Company has the right at any time to terminate Mr.
Alexander's employment agreement for convenience, provided the Company pays a
severance amount equal to three-fourths of the salary in effect at the time of
termination during the nine-month period following such termination.
STOCK INCENTIVE PLANS
Stock Incentive Plans. Landmark maintains the First Amended and Restated
1989 Stock Incentive Plan, the 1992 Executive Stock Incentive Plan and the 1994
Stock Incentive Plan (collectively, the "Stock Incentive Plans"). Under the
Stock Incentive Plans, incentive stock options, nonqualified stock options,
restricted stock and bonus stock may be granted to employees of the Company. The
purpose of the Stock Incentive Plans is to offer employees additional incentive
and encouragement to remain in the service of the Company by increasing their
personal participation in Landmark through stock ownership.
As of September 30, 1997, a total of 72,818 shares of Common Stock were
reserved for issuance under the First Amended and Restated 1989 Stock Incentive
Plan and options to acquire 72,818 shares of Common Stock were outstanding under
this plan. As of September 30, 1997, a total of 304,687 shares of Common Stock
were reserved for issuance under the 1992 Executive Stock Incentive Plan and a
total of 304,687 shares of common stock were outstanding under this plan. As of
September 30, 1997, a total of 2,961,600 shares of Common Stock were reserved
for issuance under the 1994 Stock Incentive Plan and options to acquire
1,909,237 shares of Common Stock were outstanding under this plan. The number of
shares of Common Stock reserved for issuance under the 1994 Stock Incentive Plan
was increased to 3,000,000 in August 1997.
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<PAGE> 44
Unless the plans are sooner terminated by action of the Board, these plans
terminate in February 1999, March 1999 and September 2004, respectively. The
number of shares subject to each Stock Incentive Plan may be adjusted by the
Board in the event of a merger, consolidation, sale of all or substantially all
of the assets of the Company, reorganization, reclassification, stock divided,
stock split, reverse stock split, or similar distribution with respect to the
outstanding shares of Common Stock.
The Stock Incentive Plans are administered by the Board, although the Board
is authorized to delegate the administration of the Stock Incentive Plans to a
committee. The Board may amend the Stock Incentive Plans at any time. The Board
(or the committee) is authorized to determine, consistent with the provisions of
the Stock Incentive Plans, the employees to be granted stock options, restricted
stock, and stock bonuses, and to determine the terms of each stock option and
restricted stock award. These terms include the number of shares subject to each
option, the exercise date of the option, the duration of the option and any
other terms of the option grant. The Board also may accelerate the time at which
any option may be exercised. Each Stock Incentive Plan provides that in the
event of a merger in which Landmark is not the surviving corporation, the sale
of 50% or more of the Company's outstanding stock to persons who are not
shareholders on the date of grant, or the liquidation or dissolution of the
Company, each outstanding option and restricted stock award will automatically
become vested immediately prior to the effective date of such event.
Each Stock Incentive Plan requires that the exercise price of each
incentive stock option be set at the fair market value of the Common Stock on
the date of grant. The First Amended and Restated 1989 Stock Incentive Plan and
the 1994 Stock Incentive Plan require that the exercise price of each
nonqualified stock option be set at no less than 85% of the fair market value of
the Common Stock on the date of grant. The 1992 Executive Stock Incentive Plan
provides that the exercise price of each nonqualified stock option be set at no
less than the par value of the Common Stock.
As of September 30, 1997, the Named Executive Officers of the Company had
options in the aggregate to purchase shares of Common Stock under the Stock
Incentive Plans as follows: Katherine K. Clark, 245,220 shares; John D. Hunter,
146,782 shares; Ralph E. Alexander, 324,375 shares; Theodore L. Cruse, 75,000
shares. In general, these options vest over a four year period from their grant
date, expire after a specified period not to exceed ten years, and have exercise
prices ranging from $3.00 to $4.99 per share.
Board Plan. Landmark adopted the Board Plan pursuant to which nonqualified
stock options are granted to members of the Advisory Board and to designated
members of the Board who are not employees of the Company (each, a "designee").
A total of 300,000 shares have been reserved for issuance under the Board Plan,
which terminates in December 2006.
Under the Board Plan, a designee receives a nonqualified stock option to
purchase the greater of 6,000 shares of Common Stock or the difference between
24,000 shares of Common Stock and the number of shares of Common Stock subject
to any option previously granted to such designee by the Company. As of the date
of each annual shareholders meeting, each designee who has not previously
received a grant during the calendar year will receive a nonqualified stock
option to purchase 6,000 shares of the Company's Common Stock. The exercise
price of each option is set at the fair market value of the Company's Common
Stock on the date of grant. The options vest over a four-year period.
As of September 30, 1997, options to purchase a total of 120,000 shares of
Common Stock were outstanding pursuant to the Board Plan. In December 1996, T.
Eugene Blanchard, Patrick W. Gross, Arthur E. Johnson, Steven L. Meltzer, and
Cornelis deKluyver each received grants to purchase 24,000 shares of Common
Stock at an exercise price of $4.00 per share, vesting ratably over a four year
period beginning on December 31, 1996. In October 1997, in connection with the
termination of the Advisory Board, the vesting of options to purchase 18,000
shares of Common Stock which would have vested on December 31, 1997 was
accelerated to vest in October 1997 and unvested options to acquire 36,000
shares were cancelled.
EMPLOYEE STOCK PURCHASE PLAN
In 1991, Landmark adopted the 1991 Employee Stock Purchase Plan (the "Stock
Purchase Plan"), pursuant to which full-time employees of the Company who have
been employed by the Company on a full-
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<PAGE> 45
time basis for a period of six continuous months may purchase Common Stock
through payroll deductions or by direct payment. The purchase price is the fair
market value of the Common Stock at the time of purchase. In general, eligible
employees may not purchase more than the number of shares of Common Stock
determined by dividing 10% of the employee's cash compensation by the fair
market value of the Company's Common Stock on the date of purchase.
The Stock Purchase Plan is administered by the Board or by a committee
appointed by the Board. The Board determines the number of shares that will be
made available for purchase under the Plan on an annual basis. Effective April
1, 1997, the Board suspended purchases under the Stock Purchase Plan. As of
September 30, 1997, the Company's employees own an aggregate of 110,949 shares
of Common Stock issued under the Stock Purchase Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Landmark's Articles of Incorporation provide that Landmark shall, to the
fullest extent permissible under Virginia law, indemnify its directors, officers
and Advisory Board members against any damages arising out of their actions as
directors, advisors or officers of the Company. Landmark also intends to obtain
officer and director liability insurance with respect to liabilities arising out
of certain matters, including matters arising under the federal securities laws.
There is no pending litigation or proceeding involving any Landmark
director, officer, employee or agent with respect to which indemnification would
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since March 1997, Henry D. Barratt, Jr., T. Eugene Blanchard and Patrick W.
Gross, none of whom is an employee of the Company, have served on the
Compensation Committee of the Board. On March 7 and April 1, 1997, the Company
issued to Blue Water Strategic Fund I, LLC ("Blue Water"), in a private
placement transaction, an aggregate of 395,195 shares of Series B Preferred
Stock at a purchase price of $6.326 per share. In connection with this
transaction and pursuant to the terms of the Series B Preferred Stock, Mr.
Barratt, an affiliate of Blue Water, became a member of the Board. Upon
consummation of the Offering, the outstanding shares of Series B Preferred Stock
will automatically be converted into 592,793 shares of Common Stock. See
"Description of Capital Stock -- Preferred Stock." No member of the Compensation
Committee serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
Landmark's Board or the Compensation Committee.
44
<PAGE> 46
CERTAIN TRANSACTIONS
TRANSACTIONS WITH MR. BERGMAN
In connection with the discontinuation of Mr. Bergman's employment as an
officer of Landmark in June 1992, Mr. Bergman and Landmark entered into a
Separation Agreement and a Noncompetition Agreement, each of which expired in
April 1997. Pursuant to the Separation Agreement, Mr. Bergman received 1,300,000
shares of Series A Preferred Stock plus $500,000 in cash in exchange for
1,400,000 shares of his Common Stock. For a description of the Series A
Preferred Stock, see "Description of Capital Stock -- Preferred Stock." Also
pursuant to the Separation Agreement, from May 1992 to January 1993, the Company
paid Mr. Bergman a fee of $50,000 per year for his services to the Company as a
director and from February 1993 to April 1997, the Company paid Mr. Bergman a
fee of $15,000 per year for his services to the Company as a director. In
addition, the Separation Agreement provided that Mr. Bergman had the right to
engage Landmark employees in a limited capacity as consultants, and had access
to Landmark's mainframe computer facility, subject to certain restrictions.
Pursuant to the Noncompetition Agreement, Mr. Bergman agreed not to directly or
indirectly market or distribute in any area in which Landmark markets or
distributes its products any software which competes with any existing products
of Landmark. Pursuant to the Noncompetition Agreement, from May 1992 to January
1993, the Company paid Mr. Bergman $22,917 per month and from February 1993 to
April 1997, the Company paid Mr. Bergman $20,000 per month.
From May 1, 1992 through September 30, 1997, the Company paid an aggregate
of $898,157 in dividends to Mr. Bergman with respect to Series A Preferred Stock
registered in his name. Pursuant to the mandatory redemption provisions of the
Series A Preferred Stock, the Company redeemed 49,558 shares of Series A
Preferred Stock for $338,233 on May 1, 1997 and August 1, 1997 and will redeem
49,558 shares for $338,233 on November 1, 1997.
REGISTRATION RIGHTS
Landmark has granted to Messrs. McGettigan and Bergman, Ms. Clark, the
Bergman Family Trust and Blue Water, of which Mr. Barratt is an affiliate
(collectively, the "Stockholders"), certain registration rights in connection
with the Common Stock (including any Common Stock to be held upon the conversion
of any preferred stock of the Company). Blue Water has the right to demand
registration of its shares, subject to certain conditions and limitations
including that the Company is not obligated to file any registration statement
initiated by Blue Water within six months of the effective date of certain other
registration statements filed by the Company or with respect to registerable
shares having less than a $5.0 million aggregate offering price. Messrs.
McGettigan and Bergman and Ms. Clark have "piggyback" registration rights in
connection with any such registration statement, and all of the Stockholders
have piggyback registration rights in connection with shares proposed to be
registered by Landmark. The registration rights generally are transferable in
connection with any private sale of registerable shares, including to any
partner or member of a Stockholder. The Company will bear all expenses incident
to its registration obligations upon exercise of these demand and piggyback
registration rights, except that it will not bear any underwriting discounts or
commissions, federal or state securities registration fees or transfer taxes
relating to the exercise of those rights. All piggyback registration rights have
been waived in connection with the Offering.
45
<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership as of September 30, 1997 (i) by each person (or group of affiliated
persons) known by the Company to be the beneficial owner of more than five
percent of Landmark's capital stock, (ii) Patrick H. McGettigan, a director and
Chairman of the Board of the Company, Katherine K. Clark, a director and Chief
Executive Officer of the Company, Jeffrey H. Bergman, a director of the Company,
and the Bergman Family Trust (the "Selling Stockholders"), (iii) each of
Landmark's directors, (iv) each of the Named Executive Officers and (v) all
executive officers and directors of the Company, as a group. Unless otherwise
indicated, all such shares are owned directly by the person indicated. The table
also reflects a 3-for-2 split of the Common Stock, the mandatory redemption on
November 1, 1997 of 54,944 shares of Series A Preferred Stock and the conversion
of 855,165 shares of Series A Preferred Stock into 648,500 shares of Common
Stock and of 395,195 shares of Series B Preferred Stock into 592,793 shares of
Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE AFTER THE
OFFERING(1) OFFERING(1)(2)
-------------------- SHARES ---------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT BEING OFFERED SHARES PERCENT
- ------------------------------------------ --------- ------- ------------- --------- --------
<S> <C> <C> <C> <C> <C>
Patrick H. McGettigan..................... 4,687,500 52.9% 650,000 4,037,500 37.2%
Katherine K. Clark(3)..................... 2,501,415 27.6 50,000 2,451,415 22.1
Ralph E. Alexander(3)..................... 124,401 1.4 -- 124,401 1.1
Theodore L. Cruse(3)...................... 23,139 * -- 23,139 *
John D. Hunter(3)......................... 240,492 2.7 -- 240,492 2.2
Henry D. Barratt, Jr.(4).................. 592,793 6.7 -- 592,793 5.5
Jeffrey H. Bergman(5)..................... 779,922 8.8 450,000 329,922 3.0
T. Eugene Blanchard(3).................... 6,000 * -- 6,000 *
Patrick W. Gross(3)....................... 7,650 * -- 7,650 *
All directors and executive officers as a
group (13 persons)(3)................... 9,062,415 95.9 1,150,000 7,912,415 69.1
Blue Water Strategic Fund I, LLC(4)....... 592,793 6.7 -- 592,793 5.5
Bergman Family Trust(5)................... 168,578 1.9 50,000 118,578 1.1
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In comparing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
exercisable at or within 60 days of September 1, 1997 are deemed
outstanding. Such shares, however, are not deemed outstanding for purposes
of computing the percentage ownership of each other person. Unless otherwise
specified in the footnotes to this table, the address of each person set
forth in the above table is 8000 Towers Crescent Drive, Vienna, Virginia
22182.
(2) Assumes the Underwriters' do not exercise their over-allotment option.
(3) Includes shares which may be acquired within 60 days of September 30, 1997
pursuant to outstanding options by the person or persons listed, as follows:
Ms. Clark, 213,915; Mr. Alexander, 123,039; Mr. Cruse, 23,063; Mr. Hunter,
122,510; Mr. Blanchard, 6,000; Mr. Gross, 7,500; all directors and executive
officers as a group, 588,179.
(4) Mr. Barratt is an affiliate of Blue Water which holds all of the outstanding
395,195 shares of Series B Preferred Stock. On the closing of the Offering,
such shares will be converted into 592,793 shares of Common Stock. Mr.
Barratt shares voting power with respect to such shares with the three other
principals of Blue Water. The address of Blue Water is 8300 Greensboro
Drive, Suite 1020, McLean, Virginia 22012.
(5) Of the 855,165 shares of Series A Preferred Stock outstanding, 771,326
shares were held by Mr. Bergman and 83,839 were held by the Bergman Family
Trust. On the closing of the Offering, these shares of Series A Preferred
Stock held by Mr. Bergman and the Bergman Family Trust will convert into
584,922 and 63,578 shares of Common Stock, respectively. Prior to the
closing of the Offering, Mr. Bergman also held 195,000 shares of Common
Stock and the Bergman Family Trust held 105,000 shares of Common Stock. The
shares reflected in the table exclude all shares held by the Bergman Family
Trust, as to which Mr. Bergman disclaims beneficial ownership. Prior to the
conversion, holders of Series A Preferred Stock are entitled to one vote for
each share of such stock. Because the Series A Preferred Stock converts at a
ratio of approximately .76 shares of Common Stock for each share of Series A
Preferred Stock, the voting power represented by the Series A Preferred
Stock is accordingly reduced upon the conversion to Common Stock. The
address of the Bergman Family Trust is 9521 Woodington Drive, Potomac,
Maryland 20854.
46
<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, par value $0.01 per share, and 8,000,000 shares of Preferred
Stock, par value $0.01 per share.
COMMON STOCK
As of September 30, 1997, there were 7,618,868 shares of Common Stock
outstanding that were held of record by 155 stockholders. Based on the shares of
Common Stock outstanding on September 30, 1997 and giving effect to the issuance
of the 2,000,000 shares of Common Stock offered by the Company, following the
Offering there will be 10,860,161 shares of Common Stock outstanding (assuming
the mandatory redemption on November 1, 1997 of 54,944 shares of Series A
Preferred Stock, conversion of 855,165 shares of Series A Preferred Stock into
648,500 shares of Common Stock, conversion of 395,195 shares of Series B
Preferred Stock into 592,793 shares of Common Stock, the lapse of the rights of
the holders of the Redeemable Common Stock Instruments, no exercise of the
Underwriters' over-allotment option and no exercise of options and warrants
outstanding as of September 30, 1997).
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of Common
Stock do not have cumulative voting rights in the election of directors and do
not have preemptive rights. Holders of the Common Stock are entitled to receive
dividends, when and if declared by the Board, out of funds legally available
thereunder. Subject to any preferential liquidation rights of holders of
Preferred Stock, upon any liquidation, dissolution or winding-up of the Company,
the holders of Common Stock are entitled to share ratably in all assets of the
Company remaining after payments in full of all liabilities of the Company.
All of the Common Stock offered hereby, when issued, will be fully paid and
nonassessable.
PREFERRED STOCK
As of September 30, 1997, there were 910,109 shares of Series A Preferred
Stock authorized, issued and outstanding and 1,580,779 shares of Series B
Preferred Stock authorized of which 395,195 shares were issued and outstanding.
Upon the closing of the Offering, there will be no shares of Series A or Series
B Preferred Stock outstanding. The Company has no present intention to issue
shares of Preferred Stock.
The Articles of Incorporation authorize the Board to issue up to an
aggregate of 8,000,000 shares of Preferred Stock and to determine the
preferences, rights and other terms of such stock. Although it has no present
intention to do so, the Board could, in the future, issue one or more series of
Preferred Stock which, due to their terms, could impede a merger, tender offer
or other transaction that some, or a majority, of Landmark's stockholders might
believe to be in their best interests. See "Risk Factors -- Anti-Takeover
Effects of Certain Charter Provisions."
Series A Preferred Stock
The holders of Series A Preferred Stock are entitled to receive cash
dividends, in any fiscal year, when and as declared by the Board and to the
extent permitted by the Virginia Stock Corporation Act, as amended ("VSCA"). As
of May 1, 1997, the annual rate of dividends on the Series A Preferred Stock was
$0.375. Such dividends are declared and paid in arrears on the first business
day of each succeeding calendar quarter. With certain exceptions, the
declaration and payment of dividends are mandatory. With respect to dividends or
distributions upon the voluntary or involuntary liquidation, dissolution or
winding up of the Company, the Series A Preferred Stock ranks senior to the
Common Stock and junior to the Series B Preferred Stock. The holders of Series A
Preferred Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. Except as otherwise provided by
the VSCA, holders of Series A Preferred Stock vote together with holders of
Common Stock.
Since May 1, 1997, the Company has been obligated to periodically redeem a
portion of the Series A Preferred Stock. On May 1, 1997, the Company redeemed a
total of 54,945 shares of Series A Preferred Stock. On August 1, 1997, the
Company redeemed a total of 54,946 shares of Series A Preferred Stock. On
November 1, 1997, the Company will redeem a total of 54,944 shares of Series A
Preferred Stock. The holders of Series A Preferred Stock also have the right to
convert all, but not less than all, of their Series A Preferred
47
<PAGE> 49
Stock into Common Stock at any time on or after the closing of the Offering. The
holders of Series A Preferred Stock have informed the Company that they intend
to convert all of the 855,165 shares of Series A Preferred Stock which will be
outstanding after the November 1, 1997 mandatory redemption into 648,500 shares
of Common Stock on the closing of the Offering. See Note 9 of Notes to
Consolidated Financial Statements for a description of the conversion formula.
After the closing of the Offering, the Board intends to amend the Company's
Articles of Incorporation to eliminate the designation of the Series A Preferred
Stock from the authorized preferred stock of the Company.
Series B Preferred Stock
The holders of Series B Preferred Stock are entitled to receive dividends
when, as and if declared by the Board in its discretion. So long as any Series B
Preferred Stock remains outstanding, no class or series of stock other than
Series B Preferred Stock is entitled to dividends, other than to holders of
Series A Preferred Stock and any series or class of stock issued subsequent to
the issuance of the Series B Preferred Stock. Holders of shares of Series B
Preferred Stock have preferential rights to holders of Series A Preferred Stock
and Common Stock with respect to the assets of the Company in the event of any
liquidation, dissolution or winding up of the Company. Each share of Series B
Preferred Stock entitles the holder thereof to such number of votes per share
equal to the number of shares of Common Stock into which such share of Series B
Preferred Stock is convertible. So long as at least one share of Series B
Preferred Stock remains outstanding, holders of Series B Preferred Stock have
the right to select one of the Company's seven directors.
The 395,195 shares of Series B Preferred Stock outstanding prior to the
Offering will convert into 592,793 shares of Common Stock on the closing of the
Offering, and, after the sale of the shares of Common Stock pursuant to the
Offering, the Company will have no outstanding shares of Series B Preferred
Stock. See Note 9 of Notes to Consolidated Financial Statements. After the
closing of the Offering, the Board intends to amend the Company's Articles of
Incorporation to eliminate the designation of the Series B Preferred Stock from
the authorized preferred stock of the Company.
WARRANTS
In connection with early termination of the distributor relationship
between the Company and Infarmedica Holding AG ("Infarmedica"), on January 1,
1997, Landmark issued a warrant to Infarmedica to purchase 225,000 shares of
Common Stock at a price equal to $4.00 per share as partial consideration for
certain rights and related assets (including access to Landmark's customer base
in Austria, the Benelux countries, Germany, and Switzerland and assignment of
license and maintenance and support agreements) and covenants not to compete
from certain principals of the distributor. The warrant was fully vested upon
issuance, expires on January 1, 2007 and is transferable only with the Company's
consent.
VIRGINIA LAW AND CERTAIN CHARTER PROVISIONS
Landmark is a Virginia corporation subject to the VSCA which contains
certain anti-takeover provisions regulating affiliated transactions, control
share acquisitions and the adoption of shareholder rights plans. In general, the
affiliated transactions provisions prevent a Virginia corporation from engaging
in an "affiliated transaction" (as defined) with an "interested shareholder"
(generally defined as a person owning more than 10% of any voting securities of
the corporation) unless approved by a majority of the "disinterested directors"
(as defined) and the holders of at least two-thirds of the outstanding voting
stock not owned by the interested shareholder, subject to certain exceptions.
Under the control share acquisitions provisions of the VSCA, shares acquired in
a "control share acquisition" (defined generally as transactions that increase
the voting strength of the person acquiring such shares above certain thresholds
in director elections) generally have no voting rights unless granted by a
majority of the outstanding voting stock not owned by such acquiring person. If
such voting rights are granted and the acquiring person controls 50% or more of
the voting power, all shareholders, other than the acquiring person, are
entitled to receive "fair value" (as defined) for their shares. If such voting
rights are not granted, the corporation may, if authorized by its articles of
incorporation or bylaws, purchase the acquiring person's shares at their cost to
the acquiring person. Finally, the shareholder rights plan provisions of the
VSCA permit the Board to adopt a shareholder rights plan that could render a
hostile takeover prohibitively expensive if the Board determines that such a
takeover is not in the best interests
48
<PAGE> 50
of the corporation. The Board has no present intention to adopt a shareholder
rights plan and will not adopt any such plan in the future except on terms that
the Board deems to be in the best interests of Landmark's shareholders. The
existence of the shareholder rights plan provisions of the VSCA, as well as the
affiliated transactions and control share acquisition provisions could delay or
prevent a change in control of the Company, impede a merger, consolidation or
other business combination involving the Company or discourage a potential
acquirer from making a tender offer to otherwise attempting to obtain control of
the Company.
Charter provisions. Landmark's Articles of Incorporation and Bylaws
contain certain provisions that could inhibit or impede acquisition of control
of the Company by means of a tender offer, a proxy contest or otherwise and
inhibit attempts at such transactions. These provisions are expected to
discourage certain types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of the Company to
negotiate first with the Board. The Company believes that these provisions
increase the likelihood that proposals initially will be on more attractive
terms than would be the case in their absence and increase the likelihood of
negotiations, which might outweigh the potential disadvantages of discouraging
such proposals because, among other things, negotiation of such proposals might
result in improvement of terms. The description set forth below is a summary
only, and is qualified in its entirety by reference to the Articles of
Incorporation and Bylaws which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. See "Risk Factors -- Anti-Takeover
Effects of Certain Charter Provisions."
Number of Directors; Removal; Filling Vacancies. The Articles of
Incorporation provide that, subject to any rights of holders of Preferred Stock
to elect additional directors under specified circumstances, the number of
directors will be fixed by the Bylaws. The Bylaws provide that, subject to the
rights of any holders of Preferred Stock, the number of directors will be fixed
by the Board, but must be at least seven. In addition, the Bylaws provide that,
subject to the rights of the holders of any Preferred Stock, and unless the
Board otherwise determines, any vacancies (other than vacancies created by an
increase in the total number of directors) will be filled by the affirmative
vote of a majority of the remaining directors, though less than a quorum and any
vacancies created by an increase in the total number of directors may be filled
by a majority of the entire Board. Accordingly, the Board could temporarily
prevent any stockholder from enlarging the Board and then filling the new
directorship with such stockholder's own nominees.
The Bylaws provide that, subject to the rights of the holders of Preferred
Stock, if any, directors may only be removed upon the affirmative vote of at
least a majority of the entire voting power of all the then-outstanding shares
of Common Stock entitled to vote generally in the election of directors.
Preferred Stock. The Articles of Incorporation authorize the Board to
establish one or more series of Preferred Stock and to determine, with respect
to any series of Preferred Stock, the preferences, rights and other terms of
such series. See "Description of Capital Stock -- Preferred Stock." The Company
believes that the ability of the Board to issue one or more series of Preferred
Stock will provide the Company with increased flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs. The authorized shares of Preferred Stock, as well as shares of Common
Stock, will be available for issuance without further action by the Company's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. Although the Board has no present intention
to do so, it could, in the future, issue a series of Preferred Stock (other than
the Series A Preferred Stock or Series B Preferred Stock) which, due to its
terms, could impede a merger, tender offer or other transaction that some, or a
majority, of the Company's stockholders might believe to be in their best
interests, or in which stockholders might receive a premium over then-prevailing
market prices for their shares of Common Stock.
LISTING
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "LDMK."
TRANSFER AGENT
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer & Trust Company.
49
<PAGE> 51
SHARES ELIGIBLE FOR FUTURE SALE
SALES OF RESTRICTED SHARES
Based on shares of Common Stock outstanding as of September 30, 1997 and
assuming the date of this Prospectus is November 1, 1997, upon completion of the
Offering, the Company will have 10,860,161 shares of Common Stock outstanding.
See "Description of Capital Stock." Of these shares, the 3,200,000 shares sold
in the Offering will be freely tradeable without restriction or further
registration under the Securities Act, except that any shares purchased by
"affiliates" of the Company, as that term is defined under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations of
Rule 144 as described below.
The remaining 7,660,161 shares of Common Stock are deemed "restricted
securities" under Rule 144. Of these shares, 7,542,895 shares are subject to
Lock-Up Agreements for a period of 180 days beginning after the date of this
Prospectus (the "Lock-Up Period). Of the 117,266 shares not subject to Lock-Up
Agreements, 68,096 shares will be eligible for sale in the public market on the
date of this Prospectus in reliance on Rule 144(k) and 49,170 shares will be
eligible for sale in the public market beginning 90 days after the date of this
Prospectus in reliance on Rule 701. Of the shares subject to Lock-Up Agreements,
7,542,895 shares will be eligible for sale in reliance upon Rule 144 and Rule
701 upon the expiration of the Lock-Up Period, of which 7,324,237 are currently
held by Affiliates. Such shares held by Affiliates will be subject to the volume
and other resale limitations of Rule 144, other than the one-year holding
period; the 218,658 shares not held by Affiliates will be freely tradeable after
expiration of the Lock-Up Period.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned "restricted" shares for at least one year, including
a person who may be deemed an Affiliate of the Company, is entitled to sell
within any three month period a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of the Company's Common Stock
or (ii) the average weekly trading volume of the Company's Common Stock during
the four calendar weeks preceding the date on which notice of the sale is filed
with the Securities Exchange Commission. Sales under Rule 144 are also subject
to certain manner of sales provisions, notice requirements and the availability
of current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an Affiliate of the
Company at any time during the 90 days preceding a sale, and who owns shares
within the definition of "restricted securities" under Rule 144 that were
purchased from the Company (or any Affiliate) at least two years previously,
will be entitled to sell such shares under Rule 144(k) without regard to the
volume limitations, manner of sale provision, public information requirements or
notice requirements. However, the transfer agent may require an opinion of
counsel that a proposed sale of shares comes within the terms of Rule 144 prior
to effecting a transfer of such shares. Rule 701 provides that shares of Common
Stock acquired on the exercise of outstanding options issued before the date of
this Prospectus may be resold by persons other than Affiliates, beginning 90
days after the date of this Prospectus, subject only to the manner of sale
provisions of Rule 144, and by Affiliates, beginning 90 days after the date of
this Prospectus, subject to all provisions of Rule 144 except its one-year
minimum holding period.
Prior to the Offering, there has been no public market for the Common Stock
of the Company and no predictions can be made of the effect, if any, that the
sale or availability for sale of shares of additional Common Stock will have on
the market price of the Common Stock. Nevertheless, sales of substantial amounts
of such shares in the public market, or the perception that such sales could
occur, could adversely affect the market price of the Common Stock and could
impair the Company's future ability to raise capital through an offering of its
equity securities.
50
<PAGE> 52
OPTIONS AND WARRANTS
On September 30, 1997, options to acquire a total of 2,915,259 shares of
Common Stock were outstanding. Of this amount, options to acquire 2,242,186
shares are subject to Lock-Up Agreements, and options to acquire the remaining
673,073 shares are not subject to the Lock-Up Agreements and will be eligible
for sale in the public market beginning 90 days after the date of this
Prospectus, subject to applicable vesting requirements and compliance with the
Securities Act and applicable state securities laws. See "Shares Eligible for
Future Sale -- Lock-up Agreements." On September 30, 1997, options to purchase
1,232,363 shares of Common Stock were available for future grants under the
Company's Stock Incentive Plans. See "Management -- Stock Incentive Plans."
On September 30, 1997, warrants to purchase 225,000 shares of Common Stock
were outstanding. Such warrants were fully vested upon issuance and expire on
January 1, 2007. Shares of Common Stock received upon the exercise of such
warrants will be "restricted securities" within the meaning of Rule 144 and, as
a result, may only be resold subject to the volume, manner of sale and other
limitations contained in Rule 144 beginning at least one year after the date of
such exercise. See "Description of Capital Stock -- Warrants."
REGISTRATION STATEMENT ON FORM S-8
The Company intends to file a registration statement on Form S-8 covering
approximately 3,920,603 shares of Common Stock issued or issuable under the
Stock Incentive Plans and the Stock Purchase Plan. Of the shares covered by the
Form S-8, 986,541 shares are subject to vested options as of September 30, 1997.
Of these options, options to acquire 915,808 shares are subject to Lock-Up
Agreements and options to acquire 70,734 shares are not subject to Lock-Up
Agreements. The Form S-8 is expected to be filed approximately 90 days after the
date of this Prospectus and will become effective automatically upon filing.
Accordingly, the shares of Common Stock covered by the Form S-8 will become
eligible for sale in the public markets, subject to the Lock-up Agreements.
LOCK-UP AGREEMENTS
All officers and directors and certain holders of Common Stock and options
to purchase Common Stock have agreed pursuant to the Lock-Up Agreements that
they will not 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 dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible 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 during the
Lock-Up Period without the prior written consent of Unterberg Harris. Unterberg
Harris may, however, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to the Lock-Up Agreements.
Any such release could have a material adverse effect upon the market price of
the Company's Common Stock.
51
<PAGE> 53
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company and the Selling Stockholders have
agreed to sell to each of the Underwriters named below, and each of the
Underwriters, for whom Unterberg Harris and Wheat, First Securities, Inc. are
acting as Representatives, has agreed to purchase the number of shares of Common
Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------------------ ----------
<S> <C>
Unterberg Harris..................................................
Wheat, First Securities, Inc. ....................................
---------
Total................................................... 3,200,000
=========
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock offered hereby, if any such shares are purchased. In the
event of a default by an Underwriter, the Underwriting Agreement provides that,
in certain circumstances, such commitments of the non-defaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.
Unterberg Harris has advised the Company that the Underwriters propose
initially to offer the shares of Common Stock offered hereby to the public at
the public offering price per share set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow,
a discount not in excess of $ per share on sales to certain other dealers.
After the public offering, the offering price, discount and reallowance may be
changed.
The Selling Stockholders have granted the Underwriters an option, which may
be exercised within 30 days after the date of this Prospectus, to purchase up to
an additional 480,000 shares of Common Stock to cover over-allotments, if any,
at the initial public offering price, less the underwriting discount. To the
extent that the Underwriters exercise the option, each of the Underwriters will
have a firm commitment, subject to certain conditions, to purchase approximately
the same percentage of shares that the number of shares of Common Stock to be
purchased by it shown on the foregoing table bears to the total number of shares
initially offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
The Selling Stockholders, the Company, its officers and directors and
certain other stockholders have entered into Lock-Up Agreements under which they
have agreed not to offer, sell or otherwise dispose of any of their shares of
Common Stock or other securities of the Company for a period of 180 days after
the date of this Prospectus without the prior written consent of Unterberg
Harris. In the case of the Selling Stockholders, this agreement is subject to an
exception for sales pursuant to the Underwriters' over-allotment option. In the
case of the Company, this agreement is subject to exceptions for the grant of
options and the issuance of shares pursuant to the Company's stock option plans
and in connection with acquisitions. Any Common Stock issued in connection with
such acquisitions would be subject to a lock-up agreement with the
Representatives for 180 days from the date of issuance.
In connection with the Offering, Unterberg Harris, on behalf of the
Underwriters, may purchase and sell the Common Stock in the open market. Such
transactions may include (i) over-allotment transactions, (ii) stabilizing
transactions, consisting of certain bids for the purpose of preventing or
restraining a decline in the market price of the Common Stock, and (iii)
purchases to cover syndicate short positions created in
52
<PAGE> 54
connection with the Offering. The Underwriters, also may impose a "penalty bid,"
whereby selling conversions allowed to syndicate members or other broker-dealers
in respect of the Common Stock sold in the Offering for their account may be
reclaimed by the syndicate if such shares of Common Stock are re-purchased by
the syndicate in stabilizing or covering transactions. These transactions may be
effected on The Nasdaq National Market or otherwise, and these activities, if
commenced, may be discontinued at any time.
The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock offered hereby has
been arbitrarily determined by negotiation between the Company and the
Representatives and is not necessarily related to the Company's asset value, net
worth or other established criteria of value. In determining the initial public
offering price, the Representatives and the Company considered, among other
things, market prices of similar securities of comparable publicly traded
companies, the financial conditions and operating information of companies
engaged in activities similar to those of the Company, the financial condition
and prospects of the Company and the general condition of the securities market.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Shaw Pittman Potts &
Trowbridge, Washington, D.C., a partnership including professional corporations.
Steven L. Meltzer holds vested options to acquire 12,000 shares of Common Stock
granted in his capacity as a member of the Advisory Board pursuant to the Board
Plan. Mr. Meltzer is the sole stockholder of Steven L. Meltzer, P.C., which is a
partner in Shaw Pittman Potts & Trowbridge. Certain legal matters will be passed
upon for the Underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P.
EXPERTS
The Consolidated Financial Statements as of December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 including amendments thereto, relating
to the Common Stock offered by the Company and the Selling Stockholders has been
filed with the Securities and Exchange Commission (the "Commission"),
Washington, D.C. 20549. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. A copy of the
Registration Statement may be inspected by anyone without charge at the
Commission's principal offices in Washington, D.C. and copies of all or any part
thereof may be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's World Wide Web site is http://www.sec.gov.
The Company intends to furnish its stockholders annual reports containing
statements audited by its independent accountants and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.
53
<PAGE> 55
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 Changes in Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 56
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Landmark Systems Corporation
The recapitalization described in Note 14 of the consolidated financial
statements has not been consummated at October 23, 1997. When it has been
consummated, we will be in a position to furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity (deficit) and of cash flows present fairly, in all material
respects, the financial position of Landmark Systems Corporation and its
subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, 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."
PRICE WATERHOUSE LLP
Falls Church, Virginia
April 30, 1997
F-2
<PAGE> 57
LANDMARK SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------- -------------
1995 1996 1997 1997
----------- ----------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 316,333 $ 339,073 $ 4,168,081
Accounts receivable, net of allowance for doubtful
accounts of $656,000, $382,000 and $497,000
(unaudited)..................................... 9,632,617 10,139,856 7,643,742
Unbilled accounts receivable...................... 3,489,725 4,265,547 3,925,006
Deferred income taxes, net........................ 1,354,059 2,065,460 1,402,022
Income taxes receivable........................... 3,174,432 16,061 15,520
Other current assets.............................. 226,556 159,012 692,729
----------- ----------- -------------
Total current assets....................... 18,193,722 16,985,009 17,847,100
Unbilled accounts receivable........................ 4,335,708 2,995,868 4,192,463
Fixed assets, net................................... 3,191,852 2,896,225 3,295,215
Capitalized software costs, net..................... 5,757,252 1,650,339 668,166
Deferred income taxes............................... -- 414,928 1,120,300
Intangible assets, net.............................. -- -- 1,386,000
Other assets........................................ 674 133,613 125,690
----------- ----------- -------------
$31,479,208 $25,075,982 $28,634,934
============ ============ ============
<CAPTION>
LIABILITIES, MANDATORILY REDEEMABLE SECURITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable.................................. $ 1,682,645 $ 1,200,553 $ 1,122,232
Accrued expenses.................................. 3,387,440 1,951,471 2,696,938
Deferred revenue.................................. 15,869,704 16,206,265 15,471,916
Income taxes payable.............................. -- 271,288 605,389
Debt due within one year.......................... 3,238,442 1,493,763 528,515
----------- ----------- -------------
Total current liabilities.................. 24,178,231 21,123,340 20,424,990
Long-term debt...................................... 1,083,676 591,750 190,588
Deferred revenue -- noncurrent...................... 2,677,856 2,498,482 2,654,347
Deferred income taxes............................... 472,210 -- --
Other liabilities................................... 1,067,717 583,250 891,278
----------- ----------- -------------
Total liabilities.......................... 29,479,690 24,796,822 24,161,203
----------- ----------- -------------
Commitments
Redeemable common stock
instruments, at redemption value.................. 1,049,043 703,930 1,512,002 --
Mandatorily redeemable Series A Cumulative Preferred
Stock, $.01 par value, 1,300,000 shares
authorized, 1,020,000, 1,020,000 and 910,109
shares issued and outstanding, actual; no shares
issued and outstanding, pro forma................. 5,865,000 5,865,000 6,211,494 --
Mandatorily redeemable Series B Cumulative Preferred
Stock, $.01 par value 1,580,779 shares authorized,
395,195 shares issued and outstanding, actual; no
shares issued and outstanding, pro forma.......... -- -- 2,609,778 --
Stockholders' equity (deficit):
Common stock, $.01 par value, 30,000,000 shares
authorized, 7,331,895, 7,331,895 and 7,384,010
issued and outstanding, actual; 8,860,161 issued
and outstanding, pro forma...................... 73,320 73,320 73,840 $ 88,602
Additional paid-in capital........................ 432,300 432,300 993,981 10,937,500
Accumulated deficit............................... (5,415,609) (6,770,890) (6,952,847) (6,952,847)
Foreign currency translation...................... (4,536) (24,500) 25,483 25,483
----------- ----------- ------------- -------------
Total stockholders' equity (deficit)....... (4,914,525) (6,289,770) (5,859,543) $ 4,098,738
----------- ----------- ------------- -------------
$31,479,208 $25,075,982 $28,634,934
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 58
LANDMARK SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
License revenues........... $11,267,792 $10,392,273 $11,268,496 $ 7,524,697 $10,548,607
Service revenues........... 21,406,308 24,067,551 25,287,902 18,675,458 19,828,584
----------- ----------- ----------- ----------- -----------
Total revenues........ 32,674,100 34,459,824 36,556,398 26,200,155 30,377,191
Cost of revenues
Cost of license revenues... 4,452,753 4,287,307 5,775,318 4,688,806 1,898,957
Cost of service revenues... 3,391,266 3,375,710 3,138,095 2,326,483 2,432,913
----------- ----------- ----------- ----------- -----------
Total cost of
revenues............ 7,844,019 7,663,017 8,913,413 7,015,289 4,331,870
----------- ----------- ----------- ----------- -----------
Gross profit............... 24,830,081 26,796,807 27,642,985 19,184,866 26,045,321
----------- ----------- ----------- ----------- -----------
Operating expenses
Sales and marketing........ 11,715,814 13,091,974 11,670,261 8,521,926 10,274,905
Product research and
development.............. 9,093,862 12,489,713 13,924,117 10,772,397 10,078,766
General and
administrative........... 7,800,452 6,872,697 4,776,282 3,500,902 3,969,666
----------- ----------- ----------- ----------- -----------
28,610,128 32,454,384 30,370,660 22,795,225 24,323,337
----------- ----------- ----------- ----------- -----------
Operating (loss) income......... (3,780,047) (5,657,577) (2,727,675) (3,610,359) 1,721,984
Interest and other income....... 919,286 761,022 1,077,558 887,261 559,827
Interest expense................ (218,391) (212,868) (364,676) (290,322) (243,559)
----------- ----------- ----------- ----------- -----------
(Loss) income before income
taxes......................... (3,079,152) (5,109,423) (2,014,793) (3,013,420) 2,038,252
(Benefit from) provision for
income taxes.................. (1,158,244) (940,413) (812,512) (1,117,978) 815,578
----------- ----------- ----------- ----------- -----------
Net (loss) income............... (1,920,908) (4,169,010) (1,202,281) (1,895,442) 1,222,674
Accretion and dividends on
preferred stock............... 153,000 627,300 153,000 76,500 1,404,631
----------- ----------- ----------- ----------- -----------
Net loss available to common
stockholders.................. $(2,073,908) $(4,796,310) $(1,355,281) $(1,971,942) $ (181,957)
========== ========== ========== ========== ==========
Pro forma primary (loss) income
per share..................... $ (0.13) $ (0.20) $ 0.12
========== ========== ==========
Pro forma fully diluted (loss)
income per share.............. $ (0.13) $ (0.20) $ 0.11
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 59
LANDMARK SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON SHARES
---------------------------------- RETAINED
ADDITIONAL EARNINGS/ FOREIGN
PAID-IN (ACCUMULATED CURRENCY
ISSUED PAR VALUE CAPITAL DEFICIT) TRANSLATION TOTAL
--------- --------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993......... 7,331,745 $73,318 $324,456 $ 1,454,609 $ -- $ 1,852,383
Net loss........................... -- -- -- (1,920,908) -- (1,920,908)
Compensation for non-qualified
stock options.................... -- -- 17,577 -- -- 17,577
Series A Preferred Stock
dividends........................ -- -- -- (153,000) -- (153,000)
--------- --------- ---------- ------------ ----------- -----------
Balance at December 31, 1994......... 7,331,745 73,318 342,033 (619,299) -- (203,948)
Net loss........................... -- -- -- (4,169,010) -- (4,169,010)
Series A Preferred Stock redemption
value adjustment................. -- -- -- (474,300) -- (474,300)
Compensation for non-qualified
stock options.................... -- -- 89,769 -- -- 89,769
Common stock issued upon exercise
of non-qualified stock options... 150 2 498 -- -- 500
Foreign currency translation....... -- -- -- -- (4,536) (4,536)
Series A Preferred Stock
dividends........................ -- -- -- (153,000) -- (153,000)
--------- --------- ---------- ------------ ----------- -----------
Balance at December 31, 1995......... 7,331,895 73,320 432,300 (5,415,609) (4,536) (4,914,525)
Net loss........................... -- -- -- (1,202,281) -- (1,202,281)
Foreign currency translation....... -- -- -- -- (19,964) (19,964)
Series A Preferred Stock
dividends........................ -- -- -- (153,000) -- (153,000)
--------- --------- ---------- ------------ ----------- -----------
Balance at December 31, 1996......... 7,331,895 73,320 432,300 (6,770,890) (24,500) (6,289,770)
Net income (unaudited)............. -- -- -- 1,222,674 -- 1,222,674
Series A Preferred Stock redemption
value adjustment (unaudited)..... -- -- -- (1,096,500) -- (1,096,500)
Series B Preferred Stock redemption
value adjustment (unaudited)..... -- -- -- (109,778) -- (109,778)
Common stock issued upon exercise
of non-qualified stock options
(unaudited)...................... 43,875 438 163,313 -- -- 163,751
Issuance costs (unaudited)......... -- -- (52,115) -- -- (52,115)
Issuance of warrants (unaudited)... -- -- 48,000 -- -- 48,000
Compensation expense for options
granted to non-employees
(unaudited)...................... -- -- 146,284 -- -- 146,284
Foreign currency translation
(unaudited)...................... -- -- -- -- 49,983 49,983
Waiver of rights to require
repurchase (unaudited)........... 8,240 82 237,026 -- -- 237,108
Series A Preferred Stock dividends
(unaudited)...................... -- -- -- (198,353) -- (198,353)
Tax impact of exercise of
non-qualified stock options
(unaudited)...................... -- -- 19,173 -- -- 19,173
--------- --------- ---------- ------------ ----------- -----------
Balance at September 30, 1997
(unaudited)........................ 7,384,010 $73,840 $993,981 $(6,952,847) $ 25,483 $(5,859,543)
========= ========= ========= ============ ========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 60
LANDMARK SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income....................... $(1,920,908) $(4,169,010) $(1,202,281) $(1,895,442) $ 1,222,674
Adjustments to reconcile net (loss)
income to net cash provided by (used
in) operating activities:
Depreciation and amortization......... 4,185,694 3,957,189 5,865,608 4,823,936 2,311,760
Provision for (reduction in) losses on
accounts receivable................. 304,163 191,960 (73,436) 79,353 199,395
Provision (benefit) for loss on
leases.............................. 779,008 265,816 (351,257) (351,257) --
Stock compensation expense
(benefit)........................... 32,463 766,214 (96,381) (96,189) 567,933
Writeoff of capitalized software...... -- 513,655 -- -- --
Decrease (increase) in accounts
receivable.......................... 599,588 (899,203) (433,803) 2,640,959 1,704,177
(Increase) decrease in deferred income
taxes............................... (1,104,968) (897,868) (1,598,539) (1,455,371) (22,761)
(Increase) decrease in income taxes
receivable.......................... (1,838,508) (477,653) 3,158,371 3,159,057 541
(Increase) decrease in unbilled
accounts receivable................. (2,007,487) 568,816 564,018 682,112 (856,054)
(Decrease) increase in accounts
payable and accrued expenses........ (1,487,786) 580,219 (1,566,804) (1,424,800) (232,854)
Increase in income taxes payable...... -- -- 271,288 1,283 334,101
Increase (decrease) in deferred
revenue............................. 3,132,268 439,622 157,187 (2,188,842) (888,323)
Increase (decrease) in other, net..... 637,313 (1,201,576) (549,862) (531,679) (215,387)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities........... 1,310,840 (361,819) 4,144,109 3,443,120 4,125,202
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures.................... (543,928) (2,224,579) (728,494) (603,944) (1,266,575)
Capitalized software costs.............. (1,491,159) (1,112,121) (734,574) (615,825) --
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities..................... (2,035,087) (3,336,700) (1,463,068) (1,219,769) (1,266,575)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Principal payments on loans............. (13,862) (3,704) (414,487) (259,885) (366,410)
Proceeds from loans..................... -- 1,500,000 -- -- --
Net proceeds from (payments on) line of
credit................................ 500,000 1,822,118 (1,822,118) (1,122,118) (1,000,000)
Issuances of common stock............... 205,612 196,736 952,456 930,291 880,648
Repurchases of common stock............. (212,214) (142,500) (1,201,188) (1,192,428) (93,366)
Issuance of Series B Preferred Stock.... -- -- -- -- 2,447,885
Redemption of Series A Preferred
Stock................................. -- -- -- -- (750,006)
Payment of Series A Preferred Stock
dividends............................. (153,000) (153,000) (153,000) (76,500) (198,353)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities........... 326,536 3,219,650 (2,638,337) (1,720,640) 920,398
----------- ----------- ----------- ----------- -----------
Effect of exchange rate changes on cash... -- (4,536) (19,964) (22,032) 49,983
----------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents............................. (397,711) (483,405) 22,740 480,679 3,829,008
Cash and cash equivalents, beginning of
period.................................. 1,197,449 799,738 316,333 316,333 339,073
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period.................................. $ 799,738 $ 316,333 $ 339,073 $ 797,012 $ 4,168,081
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 61
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
NOTE 1 -- ORGANIZATION AND OPERATIONS
Landmark Systems Corporation ("the Company") was incorporated in the
Commonwealth of Virginia in November 1982 and commenced operations in 1983. The
Company is engaged in the development, marketing and distribution of computer
software products and the provision of related services. The Company is a
supplier of performance management software products which measure, analyze,
report and predict performance for both the mainframe and client/server
computing environments.
In 1985, the Company formed a wholly-owned subsidiary, Landmark Systems
International, Inc. (Landmark International), which was an interest charge
domestic international sales corporation (DISC) under the Tax Reform Act of
1984. In March 1989, Landmark International revoked its election to be treated
as a DISC effective for the period beginning January 1, 1989. All tax benefits
of the DISC were fully utilized at December 31, 1995.
In January 1995, the Company established a wholly-owned subsidiary,
Landmark Systems Pacific Pty. Ltd. ("LSPPL"). LSPPL acts as its distributor in
Australia and New Zealand. LSPPL also provides technical support for Australia,
New Zealand and Southeast Asia.
In May 1995, the Company activated a subsidiary, SSG (Europe) Limited. The
subsidiary's name was subsequently changed to Landmark Systems (EMEA) Limited
("EMEA"). EMEA distributes the Company's products in the United Kingdom and
Spain. EMEA also provides marketing and distribution assistance in Europe, the
Middle East and Africa under a management agreement.
In May 1996, the Company established a wholly-owned subsidiary, Landmark
Systems (HK) Ltd., to act as its distributor of products in the Southeast Asian
market.
In January 1997, the Company established a wholly-owned subsidiary,
Landmark Systems GmbH, to act as its distributor in Germany, Switzerland and
Austria. Also in January 1997, the Company established a wholly-owned
subsidiary, Landmark Systems Benelux BV, to act as its distributor in the
Benelux countries (Note 12).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany transactions and balances have
been eliminated.
Pro forma stockholders' equity
The Company plans to file an initial registration statement with the
Securities and Exchange Commission. If the contemplated offering is consummated
under terms presently anticipated, the following changes to the redeemable
common stock instruments and preferred stock will occur upon the closing of this
offering: (i) the conversion of the Series A Preferred Stock into 648,500 shares
of the Company's common stock so that a holder of the Series A Preferred Stock
may participate in the offering as a selling stockholder, (ii) the automatic
conversion of the Series B Preferred Stock into 592,793 shares of the Company's
common stock, and (iii) the lapse of the rights of certain holders of 234,858
shares of Common Stock and options to purchase 194,820 shares of Common Stock to
require the Company to repurchase such shares. The September 30, 1997 pro forma
stockholders' equity reflects the foregoing anticipated changes to the
redeemable common stock instruments and preferred stock, as well as the
mandatory redemption on November 1, 1997 of 54,944 shares of Series A Preferred
Stock for consideration of $375,000.
F-7
<PAGE> 62
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
Cash and cash equivalents
For purposes of the consolidated balance sheets and statements of cash
flows, the Company considers all highly liquid investment instruments purchased
with an original maturity of three months or less to be cash equivalents.
Revenue recognition
Revenues are recognized in accordance with AICPA Statement of Position
91-1, "Software Revenue Recognition." Sales of perpetual software licenses are
recorded as license revenues when performance under the related contract is
completed, collection is probable and no significant vendor obligations remain.
Service revenues, which consist primarily of maintenance fees, generally are
collected prior to the performance of the related services and are recorded as
deferred revenue and recognized ratably over the period during which the
services are performed, generally twelve months except as noted below. For
transactions involving both license and service revenues, the Company generally
allocates maintenance fees based upon the list price for such fees.
In certain circumstances, primarily where the Company is replacing its
mainframe competitors' products, the Company enters into a long-term payment
arrangement with a licensee. Under these types of arrangements, the Company
allows the licensee to pay the license fees plus service fees over a three to
five year period, generally in annual installments. If collectibility by the
Company is probable, the Company recognizes the present value of the contracted
stream of payments as an unbilled receivable in its financial statements. Of
this amount, the Company recognizes the underlying license fee as license
revenues and defers the underlying service fees. As installments are invoiced to
the licensee in accordance with the payment arrangement, the Company reflects a
reduction in its unbilled receivable and an increase in its accounts receivable.
Historically, the Company has not granted concessions nor experienced any
significant bad debts associated with these long-term arrangements. At December
31, 1995 and 1996 and September 30, 1997, unbilled receivables have been reduced
by $1,226,000, $1,200,000 and $1,291,000, respectively, to reflect such amounts
at their present values.
The Company has relationships with a number of third party distributors to
market and distribute its products internationally. Under such arrangements, the
distributors report to, are invoiced by and remit payments to the Company based
upon transactions with the ultimate customer. The Company records license
revenues and service revenues based upon transactions reported to the Company.
The Company records an accrual for estimated sales returns. Historically,
such amounts have not been material.
Fixed assets
Fixed assets are stated at cost less accumulated depreciation and
amortization. Capital lease obligations are recorded at the present value of the
future lease obligations discounted at the interest rate implicit in each lease.
A corresponding amount is capitalized and depreciated over the term of the
lease. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. The estimated useful lives for computing
depreciation are generally five years for computer equipment, office equipment
and furniture. Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the estimated useful lives of the
improvements or the terms of the related lease.
F-8
<PAGE> 63
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
Impairment of long-lived assets
Long-lived assets subject to the requirements of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", are evaluated for possible
impairment through a review of undiscounted expected future cash flows. If the
sum of the undiscounted expected future cash flows is less than the carrying
amount of the asset or if changes in facts and circumstances indicate, an
impairment loss is recognized.
Foreign currency translations
The functional currency for the Company's international subsidiaries is the
applicable local currency. The financial statements of international
subsidiaries are translated into U.S. dollars using exchange rates in effect at
period end for assets and liabilities and average exchange rates during each
reporting period for results of operations. Adjustments resulting from
translation of financial statements are reflected as a separate component of
stockholders' equity (deficit). The Company does not attempt to hedge its
foreign currency exposures. Foreign currency gains (losses) of $17,000,
$(102,000), $(9,600) and $(129,000) in 1994, 1995 and 1996 and for the nine
months ended September 30, 1997, respectively, are included in other income.
Software development costs
The Company accounts for its software development activities in accordance
with Statement of Financial Accounting Standards No. 86, "Accounting for the
Cost of Computer Software to be Sold, Leased or Otherwise Marketed." The Company
capitalizes significant development costs incurred subsequent to the point of
demonstrated technological feasibility and up to the time the product is
available for release to customers. Amortization is computed on an individual
product basis and is the greater of (a) the ratio of current gross revenues for
a product to the total current and anticipated future gross revenues for the
product, or (b) the straight-line method over the estimated economic life of the
product. Effective January 1, 1996, the Company prospectively decreased the
estimated economic life of its capitalized software products from three to five
years to eighteen months. This reduction in estimated economic life is
considered by management to be necessary in light of (i) the increasingly rapid
pace of change in technology in the market, (ii) changes implemented by
management in early 1996 regarding the Company's pace of development efforts and
product enhancements and introductions, (iii) the fact that shortened
development cycles do not provide the opportunity to use a detail program
design, and (iv) the increased need for the Company to update its products for
the latest technological innovations. Amortization expense recorded in 1996 and
the nine months ended September 30, 1997 would have been $2.3 million lower and
$610,000 higher, respectively, if this change had not been made. The effect of
the change was to decrease net income in 1996 by $1.5 million ($0.15 per share)
and increase net income for the nine months ended September 30, 1997 by $370,000
($0.03 per share). The Company periodically evaluates its capitalized software
costs for recoverability against anticipated future revenues, and writes down or
writes off capitalized software costs if recoverability is in question.
Stock-based compensation
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," (APB No. 25) and related Interpretations. Under APB
No. 25, compensation cost is measured as the excess, if any, of the market price
of the Company's stock, as established by the Company's Board of Directors ("the
Board"), at the date of grant over the exercise price of the option granted.
Compensation cost for stock options, if any, is
F-9
<PAGE> 64
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
recognized ratably over the vesting period. The Company provides additional pro
forma disclosures as required under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation"(SFAS No. 123) (Note 10).
Transactions for which non-employees are issued equity instruments for
goods or services received are recorded by the Company based upon the fair value
of the equity instruments issued or the fair value of the goods or services
received, whichever is more reliably measured.
Income taxes
The Company provides for income taxes using the asset and liability
approach. The asset and liability approach requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of the assets and
liabilities. A valuation allowance is recorded if, based on the evidence
available, it is more likely than not that some portion or all of the deferred
tax asset will not be realized.
Fair value of financial instruments
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value due to the short maturity of those instruments. The carrying amounts of
notes payable to banks, which includes short-term borrowings at market rates and
long-term debt, and preferred stock approximate their fair value.
The Company has $7,825,000, $7,261,000 and $8,117,000 of unbilled
receivables outstanding at December 31, 1995 and 1996 and September 30, 1997,
respectively; the estimated fair values of these receivables are $8,116,000,
$7,486,000 and $8,340,000, respectively, calculated using discounted cash flows.
Concentrations of credit risk
Financial instruments which subject the Company to concentrations of credit
risk consist principally of accounts receivable and unbilled receivables. Credit
risk is limited due to the large number and geographic dispersion of customers
comprising the Company's customer base. At December 31, 1996, one international
distributor accounted for approximately 7% of the Company's total receivables.
No other distributor or customer accounted for more than 5% of the Company's
total outstanding receivables. At September 30, 1997 no distributor or customer
accounted for more than 5% of the Company's total outstanding receivables.
Use of estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates and assumptions.
Unaudited interim financial statements
The accompanying unaudited interim financial statements have been prepared
by the Company in accordance with generally accepted accounting principles for
interim financial information and substantially in the form prescribed by the
Securities and Exchange Commission in instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's manage-
F-10
<PAGE> 65
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
ment, the September 30, 1996 and 1997 unaudited interim financial statements
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of results for these interim periods. The
results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the full year or for
any future period.
Pro forma earnings per share
In light of the contemplated changes in the capital structure of the
Company, historical net (loss) income per share is not considered relevant as it
would differ materially from pro forma net (loss) income per share. Except as
noted below, pro forma net (loss) income per share is computed by dividing net
(loss) income by the pro forma weighted average number of shares of common stock
outstanding, assuming (i) the conversion of the Series A Preferred Stock into
648,500 shares of the Company's common stock, and (ii) the conversion of
dilutive common stock equivalent shares from common stock options. Common stock
equivalent shares are calculated using the treasury stock method. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83 (SAB 83),
the pro forma earnings per share computations include all common stock and
common stock equivalent shares issued within the twelve months preceding the
initial filing date of the Company's contemplated registration statement as if
they were outstanding for all periods presented, using the treasury stock method
for common stock options and warrants at an assumed initial public offering
price and the as if converted method for the Series B Preferred Stock.
The pro forma weighted average shares outstanding used for the calculation
of the primary and fully diluted pro forma earnings per share for the year ended
December 31, 1996 and the nine months ended September 30, 1996 was 9,479,727.
The weighted average shares outstanding used for the calculation of the primary
and fully diluted pro forma earnings per share for the nine months ended
September 30, 1997 were 10,253,204 and 10,753,872, respectively.
New accounting standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128) entitled "Earnings Per
Share". This statement establishes standards for computing and presenting
earnings per share (EPS), simplifying previous standards for computing EPS and
making them comparable to international standards. SFAS 128 replaces the
presentation of primary EPS with a presentation of basic EPS, and requires dual
presentation of basic and diluted EPS on the face of the statement of operations
for all entities with complex capital structures. Basic EPS excludes dilution
and is computed by dividing income available for common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. SFAS 128 requires restatement of all prior period earnings per share
presented, and is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Early application of SFAS
128 is not permitted.
F-11
<PAGE> 66
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
The Company will adopt SFAS 128 for its December 31, 1997 financial
statements and will restate all prior period EPS data. To illustrate the effect
of adoption, the pro forma basic and diluted EPS, taking into consideration the
requirements of SAB 83, in 1996 and for the nine months ended September 30, 1996
and 1997 are set forth below:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
YEAR ENDED --------------
DECEMBER 31, 1996 1996 1997
----------------- ------ -----
<S> <C> <C> <C>
Pro forma basic (loss) earnings per share.............. $ (0.13) $(0.20) $0.13
Pro forma diluted (loss) earnings per share............ $ (0.13) $(0.20) $0.12
</TABLE>
NOTE 3 -- FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment............................. $ 2,423,536 $ 3,173,420 $ 4,214,739
Office equipment............................... 4,748,086 4,685,196 4,772,432
Furniture and fixtures......................... 3,051,404 3,092,399 3,192,081
Leasehold improvements......................... 1,226,080 1,226,080 1,259,912
----------- ----------- -------------
11,449,106 12,177,095 13,439,164
Less accumulated depreciation.................. (8,257,254) (9,280,870) (10,143,949)
----------- ----------- -------------
$ 3,191,852 $ 2,896,225 $ 3,295,215
========== ========== ===========
</TABLE>
Depreciation expense totaled $1,018,000, $876,000, $1,024,000 and $868,000
in 1994, 1995, 1996 and for the nine months ended September 30, 1997,
respectively.
NOTE 4 -- CAPITALIZED SOFTWARE COSTS
Capitalized software costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Capitalized software costs................... $ 19,171,402 $ 19,905,976 $ 19,905,976
Less accumulated amortization................ (13,414,150) (18,255,637) (19,237,810)
------------ ------------ -------------
$ 5,757,252 $ 1,650,339 $ 668,166
=========== =========== ===========
</TABLE>
The Company capitalized software development costs of $1,491,000,
$1,112,000 and $735,000 during 1994, 1995 and 1996, respectively. Amortization
expense of capitalized software costs was $3,168,000, $3,081,000, $4,841,000 and
$982,000 in 1994, 1995, 1996 and for the nine months ended September 30, 1997,
respectively.
F-12
<PAGE> 67
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
NOTE 5 -- DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Bank line of credit, at prime plus 1.5% (9.75%
at December 31, 1996) secured by all
assets....................................... $ 2,822,118 $ 1,000,000 $ --
Note payable at 9%, due in monthly installments
of $47,700, beginning in February 1996
through January 1999, secured by fixed
assets....................................... 1,500,000 1,085,513 719,103
----------- ----------- -------------
Total debt........................... 4,322,118 2,085,513 719,103
Less amounts due within one year............... (3,238,442) (1,493,763) (528,515)
----------- ----------- -------------
Long-term debt....................... $ 1,083,676 $ 591,750 $ 190,588
========== ========== ==========
</TABLE>
The Company had available credit of $1,000,000 at December 31, 1996 under
its $2,000,000 revolving line of credit agreement. The line of credit expired on
June 30, 1997 (Note 13). The terms of the Company's line of credit agreement
contain a fee, payable quarterly, equal to 1/2% of the average daily unused
portion of the line of credit.
The Company also had available credit of $500,000 at December 31, 1996
under its $1,000,000 restricted line of credit. The restricted line of credit,
which is secured by all assets, requires bank approval prior to utilization. The
amount available under this credit facility had been reduced by a $500,000
standby letter of credit issued to the Company's landlord in the event the
Company defaults on its lease obligations. Interest on any outstanding balance
is charged on this facility at prime plus 2%. The restricted line of credit
expired on June 30, 1997 (Note 13).
At December 31, 1996, the agreements governing the Company's lines of
credit and note payable contained covenants including the maintenance of
profitability levels and debt service coverage ratios and certain restrictions
on the payment of dividends. The Company was in violation of certain of these
covenants at December 31, 1996. On April 30, 1997, the Company received waivers
of these violations.
The Company paid interest of $155,000, $180,000, $414,000 and $244,000 in
1994, 1995, 1996 and for the nine months ended September 30, 1997, respectively.
F-13
<PAGE> 68
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
NOTE 6 -- SEGMENT INFORMATION
The Company classifies its operations into one industry segment, software
development and related services. The Company reports international license and
service revenues net of distributor commissions. Distributor commissions were
$11,342,000, $11,581,000, $11,649,000 and $6,159,000 in 1994, 1995, 1996 and for
the nine months ended September 30, 1997, respectively. Export sales, which
represent sales through international distributors, by geographic area consist
of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------
1994 1995 1996 1997
---------- ---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Europe................................ $6,079,268 $6,903,732 $ 7,121,934 $ 3,092,395
Far East.............................. 1,755,302 2,193,173 2,183,904 1,851,342
Latin America......................... 729,671 858,777 734,287 829,287
Australia and Southeast Asia.......... 462,124 -- -- --
---------- ---------- ----------- -------------
$9,026,365 $9,955,682 $10,040,125 $ 5,773,024
========= ========= ========== ==========
</TABLE>
The Company did not have any international operations in 1994. A summary of
the Company's operations by geographic region in 1995, 1996 and for the nine
months ended September 30, 1997 is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
United States................................. $33,853,964 $35,618,743 $ 28,343,040
Europe........................................ 163,682 544,220 1,544,955
Australia and Southeast Asia.................. 605,860 837,224 793,850
Eliminations.................................. (163,682) (443,789) (304,654)
----------- ----------- -------------
Consolidated.......................... $34,459,824 $36,556,398 $ 30,377,191
========== ========== ==========
Operating (loss) income:
United States................................. $(5,360,185) $(2,262,628) $ 2,096,995
Europe........................................ (17,677) (47,173) (351,532)
Australia and Southeast Asia.................. (279,715) (417,874) (23,479)
Eliminations.................................. -- -- --
----------- ----------- -------------
Consolidated.......................... $(5,657,577) $(2,727,675) $ 1,721,984
========== ========== ==========
Assets at end of period:
United States................................. $31,053,058 $25,195,178 $ 28,161,068
Europe........................................ 53,758 403,348 1,913,174
Australia and Southeast Asia.................. 815,221 807,677 1,064,806
Eliminations.................................. (442,829) (1,330,221) (2,504,114)
----------- ----------- -------------
Consolidated.......................... $31,479,208 $25,075,982 $ 28,634,934
========== ========== ==========
</TABLE>
F-14
<PAGE> 69
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
NOTE 7 -- INCOME TAXES
The (loss) income before income taxes consist of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------- SEPTEMBER 30,
1994 1995 1996 -------------
----------- ----------- ----------- 1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
U.S................................. $(3,079,152) $(4,806,941) $(1,559,453) $ 2,530,204
International subsidiaries.......... -- (302,482) (455,340) (491,952)
----------- ----------- ----------- -------------
(Loss) income before taxes.......... $(3,079,152) $(5,109,423) $(2,014,793) $ 2,038,252
========== ========== ========== ==========
</TABLE>
The (benefit from) provision for income taxes consist of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------- SEPTEMBER 30,
1994 1995 1996 -------------
----------- --------- ----------- 1997
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current taxes (receivable) payable:
U.S. Federal....................... $ (448,086) $(566,102) $ 226,835 $ 342,663
Foreign............................ 460,739 433,608 518,599 374,819
State and local.................... (65,929) 89,949 40,593 56,162
----------- --------- ----------- -------------
(53,276) (42,545) 786,027 773,644
----------- --------- ----------- -------------
Deferred tax (benefit) provision:
U.S. Federal....................... (1,054,108) (812,133) (1,534,972) 38,789
State and local.................... (50,860) (85,735) (63,567) 3,145
----------- --------- ----------- -------------
(1,104,968) (897,868) (1,598,539) 41,934
----------- --------- ----------- -------------
(Benefit from) provision
for income taxes......... $(1,158,244) $(940,413) $ (812,512) $ 815,578
========== ========= ========== ==========
</TABLE>
The Company paid income taxes of $1,128,000, $436,000, $527,000 and
$504,000 in 1994, 1995, 1996 and for the nine months ended September 30, 1997,
respectively. Foreign taxes paid relate primarily to taxes withheld from
revenues remitted by international distributors.
F-15
<PAGE> 70
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
The Company provides deferred taxes for temporary differences between the
bases of assets and liabilities for financial reporting purposes and the bases
of assets and liabilities for tax return purposes. The deferred tax
asset/(liability) at December 31, 1995 and 1996 and September 30, 1997 is
attributable to the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------- -------------
1995 1996 1997
----------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred Tax Assets:
Deferred revenue.............................. $ 842,780 $ 827,289 $ 812,590
Stock incentive plan.......................... 385,581 252,906 511,564
Allowance for doubtful accounts............... 265,398 139,981 198,607
Tax credit carryforwards...................... 874,122 1,221,719 1,221,719
Sublease and general sales tax accrual........ 598,490 260,689 158,932
Capitalized software development costs........ 204,451 181,734 173,600
Losses from international subsidiaries not
utilized................................... -- 185,000 381,694
Other......................................... 202,510 120,303 --
Valuation allowance........................... (690,885) (410,000) (410,000)
----------- ---------- -------------
2,682,447 2,779,621 3,048,706
----------- ---------- -------------
Deferred Tax Liabilities:
Depreciation and amortization................. (1,800,598) (288,059) (300,000)
Other......................................... -- (11,174) (226,384)
----------- ---------- -------------
(1,800,598) (299,233) (526,384)
----------- ---------- -------------
Net deferred tax asset................ $ 881,849 $2,480,388 $ 2,522,322
========== ========= ==========
Current deferred tax asset...................... $ 1,354,059 $2,065,460 $ 1,402,022
Non-current deferred tax (liability) asset...... (472,210) 414,928 1,120,300
----------- ---------- -------------
Net deferred tax asset................ $ 881,849 $2,480,388 $ 2,522,322
========== ========= ==========
</TABLE>
During 1995, the Company recorded a valuation allowance of $690,885 to
reflect foreign tax credit carryforwards that, in the Company's estimation,
would more likely than not expire prior to utilization. During 1996, the Company
reduced the tax credit carryforward valuation allowance to $225,000 to reflect
the increased likelihood that certain of the foreign tax credits would be
realized. The Company also recorded in 1996 a valuation allowance of $185,000 to
reflect the tax effect of estimated international subsidiary net operating
losses that, in the Company's estimation, will more likely than not result in no
future tax benefit to the Company.
At December 31, 1996, the Company had foreign net operating loss
carryforwards of approximately $500,000, of which $100,000 expire in 2001 and
the remaining $400,000 carryforward indefinitely, and are available to offset
future foreign taxable income. In addition, the Company had foreign tax credit
carryforwards of $814,000 which expire in years 2000 through 2001, research and
development tax credit carryforwards of $241,000 which expire in years 2003
through 2004 and a minimum tax credit carryforward of $81,000 which
carryforwards indefinitely, which are available to offset future U.S. tax
liabilities.
F-16
<PAGE> 71
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
The (benefit from) provision for income taxes differs from the amount of
taxes determined by applying the U.S. Federal statutory rate of 34% to income
(loss) before income taxes as a result of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------
1994 1995 1996 1997
----------- ----------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computation of U.S. Federal income taxes at
34%........................................ $(1,046,912) $(1,634,359) $(685,030) $ 693,079
State and local taxes, net of Federal income
tax benefit................................ (81,290) 21,769 (49,750) 73,996
Change in valuation allowance................ -- 690,885 (280,885) --
Provision for competent authority............ -- -- 148,386 --
Other........................................ (30,042) (18,708) 54,767 48,503
----------- ----------- --------- -------------
Benefit from income taxes............... $(1,158,244) $ (940,413) $(812,512) $ 815,578
========== ========== ========= ==========
</TABLE>
Competent authority is a process to resolve unintended results between the
U.S. and foreign taxing jurisdictions. The provision for competent authority was
established in 1996 to reflect management's belief that the outcome of this
process would likely result in a liability.
NOTE 8 -- EMPLOYEE BENEFIT PLANS
The Company has a profit incentive plan ("PIP") which is a defined
contribution plan with a cash (or non-qualified) component covering all
employees with one year of service and providing for annual discretionary
contributions of up to 15% of eligible compensation. Employees are 100% vested
in all contributions to the PIP. The Company did not make contributions to the
PIP in 1994, 1995 or 1996.
The Company also has a 401(k) defined contribution plan. During 1994, 1995,
1996 and the nine months ended September 30, 1997, the Company matched 50% of
the first 3% of employees' deferred contributions. Employees are fully vested in
all Company contributions. The Company recorded expense for its matching
contributions of $169,000, $192,000, $205,000 and $176,000 during 1994, 1995,
1996 and for the nine months ended September 30, 1997, respectively.
NOTE 9 -- MANDATORILY REDEEMABLE PREFERRED STOCK
The Board has the authority to issue up to 8,000,000 shares of preferred
stock, and to determine the price, rights, preferences and privileges of those
shares without further vote or action by the stockholders, subject to the
consent of the holders of outstanding preferred stock, if any.
The Company's Series A Preferred Stock paid cumulative dividends effective
May 1, 1992 at an annual rate of $0.15 per share until April 30, 1997, and
thereafter at an annual rate of $0.375 per share. The holders of Series A
Preferred Stock may not sell, assign or transfer any of the stock without the
Company's prior written consent.
The Company is required to redeem $1,500,000 of Series A Preferred Stock
each year ("redemption year") plus accumulated dividends, beginning May 1, 1997.
Additionally, the Company may redeem all or a portion of the outstanding Series
A Preferred Stock at any time. If the Company redeems all of the outstanding
shares, the Company may pay the redemption amount by any combination of cash and
promissory note. The redemption price will equal $5.00 per share plus 75% of the
amount, if any, by which the lesser (i) of the 1.5 multiplied by the fair market
value per share of the common stock as determined by the Board at
F-17
<PAGE> 72
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
the beginning of the redemption year or (ii) $7.4333 per share, exceeds $5.00
per share. Accordingly, the redemption price per share cannot exceed $6.825 per
share.
The holders of Series A Preferred Stock may convert all, but not less than
all, of the preferred shares into common stock at the time of an initial public
offering ("IPO") of the Company's common stock based upon the relationship
between the redemption price and the IPO price of the Company's common stock. In
addition, the holders of Series A Preferred Stock are entitled to convert all,
but not less than all, of the preferred shares into common stock if the Company
fails to make any dividend or redemption payment or, if applicable, any other
payments due to the holders. Under the terms of the Series A Preferred Stock,
each share of Series A Preferred Stock is convertible into that number (or
fraction) of common stock equal to the ratio of the then-current redemption
price to the then-current fair market value of the Company's common stock, as
determined by the Board, by appraisal, or by reference to the IPO price of the
Company's common stock, as applicable. See Notes 11 and 12.
In 1995, the redemption price of the Series A Preferred Stock was adjusted
based upon the fair market value of the Company's common stock of $4.00 per
share. In April 1997, the Board approved an adjustment in the fair market value
of the Company's common stock to $4.97 to be effective May 1, 1997, which
resulted in an increase in the redemption price of the Series A Preferred Stock.
As described in Note 12, subsequent to December 31, 1996, the Company
issued 395,195 shares of mandatorily redeemable Series B Preferred Stock.
The following table summarizes the activity with respect to the Series A
Preferred Stock and Series B Preferred Stock:
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK
---------------------- --------------------
REDEMPTION REDEMPTION
SHARES VALUE SHARES VALUE
--------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993....................... 1,020,000 $5,390,700 -- $ --
Adjustment to redemption value..................... -- -- -- --
--------- ---------- ------- ----------
Balance at December 31, 1994....................... 1,020,000 5,390,700 -- --
Adjustment to redemption value..................... -- 474,300 -- --
--------- ---------- ------- ----------
Balance at December 31, 1995....................... 1,020,000 5,865,000 -- --
Adjustment to redemption value..................... -- -- -- --
--------- ---------- ------- ----------
Balance at December 31, 1996....................... 1,020,000 5,865,000 -- --
Issuance of Series B preferred stock (unaudited)... -- -- 395,195 2,500,000
Redemption of Series A preferred stock
(unaudited)...................................... (109,891) (750,006) -- --
Adjustment to redemption value (unaudited)......... -- 1,096,500 -- 109,778
--------- ---------- ------- ----------
Balance at September 30, 1997 (unaudited).......... 910,109 $6,211,494 395,195 $2,609,778
======== ========= ======= =========
</TABLE>
NOTE 10 -- REDEEMABLE COMMON STOCK INSTRUMENTS AND STOCKHOLDERS' EQUITY
1994 Stock Incentive Plan
During 1994, the Company adopted the 1994 Stock Incentive Plan ("1994 SIP")
under which employees may acquire shares of the Company's common stock via stock
option grants, restricted stock awards and/or stock bonuses. The 1994 SIP is
administered by the Board, which has the sole discretion to grant options and
restricted stock awards. The 1994 SIP replaced the 1989 Stock Incentive Plan
("1989 SIP") and the 1992
F-18
<PAGE> 73
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
Executive Stock Incentive Plan ("1992 ESIP"). Options outstanding under the 1989
SIP and the 1992 ESIP will remain outstanding until the options either expire or
are exercised.
As of September 30, 1997, a total of 3,000,000 shares of common stock can
be issued under the 1994 SIP through (i) qualified stock options, which qualify
as incentive stock options and have an exercise price equal to or greater than
the fair market value of the common stock, as determined by the Board, at the
date of grant, (ii) non-qualified stock options, which have an exercise price
equal to or greater than 85% of the fair market value of the common stock, as
determined by the Board, on the date of grant, (iii) restricted stock awards for
common stock at a price determined by the Board, but not less than 85% of the
fair market value of the stock at the date of grant, which is non transferable
and subject to repurchase at the holder's cost until Board designated conditions
have been met, or (iv) stock bonuses. See Note 13.
The Company has the right to repurchase at the fair market value, as
determined by the Board, at any time following the termination of a grantee's
employment with the Company for any reason (including retirement, death or
disability), all or any portion of the option shares, restricted stock or bonus
shares then held by the grantee. A grantee does not have the right to require
the Company to repurchase shares issued pursuant to the 1994 SIP.
1992 Executive Stock Incentive Plan
During 1992, the Company adopted the 1992 Executive Stock Incentive Plan
("1992 ESIP") under which key executives were granted options to purchase shares
of the Company's common stock.
While employed by the Company and for a period of ninety days thereafter, a
grantee has the right to require the Company to repurchase at the fair market
value, as established by the Board, all or any portion of the employee's option
shares. The grantee's right to require the Company to repurchase at the fair
market value expires upon an IPO of the Company's common stock. The Company also
has the right to repurchase at the fair market value, at any time following the
termination of a grantee's employment with the Company, all or any portion of
the option shares then held by the grantee.
In 1994, the 1992 ESIP was replaced by the 1994 SIP. No additional grants
will be made under the 1992 ESIP. Options outstanding under the 1992 ESIP will
remain outstanding until the options either terminate or are exercised.
1989 Stock Incentive Plan
During 1989, the Company adopted the 1989 Stock Incentive Plan ("1989 SIP")
under which certain employees were granted options to purchase shares of
Company's common stock and/or restricted stock awards. The 1989 SIP is
administered by the Board, which has the sole discretion to grant options and
restricted stock awards.
While employed by the Company, a grantee has the right to require the
Company to repurchase at the fair market value, as established by the Board, all
or any portion of his (i) option shares and (ii) restricted stock with respect
to which all of the conditions have been met. The Company also has the right to
repurchase at the fair market value, at any time following the termination of a
grantee's employment with the Company, all or any portion of the option shares
or restricted stock then held by the grantee. To the extent that the number of
shares that the Company becomes obligated to purchase under the 1989 SIP during
any twelve-month period exceeds 2% of the outstanding common stock of the
Company, the Company has the right to pay the purchase price for the shares in
excess of the 2% threshold in twelve equal quarterly installments of principal,
with interest at the lesser of 9% or the "applicable Federal rate" applied to
installment purchases under Section 483 of the Internal Revenue Code.
F-19
<PAGE> 74
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
In 1994, the 1989 SIP was replaced by the 1994 SIP. No additional grants
will be made under the 1989 SIP. Options outstanding under the 1989 SIP will
remain outstanding until the options either terminate or are exercised.
1996 Advisory Board Plan
In December 1996, the Company established the 1996 Advisory Board Stock
Incentive Plan ("1996 ABP"). As of September 30, 1997 pursuant to the 1996 ABP,
the Company can issue up to 300,000 options to members of the Company's Advisory
Board. In 1996, the Company granted 120,000 options, which vest over a four year
period at an exercise price of $4.00 per share. The Company will record the fair
value of the options as stock compensation expense ratably over the vesting
period. See Note 13.
Other Stock Options
In 1994, 1995, 1996 and for the nine months ended September 30, 1997, the
Company issued 42,525, 107,799, 24,750 and 85,335 options, respectively, to
former employees of the Company to replace options previously issued under the
1989 SIP, the 1992 ESIP and the 1994 SIP which unexpired unexercised concurrent
with or subsequent to separation from the Company. The terms of the options
granted were similar, but not identical to, the terms of the options they
replaced. The Company recorded compensation expense associated with these
options of $215,000, $90,000 and $60,000 in 1994, 1995 and for the nine months
ended September 30, 1997. The Company did not record compensation expense for
these options in 1996 because such amount was not material.
Options Outstanding and Exercisable
The following table summarizes information about options outstanding for
all stock option plans:
<TABLE>
<CAPTION>
SHARES PRICE PER WEIGHTED AVERAGE
OUTSTANDING SHARE EXERCISE PRICE
UNDER OPTION UNDER OPTION PER SHARE
------------ ------------ ----------------
<S> <C> <C> <C>
Balance at December 31, 1994.................. 2,150,564 $3.00-3.59 $ 3.29
Stock options granted....................... 618,537 3.00-4.00 3.81
Stock options exercised..................... (34,389) 3.33-3.59 3.43
Stock options canceled...................... (385,101) 3.00-4.00 3.35
Stock options expired....................... (29,691) 3.33 3.33
------------
Balance at December 31, 1995.................. 2,319,920 3.00-4.00 3.42
Stock options granted....................... 1,166,010 3.59-4.00 3.99
Stock options exercised..................... (286,083) 3.00-3.59 3.09
Stock options canceled...................... (406,215) 3.00-4.00 3.61
------------
Balance at December 31, 1996.................. 2,793,632 3.00-4.00 3.67
Stock options granted....................... 593,452 3.33-4.97 3.97
Stock options exercised..................... (186,348) 3.00-4.00 3.23
Stock options canceled...................... (285,477) 3.33-4.00 3.85
------------
Balance at September 30, 1997................. 2,915,259 $3.00-4.97 $ 3.74
==========
</TABLE>
F-20
<PAGE> 75
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
The following table summarizes information about options outstanding at
September 30, 1997 by plan:
<TABLE>
<CAPTION>
TOTAL OPTIONS TOTAL OPTIONS TOTAL OPTIONS
OUTSTANDING EXERCISABLE AVAILABLE FOR FUTURE GRANT
------------- ------------- --------------------------
<S> <C> <C> <C>
1989 Stock Incentive Plan............... 72,818 72,724 --
1992 Executive Stock Incentive Plan..... 304,687 304,687 --
1994 Stock Incentive Plan............... 1,909,237 579,129 1,052,363
1996 Advisory Board Plan................ 120,000 30,000 180,000
Other stock options..................... 508,517 284,305 --
------------- ------------- ------------
Total at September 30, 1997............. 2,915,259 1,270,845 1,232,363
========== ========== ===================
</TABLE>
At September 30, 1997, the average exercise price per share of exercisable
options is $3.54. The unvested options vest primarily over a four year period
and will be fully vested in the year 2001. The remaining average option life is
5.6 years.
The fair value of each employee option grant is estimated on the date of
grant using a minimum value model. The weighted-average assumptions included in
the Company's fair value calculations are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Expected life (years)............................ 5 5 5
Risk-free interest rate.......................... 5-6% 6-7 % 6-7 %
Volatility....................................... 0 0 0
Dividend yield................................... 0% 0 % 0 %
</TABLE>
The weighted-average fair value of stock options granted under the employee
stock option plans during 1995, 1996 and for the nine months ended September 30,
1997 was $1.01, $1.08 and $1.05, respectively. Had the Company determined
compensation costs for these plans in accordance with SFAS No. 123 (Note 2), the
Company's pro forma primary and fully diluted net (loss) income would have been
$(4,210,000) in 1995, $(1,391,000) or $(0.15) per share in 1996 and $862,000 or
$0.08 for the nine months ended September 30, 1997. The SFAS No. 123 method of
accounting does not apply to options granted prior to January 1, 1995 and,
accordingly, the resulting pro forma compensation cost may not be representative
of that to be expected in the future.
Stock Bonuses
During 1994 and 1995, the Board approved stock bonuses of 1,200 and 750
shares, respectively, of common stock to be given to employees. The shares
issued were recorded as compensation expense of $4,304 and $3,000, respectively.
This stock was issued with the same restrictions as stock issued under the 1989
SIP. During 1996, the Board did not approve any stock bonuses.
Employee Stock Purchase Plan
During 1991, the Company adopted an Employee Stock Purchase Plan ("ESPP")
under which employees may purchase shares of the Company's common stock. The
Board will determine the number of shares of common stock made available under
this plan for each purchase year. For each of the plan years ended April 30,
1995, 1996 and 1997, 75,000 shares were made available for purchase. For the
plan year ended April 30, 1998, the Board did not make any shares of common
stock available for purchase. For the plan years ended April 30, 1995 and 1996,
4,557 and 20,817 shares, respectively, were purchased. For the plan year ended
April 30, 1997, 5,192 shares were purchased as of December 31, 1996 and the
remaining 69,808 shares were
F-21
<PAGE> 76
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
subsequently purchased. Shares are purchased at their fair market value as
determined by the Board. Eligible employees can purchase shares valued at up to
10% of their gross cash compensation.
The shares employees purchase under this plan are subject to certain
transfer restrictions. Without the prior written consent of the Company, an
employee cannot sell, assign or transfer any common stock purchased under this
plan to any person or entity other than the Company, another shareholder or
employee. Under certain conditions, the employee can elect to require the
Company to repurchase their shares at fair market value. At any time following
the termination of an individual's employment, the Company has the right to
repurchase the employee's shares acquired through this plan at fair market
value.
Stock Compensation Expense
The Company records stock compensation expense for the amount, if any, by
which the fair market value of the Company's common stock exceeds the option
exercise price at the date of the option grant. The Company also records stock
compensation expense for shares and options outstanding under the 1989 SIP, the
1992 ESIP and the ESPP to reflect any increase in the amount at which the
holders may require the Company to repurchase such shares. The Company records
stock compensation benefit to reflect any forfeitures of unvested stock options.
The Company recorded stock compensation expense (benefit) of $28,000, $763,000,
$(96,000) and $568,000 in 1994, 1995, 1996 and for the nine months ended
September 30, 1997, respectively. The fair market value of the Company's common
stock, as determined by the Board effective as of May 1 of each year, was $3.59,
$4.00, $4.00 and $4.97 for 1994, 1995, 1996 and 1997, respectively.
Redeemable Common Stock Instruments
The redeemable common stock instruments represent shares of common stock
and options to acquire common stock issued by the Company to certain employees
pursuant to the 1989 SIP, the 1992 ESIP, the ESPP and other agreements whereby
the holder has the right to require the Company to repurchase such shares at
their current fair market value as determined by the Company's Board. The rights
of holders of Redeemable Common Stock Instruments to require the Company to
repurchase such shares automatically lapses on the effective date of an initial
public offering of the Company's common stock.
F-22
<PAGE> 77
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
The following table summarizes the activity with respect to the redeemable
common stock instruments:
<TABLE>
<CAPTION>
SHARES OF COMMON REDEMPTION
STOCK UNDERLYING SHARES OF VALUE OF
REDEEMABLE REDEEMABLE COMMON STOCK
STOCK OPTIONS COMMON STOCK INSTRUMENTS
---------------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1993....................... 715,470 25,005 $ 310,578
Compensation for non-qualified redeemable stock
options....................................... -- -- 10,582
Redeemable common stock issued................... (57,080) 62,837 209,916
Redeemable common stock repurchased by the
Company....................................... -- (59,168) (212,214)
Redeemable stock option grants................... 698,941 -- --
Expiration of redeemable stock option grants..... (13,032) -- --
Cancellation of redeemable stock option grants... (162,525) -- --
--------- -------- ----------
Balance at December 31, 1994....................... 1,181,774 28,674 318,862
Compensation for non-qualified redeemable stock
options....................................... -- -- 673,445
Redeemable common stock issued................... (34,239) 55,806 199,236
Redeemable common stock repurchased by the
Company....................................... -- (37,363) (142,500)
Cancellation of redeemable stock option grants... (223,097) -- --
--------- -------- ----------
Balance at December 31, 1995....................... 924,438 47,117 1,049,043
Redeemable common stock issued................... (286,083) 303,540 952,456
Redeemable common stock repurchased by the
Company....................................... (300,297) (1,201,188)
Cancellation of redeemable stock option grants... (66,345) -- --
Forfeiture of unvested redeemable stock
options....................................... -- -- (96,381)
--------- -------- ----------
Balance at December 31, 1996....................... 572,010 50,360 703,930
Adjustment to redemption value................... -- -- 425,834
Redeemable common stock issued................... (142,473) 212,171 716,897
Redeemable common stock repurchased by the
Company....................................... -- (19,433) (93,366)
Cancellation of redeemable stock option grants... (20,967) -- (4,185)
Waiver of rights to require repurchase........... (213,750) (8,240) (237,108)
--------- -------- ----------
Balance at September 30, 1997...................... 194,820 234,858 $1,512,002
========= ======== ==========
</TABLE>
F-23
<PAGE> 78
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
NOTE 11 -- COMMITMENTS
During 1988, the Company entered into a ten-year lease for office space
which included a rent abatement for one and one-half years. Rental expense has
been calculated as total rental payments spread ratably over the life of the
lease. An accrued rent expense is created in years when rent expense exceeds
cash payments. In 1996, the Company extended the lease commitment by five years.
The current and long-term portions of the deferred rent abatement at December
31, 1996 are $87,000 and $479,000, and at September 30, 1997 are $87,000 and
$413,000, respectively, and have been included in accrued expenses or other
liabilities, as appropriate.
The Company is committed for the payment of minimum rentals, exclusive of
escalation charges and renewal options, under office space, computer and other
equipment operating lease agreements through 2003 in the following amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
------------------------------------------------------------ -----------
<S> <C>
1997................................................. $ 2,267,000
1998................................................. 2,538,000
1999................................................. 2,649,000
2000................................................. 2,313,000
2001................................................. 2,379,000
Thereafter........................................... 3,687,000
-----------
$15,833,000
==========
</TABLE>
Additionally, the Company leases certain equipment under cancelable
operating leases. The total rental expense under all equipment and office space
operating leases was approximately $3,700,000, $3,600,000, $3,500,000 and
$2,100,000 in 1994, 1995, 1996 and the nine months ended September 30, 1997,
respectively.
During 1994, the Company subleased office space for rates below the
Company's then current lease rates and recognized expenses of $651,000 for the
sublease rate differential. Additionally, during 1994 and 1995, the Company
attempted to sublease additional office space below market rates and recorded
expenses of $128,000 and $266,000 in 1994 and 1995, respectively, for the
anticipated rate differential. During 1996, the Company was able to terminate
its lease for the office space it was attempting to sublease and reversed a
reserve of $351,000.
In June 1992, the Company entered into a five-year non-compete agreement
with a former officer who is also a common stockholder and a Series A Preferred
stockholder pursuant to which the Company paid the former officer $22,917 per
month from May 1992 through January 1993 and $20,000 per month from February
1993 through April 1997. In addition, the former officer received $50,000 per
year from May 1992 through January 1993 and $15,000 per year from February 1993
through April 1997 for services rendered as a member of the Board.
NOTE 12 -- SUBSEQUENT EVENTS
Infarmedica Transaction
In January 1997, the Company signed an agreement to acquire certain rights
and related assets from Infarmedica Holding AG ("Infarmedica"), a former
distributor of the Company's products. Under the terms of the agreement
governing this relationship, Infarmedica held exclusive rights to market certain
of the Company's products in Austria, the Benelux countries, Germany and
Switzerland. As a result of the 1997 agreement, the Company gained access to its
significant customer base in these European countries (including
F-24
<PAGE> 79
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
an assignment of license and maintenance agreements) and established
subsidiaries in Germany and The Netherlands to support these customers directly.
In consideration for the acquisition of these rights, the Company will pay
Infarmedica $1,800,000 in installment payments from 1997 through 1999, of which
a minimum of $900,000 is required to be paid in 1997. In addition, the Company
granted Infarmedica a warrant to purchase 225,000 shares of the Company's common
stock at $4.00 per share, which was fully vested upon issuance, expires on
January 1, 2007 and is transferable only with the Company's consent. The Company
recorded the acquisition of the customer base as an intangible asset
representing the present value of the cash payments plus the fair value of the
warrant issued. The related intangible asset will be amortized over three years.
Mandatorily Redeemable Series B Preferred Stock
In March 1997, the Company amended its articles to designate 1,580,779
shares of Series B Preferred Stock and authorized the sale and issuance of such
shares. The Series B Preferred Stock is convertible, at the option of the
holder, into the Company's common stock based on a ratio of $6.326 to a
conversion price. Additionally, the Series B Preferred Stock is redeemable at
the holder's option at the earlier of December 31, 2000 or six months after an
IPO of the Company's common stock. The conversion price is initially established
at $6.326, but may be adjusted downward in the event that the Company issues
additional shares of common stock (or other securities convertible into common
stock) at a price less than the conversion price. The redemption price of the
Series B Preferred Stock is the sum of (i) $6.326 per share, plus interest of 8%
per annum, (ii) dividends declared but unpaid thereon, and (iii) interest of 8%
per annum on dividends declared but unpaid. Each outstanding share of Series B
Preferred Stock will be automatically converted into 1.5 shares of the Company's
common stock immediately upon the closing of a qualified public offering, as
defined. If a conversion does not occur, each holder of Series B Preferred Stock
may require the Company to redeem all or part of such holder's outstanding
Series B Preferred Stock at any time after the earliest of December 31, 2000 or
six months following the filing by the Company of a registration of its shares
with the Securities and Exchange Commission.
Concurrent with the authorization of Series B Preferred Stock, the Company
issued 316,156 shares of Series B Preferred Stock at a price of $6.326 per share
and, in April 1997, an additional 79,039 shares of Series B Preferred Stock at a
price of $6.326 per share. Based on these issuances, the purchaser is entitled
to elect a representative to the Board.
NOTE 13 -- EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF ACCOUNTANTS' REPORT
In July 1997, the Company amended its 1996 ABP to allow the Company to
issue options to designated outside members of the Company's Board and to rename
the 1996 ABP to the 1996 Advisory Board and Directors Stock Incentive Plan. At
the same time, the Company amended the 1996 ABP to increase the maximum options
issuable for grant from 150,000 to 300,000.
In July 1997, the Company amended its 1994 SIP to increase the maximum
number of options issuable from 2,250,000 to 3,000,000.
The revolving line of credit expired on June 30, 1997. The Company has
received a letter offering a commitment for a new facility.
In October 1997, the Company terminated the Advisory Board, accelerated the
vesting of 18,000 options granted pursuant to the 1996 ABP which were scheduled
to vest on December 31, 1997, and cancelled 36,000 unvested options granted
pursuant to the 1996 ABP.
F-25
<PAGE> 80
LANDMARK SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED
NOTE 14 -- RECAPITALIZATION (UNAUDITED)
On September 15, 1997, the Board approved a three-for-two stock split of
the Company's Common Stock, effective immediately prior to the date of this
Prospectus, and an increase in the number of authorized shares of Common Stock
from 15 million shares to 30 million shares. All references to the number of
shares authorized, issued and outstanding and per share information for all
periods presented have been adjusted to give effect to the aforementioned stock
split and share authorization.
F-26
<PAGE> 81
=========================================================
NO UNDERWRITER, DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR A
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 26
Management............................ 37
Certain Transactions.................. 45
Principal and Selling Stockholders.... 46
Description of Capital Stock.......... 47
Shares Eligible for Future Sale....... 50
Underwriting.......................... 52
Legal Matters......................... 53
Experts............................... 53
Additional Information................ 53
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This requirement
is in addition to the obligation of dealers to deliver a Prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
=========================================================
=========================================================
3,200,000 SHARES
LANDMARK LOGO
COMMON STOCK
------------------------
PROSPECTUS
------------------------
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
, 1997
=========================================================
<PAGE> 82
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..................... $ 11,153
NASD Filing Fee................................................... 4,180
Nasdaq National Market Listing Fee................................ 43,402
Accounting Fees and Expenses...................................... 250,000
Blue Sky Fees and Expenses........................................ 5,000
Legal Fees and Expenses........................................... 200,000
Transfer Agent and Registrar Fees and Expenses.................... 15,000
Printing Expenses................................................. 85,000
Miscellaneous Expenses............................................ 6,265
--------
Total................................................... $620,000
========
</TABLE>
- ---------------
* All amounts are estimates except the SEC filing fee, the NASD filing fee and
the Nasdaq National Market listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 13.1-697 of the Virginia Stock Corporation Act, as amended,
authorizes a corporation to indemnify an individual made a party to a proceeding
because he is or was a director against liability incurred in the proceeding if
such individual has conducted himself in good faith and if, in the course of
conduct in his official capacity, he believed that his conduct was in the best
interest of the corporation, and in all other cases, he believed that his
conduct was at least not opposed to the corporation's best interest. A
corporation is also authorized to indemnify a director in the case of any
criminal proceeding if the director had no reasonable cause to believe his
conduct was unlawful. The termination of the proceeding by judgment, order,
settlement or conviction is not, of itself, determinative that the director did
not meet the prescribed standard of conduct. A corporation may not indemnify a
director in connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation or in connection
with any other proceeding charging the director whether or not involving action
in his official capacity in which the director was adjudged liable on the basis
that personal benefit was improperly received by him.
Sections 13.1-698 and 13.1-702 of the VSCA provide that unless limited by
its articles of incorporation, a corporation shall indemnify each director,
officer, employee or agent who entirely prevails in the defense of any
proceeding to which he was a party because he is or was a director, officer,
employee or agent of the corporation against reasonable expenses incurred by him
in connection with the proceeding.
Section 13.1-704(B) of the VSCA provides that any corporation shall have
the power to make any further indemnity, including indemnity with respect to a
proceeding by or in the right of the corporation, and to make additional
provisions for advances and reimbursement of expenses to any director, officer,
employee or agent that may be authorized by the articles of incorporation or by
any bylaw made by the shareholders or any resolution adopted, before or after
the event, by the shareholders except an indemnity against willful misconduct or
a knowing violation of criminal law.
Article Ninth of the Registrant's Articles of Incorporation provides for
indemnification of officers and directors in the situations authorized by the
VSCA. In addition, the Underwriting Agreement provides for certain
indemnification of officers, directors and controlling persons of the
Registrant.
II-1
<PAGE> 83
The Registrant intends to obtain prior to the effective date 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 liability arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is information concerning sales of unregistered securities
by the Company from October 1, 1994 to September 30, 1997 on an actual basis
(without regard to the pro forma adjustments appearing in the Prospectus):
(i) The Company granted stock options to employees and advisors
pursuant to the Stock Incentive Plans covering an aggregate of 1,523,832
shares of Common Stock exercisable at prices ranging from $4.50 to $7.45
per share.
(ii) The Company issued and sold an aggregate of 338,655 shares of
Common Stock to employees and advisors for an aggregate cash consideration
of $1,606,441 pursuant to exercises of stock options granted under the
Stock Incentive Plans.
(iii) The Company issued and sold an aggregate of 73,563 shares of
Common Stock to employees for an aggregate cash consideration of $433,095
pursuant to the Stock Purchase Plan.
(iv) On January 1, 1997, the Company issued warrants to purchase an
aggregate of 150,000 shares of Common Stock at $6.00 per share.
(v) On March 7, 1997 and April 1, 1997, the Company issued an
aggregate of 395,195 shares of Series B Preferred Stock to an accredited
investor for an aggregate cash consideration of $2,500,000.
No underwriters were involved in any of the foregoing transactions. The
issuances described in Items 15(i), (ii) and (iii) were deemed exempt from
registration under the Securities Act in reliance on Rule 701 and were granted
in compensatory arrangements pursuant to a written compensatory benefit plan or
pursuant to a written contract relating to compensation. The issuance described
in Item 15(iv) was deemed exempt from registration under the Securities Act in
reliance on Section 4(2). The issuance described in Item 15(v) was deemed exempt
from registration under the Securities Act in reliance on Rule 506. In addition,
the recipients of securities described in the transactions described in Items
15(i) to (v) represented their intentions to acquire securities for investment
only and not with a view to or for sale in connection with any distribution
thereof. Appropriate legends were affixed to the stock certificates issued in
the above transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation
3.2 Amended and Restated Bylaws
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2+ Specimen certificate of Common Stock
5.1+ Opinion of Shaw, Pittman, Potts & Trowbridge as to the legality of the Common
Stock
10.1 Employment agreement between the Company and Ralph E. Alexander dated April
9, 1997
10.2 1989 Stock Incentive Plan
10.3* 1991 Employee Stock Purchase Plan
10.4 1992 Executive Stock Incentive Plan
10.5* 1994 Stock Incentive Plan
</TABLE>
II-2
<PAGE> 84
<TABLE>
<C> <S>
10.6* 1996 Advisory Board and Directors Stock Incentive Plan
10.7 Registration Rights Agreement, dated as of March 7, 1997, among the Company,
certain Purchasers, Patrick H. McGettigan, Katherine K. Clark and Jeffrey H.
Bergman
11.1 Statement regarding calculation of net (loss) income per share
22.1* Subsidiaries of the Company
23.1+ Consent of Shaw, Pittman, Potts & Trowbridge (included in Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP
24.1* Power of Attorney
27 Financial Data Schedule
</TABLE>
- ---------------
* Filed previously.
+ To be filed by amendment.
(b) Financial Statement Schedules
The following financial statement schedule is submitted under Item 16(b):
Schedule II -- Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since they are
not required or are not applicable or the required information is shown in the
Consolidated Financial Statements or Notes thereto.
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
of 1933, as amended (the "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 the purpose of determining any liability under the 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 issuer 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 the Commission declared it effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Vienna,
State of Virginia on the 23rd day of October, 1997.
LANDMARK SYSTEMS CORPORATION
(Registrant)
By: /s/ KATHERINE K. CLARK
------------------------------------
Katherine K. Clark
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- -----------------
<C> <S> <C>
/s/ PATRICK H. MCGETTIGAN* Chairman of the Board October 23, 1997
- -------------------------------------
Patrick H. McGettigan
/s/ KATHERINE K. CLARK Chief Executive Officer and October 23, 1997
- ------------------------------------- Director (Principal Executive
Katherine K. Clark Officer)
/s/ RALPH E. ALEXANDER President, Chief Operating Officer, October 23, 1997
- ------------------------------------- Chief Financial Officer,
Ralph E. Alexander Secretary, Treasurer and Director
(Principal Financial Officer)
/s/ HENRY D. BARRATT, JR.* Director October 23, 1997
- -------------------------------------
Henry D. Barratt, Jr.
/s/ JEFFREY H. BERGMAN* Director October 23, 1997
- -------------------------------------
Jeffrey H. Bergman
/s/ T. EUGENE BLANCHARD* Director October 23, 1997
- -------------------------------------
T. Eugene Blanchard
/s/ PATRICK W. GROSS* Director October 23, 1997
- -------------------------------------
Patrick W. Gross
/s/ LESLIE J. COLLINS Vice President and Controller October 23, 1997
- ------------------------------------- (Principal Accounting Officer)
Leslie J. Collins
</TABLE>
* By Ralph E. Alexander by power of attorney.
II-4
<PAGE> 86
LANDMARK SYSTEMS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------- ------------ ---------- ---------- ----------
BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO END OF
DESCRIPTION PERIOD OPERATIONS DEDUCTIONS PERIOD
- ---------------------------------------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994
Allowance for uncollectible accounts $297,961 $855,249 $ (539,394)(A) $ 613,816
Deferred tax asset valuation allowance $ -- $ -- $ -- $ --
Year Ended December 31, 1995
Allowance for uncollectible accounts $613,816 $761,425 $ (650,902)(A) $ 724,339
Deferred tax asset valuation allowance $ -- $690,885 $ -- $ 690,885
Year Ended December 31, 1996
Allowance for uncollectible accounts $724,339 $303,913 $ (646,208)(A) $ 382,044
Deferred tax asset valuation allowance $690,885 $ -- $ (280,885)(B) $ 410,000
Nine Months Ended September 30, 1997
Allowances for uncollectible accounts $382,044 $501,813 $ (387,340)(A) $ 496,517
Deferred tax asset valuation allowance $410,000 -- -- $ 410,000
</TABLE>
(A) Uncollectible accounts written off
(B) Reduction in the tax valuation allowance
S-1
<PAGE> 87
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBITS PAGE
- -------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1 Articles of Incorporation
3.2 Amended and Restated Bylaws
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2+ Specimen certificate of Common Stock
5.1+ Opinion of Shaw, Pittman, Potts & Trowbridge as to the legality of the
Common Stock
10.1 Employment agreement between the Company and Ralph E. Alexander dated
April 9, 1997
10.2 1989 Stock Incentive Plan
10.3* 1991 Employee Stock Purchase Plan
10.4 1992 Executive Stock Incentive Plan
10.5* 1994 Stock Incentive Plan
10.6* 1996 Advisory Board and Directors Stock Incentive Plan
10.7 Registration Rights Agreement, dated as of March 7, 1997, among the
Company, certain Purchasers, Patrick H. McGettigan, Katherine K.
Clark and Jeffrey H. Bergman
11.1 Statement regarding calculation of net (loss) income per share
22.1* Subsidiaries of the Company
23.1+ Consent of Shaw, Pittman, Potts & Trowbridge (included in Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP
24.1* Power of Attorney
27 Financial Data Schedule
</TABLE>
- ---------------
* Filed previously.
+ To be filed by amendment.
<PAGE> 88
[GATEFOLD]
[Three arrows, each identifying a stage in the application lifecycle, forming a
circle. The activities performed at each stage of the lifecycle are identified]
PERFORMANCEWORKS NAVIGRAPH -- SAMPLE SCREEN
PRODUCTION STAGE
Landmark's products provide data collection, real-time monitoring and
troubleshooting to provide optimal system operation.
PERFORMANCEWORKS PREDICTOR -- SAMPLE SCREEN
PLANNING STAGE
Landmark's products are used to identify resource requirements and to establish
appropriate service levels through modeling, trend analysis and load simulation.
PERFORMANCEWORKS SMARTAGENT FOR UNIX -- SAMPLE SCREEN
DEVELOPMENT STAGE
Landmark's products perform application tuning, assist in stress testing and
conduct resource impact analysis to assess application performance prior to
deployment.
PERFORMANCEWORKS(TM)
Landmark's PerformanceWorks product family enables businesses to optimize system
performance and resource utilization while maintaining a high and consistent
level of user productivity.
<PAGE> 1
LANDMARK SYSTEMS CORPORATION
3,200,000 Shares
Common Stock
($0.01 par value)
UNDERWRITING AGREEMENT
November __, 1997
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters,
c/o Unterberg Harris
10 East 50th Street, 22nd Floor
New York, New York 10022
Dear Sirs:
Landmark Systems Corporation, a Virginia corporation (the "Company"),
and the persons named on Schedule II hereto (the "Selling Shareholders")
propose to sell an aggregate of 3,200,000 shares of the Company's common stock,
par value $0.01 per share (the "Common Stock"), to the underwriters named on
Schedule I hereto (the "Underwriters"), for whom you (the "Representatives")
are acting as representatives, of which 2,000,000 shares are to be issued and
sold by the Company, and 1,200,000 shares are to be sold by the Selling
Shareholders. The 2,000,000 shares of Common Stock to be issued and sold by the
Company are hereinafter called the "Company Shares." The 1,200,000 shares of
Common Stock to be sold by the Selling Shareholders are hereinafter called the
"Shareholder Shares." The Company Shares and Shareholder Shares are
hereinafter called the "Firm Shares." The Selling Shareholders have also
granted to the Underwriters an option to purchase up to 480,000 additional
shares of Common Stock (the "Option Shares;" the Option Shares, together with
the Firm Shares, being hereinafter called the "Shares").
1. Registration Statement and Prospectus. The Company has filed
with the Securities and Exchange Commission (the "Commission") a registration
statement on Form S-1 (Registration No. 333-35629), including a preliminary
prospectus, for the registration of the Shares under the Securities Act of
1933, as amended (the "Act"), has filed such amendments thereto, if any, and
such amended preliminary prospectuses as may have been required to the date of
this Underwriting Agreement (the "Agreement"), and will file such additional
amendments thereto and such amended prospectuses as may hereafter be required.
The term "preliminary prospectus" as used herein means a preliminary prospectus
as contemplated by Rule 430 or Rule 430A of the rules and regulations of the
Commission under the Act (the "Rules and Regulations") included at any time as
part of the registration
<PAGE> 2
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 2
statement. Copies of such registration statement and amendments and of each
related preliminary prospectus have been delivered to the Representatives. If
such registration statement has not become effective, a further amendment to
such registration statement, including a form of final prospectus, necessary to
permit such registration statement to become effective will be filed promptly
by the Company with the Commission. If such registration statement has become
effective, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will be
filed promptly by the Company with the Commission in accordance with Rule
424(b) of the Rules and Regulations. The term "Registration Statement" means
the registration statement as amended on the date it becomes or became
effective (the "Effective Date"), including financial statements and all
exhibits and any information deemed to be included by Rule 430A. The term
"Registration Statement" shall include any registration statement filed by the
Company pursuant to Rule 462(b) under the Act from and after the date and time
of such filing. The term "Prospectus" means the prospectus as first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no
such filing is required, the form of final prospectus included in the
Registration Statement. All references in this Agreement to the Registration
Statement, a preliminary prospectus or the Prospectus, or any amendments or
supplements to any of the foregoing, shall include any copy thereof filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval System.
2. Agreements to Sell and Purchase. The Company hereby agrees to
issue and sell the Company Shares to the Underwriters, and each Selling
Shareholder, severally and not jointly, hereby agrees to sell to the
Underwriters the number of Shareholder Shares set forth opposite such Selling
Shareholder's name on Schedule II hereto. Each of the Underwriters, upon the
basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, agrees, severally and not jointly, to
purchase from the Company and such Selling Shareholders at a price per share of
$_____ (the "Purchase Price"), the respective number of Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may
determine) that bears the same proportion to the number of Firm Shares to be
sold by the Company or by such Selling Shareholders as the number of Firm
Shares set forth opposite the name of such Underwriter on Schedule I bears to
the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, each Selling Shareholder,
severally and not jointly, agrees to sell to the Underwriters the Option Shares
held by such Selling Shareholders which the Underwriters have exercised their
option to purchase and the Underwriters shall have the right to purchase,
severally and not jointly, up to 480,000 Option Shares from the
<PAGE> 3
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 3
Selling Shareholders at the Purchase Price. Each Selling Shareholder shall
sell the number of Option Shares the Underwriters have exercised their option
to purchase (subject to such adjustments to eliminate fractional shares as the
Representatives may determine) up to the number of Option Shares set forth
opposite the name of such Selling Shareholder on Schedule II. Option Shares may
be purchased solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Shares. The Underwriters may exercise
their right to purchase Option Shares in whole or in part from time to time by
giving written notice thereof to each of the Selling Shareholders within 30
days after the date of the Prospectus. The Representatives shall give any such
notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Option Shares to be purchased pursuant to such exercise and
the date for payment and delivery thereof. The date specified in any such
notice shall be a business day (i) no earlier than the Closing Date (as
hereinafter defined), (ii) no later than ten business days after such notice
has been given, and (iii) unless otherwise agreed to by the Selling
Shareholders, no earlier than two business days after such notice has been
given. If any Option Shares are to be purchased, each Underwriter, severally
and not jointly, agrees to purchase from the Selling Shareholders the number of
Option Shares (subject to such adjustments to eliminate fractional shares as
the Representatives may determine) which bears the same proportion to the total
number of Option Shares the Underwriters have exercised their option to
purchase from the Selling Shareholders as the number of Firm Shares set forth
opposite the name of such Underwriter on Schedule I bears to the total number
of Firm Shares.
The Company and each of the Selling Shareholders hereby agree,
severally and not jointly, prior to or concurrently with the execution of this
Agreement, to execute and deliver an agreement (the "Lock-Up Agreement"),
pursuant to which each such person agrees, not to offer, sell, contract to
sell, grant any option to purchase, or otherwise dispose of any Common Stock of
the Company or any shares convertible into or exercisable or exchangeable for
such Common Stock or in any other manner transfer all or a portion of the
economic consequences associated with the ownership of any such Common Stock,
except to the Underwriters pursuant to this Agreement, for a period of 180 days
following the Effective Date (the "Lock-Up Period") without the prior written
consent of Unterberg Harris. Notwithstanding the foregoing, during the Lock-Up
Period the Company (i) may issue Common Stock and/or grant options to purchase
Common Stock pursuant to the Company's existing stock option plans, and (ii)
may issue and sell Common Stock in connection with acquisitions, provided, that
in connection with any such acquisition, (A) the purchaser of such Common Stock
is subject to a lock-up agreement with Unterberg Harris for 180 days from the
date of issuance, and (B) the Company has delivered a written notice of such
issuance or sale in connection with acquisitions to Unterberg Harris at least
15 days prior to such issuance or sale. The Company has further agreed that it
will not file a registration
<PAGE> 4
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 4
statement on Form S-8 under the Act until 90 days after the Effective Date. In
addition, the Company agrees to use its best efforts to cause each of the
directors, executive officers and shareholders of the Company listed on Annex I
hereto to sign the Lock-Up Agreement.
3. Terms of Public Offering. The Company and the Selling
Shareholders are advised by you that the Underwriters propose (i) to make a
public offering of their respective portions of the Shares as soon after the
Effective Date as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 10:00 a.m., New York City time, on
_______ 1997 (the "Closing Date"), unless otherwise permitted or required by
the Commission pursuant to Rule 15c6-1 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), at such place as you shall designate. Payment
for the Firm Shares shall be made by wire transfer on the Closing Date in same
day funds. The Closing Date and the location of delivery of and the form of
payment for the Firm Shares may be varied by agreement among you, the Company
and the Selling Shareholders.
Delivery to the Underwriters of and payment for any Option Shares to
be purchased by the Underwriters shall be made at such place as the
Representatives shall designate at 10:00 a.m., New York City time, on the date
specified in the applicable exercise notice given by the Representatives
pursuant to Section 2 (the "Option Closing Date"). Payment for the Option
Shares shall be made by wire transfer on the Option Closing Date in same day
funds. The Option Closing Date and the location of delivery of and the form of
payment for such Option Shares may be varied by agreement among the
Representatives and the Selling Shareholders.
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date or the Option Closing Date, as the
case may be. Such certificates shall be made available to you for inspection
not later than 1:00 p.m., New York City time, on the business day next
preceding the Closing Date or the Option Closing Date, as the case may be.
Certificates in definitive form evidencing the Shares shall be delivered to you
on the Closing Date or the Option Closing Date, as the case may be, with any
transfer taxes thereon duly paid by the respective Selling Shareholders, for
the respective accounts of the several Underwriters, against payment of the
Purchase Price therefor by certified or official bank checks payable in New
York Clearing House next day funds to the order of the Company and the
applicable Selling Shareholders.
<PAGE> 5
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 5
5. Agreements of the Company. The Company agrees with you that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the date and time that this
Agreement is executed (the "Execution Time"), to become effective. Prior to the
termination of the offering of the Shares, the Company will not file any
amendment of the Registration Statement or supplement to the Prospectus without
the prior consent of Unterberg Harris. Subject to the foregoing sentence, if
the Registration Statement has become or becomes effective pursuant to Rule
430A, or filing of the Prospectus is otherwise required under Rule 424(b), the
Company will cause the Prospectus, properly completed, and any supplement
thereto to be filed with the Commission pursuant to the applicable paragraph of
Rule 424(b) within the time period prescribed and will provide evidence
satisfactory to the Representatives of such timely filing. In addition, if the
Effective Date of the Registration Statement is prior to the Execution Time and
an additional registration statement is necessary to register a portion of the
Shares under the Act but the Effective Date thereof has not occurred as of such
execution and delivery, the Company will file the additional registration
statement or, if filed, will file a post-effective amendment thereto with the
Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00
p.m., New York time, on the date of this Agreement or, if earlier, on or prior
to the time the Prospectus is printed and distributed to any Underwriter, or
will make such filing at such later date as shall have been consented to by the
Representatives. The Company will promptly advise the Representatives (i) when
the Registration Statement, if not effective at the Execution Time, shall have
become effective, (ii) when the Prospectus, and any supplement thereto, shall
have been filed (if required) with the Commission pursuant to Rule 424(b),
(iii) when, prior to termination of the offering of the Shares, any amendment
to the Registration Statement shall have been filed or become effective, (iv)
of any request by the Commission for any amendment of the Registration
Statement or supplement to the Prospectus or for any additional information,
(v) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or threatening
of any proceeding for that purpose and (vi) of the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company will use its best efforts to prevent
the issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Shares
is required to be delivered under the Act, any event occurs as a result of
which the Prospectus as then supplemented would include any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances
<PAGE> 6
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 6
under which they were made not misleading, or if it shall be necessary to amend
the Registration Statement or supplement the Prospectus to comply with the Act
or the rules thereunder, the Company promptly will prepare and file with the
Commission, subject to the second sentence of paragraph (a) of this Section 5,
an amendment or supplement which will correct such statement or omission or
effect such compliance. Neither Unterberg Harris' consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall constitute a
waiver of any of the conditions set forth in Section 8 hereof.
(c) As soon as practicable, but not later than the
"Availability Date" (as defined below), the Company will make generally
available to its security holders and to the Representatives an earnings
statement or statements of the Company which will satisfy the provisions of
Section 11(a) of the Act and Rule 158 under the Act. For purposes of the
preceding sentence, "Availability Date" means the 45th day after the end of the
fourth fiscal quarter following the fiscal quarter that includes the Effective
Date, except that, if such fourth fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the end of
such fourth fiscal quarter.
(d) The Company will furnish to the Representatives and
counsel for the Underwriters, without charge, (i) signed copies of the
Registration Statement (including exhibits thereto) and to each other
Underwriter a copy of the Registration Statement (without exhibits thereto)
and, (ii) prior to 10:00 a.m., New York City time, on the Business Day next
succeeding the date of this Agreement and from time to time so long as delivery
of a prospectus by an Underwriter or dealer may be required by the Act, as many
copies of each Preliminary Prospectus and the Prospectus and any supplement
thereto as the Representatives may reasonably request. The Company will pay
all expenses of printing or other production of the Registration Statement, the
Preliminary Prospectus and the Prospectus.
(e) The Company will arrange for the qualification of the
Shares for sale under the laws of such jurisdictions as the Representatives may
designate, will maintain such qualifications in effect so long as required for
the distribution of the Shares and will pay the fee of the National Association
of Securities Dealers, Inc. ("NASD"), in connection with its review of the
offering.
(f) The Company will use the net proceeds received by it from
the sale of the Shares in the manner specified in the Prospectus under "Use of
Proceeds."
<PAGE> 7
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 7
(g) For five years after the date of this Agreement, the
Company will (i) mail as soon as reasonably practicable after the end of each
fiscal year, to the record holders of its Common Stock, a financial report of
the Company and its subsidiaries on a consolidated basis (and a similar
financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of shareholders' equity as of the end of and for such
fiscal year, together with comparable information as of the end of and for the
preceding year, certified by independent certified public accountants, and (ii)
mail and make generally available as soon as practicable after the end of each
quarterly period (except for the last quarterly period of each fiscal year) to
such holders a consolidated balance sheet, a consolidated statement of
operations and a consolidated statement of cash flows (and similar financial
reports of all unconsolidated subsidiaries, if any) as of the end of and for
such period, and for the period from the beginning of such year to the close of
such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(h) For five years after the date of this Agreement, the
Company will furnish to you upon request a copy of each report or other
publicly available information of the Company mailed to the holders of Common
Stock or filed with the Commission and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) The Company will use its best efforts to list the shares
and maintain the inclusion of the Common Stock on the National Association of
Securities Dealers Automated Quotation ("Nasdaq") National Market (or on a
national securities exchange) and to register the Common Stock under the
Exchange Act in accordance with the Exchange Act rules and regulations.
(j) The Company will notify Unterberg Harris of any material
adverse change affecting any of its representations, warranties, agreements or
indemnifications herein at any time prior to payment to the Company for the
Shares on the Closing Date or any Option Closing Date.
(k) The Company will use its best efforts to do and perform
all things required or necessary to be done and performed under this Agreement
by the Company prior to the Closing Date or the Option Closing Date, as the
case may be, and to satisfy all conditions precedent to the delivery of the
Shares.
<PAGE> 8
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 8
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any preliminary
prospectus, the Registration Statement or the Prospectus or any part thereof,
and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's shares have been instituted or
are pending or, to the Company's knowledge, threatened. On the Effective Date,
on the date the Prospectus is first filed with the Commission pursuant to Rule
424(b) (if required), on the Closing Date and when any post-effective amendment
to the Registration Statement becomes effective or any amendment or supplement
to the Prospectus is filed with the Commission, the Registration Statement and
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment or supplement thereto), including the
financial statements included or incorporated by reference in the Prospectus,
did or will comply with all applicable provisions of the Act and the Rules and
Regulations and will contain all statements required to be stated therein in
accordance with the Act and the Rules and Regulations. On the Effective Date,
the Closing Date and when any post-effective amendment to the Registration
Statement becomes effective, neither the Registration Statement, the Prospectus
or any such amendment or supplement, nor the Preliminary Prospectus, at the
time thereof, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The representations and warranties
in this Section do not apply to any statements or omissions made in reliance on
and in conformity with information relating to any Underwriter furnished in
writing to the Company by the Representatives specifically for inclusion in the
Registration Statement or Prospectus or any amendment or supplement thereto.
The Company acknowledges that the statements set forth under the heading
"Underwriting" in the Prospectus constitute the only information relating to
any Underwriter furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement.
(b) The Company is, and each of the companies listed on
Schedule III comprising all of the Company's subsidiaries (collectively,
"Subsidiaries") are each, and at the Closing Date will be, duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization. The Company and its Subsidiaries each has, and at the Closing
Date will have, full power and authority to conduct all the activities
conducted by it, to own or lease all the assets owned or leased by it and to
conduct its business as described in the Registration Statement and the
Prospectus. The Company and its Subsidiaries each is, and at the Closing Date
will be, duly licensed or qualified to do business and in good standing in all
jurisdictions in which the nature of the activities conducted by it or the
<PAGE> 9
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 9
character of the assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or
qualified will not have a material adverse effect on the Company or the
Subsidiary or the Company's or Subsidiary's business, properties, business
prospects, condition (financial or otherwise) or results of operations. Neither
the Company nor its Subsidiaries owns, and at the Closing Date will not own,
directly or indirectly, any shares of stock or any other equity or long-term
debt shares of any corporation or have any equity interest in any firm,
partnership, joint venture, association or other entity. Complete and correct
copies of the charter and bylaws of the Company and its Subsidiaries and all
amendments thereto, have been delivered to the Representatives, and no changes
therein will be made subsequent to the date hereof and prior to the Closing
Date.
(c) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, under "Capitalization" and
"Description of Capital Stock" and will have the adjusted capitalization set
forth therein on the Closing Date, based upon the assumptions set forth
therein, and the Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue or sell any capital
stock, rights, warrants, options, convertible shares or other shares or
obligations, except for this Agreement and as described in the Prospectus. The
Shares and all other shares issued or issuable by the Company conform or, when
issued and paid for, will conform, in all material respects, to all statements
with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding shares of the Company, including the
Shareholder Shares and the Option Shares, have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no
rights of rescission with respect thereto and are not subject to personal
liability by reason of being such holders; and none of such shares was issued
in violation of the preemptive rights of any holders of any security of the
Company or similar contractual rights granted by the Company. The Company
Shares, upon issuance, will not be subject to any preemptive or other similar
rights of any shareholders, have been duly authorized and, when issued, paid
for and delivered in accordance with the terms hereof, will be validly issued,
fully paid and non-assessable and will conform to the description thereof
contained in the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be taken for
the authorization, issue and sale of the Company Shares has been duly and
validly taken; and the certificates representing the Shares will be in due and
proper form. Upon the issuance, delivery and payment pursuant to the terms
hereof of the Company Shares, each of the Underwriters will acquire good and
marketable title to such Company Shares free and clear of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction of
any kind whatsoever.
<PAGE> 10
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 10
(d) All of the outstanding shares of capital stock of, or
other ownership interests in, each of the Subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable and are
owned directly by the Company free and clear of any lien, charge, claim,
encumbrance, security interest, defect or other restriction of any kind
whatsoever.
(e) The financial statements, including the notes thereto,
and supporting schedules included in the Registration Statement and the
Prospectus present fairly the consolidated financial condition of the Company
and its Subsidiaries as of the dates indicated and the results of operations
and cash flows of the Company and its Subsidiaries for the periods specified,
all in conformity with generally accepted accounting principles applied on a
consistent basis throughout the entire period involved, except as otherwise
disclosed in the Prospectus and did not include, at the time of filing or at
the time of any subsequent amendment, any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading. The pro forma combined financial information of the Company
and the Subsidiaries, and the related notes thereto included in the
Registration Statement and the Prospectus have been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the bases described therein and, in
the opinion of the Company and the Subsidiaries, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein. No other financial statements or schedules of the Company or its
Subsidiaries are required by the Act or the Rules and Regulations to be
included in the Registration Statement or the Prospectus. Price Waterhouse LLP,
who certified the financial statements and supporting schedules, are
independent accountants as required by the Act and the Rules and Regulations.
(f) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and up to and including
the Closing Date, except as otherwise stated therein, (i) there has not been
and will not be any change in the capitalization of the Company or its
Subsidiaries, or in the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company or its
Subsidiaries, arising for any reason whatsoever, (ii) the Company and its
Subsidiaries each has not and will not incur any material liabilities or
obligations, direct or contingent, and has not and will not enter into any
material transactions other than pursuant to this Agreement and the
transactions referred to herein and (iii) except as contemplated in the
Registration Statement and the Prospectus, the Company has not and will not pay
or declare any dividends or other distributions of any kind on any class of its
capital stock.
<PAGE> 11
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 11
(g) The Company and its Subsidiaries each (i) has paid, when
due, all federal, state, and local taxes for which it is liable, including, but
not limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986 as amended (the "Code"), and has
furnished all information returns it is required to furnish pursuant to the
Code, (ii) has established adequate reserves for such taxes which are not due
and payable, and (iii) does not have any tax deficiency or claims outstanding,
assessed, or to its knowledge, proposed against it.
(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriters in connection with (i) the issuance
by the Company of the Shares, (ii) the purchase by the Underwriters of the
Shares, (iii) the consummation by the Company of any of its obligations under
this Agreement, or (iv) resale of the Shares in connection with the
distribution contemplated hereby.
(i) The Company and its Subsidiaries each maintains insurance
of the types and in the amounts which the Company reasonably believes are
adequate for their businesses and consistent with insurance coverage maintained
by similar companies in similar businesses, including but not limited to,
workers' compensation insurance, insurance covering real and personal property
owned or leased by the Company or the Subsidiary against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
(j) The Company is not (i) an "investment company" or a
company "controlled" by an "investment company," as such terms are defined in
the Investment Company Act of 1940, as amended, or (ii) a "holding company" or
a "subsidiary company" of a holding company, or an "affiliate" thereof, within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
(k) Except as set forth in the Prospectus, there is no
action, suit or proceeding pending or threatened against or affecting the
Company or its Subsidiaries, or any of their respective officers in their
capacities as such, before or by any federal or state court, commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, which is required to be disclosed in the Registration Statement or
which is reasonably expected to materially and adversely affect the Company or
its Subsidiaries, or their respective businesses, properties, business
prospects, conditions (financial or otherwise) or results of operations.
<PAGE> 12
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 12
(l) No consent, approval, authorization or order of, or
filing or declaration with, any court or governmental agency or body is
required for or in connection with the sale of the Shares hereunder except such
as have been obtained prior to the date hereof under the Act (or the Rules and
Regulations under the Act) or the Exchange Act (or the Rules and Regulations
under the Exchange Act), or as may be required under state securities or Blue
Sky laws, Canadian securities laws or the bylaws and rules of the NASD in
connection with the purchase and distribution by the Underwriters of the Shares
to be sold by the Company.
(m) The Company has full corporate power and authority to
enter into this Agreement. This Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding agreement of
the Company and is enforceable against the Company in accordance with the terms
hereof. The performance, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in the
creation or imposition of any lien, charge or encumbrance upon any of the
assets of the Company or its Subsidiaries pursuant to the terms or provisions
of, or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or give any other party a right to terminate any of
its obligations under, or result in the acceleration of any obligation under,
the charter or bylaws of the Company or its Subsidiaries (as amended to date)
or any indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, bond, debenture, note agreement or other evidence of indebtedness,
lease, contract or other agreement or instrument to which the Company or a
Subsidiary is a party or by which the Company or a Subsidiary or any of their
respective properties is bound or affected, or violate or conflict with any
judgment, ruling, decree, franchise, license or permit of any court or other
governmental agency or body or any order, statute, rule or regulation
applicable to the business or properties of the Company or of any Subsidiary.
(n) The Company and its Subsidiaries each has good and
marketable title to all properties and assets described in the Prospectus as
owned by them, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in the Prospectus or are not
material to the business of the Company or the Subsidiary. The Company and its
Subsidiaries each has valid, subsisting and enforceable leases for the
properties described in the Prospectus as leased by it, with such exceptions as
are not material and do not materially interfere with the use made and proposed
to be made of such properties by the Company or a Subsidiary.
(o) There is no document or contract required to be described
in the Prospectus or Registration Statement or to be filed as an exhibit to the
Registration Statement
<PAGE> 13
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 13
which is not so described or filed. Each such contract to which the Company or
one of its Subsidiaries is a party has been duly and validly authorized,
executed and delivered by the Company and/or its Subsidiaries, is in full force
and effect, constitutes a valid and binding agreement of each of the parties
thereto, and is enforceable against each such party in accordance with its
terms, assuming such agreements were duly and validly authorized, executed and
delivered by the other parties thereto. No such contract has been assigned by
the Company or one of its Subsidiaries, and the Company knows of no present
condition or fact which would prevent compliance by the Company or its
Subsidiaries or any other party thereto with the terms of any such contract in
accordance with its terms. The Company or any of its Subsidiaries does not have
any present intention to exercise any right that it may have to cancel any such
contract or otherwise to terminate its rights and obligations thereunder, and
does not have any knowledge that any other party thereto has any intention not
to render full performance as contemplated by the terms thereof.
(p) The Company and its Subsidiaries each has generally
enjoyed a satisfactory employer-employee relationship with its employees and is
in compliance in all material respects with all applicable federal, state,
local laws and regulations respecting employment and employment practices,
terms and conditions of employment and wages and hours. There are no pending
investigations of which the Company is aware involving the Company or any of
its Subsidiaries, by the U.S. Department of Labor, or any other governmental
agency responsible for the enforcement of such federal, state or local laws and
regulations. There is no significant unfair labor practice charge or complaint
against the Company or any of its Subsidiaries pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or, to the Company's knowledge, threatened against or
involving the Company or any of its Subsidiaries, or any predecessor entity,
and none has ever occurred. No representation question exists respecting the
employees of the Company or any of its Subsidiaries, and no collective
bargaining agreement or modification thereof is currently being negotiated by
the Company or any of its Subsidiaries. No labor dispute with the employees of
the Company or any of its Subsidiaries exists, or, to the Company's knowledge,
is imminent, and the Company is not aware of any existing or imminent labor
disturbance by such employees or the employees of any of its suppliers.
(q) The Company and its Subsidiaries each owns or possesses
the patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business now
operated by them, and no proceeding involving any claim of infringement of or
conflict with asserted rights of others with respect to any of the foregoing
has
<PAGE> 14
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 14
been instituted or is pending or, to the Company's knowledge, is threatened, or
contemplated.
(r) The Company and its Subsidiaries each possesses such
licenses, permits, consents, orders, approvals, certificates or authorizations
issued by the appropriate federal, state or local regulatory agencies or bodies
necessary to conduct the business now operated by each of them, and no
proceeding relating to the revocation or modification of any such licenses,
permits, consents, orders, certificates or authorizations has been instituted
or is pending or, to the Company's knowledge, is threatened, or contemplated.
(s) Neither the Company nor any of its Subsidiaries is in
violation of its charter or bylaws or in default (nor has an event occurred
which with notice or lapse of time or both would constitute a default or
acceleration) in the performance of any obligation, agreement or condition
contained in any contract, indenture, mortgage, note, lease, or other agreement
or instrument to which the Company or the Subsidiary is a party or by which it
or its properties is bound or affected, and neither the Company nor any of its
Subsidiaries is in violation of any judgment, ruling, decree, order, franchise,
license or permit of any court or other governmental agency or body or any
statute, rule or regulation applicable to the business or properties of the
Company or the Subsidiary.
(t) No statement, representation, warranty or covenant made
by the Company in this Agreement or made in any certificate or document
required by this Agreement to be delivered to the Representatives was or will
be, when made, inaccurate, untrue or incorrect in any material respect.
(u) Neither the Company nor any of its directors, officers,
or controlling persons has taken, directly or indirectly, any action designed,
or which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.
(v) Except as set forth herein, there are no claims,
payments, issuances, arrangements or understandings to which the Company is a
party, whether oral or written, for services in the nature of a finder's or
origination fee with respect to the sale of the Shares hereunder or any other
arrangements, agreements, understandings, payments or issuance with respect to
the Company, or any of its officers, directors, shareholders, partners,
employees or affiliates that may affect the Underwriters' compensation, as
determined by the NASD.
<PAGE> 15
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 15
(w) Neither the Company nor any of its Subsidiaries has,
since its inception, (i) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any jurisdiction thereof.
(x) There are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between the Company, and any officer, director,
shareholder of the Company, or any affiliate or associate of any of the
foregoing persons or entities required to be disclosed by Item 404 of
Regulation S-K of the Rules and Regulations other than those which are
described in the Prospectus.
(y) There are no persons with registration or other similar
rights to have any shares registered pursuant to the Registration Statement or
otherwise registered by the Company pursuant to the Act which are required to
be disclosed in the Registration Statement, other than as disclosed therein.
(z) The Company and the Subsidiaries (i) are in compliance in
all material respects with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), (ii) have received all authorizations
required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such authorization.
(aa) The Company's Common Stock is listed for trading on the
Nasdaq National Market under the symbol "LDMK," and the Company is not aware of
any threatened or pending proceedings or action by the NASD to revoke or
suspend such listing.
(bb) To the Company's knowledge (after due inquiry), the
Company has complied with all provisions of Section 517.075, Florida Statutes
(Chapter 92-198, Laws of Florida).
7. Representations and Warranties of the Selling Shareholders.
Each Selling Shareholder, severally and not jointly, represents and warrants to
each Underwriter that:
<PAGE> 16
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 16
(a) Such Selling Shareholder has and will have on the Closing
Date and the Option Closing Date, as the case may be, good and marketable title
to the Shares to be sold by such Selling Shareholder hereunder, free and clear
of any liens, encumbrances, equities and claims whatsoever. Such Selling
Shareholder has full power, right and authority to sell, transfer and deliver
the Shares to be sold by such Selling Shareholder, and upon sale and delivery
of, and payment for, such Shares, as provided herein, such Selling Shareholder
will convey good and marketable title to such Shares, free and clear of any
liens, encumbrances, equities and claims whatsoever.
(b) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted or
which might reasonably be expected to, cause or result, under the Exchange Act
or otherwise, in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares and has not sold any
securities of the Company within the past three years which were not registered
or exempt from registration under the Act.
(c) Such Selling Shareholder has reviewed and is familiar
with the Registration Statement, and the preliminary prospectus contained
therein, insofar as it relates to such Selling Shareholder (including, but not
limited to, the information set forth in the Prospectus under "Principal and
Selling Stockholders"), and to the knowledge of such Selling Shareholder
without independent investigation, the preliminary prospectus contained therein
does not, and will not on the Closing Date or the Option Closing Date, as the
case may be, include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares and the Option
Shares, as the case may be, under this Agreement are subject to the accuracy of
the representations and warranties on the part of the Company and the Selling
Shareholders contained herein as of the date of this Agreement, the Closing
Date and the Option Closing Date, to the accuracy of the statements of the
Company and the Selling Shareholders made in any certificates pursuant to the
provisions hereof, to the performance by the Company and the Selling
Shareholders of their respective obligations hereunder and to the satisfaction
of each of the following conditions:
(a) The Registration Statement shall have become effective
not later than 5:00 p.m. (and in the case of a registration statement, if any,
filed under Rule 462(b) of the Act, not later than 10:00 p.m.) New York City
time on the date of this Agreement; if filing
<PAGE> 17
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 17
of the Prospectus, or any supplement thereto, is required pursuant to Rule
424(b), the Prospectus, and any such supplement, will be filed in the manner
and within the time period required by Rule 424(b); no stop order suspending
the effectiveness of the Registration Statement shall have been issued, and no
proceedings for that purpose shall have been instituted or, to the Company's
knowledge, threatened.
(b) The Representatives shall have received an opinion dated
the Closing Date, and with respect to any Option Shares the Option Closing
Date, satisfactory in form and substance to the Representatives, from Shaw
Pittman Potts & Trowbridge, counsel for the Company and the Selling
Shareholders, to the effect set forth in Exhibit A.
(c) The Representatives shall have received an opinion dated
the Closing Date, and with respect to any Option Shares the Option Closing
Date, from Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for the
Underwriters, which opinion shall be satisfactory in all respects to the
Representatives, and the Company and each Selling Shareholder shall have
furnished to such counsel such documents as they request for the purpose of
enabling them to pass upon such matters.
(d) Since the date of the most recent financial statements
included in the Prospectus, there has been no material adverse change in the
Company or the Subsidiaries or their respective businesses, properties,
business prospects, conditions (financial or otherwise) or results of
operations, except as set forth or contemplated in the Prospectus.
(e) The Company shall have furnished to the Representatives a
certificate of the Company, signed by the President and the principal
accounting officer of the Company, dated the Closing Date, to the effect that
the signers of such certificate have carefully examined the Registration
Statement, the Prospectus, any supplement to the Prospectus and this Agreement
and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date or the Option Closing Date, as the case may be, with
the same effect as if made on the Closing Date or the Option Closing
Date, as the case may be, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date or the Option
Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
<PAGE> 18
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 18
(iii) since the date of the most recent financial statements
included in the Prospectus (inclusive of any supplement thereto),
there has been no material adverse change in the conditions (financial
or other), earnings, businesses or properties of the Company or any of
its Subsidiaries, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in
the Prospectus (exclusive of any supplement thereto).
(f) The Representatives shall have received a certificate
from each of the Selling Shareholders, dated as of the Closing Date, to the
effect that (i) the representations and warranties of such Selling Shareholder
contained in this Agreement are true and correct with the same force and effect
as though expressly made at and as of the Closing Date, (ii) such Selling
Shareholder has reviewed the Prospectus, and the information contained therein
relating to such Selling Shareholder and the Selling Shareholder's Shares and
such information does not contain any untrue statement or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading and (iii) in
connection with the offering contemplated under this Agreement, such Selling
Shareholder has complied with all agreements and satisfied all conditions on
its part to be performed or satisfied at or prior to the Closing Date.
(g) At the Execution Time and at the Closing Date or the
Option Closing Date, as the case may be, Price Waterhouse LLP shall have
furnished to the Representatives a letter or letters, dated respectively as of
the Execution Time and as of the Closing Date, with respect to the financial
statements and certain financial information contained in the Registration
Statement and Prospectus in form and substance satisfactory to the
Representatives.
(h) Subsequent to the Execution Time or, if earlier, the
dates as of which information is given in the Registration Statement (exclusive
of any amendment thereof) and the Prospectus (exclusive of any supplement
thereto), there shall not have been (i) any change in the capital stock (other
than pursuant to the exercise of stock options outstanding as of the respective
dates of the Registration Statement and Prospectus) or any material change in
the indebtedness of the Company or (ii) any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company the effect of which, in any case referred to in clause (i) or (ii)
above, is, in the judgment of the Representatives, so material and adverse as
to make it impractical or inadvisable to proceed with the offering or delivery
of the Shares as contemplated by the Registration Statement
<PAGE> 19
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 19
(exclusive of any amendment thereof) and the Prospectus (exclusive of any
supplement thereto).
(i) The Shares to be sold by the Company on the Closing Date
shall have been duly listed on The Nasdaq National Market subject to notice of
issuance and shall have been registered under the Exchange Act in accordance
with the Exchange Act rules and regulations. On or prior to the Execution
Time, the NASD shall have approved the Underwriters' participation in the
distribution of the Shares to be sold by the Selling Shareholders.
(j) At the Execution Time, the Company shall have furnished
to the Representatives a letter substantially in the form of Exhibit A hereto
from each officer and director of the Company and each shareholder whose name
is listed in Annex I covering shares aggregating not less than ___ and options
to purchase ___ shares.
(k) Prior to the Closing Date, the Company shall have
furnished to the Representatives such further information, certificates and
documents as the Representatives may reasonably request.
If any of the conditions specified in this Section 8 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the Closing Date by the Representatives. Notice of
such cancellation shall be given to the Company and each Selling Shareholder in
writing or by telephone or telegraph confirmed in writing.
9. Reimbursement of Underwriters' Expenses. If the sale of the
Shares provided for herein is not consummated because any condition to the
obligations of the Underwriters set forth in Section 8 is not satisfied,
because of any termination pursuant to Section 12 or because of any refusal,
inability or failure on the part of the Company or any Selling Shareholder to
perform any agreement herein or comply with any provision hereof other than by
reason of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the proposed purchase and sale of the Shares. If the
Company is required to make any payments to the Underwriters under this Section
9 because of any Selling Shareholder's refusal, inability or failure to satisfy
any condition to the obligations of the Un-
<PAGE> 20
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 20
derwriters set forth in Section 8, the Selling Shareholders, pro rata in
proportion to the percentage of Shares to be sold by each, shall reimburse the
Company on demand for all amounts so paid.
10. Indemnification and Contribution.
(a) The Company and the Selling Shareholders, severally and
not jointly, agree to indemnify and hold harmless each Underwriter, the
directors, officers, employees and agents of each Underwriter and each person
who controls any Underwriter within the meaning of either the Act or the
Exchange Act against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the registration
statement for the registration of the Shares as originally filed or in any
amendment thereof, or in any Preliminary Prospectus or the Prospectus, or in
any amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and agrees to reimburse each such indemnified party for any reasonable legal or
other reasonable expenses incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that (i) the Company and the Selling Shareholders will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any such untrue statement or alleged untrue statement
or omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to the Company by or on behalf of any
Underwriter through the Representatives specifically for inclusion therein,
(ii) the Selling Shareholders will be liable in any such case only to the
extent that such loss, claim, damage or liability arises out of or is based on
written information provided by the Selling Shareholders for inclusion therein,
and (iii) such indemnity with respect to any Preliminary Prospectus shall not
inure to the benefit of any Underwriter (or any director, officer, employee or
agent of such Underwriter or any person controlling such Underwriter) from whom
the person asserting any such loss, claim, damage or liability purchased the
Shares that are the subject thereof if such person did not receive a copy of
the Prospectus (or the Prospectus as supplemented) excluding documents
incorporated therein by reference at or prior to the confirmation of the sale
of such Shares to such person in any case where such delivery is required by
the Act and such untrue statement or omission of a material fact contained in
any Preliminary Prospectus was corrected in the Prospectus (or the Prospectus
as supplemented); provided further, that notwithstanding the foregoing, the
liability of the Selling Shareholders under
<PAGE> 21
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 21
this paragraph 10(a) shall be limited, with respect to each of them, to the
proceeds received by each of them hereunder. This indemnity agreement will be
in addition to any liability which the Company or the Selling Shareholders may
otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each Selling Shareholder, each of the
Company's directors, and each of the Company's officers who signs the
Registration Statement, and each person who controls the Company or the Selling
Shareholders within the meaning of either the Act or the Exchange Act, to the
same extent as the foregoing indemnification to each Underwriter, but only with
reference to written information relating to such Underwriter furnished to the
Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnification. The Company and each Selling Shareholder acknowledge that the
statements set forth under the heading "Underwriting" in any Preliminary
Prospectus and the Prospectus constitute the only information furnished in
writing by or on behalf of the several Underwriters for inclusion in any
Preliminary Prospectus or the Prospectus, and you, as the Representatives,
confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 10, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The indemnifying party shall
be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying
party to represent the indemnified party would present such counsel with a
conflict of interest, (ii) the actual or potential defendants in, or targets
of, any such action include both the indemnified party and the in-
<PAGE> 22
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 22
demnifying party and the indemnified party shall have reasonably concluded that
there may be legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the indemnifying
party, (iii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all such indemnified
parties and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters and such
control persons of the Underwriters, such firm shall be designated in writing
by Unterberg Harris. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnification provided in
paragraph (a) or (b) of this Section 10 is unavailable to or insufficient to
hold harmless an indemnified party for any reason, the Company and the Selling
Shareholders, severally and not jointly, and the Underwriters agree to
contribute to the aggregate losses, claims, damages and liabilities (including
reasonable legal or other reasonable expenses incurred in connection with
investigating or defending same) (collectively "Losses") to which the Company,
one or more of the Selling Shareholders and one or more of the Underwriters
may be subject in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders on the one hand
and by the Underwriters on the other from the offering of the Shares; provided,
however, that in no case shall any Underwriter (except as may be provided in
any agreement among underwriters relating to the offering of the Shares) be
responsible for any amount in excess of the underwriting discount or commission
applicable to the Shares purchased by such Underwriter hereunder. If the
allocation provided by the immediately preceding sentence is unavailable for
any reason, the Company and the
<PAGE> 23
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 23
Selling Shareholders, severally and not jointly, and the Underwriters shall
contribute in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Selling
Shareholders on the one hand and of the Underwriters on the other in connection
with the statements or omissions which resulted in such Losses as well as any
other relevant equitable considerations. Benefits received by the Company and
the Selling Shareholders shall be deemed to be equal to the total net proceeds
from the offering (before deducting expenses), and benefits received by the
Underwriters shall be deemed to be equal to the total underwriting discounts
and commissions, in each case as set forth on the cover page of the Prospectus.
Relative fault shall be determined by reference to whether any alleged untrue
statement or omission relates to information provided by the Company, the
Selling Shareholders or the Underwriters. The Company, the Selling Shareholders
and the Underwriters agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (d), no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. For purposes of this Section 10, each
person who controls an Underwriter within the meaning of either the Act or the
Exchange Act, and each director, officer, employee and agent of an Underwriter
shall have the same rights to contribution as such Underwriter, and each person
who controls the Company within the meaning of either the Act or the Exchange
Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d). The remedies provided for in this Section 10
are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
The indemnification and contribution provisions contained in this
Section 10 and the representations and warranties of the Company contained in
this Agreement shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter or by or on
behalf of any person controlling the Company, and (iii) acceptance of and
payment for any of the Shares.
11. Default by an Underwriter. If any one or more Underwriters
shall fail to purchase and pay for any of the Shares agreed to be purchased by
such Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount
<PAGE> 24
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 24
of Shares set forth opposite their names on Schedule I hereto bears to the
aggregate amount of Shares set forth opposite the names of all the remaining
Underwriters) the Shares which the defaulting Underwriter or Underwriters
agreed but failed to purchase; provided, however, that in the event that the
aggregate amount of Shares which the defaulting Underwriter or Underwriters
agreed but failed to purchase shall exceed 10% of the aggregate amount of
Shares set forth on Schedule I hereto, the remaining Underwriters shall have
the right to purchase all, but shall not be under any obligation to purchase
any, of the Shares, and if such nondefaulting Underwriters do not purchase all
the Shares, this Agreement will terminate without liability to any
nondefaulting Underwriter, the Selling Shareholders or the Company. In the
event of a default by any Underwriter as set forth in this Section 11, the
Closing Date shall be postponed for such period, not exceeding seven days, as
the Representatives shall determine in order that the required changes in the
Registration Statement and the Prospectus or in any other documents or
arrangements may be effected. Nothing contained in this Agreement shall
relieve any defaulting Underwriter of its liability, if any, to the Company,
the Selling Shareholders and any nondefaulting Underwriter for damages
occasioned by its default hereunder.
12. Termination. This Agreement shall be subject to termination
in the absolute discretion of the Representatives, by notice given to the
Company prior to delivery of and payment for the Shares, if prior to such time
(a) trading in the Company's Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally on
the New York Stock Exchange or the Nasdaq National Market shall have been
suspended or limited or minimum prices shall have been established on such
Exchange or Market System, (b) a banking moratorium shall have been declared
either by federal or New York State authorities; or (c) there shall have
occurred any outbreak or escalation of hostilities, declaration by the United
States of a national emergency or war or other calamity or crisis the effect of
which on financial markets is such as to make it, in the judgment of the
Representatives, impracticable or inadvisable to proceed with the offering or
delivery of the Shares as contemplated by the Prospectus.
13. Representations and Indemnifications to Survive. The
respective agreements, representations, warranties, indemnities and other
statements of the Company or its officers, of each Selling Shareholder and of
the Underwriters set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
any Underwriter, any Selling Shareholder or the Company or any of the officers,
directors or controlling persons referred to in Section 10 hereof, and will
survive delivery of and payment for the Shares. The provisions of Sections 9
and 10 hereof shall survive the termination or cancellation of this Agreement.
<PAGE> 25
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 25
14. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or telegraphed and confirmed to them, in care of Unterberg Harris, 10
East 50th Street, 22nd Floor, New York, New York, 10022; or, if sent to the
Company, will be mailed, delivered or telegraphed and confirmed to it at
Landmark Systems Corporation, 8000 Towers Crescent Drive, Vienna, Virginia
22182 or if sent to the Selling Shareholders, will be mailed, delivered or
telegraphed and confirmed to them at the addresses set forth on Schedule II and
Schedule III hereto.
15. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective successors and heirs
and the officers, directors and controlling persons referred to in Section 10
hereof, and no other person will have any right or obligation hereunder.
16. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
<PAGE> 26
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 26
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Shareholders and the several Underwriters.
Very truly yours,
LANDMARK SYSTEMS CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
------------------------------------
Patrick H. McGettigan
------------------------------------
Jeffrey H. Bergman
------------------------------------
Katherine K. Clark
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
Acting severally on behalf of themselves
and the several Underwriters
named in Schedule I hereto
By: UNTERBERG HARRIS
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
<PAGE> 27
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 27
EXHIBIT A
<PAGE> 28
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 28
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriters to be Purchased
<S> <C>
Unterberg Harris...............................................
Wheat, First Securities, Inc...................................
Total 3,200,000
</TABLE>
<PAGE> 29
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 29
SCHEDULE II
Selling Shareholders
<TABLE>
<CAPTION>
SHAREHOLDER SHARES:
- ------------------
Number of Shareholder Shares
to be Purchased
Name and Address by the Underwriters
- ---------------- ---------------------
<S> <C>
Patrick H. McGettigan 650,000
[address]
Katherine K. Clark 50,000
[address]
Jeffrey H. Bergman 500,000
[address]
---------------------
Total 1,200,000
<CAPTION>
OPTION SHARES:
- -------------
Number of Shareholder Shares
to be Purchased
Name and Address by the Underwriters
- ---------------- ---------------------
<S> <C>
Patrick H. McGettigan xx
[address]
Katherine K. Clark xx
[address]
Jeffrey H. Bergman xx
[address]
---------------------
Total xx
</TABLE>
<PAGE> 30
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 30
SCHEDULE III
Subsidiaries
Landmark Systems International, Inc.
Landmark Systems Pacific Pty. Ltd.
Landmark Systems (EMEA) Limited
Landmark Systems (HK) Ltd.
Landmark Systems GmbH
Landmark Systems Benelux BV
<PAGE> 31
UNTERBERG HARRIS
WHEAT FIRST BUTCHER SINGER
As Representatives of the
several underwriters
November __, 1997
Page 31
ANNEX I
Required Lock-Ups
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
LANDMARK SYSTEMS CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Landmark Systems Corporation.
2. The Articles of Incorporation of the Corporation are hereby
amended by deleting the first paragraph of Article Fourth in its entirety and
replacing it with the following in lieu thereof:
FOURTH: The total number of shares of the authorized capital
stock of the Corporation shall be as follows: (a) thirty
million (30,000,000) shares of common stock with a par value
of one cent ($.01) per share (the "Common Stock") and (b)
eight million (8,000,000) shares of preferred stock with a par
value of one cent ($.01) per share (the "Preferred Stock").
3. The foregoing amendment was authorized and approved by the
Corporation's Board of Directors on September 15, 1997 and recommended and
submitted to the shareholders for approval in accordance with Chapter 9 of the
Virginia Stock Corporation Act.
4. The foregoing amendment was authorized and approved at a Special
Meeting of the Shareholders on October 21, 1997. The amendment was approved
with 6,298,266 votes in favor, 0 opposed and 76,963 shares not voted.
Signed and attested to this 21st day of October, 1997.
LANDMARK SYSTEMS CORPORATION,
a Virginia corporation
By: /s/ Katherine K. Clark
---------------------------
Katherine K. Clark
Chief Executive Officer
Attest: /s/ Ralph E. Alexander
----------------------
Ralph E. Alexander
Secretary
<PAGE> 2
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
LANDMARK SYSTEMS CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Landmark Systems Corporation.
2. The Articles of Incorporation of the Corporation are hereby
amended by adding the following paragraph at the end of Article Fourth:
One million five hundred eighty thousand seven hundred seventy nine
(1,580,779) shares of the Preferred Stock of the Corporation are designated as
Series B Preferred Stock. The preferences, limitations and relative rights of
the Series B Preferred Stock are set forth in Attachment B.
3. The foregoing amendment was authorized and approved at a meeting
of the Corporation's Board of Directors on March 7, 1997 in accordance with
Section 13.1-639 of the Virginia Stock Corporation Act.
Signed and attested to this seventh day of March, 1997.
LANDMARK SYSTEMS CORPORATION,
a Virginia corporation
By:
--------------------------------
Patrick H. McGettigan, Chairman
Attest:
- ------------------------------
Ralph E. Alexander, Secretary
<PAGE> 3
ATTACHMENT B
TO THE
ARTICLES OF INCORPORATION
OF
LANDMARK SYSTEMS CORPORATION
Pursuant to Section 13.1-639 of the Virginia Stock Corporation Act and
Article Fourth of the Corporation's Articles of Incorporation, 1,580,779 shares
of Preferred Stock of the Corporation are hereby designated as Series B
Preferred Stock. The preferences, limitations and relative rights of the
Series B Preferred Stock shall be as set forth below.
1. Definitions. For purposes hereof, the following terms shall have
the following specified meanings.
(a) "Amendment" means these Articles of Amendment of Articles of
Incorporation of Landmark Systems Corporation.
(b) "Board of Directors" means the Board of Directors of the
Corporation.
(c) "Common Stock" means the authorized common stock, one cent
($0.01) par value per share, of the Corporation.
(d) "Corporation" means Landmark Systems Corporation, a Virginia
corporation.
(e) "Preferred Stock" means the authorized preferred stock, one
cent ($0.01) par value per share, of the Corporation.
(f) "Series A Preferred Stock" means the authorized shares of
Preferred Stock which are designated as "Series A Preferred Stock."
(g) "Series A Preferred Stock Terms" means that certain
Attachment A to Articles of Amendment and Restatement of Articles of
Incorporation of Landmark Systems Corporation, dated August 11, 1995.
(h) "Series B Preferred Stock" means the authorized shares of
Preferred Stock which are designated as "Series B Preferred Stock."
(i) "Stock" means Common Stock, Preferred Stock and any other
class of authorized stock of the Corporation.
2. Dividends. The holders of the Series B Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends, but
only when, as and if declared by
-1-
<PAGE> 4
the Board of Directors in its discretion. So long as any share of Series B
Preferred Stock is outstanding, no class or series of Stock other than Series B
Preferred Stock shall be entitled to dividends, other than: (i) Series A
Preferred Stock, in the manner set forth in the Series A Preferred Stock Terms;
and (ii) any series or class of Stock authorized and issued after March 31,
1997.
3. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the holders of Series B
Preferred Stock shall be entitled to receive with respect to each share of
Series B Preferred Stock held by them, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of Common Stock and any other class or series of stock ranking junior
to the Series B Preferred Stock as to liquidation preference (including,
without limitation, Series A Preferred Stock), by reason of their ownership of
such share of Series B Preferred Stock, an amount equal to the original
purchase price paid by such holder for each such share of Series B Preferred
Stock held (appropriately adjusted for stock splits, stock dividends and the
like) plus any declared but unpaid dividends thereon; provided that if the
assets and funds available for distribution to the holders of Series B
Preferred Stock and all other classes and series of stock which rank on parity
with Series B Preferred Stock as to liquidation preference shall be
insufficient to permit the payment to all such holders of the full amount of
their liquidation preferences, then the holders of shares of Series B Preferred
Stock and all classes and series of stock ranking on parity with the Series B
Preferred Stock as to liquidation preference shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) After payment pursuant to Section 3(a) above shall have been
made in full to holders of Series B Preferred Stock, and payment pursuant to
Section 3 of the Series A Preferred Stock Terms shall have been made in full to
holders of Series A Preferred Stock, the holders of the outstanding shares of
Series B Preferred Stock (on an as converted basis), Common Stock and all other
classes and series of stock which rank on parity with Common Stock shall share
ratably in the distribution of the remaining assets and funds of the
Corporation available for distribution to shareholders.
(c) Notwithstanding anything to the contrary herein, the
preferential rights granted in this Section 3 to the holders of Series B
Preferred Stock upon dissolution, liquidation or winding up of the Corporation
shall not be taken into account for purposes of determining whether any
purchase, redemption or other acquisition by the Corporation of issued and
outstanding shares of Common Stock is lawful under the Virginia Stock
Corporation Act.
-2-
<PAGE> 5
4. Voting Rights.
(a) In addition to the voting rights expressly provided herein
or as required by law, the holder of each share of Series B Preferred Stock
shall be entitled to vote on all matters presented to the stockholders of the
Corporation for their action or consideration. Each share of Series B
Preferred Stock shall entitle the holder thereof to such number of votes per
share as shall equal the number of shares of Common Stock into which such share
of Series B Preferred Stock is convertible in accordance with the terms of
Section 5 hereof at the record date for the determination of stockholders
entitled to vote on such matter rounded to the nearest whole share or, if no
record date is established, at the date such vote is taken or any written
consent of stockholders is solicited. Except as otherwise expressly provided
herein or as required by law, the holders of shares of Series B Preferred Stock
and the Common Stock shall vote together as a single class on all matters and
shall have voting rights and powers equal to the voting rights and powers of
the Common Stock.
(b) So long as at least one share, but no more than 790,389
shares, of Series B Preferred Stock are outstanding, one of the current
directors on the Board of Directors shall be elected by holders of Series B
Preferred Stock, voting as a class by majority vote (with each share being
entitled to one vote). So long as greater than 790,389 shares of Series B
Preferred Stock are outstanding, two of the current directors on the Board of
Directors shall be elected by holders of Series B Preferred Stock, voting as a
class by majority vote (with each share being entitled to one vote). Any
director elected by holders of shares of Series B Preferred Stock may be
removed at any time by holders of shares of Series B Preferred Stock entitled
to elect such director. Any vacancy occurring in the Board of Directors as a
result of the death, resignation or removal of a director elected pursuant to
this Section 4(b) shall be filled by holders of shares of Series B Preferred
Stock in accordance with this Section 4(b).
5. Conversion. The holders of Series B Preferred Stock shall have
the following conversion rights (the "Conversion Rights"):
(a) Right to Convert.
(i) Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at the office of the
Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as determined by dividing $6.326
by the Conversion Price, computed as hereinafter provided, in effect at the
time of conversion for such series of Preferred Stock. The price at which
shares of Common Stock shall be deliverable upon conversion (the "Conversion
Price") shall initially be $6.326. Such Conversion Price shall be subject to
adjustment as hereinafter provided.
(ii) Each share of the Series B Preferred Stock outstanding
shall automatically be converted into the number of shares of Common Stock into
which such shares are convertible upon application of the then effective
Conversion Price: (A) immediately upon the closing of an underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Act"), or under such other applicable
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<PAGE> 6
securities regulations covering the offer and sale of capital stock of the
Corporation (other than a registration relating solely to Rule 145 under the
Act (or any successor thereto) or to an employee benefit plan of the
Corporation) in which the gross proceeds received by the Corporation and/or all
selling shareholders exceed $25,000,000 (prior to underwriting commissions and
discounts, and expenses of sale) (a "Qualified Public Offering"); or (B) upon
the consent of the holders of greater than fifty percent (50%) of the
outstanding shares of Series B Preferred Stock.
(b) Mechanics of Conversion. Before any holder of Series B
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates thereof, duly
endorsed, at the office of the Corporation or of any transfer agent for such
stock, and shall give written notice to the Corporation at such office that he
elects to convert the same and shall state therein the name or names in which
he wishes the certificate or certificates for shares of Common Stock to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series B Preferred Stock, or to his
nominee or nominees, a certificate or certificates for the number of shares of
Common Stock to which he shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of surrender of the shares of Series B Preferred Stock to be converted,
and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date. If the
conversion is in connection with an underwritten offer of securities registered
pursuant to the Act, the conversion may, at the option of any holder tendering
Series B Preferred Stock for conversion, be conditioned upon the closing with
the underwriter of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock issuable upon such
conversion of the Series B Preferred Stock shall not be deemed to have
converted such Series B Preferred Stock until immediately prior to the closing
of such sale of securities.
(c) Adjustments to Conversion Price For Diluting Issues.
(i) Special Definitions. For purposes of this Section
5(c), the following definitions shall apply:
(1) "Additional Shares of Common", shall mean all
shares of Common Stock issued (or, pursuant to Section 5(c)(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 or Series B Preferred Stock;
(B) to officers, directors or employees of, or
consultants to, the Corporation, whether pursuant to stock options or otherwise
(but only as approved by the Board of Directors), but not exceeding 3,000,000
shares of Common Stock (net of repurchases of such shares by the Corporation
approved by the Board of Directors) in the aggregate ("Permitted
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<PAGE> 7
Employee Shares"), subject to the adjustment for all subdivisions, combinations
or similar recapitalizations;
(C) upon exercise of Options outstanding on the
date hereof other than those referred to in clause (B) above;
(D) as dividends or distributions on Series B
Preferred Stock; and
(E) by way of dividends or other distributions on
shares of Common Stock which itself is excluded from the definition of
Additional Shares of Common by the foregoing clauses (A), (B), (C) and (D) or
this clause (E) or on shares of Common Stock so excluded.
(2) "Convertible Securities" shall mean any evidence
of indebtedness, and shares (other than Common Stock, Series A Preferred Stock
and Series B Preferred Stock) or other securities convertible into or
exchangeable for Common Stock.
(3) "Options" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(4) "Original Issue Date" shall mean the date on which
a share of Series B Preferred Stock was first issued.
(ii) No Adjustment of Conversion Price: No adjustment in
the Conversion Price of a particular share of Series B Preferred Stock shall be
made in respect of the issuance of Additional Shares of Common unless the
consideration per share for an Additional Share of Common issued or deemed to
be issued by the Corporation is less than the applicable Conversion Price in
effect on the date of, and immediately prior to, such issue for such share of
Series B Preferred Stock.
(iii) Deemed Issue of Additional Shares of Common.
(1) Options and Convertible Securities. If the
Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record date
for the determination of holders of any class of securities 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
provision contained therein for a subsequent adjustment of such number) of
Common 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
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
Additional Shares of Common shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 5(c)(v) hereof) of such
Additional Shares of Common would be less than the
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<PAGE> 8
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common are deemed to be issued:
(A) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common 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 in
the consideration payable to the Corporation, or decrease in the number of
shares of Common 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;
(C) upon the expiration or termination 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 or termination, be recomputed as if:
(I) in the case of Convertible Securities or
options for Common Stock, the only Additional Shares of Common issued were the
shares of Common 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, whether or not actually
converted or exchanged, plus the additional consideration, if any, actually
received by the Corporation upon such conversion or exchange, and
(II) in the case of options for Convertible
Securities, only 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
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; and
(D) no adjustment pursuant to either clause (B)
or (C) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would
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<PAGE> 9
have resulted from any issuance of Additional Shares of Common between the
original adjustment date and such readjustment date.
(2) Stock Dividends and Subdivisions. If the
Corporation at any time or from time to time after the Original Issue Date
shall declare or pay any dividend on the Common Stock payable in Common Stock,
or effect a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in Common Stock), then, and in any such event,
Additional Shares of Common shall be deemed to have been issued:
(A) in the case of any such dividend, immediately
after the close of business on the record date for the determination of holders
of any class of securities entitled to receive such dividend, or
(B) in the case of any such subdivision, at the
close of business on the date immediately prior to the date upon which such
corporate action becomes effective.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common. If the Corporation shall issue Additional Shares
of Common (including Additional Shares of Common deemed to be issued pursuant
to Section 5(c)(iii)) without consideration or for a consideration per share
less than the Conversion Price in effect with respect to Series B Preferred
Stock on the date of and immediately prior to such issuance, then, and in such
event, the Conversion Price for Series B Preferred Stock shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying the Conversion Price by a fraction, the numerator of
which shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue, (2) any Permitted Employee Shares which have
not been issued immediately prior to such issue, and (3) the number of shares
of Common Stock which the aggregate consideration received by the Corporation
for the total number of Additional Shares of Common so issued would purchase at
the Conversion Price; and the denominator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue,
(2) any Permitted Employee Shares which have not been issued immediately prior
to such issue, and (3) the number of such Additional Shares of Common so
issued; provided that, for the purposes of this Section 5(c)(iv), all shares of
Common Stock issuable upon conversion of outstanding Series A Preferred Stock,
Series B Preferred Stock and Convertible Securities and exercise of options
shall be deemed to be outstanding, and immediately after any Additional Shares
of Common are deemed issued pursuant to Section 5(c)(iii), such Additional
Shares of Common shall be deemed to be outstanding.
(v) Determination of Consideration. For purposes of this
Section 5(c), the consideration received by the Corporation for the issue of
any Additional Shares of Common shall be computed as follows:
(1) Cash and Property: Such consideration shall:
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<PAGE> 10
(A) 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;
(B) 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 of the Corporation; and
(C) if Additional Shares of Common 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 (A) and (B) above, as determined in
good faith by the Board of Directors of the Corporation.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common deemed to have been issued pursuant to Section 5(c)(iii)(1), relating to
Options and Convertible Securities, shall be determined by dividing:
(x) 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 provisions
contained therein for a subsequent adjustment of such consideration) 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 and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such options or the conversion or exchange of such Convertible Securities.
(3) Stock Dividends and Stock Subdivisions. Any
Additional Shares of Common deemed to have been issued, relating to stock
dividends and stock subdivisions, shall be deemed to have been issued for no
consideration.
(vi) Adjustments for Combinations or Consolidation of
Common. If the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock, the Conversion Price in effect immediately prior to such
combination or consolidation shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased.
(vii) Adjustment for Mergers or Reorganization, etc.
(1) Subject to the provisions of subsection (2) below,
in case of any consolidation or merger of the Corporation with or into another
corporation (where the
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<PAGE> 11
shareholders of the Corporation immediately prior to the consummation of the
merger or consolidation collectively have the right to cast less than fifty
percent (50%) of the votes of all holders of voting securities on a fully
diluted basis of the surviving corporation immediately following the
consummation of the merger or consolidation) or the sale of all or
substantially all of the assets of the Corporation to another corporation, each
share of Series B Preferred Stock shall thereafter be convertible into the
number of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock of the Corporation deliverable upon
conversion of such Series B Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in any such case, appropriate adjustment
(as determined by the Board of Directors of the Corporation) shall be made in
the application of the provisions herein set forth with respect to the rights
and interest thereafter of the holders of the Series B Preferred Stock, to the
end that the provisions set forth herein (including provisions with respect to
changes in and other adjustment of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series B
Preferred Stock.
(2) Each holder of Series B Preferred Stock, upon the
occurrence of a merger or consolidation of the Corporation into or with another
corporation (where the shareholders of the Corporation immediately prior to the
consummation of the merger or consolidation collectively have the right to cast
less than fifty percent (50%) of the votes of all holders of voting securities
on a fully diluted basis of the surviving corporation immediately following the
consummation of the merger or consolidation) or the sale of all or
substantially all of the assets of the Corporation, shall have the option of
electing treatment of his shares of Series B Preferred Stock under either this
Section 5(c)(vii) or Section 7 hereof, notice of which election shall be
submitted in writing to the Corporation at its principal offices no later than
twenty (20) days after the holder receives (a) notice of the material terms of
the proposed transaction and (b) written notice from the Corporation requesting
the holder to make such election under this Section 5(c)(vii). In the event a
holder does not give such notice, such holder will be deemed to have elected to
be treated under Section 7 hereof.
(3) No Impairment. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed under these
Articles of Incorporation by the Corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 5 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series B Preferred Stock
against impairment.
(4) Certificates as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the Conversion Price
applicable to the Series B Preferred Stock pursuant to this Section 5, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and, upon written request of
any holder of Series B Preferred Stock, shall cause independent certified
public accountants selected by the Corporation to verify such computation and
prepare and furnish to each holder of Series B
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<PAGE> 12
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
holder of Series B Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price at the time in effect, and (iii) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of Series B Preferred Stock.
(d) Issue Taxes. The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of shares of Series B Preferred Stock
pursuant hereto; provided, however, that the Corporation shall not be obligated
to pay any transfer taxes resulting from any transfer requested by any holder
in connection with any such conversion.
(e) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series B Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Series B
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
(f) Fractional Shares. No fractional share shall be issued upon
the conversion of any share or shares of Series B Preferred Stock. All shares
of Common Stock (including fractions thereof) issuable upon conversion of more
than one share of Series B Preferred Stock by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of a fraction of a
share of Common Stock, the Corporation shall, in lieu of issuing any fractional
share, pay the holder otherwise entitled to such fraction a sum in cash equal
to the fair market value of such fraction on the date of conversion (as
determined in good faith by the Board of Directors of the Corporation).
6. Redemption. The shares of Series B Preferred Stock shall be
redeemed as follows:
(a) Optional Redemption. Upon written notice to the
Corporation, received ninety (90) days or more prior to the applicable
Redemption Date (as hereinafter defined), subject to the Corporation having
redeemed, pursuant to and in accordance with Section 6(a) (Mandatory
Redemption) of the Series A Preferred Stock Terms, all of the shares of Series
A Preferred Stock which the Corporation was required to redeem in any prior
Redemption Year (as that term is defined in the Series A Preferred Stock Terms)
and in the current Redemption Year in which such notice is received, each
holder of shares of Series B Preferred Stock may require
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the Corporation to redeem any or all of the Series B Preferred Stock then held
by such holder and specified by such holder to be redeemed by the Corporation
at the date set forth for such redemption in such notice (the "Redemption
Date"); provided that the Redemption Date may not occur until after the earlier
of: (i) December 31, 2000; or (ii) six (6) calendar months after the
Corporation files a form S-1 registration statement with the Securities and
Exchange Commission; and provided further that until the Series B Preferred
Stock has been redeemed in its entirety, the Company shall not expend in any
Redemption Year on the redemption of Series B Preferred Stock more than was
expended on the redemption of Series A Preferred Stock during the same
Redemption Year. Within five (5) days after receipt of any such notice, the
Corporation shall send a copy thereof (the "Redemption Notice") by mail,
postage prepaid, to each holder of Series B Preferred Stock at the address of
each such holder appearing on the books of the Corporation or given by such
holder to the Corporation for the purpose of notice. The holders of Series B
Preferred Stock who receive such Redemption Notice may elect to be included in
the redemption specified in the Redemption Notice by providing written notice
of such election, specifying the number of shares of Series B Preferred Stock
to be so included, at least sixty (60) days prior to the Redemption Date.
(b) Redemption Price and Payment. The Series B Preferred Stock
to be redeemed on any Redemption Date pursuant to Section 6(a) above shall be
redeemed by paying for each share in cash an amount (the "Redemption Price")
equal to the sum of: (i) $6.326 (plus any dividends declared but unpaid
thereon); plus (ii) interest on $6.326 accruing at the rate of eight percent
(8%) per annum from the date such share was first issued and outstanding to the
Redemption Date of such share; plus (iii) interest accruing at the rate of
eight percent (8%) per annum from the date of declaration of any dividends
declared but unpaid on the Series B Preferred Stock.
(c) Redemption Mechanics.
(i) From and after the close of business on the Redemption
Date chosen in the notice given in accordance with Section 6(a) above, unless
there shall have been a default in the payment of the Redemption Price, all
rights of holders of such redeemed shares of Series B Preferred Stock (except
the right to receive the Redemption Price) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
(ii) If the funds of the Corporation legally available for
redemption of shares of Series B Preferred Stock on any Redemption Date are
insufficient to redeem the total number of outstanding shares of Series B
Preferred Stock as to which redemption is requested, the holders of shares of
Series B Preferred Stock requesting redemption shall share ratably in any funds
legally available for redemption of such shares according to the respective
amounts which would be payable with respect to the full number of shares owned
by them as to which redemption is requested if all such outstanding shares were
redeemed in full. The shares of Series B Preferred Stock not redeemed shall
remain outstanding and entitled to all rights and preferences provided herein.
Thereafter when additional funds of the Corporation are legally available for
the redemption of such shares of Series B Preferred Stock, such funds will be
used,
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at the end of the next succeeding fiscal quarter, to redeem the balance of such
shares as to which redemption had been requested, or such portion thereof for
which funds are then legally available, on the basis set forth above.
(d) Redeemed or Otherwise Acquired Shares to be Retired. Any
shares of Series B Preferred Stock redeemed pursuant to this Section 6 or
otherwise acquired by the Corporation in any manner whatsoever shall be
canceled and shall not under any circumstances be reissued. Each holder of
such shares of Series B Preferred Stock shall surrender the certificate
evidencing such shares to the Corporation (if fewer than all of the shares of
Series B Preferred Stock represented by the certificate surrendered by the
holder are redeemed, a new certificate shall promptly be issued to the holder
for the unredeemed shares). Additionally, the Corporation may from time to
time take such appropriate corporate action as may be necessary to reduce
accordingly the number of authorized shares of Series B Preferred Stock.
7. Mergers, Consolidations and Sales of Assets. The merger or
consolidation of the Corporation into or with another corporation (where the
shareholders of the Corporation immediately prior to the consummation of the
merger or consolidation collectively have the right to cast less than fifty
percent (50%) of the votes of all holders of voting securities on a fully
diluted basis of the surviving corporation immediately following the
consummation of the merger or consolidation), or the sale of all or
substantially all the assets of the Corporation, shall be treated as a
liquidation, dissolution or winding up of the Corporation under Section 3
above, unless the holders of two-thirds of the outstanding shares of Series B
Preferred Stock elect not to treat it as such (by giving the Corporation
written notice of such election by the later of (a) the date which is ten (10)
days prior to the date of the shareholders' meeting called to approve the
merger, consolidation or sale or, if the merger, consolidation or sale is
approved by the shareholders of the Corporation by written consent, on or
before the date any holder of Series B Preferred Stock signs such written
consent) and (b) the date which is ten (10) days after the date on which
holders of the Series B Preferred Stock receive written notice from the
Corporation of the merger, consolidation or sale and such holders' rights under
this Section 7, in which case each holder of Series B Preferred Stock shall
have the benefits of the provisions of Section 5(c)(vii) above in lieu of
receiving payment in liquidation, dissolution or winding up of the Corporation
pursuant to Section 3 above.
8. Notice of Record Date. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution, or (ii) there
occurs any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or substantially all
of the assets of the Corporation to any other company, or any other entity or
person, or any voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, the Corporation shall mail to each holder of Series B
Preferred Stock at least twenty (20) days prior to the record date specified
therein, a notice specifying (a) the date of such record date for the purpose
of such dividend or distribution and a description of such dividend or
distribution, (b) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (c) the time, if any, that is to be fixed, as
to
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<PAGE> 15
when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
9. Other Rights. Except as otherwise provided in this Amendment,
shares of Series B Preferred Stock and shares of Common Stock shall be
identical in all respects (each share of Series B Preferred Stock having
equivalent rights to the number of shares of Common Stock into which it is then
convertible), shall have the same powers, preferences and rights, without
preference of any such class or share over any other such class or share, and
shall be treated as a single class of stock for all purposes.
10. Notices. Any notice or other communication under these Articles
shall be given in writing and shall be deemed to have been delivered and given
for all purposes (i) on the delivery date if delivered personally to the party
to whom the same is directed, (ii) on the date received if sent by express
courier, or (iii) two business days after the mailing date if sent by
registered or certified mail, return receipt requested, postage and charges
prepaid, addressed as follows:
If to a holder of To the post office address of such
Series B Preferred Stock: holder last shown on the records of the
Corporation
If to the Corporation: To the attention of the President at the
Corporation's principal office, which
as of the date of these Articles is:
Landmark Systems Corporation
8000 Towers Crescent Drive
Suite 1600
Vienna, Virginia 22182
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<PAGE> 16
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
LANDMARK SYSTEMS CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
Landmark Systems Corporation.
2. The Articles of Incorporation of the Corporation are hereby amended by
deleting the first paragraph of Article Fourth in its entirety and replacing it
with the following in lieu thereof:
FOURTH: The total number of shares of the authorized capital stock of
the Corporation shall be as follows: (a) fifteen million (15,000,000)
shares of common stock with a par value of one cent ($.01) per share
(the "Common Stock") and (b) eight million (8,000,000) shares of
preferred stock with a par value of one cent ($.01) per share (the
"Preferred Stock").
3. The foregoing amendment was authorized and approved at a meeting of the
Corporation's Board of Directors on April 23, 1996, and recommended and
submitted to the shareholders for approval in accordance with Chapter 9 of the
Virginia Stock Corporation Act.
4. The foregoing amendment was authorized and approved at the Annual
Meeting of the Shareholders on August 27, 1996. The amendment was approved with
5,916,361 votes in favor, none opposed, and 22,232 shares not voted.
Signed and attested to this 21st day of February, 1997.
LANDMARK SYSTEMS CORPORATION, a
Virginia corporation
By:
-------------------------------
Katherine K. Clark, President
Attest:
- ------------------------------
Ralph E. Alexander, Secretary
<PAGE> 17
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
ARTICLES OF INCORPORATION
OF
LANDMARK SYSTEMS CORPORATION
1. The name of the corporation is Landmark Systems Corporation.
2. The Articles of Incorporation of Landmark Systems Corporation, as amended
and restated, shall read as set forth below.
3. The amendment herein to the Corporation's Articles of Incorporation is the
addition of Article Ninth, which is set forth below.
FIRST: The name of the corporation (which is hereinafter
referred to as the "Corporation") is:
Landmark Systems Corporation
SECOND: The period of the duration of the Corporation shall
be perpetual.
THIRD: [INTENTIONALLY OMITTED]
FOURTH: The total number of shares of the authorized capital stock of
the Corporation shall be as follows: (a) eight million (8,000,000)
shares of common stock with a par value of one cent ($0.01) per share
(the "Common Stock"); and (b) eight million (8,000,000) shares of
preferred stock with a par value of one cent ($0.01) per share (the
"Preferred Stock").
Subject to all of the rights of the Preferred Stock, the Common Stock
shall possess all such rights and privileges as are afforded to capital
stock by applicable law in the absence of any express grant of rights
and privileges in the Corporation's Articles of Incorporation.
The Board of Directors may determine the preferences, limitations and
relative rights, to the extent permitted by the Virginia Stock
Corporation Act, of any class of shares of Preferred Stock before the
issuance of any shares of that class, or of one or more series within a
class before the issuance of any shares of that series. Each class or
series shall be appropriately designated by a distinguishing
designation prior to the issuance of any shares thereof. The Preferred
Stock of all series shall
<PAGE> 18
have preferences, limitations and relative rights identical with those
of other shares of the same series and, except to the extent otherwise
provided in the description of the series, with those of shares of
other series of the same class.
One million three hundred thousand (1,300,000) shares of the
Preferred Stock of the Corporation are designated as Series A Preferred
Stock. The preferences, limitations and relative rights of the Series A
Preferred Stock are set forth in Attachment A.
FIFTH: [INTENTIONALLY OMITTED]
SIXTH: The purposes for which the Corporation is formed are:
1. To design, develop, market, sell and install computer software
products to include "The Monitor (CICS)" and to engage in related
consulting services and in such activities that may be necessary in
connection with such purposes.
2. To carry out all or any part of the foregoing objects as
principal, broker, factor, agent, contractor, or otherwise, either
alone or through or in conjunction with any person, firm, association,
or corporation, and in any part of the world, and, in carrying on its
business and for the purpose of attaining or furthering any of its
objects or purposes, and to make and perform any contracts and to do
any acts and things, and to exercise any powers suitable, convenient,
or proper for the accomplishment of any of the objects and purposes
herein enumerated or incidental to the powers herein specified, or
which at any time may appear conducive to or expedient for the
accomplishment of any such objects or purposes.
3. With particular reference to Section 13.1-627 of the Stock
Corporation Act of Virginia, the Corporation is authorized to have and
exercise any and all powers and privileges now or hereafter conferred
by the laws of the Commonwealth of Virginia upon corporations formed
under the Stock Corporation Act, or under any Act amendatory thereof or
supplemental thereto or in substitution therefor.
SEVENTH: The following provision is hereby adopted for the purposes
of defining or limiting the preemptive rights of the stockholders.
No holder of stock of any class shall be entitled as a matter of
right to subscribe for or purchase any part of any new or additional
issue of stock of any class or of securities convertible into stock of
any class, whether
-2-
<PAGE> 19
now or hereafter authorized or whether issued for money, for a
consideration other than money, or by way of dividend.
EIGHTH: The name and address of the incorporator is:
J. T. Westermeier
1735 K Street, NW, Suite 200
Washington, DC 20006
NINTH:
1. Indemnification. Reference is hereby made to Sections 13.1-696 to
13.1-704 of the Virginia Stock Corporation Act, or any successor
provision thereto (the "Act"). The Corporation shall indemnify each
person who may be indemnified (the "Indemnitees") pursuant to such
sections, to the fullest extent permitted thereby. In each and every
situation where the Corporation may do so under such sections, the
Corporation hereby obligates itself to so indemnify the Indemnitees,
and in each case, if any where the Corporation must make certain
investigations on a case-by-case basis prior to indemnification, the
Corporation hereby obligates itself to pursue such investigations
diligently, it being the specific intention of these Articles to
obligate the Corporation to indemnify each person whom it may indemnify
to the fullest extent permitted by law at any time and from time to
time, even if such Indemnitees are adjudged liable to the Corporation.
Indemnification shall include, but is not limited to, making advances
and reimbursements for expenses to Indemnitees, providing
indemnification and obtaining court orders for advances, reimbursement
or indemnification. For purposes hereof, an Indemnitee shall be deemed
to have incurred an expense and shall be entitled to have such amount
advanced by the Corporation, upon presentation to the Corporation of a
bona fide statement or invoice for such amount.
2. Limitation on Liability. No officer or director shall be
personally liable to the Corporation or its stockholders in any
proceedings brought by a stockholder in the right of the Corporation or
brought by or on behalf of stockholders of the Corporation, for
monetary damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct. Notwithstanding
the foregoing sentence, a director or officer shall be liable to the
extent provided by applicable law for (1) willful misconduct, (ii) a
knowing violation of criminal law or (iii) a knowing violation of any
federal or state securities law, including, without limitation, any
claim of unlawful insider trading or manipulation of the market for any
security. Neither the subsequent amendment nor the repeal of this
Section 2 shall apply to
-3-
<PAGE> 20
or have any effect on the liability or alleged liability of any
director or officer of the Corporation for or with respect to any acts
or omissions of such director or officer occurring prior to the date of
any amendment or repeal of this Section 2.
3. Advisory Board Members. The provisions of Sections 1 and 2 of this
ARTICLE NINTH shall apply to members of the Corporation's Advisory
Board to the same extent that they apply to directors of the
Corporation.
4. Other Indemnification. The indemnification rights provided herein
shall not be exclusive of any other rights to which any person may be
entitled, including any rights under policies of insurance that may be
purchased and maintained by the Corporation or others, with respect to
claims, issues or matters in relation to which the Corporation would
not have the power to indemnify such person under the provisions of
this Article. Such rights shall not prevent or restrict the power of
the Corporation to make or provide for any further indemnity, or
provisions for determining entitlement to indemnity, pursuant to one or
more indemnification agreements, by laws, or other arrangements
approved by the Board of Directors (whether or not any of the directors
of the Corporation shall be a party to or beneficiary of such
agreements, bylaws or arrangements); provided, however, that any
provision of such agreements, bylaws or other arrangements shall not be
effective if and to the extent that it is determined to be contrary to
this Article or applicable laws of the Commonwealth of Virginia.
4. The date of adoption of these Articles of Amendment and Restatement was 17
May, 1995.
5. These Articles of Amendment and Restatement were proposed by the Board of
Directors of the Corporation and submitted to the shareholders of the
Corporation in accordance with the provisions of the Virginia Stock Corporation
Act. Under the Corporation's Articles of Incorporation, the holders of Common
Stock and Preferred Stock vote together as a single class in approving these
Articles of Amendment and Restatement. The number of outstanding shares of
Common Stock and Preferred Stock, and number of votes entitled to be cast by
holders of Common Stock and Preferred Stock on these Articles of Amendment and
Restatement, are as follows:
<TABLE>
<CAPTION>
DESIGNATION NUMBER OF NUMBER OF
OUTSTANDING SHARES VOTES
<S> <C> <C>
Common Stock 4,912,675 4,908,935
Preferred Stock 1,020,000 1,020,000
</TABLE>
-4-
<PAGE> 21
The total number of votes cast for and against these Articles of Amendment and
Restatement is as follows:
<TABLE>
<CAPTION>
DESIGNATION NUMBER OF VOTES NUMBER OF VOTES
CAST FOR AMENDMENT CAST AGAINST AMENDMENT
AND RESTATEMENT AND RESTATEMENT
<S> <C> <C>
Common Stock 4,908,035 0
Preferred Stock 1,020,000 0
</TABLE>
The number of votes cast for these Articles of Amendment and Restatement was
sufficient for approval thereof.
6. The undersigned certifies that these Articles of Amendment and Restatement
were adopted by shareholder action as of 17 May, 1995.
7. The undersigned declares that the facts herein stated are true as of the
date set forth below.
Landmark Systems Corporation
By:
-----------------------
Katherine K. Clark
President
Dated: August 11, 1995
-5-
<PAGE> 22
ATTACHMENT A
TO
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
ARTICLES OF INCORPORATION
OF
LANDMARK SYSTEMS CORPORATION
Pursuant to Section 13.1-639 of the Virginia Stock Corporation
Act and Article Fourth of the Corporation's Articles of Incorporation,
1,300,000 shares of Preferred Stock of the Corporation are hereby
designated as Series A Preferred Stock. The preferences, limitations
and relative rights of the Series A Preferred Stock shall be as set
forth below.
1. Definitions. For purposes hereof, the following
terms shall have the following specified meanings.
(a) "Board of Directors" means the Board of
Directors of the Corporation.
(b) "Common Stock" means the authorized common
stock, one cent ($0.01) par value per share, of the Corporation.
(c) "Corporation" means Landmark Systems
Corporation, a Virginia corporation.
(d) "Fair Market Value" means the fair market
value of the Common Stock as determined in accordance with Section 10.
(e) "Initial Public Offering" means the
initial offering of shares of Common Stock to the public pursuant to an
effective registration statement under the Securities Act of 1933, as
amended.
(f) "Periodic Payment" means any dividend or
redemption payment required to be made in respect of the Series A
Preferred Stock, any payment of noncompete fees required to be made
under the Noncompetition Agreement, dated June 26, 1992, between the
Corporation and Jeffrey H. Bergman, as the same may be amended from time
to time, and any payment of directors' fees required to be made under
the Separation Agreement, dated June 26, 1992, between the Corporation
and Jeffrey H. Bergman, as the same may be amended from time to time.
(g) "Preferred Stock" means the authorized
preferred stock, one cent ($0.01) par value per share, of the
Corporation.
<PAGE> 23
(h) "Redemption Price" means an amount equal
to $5.00 plus 75% of the amount, if any, by which (i) the lesser of the
Fair Market Value per share of the Common Stock as of any applicable
date or $7.433, exceeds (ii) $5.00.
(i) "Redemption Year" means any 12-month
period beginning May 1 and ending April 30.
(j) "Series A Preferred Stock" means the
authorized shares of Preferred Stock which are designated as "Series A
Preferred Stock."
2. Dividends. The holders of outstanding Series A
Preferred Stock shall be entitled to receive, in any fiscal year, when
and as declared by the Board of Directors and to the extent permitted
under the Virginia Stock Corporation Act, out of any assets at the time
legally available therefor, dividends in cash at the annual rate
(subject to increase as provided below) of $0.15 per share of Series A
Preferred Stock until April 30, 1997 or the closing of the sale of
shares of Common Stock in the Corporation's Initial Public Offering,
whichever occurs first, and thereafter at the annual rate of $0.375 per
share of Series A Preferred Stock. Such dividends shall accumulate on
outstanding shares of Series A Preferred Stock on a daily basis
commencing as of May 1, 1992. Such dividends shall be declared and paid
in arrears on the first business day of each succeeding calendar quarter
beginning July 1, 1992. The declaration and payment of dividends as
provided herein shall be mandatory, except that if the declaration and
payment of dividends on Series A Preferred Stock, together with the
declaration and payment of all accumulated but unpaid dividends on all
other classes and series of stock which rank on parity with Series A
Preferred Stock as to dividends, would be in violation of the Virginia
Stock Corporation Act, then the declaration and payment of dividends on
Series A Preferred Stock shall be mandatory only to the extent (if any)
of the total amount legally available for payment of dividends on Series
A Preferred Stock and all such other classes and series of stock
multiplied by a fraction, (i) the numerator of which is the total
accumulated but unpaid dividends on Series A Preferred Stock for all
prior payment periods, and (ii) the denominator is the total accumulated
but unpaid dividends for all prior payment periods on Series A Preferred
Stock and all such other classes and series of stock. In the event that
any mandatory dividend is not paid in full on the applicable quarterly
payment date, the annual dividend rate on the Series A Preferred Stock
during the period beginning on such quarterly payment date and ending on
the date such mandatory dividend is paid in full shall increase by an
amount which will result in an increase in total accumulated dividends
on the Series A Preferred Stock each day during such period equal to
.033% of the unpaid mandatory dividend.
3. Liquidation Preference. In the event of any
liquidation, dissolution or winding up of the Corporation, either
voluntary or involuntary, the holders of Series A Preferred Stock shall
be entitled to receive with respect to each share of Series A Preferred
Stock held by them, prior and in preference to any distribution of any
of the assets or surplus funds of the Corporation to the holders of
Common Stock and any other class or series of stock ranking junior to
the Series A Preferred Stock as to liquidation preference, by reason of
their ownership of such share of Series A Preferred Stock, an amount
equal to the Redemption Price as of the date the Corporation is deemed
to be dissolved under the Virginia Stock Corporation Act plus all
-2-
<PAGE> 24
accumulated but unpaid dividends on such share. If the assets and funds
available for distribution to the holders of Series A Preferred Stock
and all other classes and series of stock which rank on parity with
Series A Preferred Stock as to liquidation preference shall be
insufficient to permit the payment to all such holders of the full
amount of their liquidation preferences, then the holders of shares of
Series A Preferred Stock and all classes and series of stock ranking on
parity with the Series A Preferred Stock as to liquidation preference
shall share ratably in any distribution of the remaining assets and
funds of the Corporation in proportion to the respective amounts which
would otherwise be payable in respect of the shares held by them upon
such distribution if all amounts payable on or with respect to such
shares were paid in full. Notwithstanding anything to the contrary
herein, the preferential rights granted in this Section 3 to the holders
of Series A Preferred Stock upon dissolution, liquidation or winding up
of the Corporation shall not be taken into account for purposes of
determining whether any purchase, redemption or other acquisition by the
Corporation of issued and outstanding shares of Common Stock is lawful
under the Virginia Stock Corporation Act.
4. Voting Rights. Each holder of outstanding shares
of Series A Preferred Stock shall be entitled to one vote for each share
of Series A Preferred Stock at each meeting of stockholders of the
Corporation (and written consents of stockholders in lieu of meetings)
with respect to any and all matters presented to the stockholders of the
Corporation for their action or consideration. Except as provided by
law, holders of Series A Preferred Stock shall vote together with the
holders of Common Stock as a single class.
5. Conversion.
(a) Right to Convert.
(i) Initial Public Offering. The
holders of shares of Series A Preferred Stock, acting as a group, may
convert all, but not less than all, of their shares of Series A
Preferred Stock into shares of Common Stock at any time on or after the
closing of the sale of shares of Common Stock in the Corporation's
Initial Public Offering. Each share of Series A Preferred Stock shall
be convertible, without payment of any consideration, into a number of
shares of Common Stock equal to the Redemption Price as of the date
notice of conversion is given by the holders of Series A Preferred Stock
pursuant to paragraph (c) below (or the date of the closing of the sale
of shares of Common Stock in the Initial Public Offering, if notice of
conversion is given before such date) divided by the then Fair Market
Value per share of the Common Stock.
(ii) Default on Periodic Payments. The
holders of Series A Preferred Stock, acting as a group, may convert all,
but not less than all, of their shares of Series A Preferred Stock into
shares of Common Stock if the Corporation fails to make any Periodic
Payment when due and fails to cure such default within 180 days after
written notice from any person entitled to receive such payment. In
such event, each share of Series A Preferred Stock shall be convertible,
without payment of any consideration, into a number of shares of Common
Stock equal to $5.00 divided by the Fair Market Value per share of the
Common Stock as of the date notice of conversion is given by the holders
of Series A Preferred Stock pursuant to
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<PAGE> 25
paragraph (c) below. This conversion right shall be exercisable at any
time during the first 60 days after the expiration of any 180-day cure
period.
(iii) Co-Sale Agreement. Each holder
of Series A Preferred Stock may convert shares of such holder's Series A
Preferred Stock into a number of shares of Common Stock equal to the
number of shares of Common Stock such holder elects to, and does,
include, pursuant to the terms of the Co-Sale Agreement, dated June 15,
1992, among the Corporation, Patrick H. McGettigan, Katherine K. Clark
and Jeffrey H. Bergman (the "Co-Sale Agreement"), in any sale of shares
of Common Stock to which the Co-Sale Agreement applies (or, if
applicable, equal to the number of shares of Common Stock which such
holder requires Patrick H. McGettigan or Katherine K. Clark, or their
family members, to purchase pursuant to Section 4 of the Co-Sale
Agreement). In such event, each share of Series A Preferred Stock shall
be convertible, without payment of any consideration, into a number of
shares of Common Stock equal to the Redemption Price as of the date of
the closing of the sale of shares of Common Stock to which the Co-Sale
Agreement applies divided by the then Fair Market Value per share of the
Common Stock. This conversion right shall be exercisable concurrently
with the closing of the sale (or, if applicable, the closing of the
purchase of shares by Patrick H. McGettigan or Katherine K. Clark, or
their family members, from the holders of Series A Preferred Stock
pursuant to Section 4 of the Co-Sale Agreement).
(b) Fractional Shares. No fractional shares
of Common Stock shall be issued upon conversion of Series A Preferred
Stock. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such
fraction multiplied by the Redemption Price for such share of Series A
Preferred Stock.
(c) Mechanics of Conversion. To exercise any
of the conversion rights set forth in paragraph (a) above, a holder of
Series A Preferred Stock must surrender the certificate or certificates
therefor, duly endorsed, to the Corporation, and shall give written
notice to the Corporation that such holder elects to convert the same.
On the date the conversion is deemed to be effective as provided below,
or as soon as practicable thereafter, the Corporation shall issue and
deliver at such office to such holder of Series A Preferred Stock, (i) a
certificate or certificates for the number of shares of Common Stock to
which he shall be entitled upon conversion and, if such holder is not
converting all of his shares of Series A Preferred Stock, a certificate
or certificates for the number of shares of Series A Preferred Stock
which are not being converted, (ii) cash or a check payable to the
holder in the amount of any cash payable as the result of a conversion
into fractional shares of Common Stock, and (iii) cash or a check in an
amount equal to all accumulated but unpaid dividends on the shares of
Series A Preferred Stock converted by the holder. Such conversion shall
be deemed to be effective on the latest to occur of: (A) the date of
such surrender of the Series A Preferred Stock to be converted; (B) the
earliest date on which such holder becomes entitled to convert shares of
Series A Preferred Stock under subparagraph (i), (ii) or (iii) of
paragraph (a) above, as applicable; or (C) if the Fair Market Value of
the Common Stock is determined by appraisal under Section 10, the date
on which such appraisal is completed.
-4-
<PAGE> 26
6. Redemption.
(a) Mandatory Redemption. Beginning May 1,
1997, the Corporation shall redeem a number of shares of Series A
Preferred Stock each Redemption Year determined by dividing $1,500,000
by the Redemption Price as of the first day of the Redemption Year.
Shares of Series A Preferred Stock shall be redeemed each Redemption
Year at the Redemption Price as of the first day of the Redemption Year
plus all accumulated but unpaid dividends on each share of Series A
Preferred Stock being redeemed. At the Corporation's option, all of the
shares which the Corporation is required to redeem each Redemption Year
may be redeemed on the first day of the Redemption Year or they may be
redeemed in equal semi-annual or quarterly redemptions (in which event
dividends shall continue to accumulate on the unredeemed shares as
provided in Section 2) with the first semi-annual or quarterly
redemption to be made on the first day of the Redemption Year; provided,
however, if the total amount the Corporation is required to pay to
redeem all remaining shares of Series A Preferred Stock in the last
Redemption Year is less than $1,500,000, semi-annual or quarterly
redemptions shall be made at the rate of $1,500,000 per Redemption Year
until all shares are redeemed (rather than spreading the remaining
amount the Corporation is required to pay to redeem all remaining shares
of Series A Preferred Stock equally over the semi-annual or quarterly
payment periods during the last Redemption Year).
(b) Optional Redemption. The Corporation
shall have the right to redeem all or a portion of the Series A
Preferred Stock at any time and from time to time at the Redemption
Price as of the date notice of any such redemption is given by the
Corporation pursuant to paragraph (d) below plus all accumulated but
unpaid dividends on each share of Series A Preferred Stock being
redeemed. If the Corporation pays more than $1,500,000 (plus
accumulated dividends) in any Redemption Year in redemption of shares of
Series A Preferred Stock, the Corporation may credit the excess against
its obligation to redeem shares of Series A Preferred Stock under
paragraph (a) above in any subsequent Redemption Year. If the
Corporation redeems all of the outstanding shares of Series A Preferred
Stock at any time, the Corporation may pay the Redemption Price by any
combination of cash and promissory note (however, accumulated dividends
shall be payable only in cash upon redemption of the shares and in any
redemption of less than all of the outstanding shares of Series A
Preferred Stock, the Redemption Price shall be payable only in cash).
Any such promissory note shall be in substantially the form set forth in
Exhibit A hereto and (i) shall bear interest at the annual rate of 8%,
payable quarterly, (ii) shall be payable in equal quarterly installments
of principal, and (iii) shall mature not later than the date on which
all shares of Series A Preferred Stock would have been required to be
redeemed under paragraph (a) above (but for the redemption under this
paragraph (b)) assuming that:
(A) redemptions under paragraph (a)
above were required to commence on the earlier of May 1, 1997 or the
first day of the Redemption Year immediately following the date on which
all shares of Series A Preferred Stock are redeemed under this paragraph
(b); and
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<PAGE> 27
(B) the Redemption Price for each
Redemption Year would have been the same as the Redemption Price at the
time all of the outstanding shares of Series A Preferred Stock are
redeemed under this paragraph (b).
(c) Insufficient Funds. If insufficient funds
are legally available at the time of any redemption date to redeem all
shares then due to be redeemed of Series A Preferred Stock and all other
classes and series of stock ranking on parity with Series A Preferred
Stock as to redemption, the Corporation shall redeem shares of Series A
Preferred Stock from the holders thereof pro rata based upon the
respective aggregate redemption prices of all shares of Series A
Preferred Stock then held by each such holder and all shares of such
other classes and series of stock then held by the holders thereof
(using the per share redemption prices for Series A Preferred Stock and
such other classes and series of stock at the respective times shares of
Series A Preferred Stock and such other classes and series are first
required to be redeemed). Any such unredeemed shares of Series A
Preferred Stock shall be redeemable, at the option of the holder
thereof, at such time as the Corporation has legally available funds to
redeem such shares and a proportionate number (based on the respective
aggregate redemption prices as provided above) of unredeemed shares of
all classes and series of stock ranking on parity with Series A
Preferred Stock as to redemption. Shares of Series A Preferred Stock
which are subject to redemption, but which have not been redeemed and
for which the Redemption Price has not been paid or set aside with
respect thereto due to insufficient legally available funds, shall
continue to be entitled to the dividend, conversion and all other
rights, preferences and privileges of the Series A Preferred Stock until
such shares have been redeemed and the Redemption Price (plus
accumulated dividends) has been paid with respect thereto. In the event
that the Corporation is not current on any redemption date on the
payment of accumulated dividends on Series A Preferred Stock or any
class or series of stock ranking on parity with Series A Preferred Stock
as to dividends, the Corporation shall apply legally available funds to
the payment of such accumulated dividends before redeeming any shares of
Series A Preferred Stock or shares of any class or series of stock
ranking on parity with Series A Preferred Stock as to redemption.
Interest shall accrue and be payable to the holders of Series A
Preferred Stock at the rate of 1% per month on the Redemption Price of
each share of Series A Preferred Stock which the Corporation fails to
redeem when required under this Section 6 until such share is redeemed.
(d) Mechanics of Redemption.
(i) Notice of Redemption. The
Corporation shall give each holder of record of Series A Preferred Stock
written notice at least 15 days prior to the date of any redemption of
shares of Series A Preferred Stock. Such notice shall specify the
redemption date, and, if determinable at the time notice is given, the
total amount to be paid by the Corporation to the holder in such
redemption, the number of shares of Series A Preferred Stock to be
redeemed from such holder and the Redemption Price.
(ii) Partial Redemptions. In the event
of any redemption of only a part of the then-outstanding Series A
Preferred Stock pursuant to this Section 6, the Corporation shall effect
such redemption pro rata among the holders thereof based on the total
Redemption Price of the shares of Series A Preferred Stock held by each
such holder.
-6-
<PAGE> 28
(iii) Surrender of Certificate;
Payment. Subject to the right to convert shares of Series A Preferred
Stock prior to the redemption date as provided in subparagraph (v)
below, on each redemption date, each holder whose shares of Series A
Preferred Stock are subject to redemption shall surrender to the
Corporation his certificate for the number of shares of Series A
Preferred Stock to be redeemed, at which time the Corporation shall pay
to each such holder the Redemption Price for such shares plus all
accumulated but unpaid dividends on such shares, subject, however, to
the other provisions and conditions of this Section 6. If fewer than
all of the shares of Series A Preferred Stock represented by the
certificate surrendered by the holder are redeemed, a new certificate
shall promptly be issued to the holder for the unredeemed shares.
(iv) Effect of Appraisal. With respect
to any redemption under paragraph (a) above, if the Fair Market Value
per share of the Common Stock is determined by appraisal under Section
10 and such appraisal is not completed by the first day of the
Redemption Year (and thus the Redemption Price has not been determined),
then the Corporation shall redeem shares of Series A Preferred Stock
based upon a Redemption Price determined by using the Board of
Directors' most recent determination of the Fair Market Value of the
Common Stock prior to the beginning of such Redemption Year. Promptly
following the determination of the Fair Market Value of the Common Stock
by appraisal, a retroactive adjustment shall be made to the number of
shares of Series A Preferred Stock redeemed, and the Redemption Price at
which such shares are redeemed, to account for any difference between
the Board of Directors' most recent determination of the Fair Market
Value of the Common Stock and the determination of the Fair Market Value
of the Common Stock by appraisal. With respect to any redemption under
paragraph (b) above, if the Fair Market Value per share of the Common
Stock is determined by appraisal under Section 10 and such appraisal is
not completed by the redemption date specified in the Corporation's
notice, then the redemption date shall be 3 business days after the
completion of the appraisal.
(v) Conversion Prior to Redemption. If
and to the extent conversion would otherwise be permitted under Section
5(a)(i), holders of Series A Preferred Stock shall be entitled to
convert all of their shares of Series A Preferred Stock into shares of
Common Stock pursuant to Section 5(a)(i) at any time after notice of
redemption is given by the Corporation and before the redemption date.
7. Mergers, Consolidations and Sales of Assets.
(a) Merger or Consolidation.
(i) Holders' Right to Require
Redemption of Stock. If at any time the Corporation shall merge into or
consolidate with another corporation (but only if the shareholders of
the Corporation immediately prior to the consummation of the merger or
consolidation own collectively less than 50% of the outstanding stock on
a fully diluted basis of the surviving corporation immediately following
the consummation of the merger or consolidation), the holders of Series
A Preferred Stock, acting as a group, shall have the right to require
the Corporation to redeem all, but not less than all, of their shares of
Series A Preferred
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<PAGE> 29
Stock at the closing of any such merger or consolidation at the
Redemption Price for each such share as of the date of closing of such
transaction plus all accumulated but unpaid dividends on each such
share. To exercise this right, the holders of Series A Preferred Stock
must give the Corporation written notice of exercise at least 10 days
prior to the shareholders' meeting called to approve the merger or
consolidation or, if the merger or consolidation is approved by the
shareholders of the Corporation by written consent, on or before the
date any holder of Series A Preferred Stock signs such written consent.
(ii) Closing. At the closing of any
merger or consolidation with respect to which the holders of Series A
Preferred Stock require the Corporation to redeem the Series A Preferred
Stock, the holders of Series A Preferred Stock shall surrender to the
Corporation their certificates for all shares of Series A Preferred
Stock and the Corporation shall pay to each such holder in cash the
Redemption Price for such holder's shares of Series A Preferred Stock
plus all accumulated but unpaid dividends on such shares.
(iii) Noncompliance. In the event the
requirements of this paragraph (a) above are not complied with, the
Corporation shall either:
(A) cause the closing of the merger or
consolidation to be postponed until such time as the requirements of
this paragraph (a) have been complied with; or
(B) promptly cancel such transaction,
in which event the rights, preferences and privileges of the holders of
Series A Preferred Stock shall revert to and be the same as such rights,
preferences and privileges existing immediately prior to the date of the
notice or written consent referred to in subparagraph (i) above.
(b) Sale of Assets. If at any time the
Corporation shall sell all or substantially all of its assets, the
Corporation shall, at its option, either (i) promptly dissolve,
liquidate and wind up its affairs after the closing of the sale of
assets, or (ii) redeem all of the Series A Preferred Stock at the
closing of the sale of assets at the Redemption Price for each share of
Series A Preferred Stock as of the date the Corporation gives notice to
its shareholders calling a shareholders' meeting to approve the sale of
assets (or, if the sale of assets is approved by the shareholders of the
Corporation by written consent, as of the effective date of such written
consent), plus all accumulated but unpaid dividends on each such share.
If the Corporation elects to redeem all of the Series A Preferred Stock,
then at the closing of the sale of assets the holders of Series A
Preferred Stock shall surrender to the Corporation their certificates
for all shares of Series A Preferred Stock and the Corporation shall pay
to each such holder in cash the Redemption Price for such holder's
shares of Series A Preferred Stock plus all accumulated but unpaid
dividends on such shares.
8. Adjustments. Appropriate adjustments shall be made
to the Redemption Price, conversion formulas, dividends and voting
rights of the Series A Preferred Stock to account for any stock splits,
stock dividends and consolidations of shares of the Common Stock or
Series A Preferred Stock. With respect to the voting rights of Series A
Preferred Stock, in the event of any stock split, stock dividend or
consolidation of shares of the Common Stock or Series A
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<PAGE> 30
Preferred Stock, a proportionate adjustment shall be made to the number of
votes per share of Series A Preferred Stock so that the Series A Preferred
Stock will have the same percentage voting power, when voting together with the
Common Stock as a single class, immediately after such stock split, stock
dividend or consolidation of shares as it had immediately before such corporate
action was taken.
9. Protective Provision. As long as any Series A Preferred
Stock remains outstanding, without the written consent of holders of a majority
of shares of Series A Preferred Stock: (i) no dividends shall be paid on Common
Stock at any time when the Corporation is not current on any Periodic Payment;
(ii) no redemptions or repurchases of Common Stock shall be made except that
the Corporation may repurchase shares of Common Stock issued to the
Corporation's employees other than Patrick H. McGettigan and Katherine K. Clark
under the Corporation's employee stock plans; (iii) no shares of Preferred
Stock of any class or series shall be issued, directly or indirectly, to
Patrick H. McGettigan or Katherine K. Clark which are in any respect senior to
or on parity with the Series A Preferred Stock as to liquidation preference,
redemption or dividends; (iv) no shares of Preferred Stock of any class or
series shall be issued to any person or entity which are in any respect senior
to the Series A Preferred Stock as to liquidation preference, redemption or
dividends; and (v) no other shares of Preferred Stock shall be designated as
Series A Preferred Stock, and no redeemed shares of Series A Preferred Stock
shall be reissued, at any time when shares of Series A Preferred Stock are
outstanding. A class or series of Preferred Stock shall not be considered to
be senior to the Series A Preferred Stock:
(A) as to liquidation preference, if such
class or series and Series A Preferred Stock share pro
rata in liquidating distributions based on the amounts
of their respective aggregate liquidation preferences;
(B) as to redemption, if (I) no shares of such
class or series are redeemed before the Company begins
to redeem shares of Series A Preferred Stock, (II) the
rate at which shares of such class or series are
redeemed is not faster than the rate at which shares of
Series A Preferred Stock are redeemed, the redemption
rates of such class or series and Series A Preferred
Stock being determined as of any date by reference to
the respective percentages of the aggregate redemption
prices of such class or series and Series A Preferred
Stock paid or payable in redemptions of shares on or
before such date (using the per share redemption prices
for such class or series and Series A Preferred Stock
at the time shares of such class or series or Series A
Preferred Stock, as applicable, are first required to
be redeemed), and (III) such class or series and Series
A Preferred Stock share pro rata in amounts available
for redemption of shares based on the respective
aggregate redemption prices of the outstanding shares
of such class or series and Series A Preferred Stock as
of any applicable date (using the per share redemption
prices for such class or series and Series A Preferred
Stock at the time shares of such class or series or
Series A Preferred Stock, as applicable, are first
required to be redeemed); and
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<PAGE> 31
(C) as to dividends, if such class or series
and the Series A Preferred Stock share pro rata in
amounts available for payment of dividends based on the
respective aggregate dividends which have accumulated
and have not been paid on such class or series and
Series A Preferred Stock for all prior dividend payment
periods.
10. Determination of Fair Market Value of Common Stock.
(a) If Common Stock Is Publicly Traded. If
the Corporation's Common Stock is listed on one or more national
securities exchanges or is traded in the over-the-counter market as of
any date on which the Fair Market Value per share of the Common Stock is
to be determined (referred to below as a "Valuation Date"), then the
Fair Market Value per share of the Common Stock shall be determined as
follows:
(i) National Securities Exchange. If
the Common Stock is listed on one or more national securities exchanges,
it shall be valued at the average of the closing prices of the Common
Stock over the 30-day period ending on the last business day immediately
preceding the Valuation Date.
(ii) Over-The-Counter Market. If the
Common Stock is traded in the over-the-counter market, it shall be
valued at the average of the closing bid prices of the Common Stock over
the 30-day period ending on the last business day immediately preceding
the Valuation Date, as reported by NASDAQ if the Common Stock is quoted
on NASDAQ, or otherwise by the National Quotations Bureau, Inc.
(b) If Common Stock Is Not Publicly Traded.
Except as provided in paragraph (c) below, if Landmark's Common Stock is
not listed on one or more national securities exchanges or traded in the
over-the-counter market as of any Valuation Date, then the Fair Market
Value per share of the Common Stock shall be determined as follows:
(i) Determination By Board. The Fair
Market Value per share of the Common Stock shall be determined by the
Board of Directors as of the end of each fiscal year of the Corporation
and, in the Board of Directors' discretion, at any other time during any
fiscal year. In its discretion, the Board of Directors may retain an
independent appraiser to assist it in the determination of the Fair
Market Value. The Corporation shall provide each holder of record of
Series A Preferred Stock written notice of each such determination of
the Fair Market Value per share of the Common Stock promptly after it is
made. The Board of Directors' most recent determination of the fair
market value of the Common Stock furnished to the holders of Series A
Preferred Stock shall be its "Fair Market Value" as of any Valuation
Date, unless the Corporation or a holder of Series A Preferred Stock
requires that the Fair Market Value be determined by appraisal as
provided in subparagraph (ii) below.
(ii) Determination By Appraisal. In
connection with any event requiring a determination of the Fair Market
Value of the Common Stock under these Articles, the Corporation and the
holders of Series A Preferred Stock, acting as a group, shall each have
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<PAGE> 32
the right to require that the Fair Market Value be determined by
appraisal. For the Corporation to exercise this right, it shall give
written notice to the holders of record of Series A Preferred Stock that
it will require that the Fair Market Value per share of the Common Stock
be determined by appraisal, which notice shall be given:
(A) in the case of a dissolution,
liquidation and winding up of the affairs of the Corporation, on or
before the date the Corporation is deemed to be dissolved under the
Virginia Stock Corporation Act;
(B) in the case of a conversion of
shares of Series A Preferred Stock into shares of Common Stock, within
10 days after receipt of written notice of conversion from the holders
of Series A Preferred Stock converting such shares;
(C) in the case of a redemption of
shares pursuant to Section 6(a), on or before the date notice of
redemption is required to be given under Section 6(d); and
(D) in the case of a redemption of
shares pursuant to Section 6(b) or 7(b), on or before the date notice of
redemption is given by the Corporation. For holders of Series A
Preferred Stock to exercise this right, the holders shall notify the
Corporation in writing that the holders will require that the Fair
Market Value of the Common Stock be determined by appraisal, which
notice shall be given:
(I) in the case of a dissolution,
liquidation or winding up of the affairs of the Corporation, on or
before the date the Corporation is deemed to be dissolved under the
Virginia Stock Corporation Act (or, in the case of an involuntary
dissolution of the Corporation under such Act, within 10 days after
receipt of written notice of such involuntary dissolution from the
Corporation);
(II) in the case of a conversion of
shares of Series A Preferred Stock into shares of Common Stock, on or
before the date notice of conversion is given to the Corporation;
(III) in the case of a redemption of
shares pursuant to Section 6(a), on or before the first day of the
applicable Redemption Year; and
(IV) in the case of a redemption
pursuant to Section 6(b) or 7(b), within 10 days after receipt of
written notice of redemption from the Corporation.
The appraisal shall be conducted by an appraiser mutually acceptable to
the Corporation, on the one hand, and the holders of a majority of the
outstanding shares of Series A Preferred Stock, on the other hand. If
the Corporation and the holders of Series A Preferred Stock cannot agree
on an appraiser within 30 days after the notice demanding appraisal is
given, then the Corporation and the holders of a majority of the
outstanding shares of Series A Preferred Stock shall each select
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<PAGE> 33
one appraiser, and given written notice of its or their selection to the
other party, within 15 days after the expiration of such 30 day period.
If either the Corporation or the holders of Series A Preferred Stock
fail to select an appraiser within such 15-day period as provided above,
then the appraiser selected by the other party shall perform the
appraisal. If both the Corporation and the holders of Series A
Preferred Stock select appraisers as provided above, then the appraisers
they select shall be instructed to jointly select a third appraiser,
which third appraiser (but not the appraisers selected by the
Corporation and the holders of Series A Preferred Stock) shall perform
the appraisal. If the appraisers selected by the Corporation and the
holders of Series A Preferred Stock cannot agree on the selection of a
third appraiser within 15 days after the expiration of the 15 day period
within which they were selected, either the Corporation or the holders
of a majority of the outstanding shares of Series A Preferred Stock may
petition the Circuit Court of Fairfax County, Virginia to select an
appraiser to perform the appraisal. The appraiser performing the
appraisal shall be instructed by the Corporation to complete his
appraisal within 30 days after his selection or as soon thereafter as
possible. The appraiser's determination of the Fair Market Value per
share of the Common Stock shall, in the absence of manifest error, be
final, binding and conclusive. The cost of the appraiser performing the
appraisal shall be paid for by the party demanding the appraisal and, if
applicable, the Corporation and the holders of Series A Preferred Stock
shall each bear the cost of the appraiser it or they select for the
purpose of selecting a third appraiser (unless an appraiser selected for
this purpose performs the appraisal due to the other party's failure to
select an appraiser, in which case the party demanding appraisal shall
pay the cost of this appraiser performing the appraisal).
(iii) Methodology. The following shall
apply to determinations of the Fair Market Value per share of the Common
Stock pursuant to this paragraph (b):
(A) The Board of Directors or appraiser
(as applicable) shall first make a determination of the Fair Market
Value per share of the Common Stock based on the assumption that each
share of Series A Preferred Stock has been converted into one share of
Common Stock immediately prior to the valuation date (subject to
appropriate adjustment to account for any stock splits, stock dividends
or consolidations of shares). The Fair Market Value per share of the
Common Stock determined based on this assumption shall be the Fair
Market Value per share of the Common Stock used to calculate the
Redemption Price for all purposes under these Articles and is referred
to below as the "Redemption Price Fair Market Value."
(B) The Board of Directors or appraiser
(as applicable) shall then make a determination of the Fair Market Value
per share of the Common Stock in which the Series A Preferred Stock is
assumed to have a value equal to the aggregate Redemption Price of the
Series A Preferred Stock calculated based on the Redemption Price Fair
Market Value. The Fair Market Value per share of the Common Stock
determined based on this assumption shall be the Fair Market Value per
share of the Common Stock used in the denominator of the conversion
formula in Section 5(a)(i).
(C) Finally, the Board of Directors or
appraiser (as applicable) shall make a determination of the Fair Market
Value per share of the Common Stock in which the Series A Preferred
Stock is assumed to have a value equal to $5.00 per share
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<PAGE> 34
(subject to appropriate adjustment to account for any stock splits,
stock dividends or consolidations of shares) multiplied by the number of
outstanding shares of Series A Preferred Stock as of the valuation date.
The Fair Market Value per share of the Common Stock determined based on
this assumption shall be the Fair Market Value per share of the Common
Stock used in the denominator of the conversion formula in Section
5(a)(ii).
(D) For purposes of clarification,
illustrations of the calculations of the Fair Market Value per share of
the Common Stock as provided for above are set forth in Exhibit B to
these Articles.
(c) Special Cases. Notwithstanding paragraph
(b) above, the Fair Market Value per share of the Common Stock shall be
determined as set forth below in the following special cases:
(i) Initial Public Offering. If the
Fair Market Value per share of the Common Stock is to be determined as
of the closing of the sale of shares of Common Stock in the
Corporation's Initial Public Offering, the Fair Market Value per share
of the Common Stock shall be the public offering price in the Initial
Public Offering.
(ii) Co-Sale Agreement. If the Fair
Market Value per share of the Common Stock is to be determined in
connection with a conversion of shares of Series A Preferred Stock into
shares of Common Stock pursuant to Section 5(a)(iii), the Fair Market
Value per share of the Common Stock shall be an amount equal to the
value of the consideration on a per share basis which the party
purchasing shares of Common Stock in the transaction to which the
Co-Sale Agreement applies agrees to pay for such shares.
(iii) Merger or Acquisition. If the
Fair Market Value per share of the Common Stock is to be determined in
connection with a redemption of Series A Preferred Stock under Section
7(a), the Fair Market Value per share of the Common Stock shall be an
amount equal to the value of the consideration on a per share basis paid
to the holders of Common Stock by the surviving corporation.
(iv) Valuation of Noncash
Consideration. If any noncash consideration is paid in a transaction
described in subparagraph (ii) or (iii) above, the value of such
consideration shall be determined in good faith by the Board of
Directors.
11. Attorney's Fees. If the Corporation fails to make
any mandatory dividend or redemption payment when payable, the holders
of Series A Preferred Stock shall be entitled to receive from the
Corporation their reasonable attorneys' fees incurred in collecting such
unpaid amounts. Holders of Series A Preferred Stock shall give the
Corporation written notice of any failure to make any mandatory dividend
or redemption payment, and the Corporation shall have 180 days from the
date it receives such notice in which to cure its failure to make the
payment specified in such notice. No action shall be commenced against
the Corporation by any holder of Series A Preferred Stock during this
180-day cure period. If the Corporation does not cure such failure to
make payment within this 180-day cure period and a holder of Series A
Preferred Stock
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<PAGE> 35
subsequently commences an action or proceeding against the Corporation,
such holder shall also have the right to claim in such action or
proceeding all other past due mandatory dividend and redemption payments
(including any interest on past due mandatory redemption payments)
without giving further notices of nonpayment.
12. Limitation of Liability. THE CORPORATION'S TOTAL
LIABILITY TO ANY HOLDER OF SERIES A PREFERRED STOCK FOR FAILURE TO MAKE
ANY MANDATORY DIVIDEND OR REDEMPTION PAYMENT SHALL BE LIMITED TO THE
AMOUNT OF SUCH PAYMENT PLUS ACCRUED INTEREST THEREON AND ATTORNEYS' FEES
AS PROVIDED IN THESE ARTICLES OF AMENDMENT.
13. Notices. Any notice or other communication under
these Articles shall be given in writing and shall be deemed to have
been delivered and given for all purposes (i) on the delivery date if
delivered personally to the party to whom the same is directed, (ii) on
the date received if sent by express courier, or (iii) two business days
after the mailing date if sent by registered or certified mail, return
receipt requested, postage and charges prepaid, addressed as follows:
If to a holder of To the post office address of such
Series A Preferred Stock: holder last shown on the records of the
Corporation
If to the Corporation: To the attention of the President at the
Corporation's principal office, which as
of the date of these Articles is:
Landmark Systems Corporation
8000 Towers Crescent Drive
Suite 1600
Vienna, Virginia 22182
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<PAGE> 36
EXHIBIT A
(to Attachment A to Articles of Amendment and Restatement)
NEGOTIABLE PROMISSORY NOTE
Vienna, Virginia
$____________________ _______________, 19__
FOR VALUE RECEIVED, Landmark Systems Corporation (the "Maker")
unconditionally promises to pay to the order of
_________________________________ (the "Holder"), at ___________
___________________, in lawful money of the United States of America and in
immediately available funds, the principal amount of _________________ Dollars
($ ____________), together with interest on the outstanding principal balance
at the rate of eight percent (8%) per annum.
This Note shall be payable in ___________ equal quarterly installments of
principal. The first quarterly installment shall be due on the first day of
the calendar quarter immediately following the date of this Note. Subsequent
installments shall be due on the first day of each calendar quarter thereafter.
The final installment shall be due on _____________, ____. Accrued interest
shall be due and payable in arrears with each quarterly installment of
principal.
The Maker may prepay all or any portion of this Note, at any time and from
time to time, without premium or penalty.
At the option of the Holder, all amounts remaining unpaid on this Note
shall become immediately due and payable if (a) the Maker fails to make any
payment of principal or interest under this Note when due and does not cure
this failure within five (5) days after written notice from the Holder, (b) the
Maker merges into or consolidates with another corporation (but only if the
shareholders of the Maker immediately prior to the consummation of such merger
or consolidation shall own collectively less than fifty percent (50%) of the
outstanding stock on a fully diluted basis of the surviving corporation
immediately following the consummation of such merger of consolidation), (c)
the Maker sells all or substantially all of its assets, or (d) there is a
transfer of ownership in a single transaction or series of related transactions
of more than fifty percent (50%) of the outstanding capital stock of the Maker.
The Maker shall not be considered to be in default under this Note for failure
to make timely payment of principal or interest prior to the expiration of the
five (5) day cure period specified in paragraph (a) above.
Any amount due under this Note which is not paid when due shall bear
interest from the date due until paid in full at the rate of twelve percent
(12%) per annum.
A-1
<PAGE> 37
If any payment under this Note becomes due and payable on a Saturday,
Sunday or other day on which banking institutions in Virginia are authorized or
required by law to close, the payment shall be extended to the next succeeding
business day.
All payments made under this Note shall be applied, regardless of how they
are designated by the Maker, first, to the payment of any costs incurred by the
Holder in collecting or enforcing this Note; second, to the payment of interest
due under this Note; and third, to the payment of the outstanding principal
balance of this Note in the order in which such payments become due.
The Maker hereby waives presentment, demand for payment, notice of
dishonor, and all other notices or demands in connection with the delivery,
acceptance, performance, default or enforcement of this Note.
No delay on the part of the Holder in the exercise of any right under this
Note shall operate as a waiver of that right, nor shall a single or partial
exercise of any right preclude further exercise of that right or the exercise
of any other right.
In no event shall the Holder be entitled to receive, collect or apply, as
interest under this Note, any amount in excess of the maximum rate of interest
permitted to be charged by applicable law. In the event the Holder ever
receives, collects or applies as interest any such excess, the amount that is
excessive interest shall be deemed a partial prepayment. If the principal of
this Note has been paid in full, any remaining excess shall be promptly paid to
the Maker.
Should any indebtedness represented by this Note be collected at law or in
equity or through any bankruptcy, receivership, probate or other court
proceedings, or if this Note is placed in the hands of attorneys for collection
after default, the Maker shall pay, in addition to all other amounts due and
payable under this Note, all reasonable costs of enforcement and collection of
this Note, including attorneys' fees.
This Note shall be governed by and construed in accordance with the laws
of the Commonwealth of Virginia without reference to its principles of
conflicts of law.
LANDMARK SYSTEMS CORPORATION
By:
----------------------------------------
Title:
-------------------------------------
A-2
<PAGE> 38
EXHIBIT B
(to Attachment A to Articles of Amendment and Restatement)
ILLUSTRATIONS OF FAIR MARKET VALUE CALCULATIONS
Set forth below are illustrations of how the Fair Market Value per share
of the Common Stock is calculated under Section 10(b)(iii). In each
illustration below it shall be assumed that there are no outstanding shares of
Preferred Stock other than Series A Preferred Stock.
#1. Assume that the Corporation has a going concern value of
$24,000,000 and that there are 4,700,000 outstanding shares of Common Stock and
1,300,000 outstanding shares of Series A Preferred Stock on the valuation date.
(A) Pursuant to Section 10(b)(iii)(A), the Fair Market Value
per share of the Common Stock would initially be determined based on the
assumption that each share of Series A Preferred Stock has been converted into
one share of Common Stock immediately prior to the valuation date. The Fair
Market Value per share of the Common Stock would thus be $4.00 (i.e.
$24,000,000/(4,700,000 + 1,300,000)). This number would be used as the Fair
Market Value per share of the Common Stock in calculating the Redemption Price
for all purposes under these Articles. Because the Redemption Price cannot be
less than $5.00 per share of Series A Preferred Stock, the Redemption Price
would be $5.00 per share.
(B) Pursuant to Section 10(b)(iii)(B), the Fair Market Value
per share of the Common Stock would then be determined based on the assumption
that the Series A Preferred Stock has a value equal to its aggregate Redemption
Price as determined under (A) above. Thus, the Series A Preferred Stock would
be assumed to have a value of $6,500,000 (i.e. 1,300,000 shares x $5.00 per
share). To arrive at the Fair Market Value per share of the Common Stock for
purposes of Section 10(b)(iii)(B), the aggregate Redemption Price of the Series
A Preferred Stock would be subtracted from the value of the Corporation as a
going concern and the difference would then be divided by the number of
outstanding shares of Common Stock. The Fair Market Value per share of the
Common Stock would thus be $3.72 (i.e. ($24,000,000 - $6,500,000)/4,700,000).
This number would be used as the denominator in the conversion formula in
Section 5(a)(i). Thus, under Section 5(a)(i), each share of Series A Preferred
Stock would convert into 1.344 shares of Common Stock (i.e. $5.00/$3.72).
(C) Finally, pursuant to Section 10(b)(iii)(C), the Fair
Market Value per share of the Common Stock would be determined based on the
assumption that the Series A Preferred Stock has a value equal to $5.00 per
share multiplied by the number of outstanding shares of Series A Preferred
Stock. The value of the Series A Preferred Stock would thus be $6,500,000
(i.e. 1,300,000 shares x $5.00 per share). To arrive at the Fair Market Value
per share of the Common Stock for purposes of Section 10(b)(iii)(C), the value
of the Series A Preferred Stock as determined above would be subtracted from
the value of the Corporation as a going concern and the difference would then
be divided by the number of outstanding shares of
B-1
<PAGE> 39
Common Stock. The Fair Market Value per share of Common Stock would
thus be $3.72 (i.e. ($24,000,000 - 6,500,000)/4,700,000). This number
would be used as the denominator in the conversion formula in Section
5(a)(ii). Thus, under Section 5(a)(ii), each share of Series A
Preferred Stock would convert into 1.344 shares of Common Stock (i.e.
$5.00/$3.72).
#2. Assume that the Corporation has a going concern value of
$36,000,000 and that there are 4,700,000 outstanding shares of Common
Stock and 1,300,000 outstanding shares of Series A Preferred Stock on
the valuation date.
(A) Pursuant to Section 10(b)(iii)(A), the Fair Market
Value per share of the Common Stock would initially be determined based
on the assumption that each share of Series A Preferred Stock has been
converted into one share of Common Stock immediately prior to the
valuation date. The Fair Market Value per share of the Common Stock
would thus be $6.00 (i.e. $36,000,000/(4,700,000 + 1,300,000). This
number would be used as the Fair Market Value per share of the Common
Stock in calculating the Redemption Price for all purposes under these
Articles. Thus, the Redemption Price would be $5.75 (i.e. $5.00 + 75%
($6.00 or $7.433 (whichever is less) - $5.00)).
(B) Pursuant to Section 10(b)(iii)(B), the Fair Market
Value per share of the Common Stock would then be determined based on
the assumption that the Series A Preferred Stock has a value equal to
its aggregate Redemption Price as determined under (A) above. Thus, the
Series A Preferred Stock would be assumed to have a value of $7,475,000
(i.e. 1,300,000 shares x $5.75 per share). To arrive at the Fair Market
Value per share of the Common Stock for purposes of Section
10(b)(iii)(B), the aggregate Redemption Price of the Series A Preferred
Stock would be subtracted from the value of the Corporation as a going
concern and the difference would then be divided by the number of
outstanding shares of Common Stock. The Fair Market Value per share of
the Common Stock would thus be $6.07 (i.e. ($36,000,000 -
$7,475,000)/4,700,000). This number would be used as the denominator in
the conversion formula in Section 5(a)(i). Thus, under Section 5(a)(i),
each share of Series A Preferred Stock would convert into 0.947 shares
of Common Stock (i.e. $5.75/$6.07).
(C) Finally, pursuant to Section 10(b)(iii)(C), the
Fair Market Value per share of the Common Stock would be determined
based on the assumption that the Series A Preferred Stock has a value
equal to $5.00 per share multiplied by the number of outstanding shares
of Series A Preferred Stock. The value of the Series A Preferred Stock
would thus be $6,500,000 (i.e. 1,300,000 shares x $5.00 per share). To
arrive at the Fair Market Value per share of the Common Stock for
purposes of Section 10(b)(iii)(C), the value of the Series A Preferred
Stock as determined above would be subtracted from the value of the
Corporation as a going concern and the difference would then be divided
by the number of outstanding shares of Common Stock. The Fair Market
Value per share of Common Stock would thus be $6.28 (i.e. ($36,000,000 -
6,500,000)/4,700,000). This number would be used as the denominator in
the conversion formula in Section 5(a)(ii). Thus, under Section
5(a)(ii), each share of Series A Preferred Stock would convert into
0.796 shares of Common Stock (i.e. $5.00/$6.28).
B-2
<PAGE> 40
#3. Assume that the Corporation has a going concern value of
$48,000,000 and that there are 4,700,000 outstanding shares of Common
Stock and 1,300,000 outstanding shares of Series A Preferred Stock on
the valuation date.
(A) Pursuant to Section 10(b)(iii)(A), the Fair Market
Value per share of the Common Stock would initially be determined based
on the assumption that each share of Series A Preferred Stock has been
converted into one share of Common Stock immediately prior to the
valuation date. The Fair Market Value per share of the Common Stock
would thus be $8.00 (i.e. $48,000,000/(4,700,000 + 1,300,000). This
number would be used as the Fair Market Value per share of the Common
Stock in calculating the Redemption Price for all purposes under these
Articles. Thus, the Redemption Price would be $6.825 (i.e. $5.00 + 75%
($8.00 or $7.433 (whichever is less) - $5.00)).
(B) Pursuant to Section 10(b)(iii)(B), the Fair Market
Value per share of the Common Stock would then be determined based on
the assumption that the Series A Preferred Stock has a value equal to
its aggregate Redemption Price as determined under (A) above. Thus, the
Series A Preferred Stock would be assumed to have a value of $8,872,500
(i.e. 1,300,000 shares x $6.825 per share). To arrive at the Fair
Market Value per share of the Common Stock for purposes of Section
10(b)(iii)(B), the aggregate Redemption Price of the Series A Preferred
Stock would be subtracted from the value of the Corporation as a going
concern and the difference would then be divided by the number of
outstanding shares of Common Stock. The Fair Market Value per share of
the Common Stock would thus be $8.325 (i.e. ($48,000,000 -
$8,872,500)/4,700,000). This number would be the denominator in the
conversion formula in Section 5(a)(i). Thus, under Section 5(a)(i),
each share of Series A Preferred Stock would convert into 0.820 shares
of Common Stock (i.e. $6.825/$8.325).
(C) Finally, pursuant to Section 10(b)(iii)(C), the
Fair Market Value per share of the Common Stock would be determined
based on the assumption that the Series A Preferred Stock has a value
equal to $5.00 per share multiplied by the number of outstanding shares
of Series A Preferred Stock. The value of the Series A Preferred Stock
would thus be $6,500,000 (i.e. 1,300,000 shares x $5.00 per share). To
arrive at the Fair Market Value per share of the Common Stock for
purposes of Section 10(b)(iii)(C), the value of the Series A Preferred
Stock as determined above would be subtracted from the value of the
Corporation as a going concern and the difference would then be divided
by the number of outstanding shares of Common Stock. The Fair Market
Value per share of Common Stock would thus be $8.83 (i.e. ($48,000,000 -
6,500,000/4,700,000). This number would be used as the denominator in
the conversion formula in Section 5(a)(ii). Thus, under Section
5(a)(ii), each share of Series A Preferred Stock would convert into
0.566 shares of Common Stock (i.e. $5.00/$8.83).
B-3
<PAGE> 1
EXHIBIT 3.2
FOURTH
AMENDED AND RESTATED
BYLAWS
OF
LANDMARK SYSTEMS CORPORATION(1)
ARTICLE I
OFFICES
The Corporation may have such office(s) at such place(s), both within
and without the Commonwealth of Virginia, as the Board of Directors from time
to time determines or as the business of the Corporation from time to time
requires.
ARTICLE II
MEETINGS OF THE STOCKHOLDERS
Section 1. Annual Meetings. Annual meetings of the
stockholders shall be held on such date and at such time and place (within or
without the Commonwealth of Virginia) as is designated from time to time by the
Board of Directors and stated in the notice of the meeting. At each annual
meeting the stockholders shall elect a Board of Directors and shall transact
such other business as may properly be brought before the meeting.
Section 2. Special Meetings. Unless otherwise prescribed by
law, the Articles of Incorporation or these Bylaws, special meetings of the
stockholders for any purpose or purposes may be called by the Chairman of the
Board, if any, the Chief Executive Officer, the President, or by the Secretary
upon the written request of a majority of the total number of directors of the
Corporation. Requests for special meetings shall state the purpose or purposes
of the proposed meeting and shall be signed, dated and delivered to the
Secretary of the Corporation.
Section 3. Notices of Annual and Special Meetings.
(a) Except as otherwise provided by law, the Articles of Incorporation
or these Bylaws, written notice of any annual or special meeting of the
stockholders shall state the place, date and time thereof and, in the case of a
special meeting, the purpose or purposes for which the meeting is called, and
shall be given to each stockholder of record entitled to vote at such meeting
not less than ten (10) nor more than sixty (60) days prior to the meeting.
(b) Notice of any meeting of stockholders (whether annual or special)
to act upon an amendment of the Articles of Incorporation, a reduction of
stated capital or a plan of merger, dissolution, consolidation or sale of all or
substantially all of the Corporation's assets shall be given to each
stockholder of record entitled to vote at such meeting not less than twenty-
five (25) nor more than sixty (60) days before the date of such meeting.
Any such notice shall be
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(1) As adopted by the Board of Directors by resolution effective as of September
15, 1997.
<PAGE> 2
accompanied by a copy of the proposed amendment or plan or reduction, merger,
consolidation or sale.
Section 4. List of Stockholders. At least ten (10) days (but
not more than sixty (60) days) before any meeting of the stockholders, the
officer or transfer agent in charge of the stock transfer books of the
Corporation shall prepare and make a complete alphabetical list of the
stockholders entitled to vote at such meeting, which list shows the address of
each stockholder and the number of shares registered in the name of each
stockholder. The list so prepared shall be maintained at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held, and shall be open to inspection by any stockholder, for any
purpose germane to the meeting, during ordinary business hours during a period
of no less than ten (10) days prior to the meeting. The list also shall be
produced and kept open at the meeting (during the entire duration thereof) and,
except as otherwise provided by law, may be inspected by any stockholder or
proxy of a stockholder who is present in person at such meeting.
Section 5. Presiding Officers; Order of Business.
(a) Meetings of the stockholders shall be presided over by the Chairman
of the Board, if any, or, if the Chairman is not present (or, if there is
none), by the Chief Executive Officer, or, if the Chief Executive Officer is not
present, by the President, or, if the President is not present, by a Vice
President, or, if a Vice President is not present, by such person who is chosen
by the Board of Directors, or, if none, by a chairperson to be chosen at the
meeting by stockholders present in person or by proxy who own a majority of the
shares of capital stock of the Corporation entitled to vote and represented at
such meeting. The secretary of meetings shall be the Secretary of the
Corporation, or, if the Secretary is not present, an Assistant Secretary, or,
if an Assistant Secretary is not present, such person as may be chosen by the
Board of Directors, or, if none, by such person who is chosen by the
chairperson at the meeting.
(b) The following order of business, unless otherwise ordered at the
meeting by the chairperson thereof, shall be observed as far as practicable and
consistent with the purpose of the meeting:
(1) Call of the meeting to order.
(2) Presentation of proof of mailing of notice of the meeting and,
if the meeting is a special meeting, the call thereof.
(3) Presentation of proxies.
(4) Determination and announcement that a quorum is present.
(5) Reading and approval (or waiver thereof) of the minutes of the
previous meeting.
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(6) Reports, if any, of officers.
(7) Election of directors, if the meeting is an annual meeting or
a meeting called for such purpose.
(8) Consideration of the specific purpose or purposes for which
the meeting has been called (other than the election of directors).
(9) Transaction of such other business as may properly come before
the meeting.
(10) Adjournment.
Section 6. Quorum; Adjournments.
(a) The holders of a majority of the shares of capital stock of the
corporation issued and outstanding and entitled to vote at any given meeting
present in person or by proxy shall be necessary to and shall constitute a
quorum for the transaction of business at all meetings of the stockholders,
except as otherwise provided by law or by the Articles of Incorporation.
(b) If a quorum is not present in person or by proxy at any meeting of
stockholders, the stockholders entitled to vote thereat, present in person or
by proxy, shall have the power to adjourn the meeting from time to time, without
notice of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken, until a quorum is present in
person or by proxy.
(c) Even if a quorum is present in person or by proxy at any meeting of
the stockholders, the stockholders entitled to vote thereat present in person
or by proxy shall have the power to adjourn the meeting from time to time for
good cause, without notice of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken, until a
date which is not more than one hundred and twenty (120) days after the date of
the original meeting.
(d) Any business which might have been transacted at a meeting as
originally called may be transacted at any meeting held after adjournment as
provided in this Section 6 at which reconvened meeting a quorum is present in
person or by proxy. Anything in paragraph (b) of this Section 6 to the contrary
notwithstanding, if an adjournment is for more than one hundred and twenty
(120) days, or if after an adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote thereat.
Section 7. Voting.
(a) At any meeting of stockholders every stockholder having the right
to vote shall be entitled to vote in person or by proxy. Except as otherwise
provided by law or by the Articles of Incorporation, each stockholder of record
shall be entitled to one vote (on each matter submitted
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to a vote) for each share of capital stock registered in his, her or its name
on the books of the Corporation.
(b) All elections of directors and, except as otherwise provided by law
or by the Articles of Incorporation, all other matters shall be determined by a
vote of a majority of the shares present in person or represented by proxy and
voting on such other matters.
Section 8. Action by Consent. Any action required or permitted
to be taken at any meeting of the stockholders may be taken without a meeting,
without prior notice and without a vote, if a written consent in lieu of such
meeting, which consent sets forth the action so taken, if signed before or
after such action by all of the stockholders entitled to vote with respect to
the subject matter thereof. All written consents shall be filed with the
minutes of the meetings of the stockholders.
ARTICLE III
DIRECTORS
Section 1. General Powers; Number; Tenure. The business and
affairs of the Corporation shall be managed under the direction of its Board of
Directors, which may exercise all powers of the Corporation and perform or
authorize the performance of all lawful acts and things which are not by law,
the Articles of Incorporation or these Bylaws directed or required to be
exercised or performed by the stockholders. The number of directors of the
Corporation shall be at least seven (7). Subject to any limitations set forth
in the Articles of Incorporation, the number of directors may be increased,
from time to time, by the Board of Directors. Unless otherwise prescribed by
the Articles of Incorporation, the directors shall be elected at the annual
meeting of the stockholders (except as otherwise provided in Section 2 of this
Article III), and each director elected shall hold office until the next
succeeding annual meeting of the stockholders, until his or her successor has
been elected and has qualified or until he or she is removed or shall resign
pursuant to Section 3 of this Article III. Directors need not be stockholders
nor residents of the Commonwealth of Virginia.
Section 2. Vacancies. Unless otherwise prescribed by the
Articles of Incorporation, any vacancy occurring in the Board of Directors,
including a vacancy resulting from an increase in the number of directors, may
be filled by the affirmative vote of a majority of the remaining directors
through less than a quorum of the Board of Directors.
Section 3. Removal; Resignation.
(a) Except as otherwise provided by law, the Articles of Incorporation
or these Bylaws, at any meeting of the stockholders called expressly for such
purpose any director may be removed, with or without cause, by a vote of
stockholders holding a majority of the shares issued and outstanding and
entitled to vote at an election of directors.
(b) Any director may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board, the Chief Executive Officer, the
President, or the Secretary
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<PAGE> 5
of the Corporation. Unless otherwise specified in such written notice, a
resignation shall take effect upon delivery thereof to the Board of Directors
or the designated officer. A resignation need not be accepted in order for it
to be effective.
Section 4. Place of Meetings. The Board of Directors may hold
both regular and special meetings either within or without the Commonwealth of
Virginia, at such place as the Board from time to time deems advisable.
Section 5. Annual Meeting. The annual meeting of each newly
elected Board of Directors shall be held as soon as is practicable (but in no
event more than ten (10) days) following the annual meeting of stockholders,
and no notice to the newly elected directors of such meeting shall be necessary
for such meeting to be lawful, provided a quorum is present thereat.
Section 6. Regular Meetings. Additional regular meetings of the
Board of Directors may be held without notice, at such time and place as from
time to time may be determined by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the Chief Executive
Officer, the President or by any director upon two (2) days' notice to each
director if such notice is delivered personally or sent by telegram, or other
form of wire or wireless communication provided the sender of such notice can
substantiate the content and means by which the notice is delivered, or upon
five (5) days' notice if sent by mail.
Section 8. Quorum; Adjournments. A majority of the fixed number
of directors shall constitute a quorum for the transaction of business at each
and every meeting of the Board of Directors, and the act of a majority of the
directors present at any meeting at which a quorum is present shall be the act
of the Board of Directors, except as may otherwise specifically be provided by
law, the Articles of Incorporation or these Bylaws. If a quorum is not present
at any meeting of the Board of Directors, the directors present may adjourn the
meeting, from time to time, without notice other than announcement at the
meeting, until a quorum is present.
Section 9. Compensation. Directors shall be entitled to such
compensation for their services as directors as from time to time may be fixed
by the Board of Directors and in any event shall be entitled to reimbursement
of all reasonable expenses incurred by them in attending directors' meetings.
Any director may waive compensation for any meeting. No director who receives
compensation as a director shall be barred from serving the Corporation in any
other capacity or from receiving compensation and reimbursement of reasonable
expenses for any or all such other services.
Section 10. Action by Consent. Any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting and without prior notice if a written consent in lieu of such meeting
with sets forth the action so taken is signed either before
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or after such action by all directors. All written consents shall be filed
with the minutes of the Board's proceedings.
Section 11. Meetings by Telephone or Similar Communications. The
Board of Directors may participate in meetings by means of conference telephone
or similar communications equipment, whereby all directors participating in the
meeting can hear each other at the same time, and participation in any such
meeting shall constitute presence in person by such director at such meeting.
A written record shall be made of all actions taken at any meeting conducted by
means of a conference telephone or similar communications equipment.
Section 12. Conflict of Interest. Directors shall strive to
maintain a high order of professionalism in all of their business activities
and avoid any conflict of interest.
ARTICLE IV
COMMITTEES
Section 1. Executive Committee.
(a) By resolution duly adopted by a majority of the whole Board, the
Board of Directors may designate two or more directors to constitute an
Executive Committee. One of such directors shall be designated as Chairman of
the Executive Committee. Each member of the Executive Committee shall continue
as a member thereof until the expiration of his term as a director, or until
his earlier resignation from the Executive Committee, in either case unless
sooner removed as a member of the Executive Committee or as a director by any
means authorized by these Bylaws.
(b) The Executive Committee shall have and may exercise all of the
rights, powers and authority of the Board of Directors, except as expressly
limited by the Virginia Stock Corporation Act, as amended from time to time.
(c) The Executive Committee shall fix its own rules of procedure and
shall meet at such times and at such place or places as may be provided by its
rules. The Chairman of the Executive Committee, or, in the absence of a
Chairman a member of the Executive Committee chosen by a majority of the
members present, shall preside at meetings of the Executive Committee, and
another member thereof chosen by the Executive Committee shall act as
Secretary. A majority of the Executive Committee shall constitute a quorum for
the transaction of business, and the affirmative vote of a majority of the
members thereof shall be required for any action of the Executive Committee.
The Executive Committee shall keep minutes of its meetings and deliver such
minutes to the Board of Directors.
Section 2. Other Committees. The Board of Directors, by
resolution duly adopted by a majority of directors at a meeting at which a
quorum is present, may appoint such other committee or committees as it shall
deem advisable and with such limited authority as the Board of Directors shall
from time to time determine.
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Section 3. Other Provisions Regarding Committees.
(a) The Board of Directors shall have the power at any time to fill
vacancies in, change the membership of, or discharge any committee.
(b) Members of any committee shall be entitled to such compensation for
their services as such as from time to time may be fixed by the Board of
Directors and in any event shall be entitled to reimbursement of all reasonable
expenses incurred in attending committee meetings. Any member of a committee
may waive compensation for any meeting. No committee member who receives
compensation as a member of any one or more committees shall be barred from
serving the Corporation in any other capacity or from receiving compensation
and reimbursement of reasonable expenses for any or all such other services.
(c) Unless prohibited by law, the provisions of Section 10 ("Action by
Consent") and Section 11 ("Meetings by Telephone or Similar Communications") of
Article III shall apply to all committees from time to time created by the
Board of Directors.
ARTICLE V
ADVISORY BOARD
The Board of Directors, in its discretion, may authorize the formation
of an independent Board of Advisors. Any such Board of Advisors may make
recommendations concerning the business or policy of the Corporation to the
Board of Directors in a strictly advisory capacity. Any such Board of Advisors
shall have no rights, powers or authority to issue final decisions in matters
concerning the business of the Corporation. The number and composition of the
Board of Advisors shall be determined exclusively by the Board of Directors.
The Advisors, if any, shall be appointed by the Board of Directors and shall
hold their positions at the pleasure of the Board of Directors.
ARTICLE VI
OFFICERS
Section 1. Positions. The officers of the Corporation shall be
chosen by the Board of Directors and shall consist of a Chief Executive
Officer, a President, one or more Vice Presidents (if and to the extent
required by law or if not required, if the Board of Directors from time to time
appoints a Vice President or Vice Presidents), a Secretary and a Treasurer.
Only the Chief Executive Officer need be a director. The Board of Directors
also may choose a Chairman of the Board, one or more Assistant Secretaries
and/or Assistant Treasurers and such other officers and/or agents as the Board
from time to time deems necessary or appropriate. The Board of Directors may
delegate to the Chief Executive Officer or President of the Corporation the
authority to appoint any officer or agent of the Corporation and to fill a
vacancy other than the Chairman of the Board, Chief Executive Officer,
President, Secretary or Treasurer. The election or appointment of any officer
of the Corporation in itself shall not create contract rights for any such
officer. All officers of the Corporation shall exercise such powers and
perform such duties
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as from time to time shall be determined by the Board of Directors. Any two or
more offices may be held by the same person except the offices of President and
Vice President.
Section 2. Term of Office; Removal. Each officer of the
Corporation shall hold office at the pleasure of the Board and any officer may
be removed, with or without cause, at any time by the Board of Directors,
provided that any officer appointed by the Chief Executive Officer or the
President pursuant to authority delegated to the Chief Executive Officer or the
President by the Board of Directors may be removed, with our without cause, at
any time whenever the Chief Executive Officer or the President in his or her
absolute discretion shall consider that the best interests of the Corporation
shall be served by such removal. Removal of an officer by the Board of
Directors, the Chief Executive Officer or the President, as the case may be,
shall not prejudice the contract rights, if any, of the person so removed.
Vacancies (however caused) in any office may be filled for the unexpired
portion of the term by the Board of Directors (or by the Chief Executive
Officer or the President in the case of a vacancy occurring in an office to
which the Chief Executive Officer or President has been delegated the authority
to make appointments).
Section 3. Compensation. The salaries of all officers of the
Corporation shall be fixed from time to time by the Board of Directors, and no
officer shall be prevented from receiving a salary by reason of the fact that
he also receives from the Corporation compensation in any other capacity.
Section 4. Chairman of the Board. The Chairman of the Board (if
the Board of Directors so deemed advisable and selects one) shall be an officer
of the Corporation and, subject to the direction of the Board of Directors,
shall perform such executive, supervisory and management functions and duties
as from time to time may be assigned to him or her by the Board. The Chairman
of the Board, if present, shall preside at all meetings of the stockholders and
all meetings of the Board of Directors.
Section 5. Chief Executive Officer. The Chief Executive Officer
shall be an officer of the Corporation and, subject to the direction of the
Board of Directors, shall have general charge of the business, affairs and
property of the Corporation and general supervision over its other officers and
agents. In general, the Chief Executive Officer shall perform all duties
incident to the office of Chief Executive Officer of a stock corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. Unless otherwise prescribed by the Board of Directors, the Chief
Executive Officer shall have full power and authority on behalf of the
Corporation to attend, act and vote at any meeting of security holders of other
corporations in which the Corporation may hold securities. At any such meeting
the Chief Executive Officer shall possess and may exercise any and all rights
and powers incident to the ownership of such securities which the Corporation
possesses and has the power to exercise. The Board of Directors from time to
time may confer like powers upon any other person or persons.
Section 6. President. The President shall have those duties as
the Board of Directors may from time to time establish.
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Section 7. Vice Presidents. In the absence or disability of the
President, the Vice President, if any (or in the event there is more than one,
the Vice Presidents, in the order designated, or in the absence of any
designation, in the order of their election), shall perform the duties and
exercise the powers of the President. The Vice President(s) also generally
shall assist the President and shall perform such other duties and have such
other powers as from time to time may be prescribed by the Board of Directors.
Section 8. Secretary. The Secretary shall attend all meetings
of the Board of Directors and of the stockholders and shall record all votes
and the proceedings of all meetings in a book to be kept for such purposes.
The Secretary also shall perform like duties for the Executive Committee or
other committees, if required by any such committee. The Secretary shall give
(or cause to be given) notice of all meetings of the stockholders and all
special meetings of the Board of Directors and shall perform such other duties
as from time to time may be prescribed by the Board of Directors, the Chairman
of the Board, the Chief Executive Officer or the President. The Secretary
shall have custody of the seal of the Corporation, shall have authority (as
shall any Assistant Secretary) to affix the same to any instrument requiring
it, and to attest the seal by his or her signature. The Board of Directors may
give general authority to officers other than the Secretary or any assistant
Secretary to affix the seal of the Corporation and to attest the affixing
thereof by his or her signature.
Section 9. Assistant Secretary. The Assistant Secretary, if any
(or in the event there is more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election), in the absence or disability of the Secretary, shall perform the
duties and exercise the powers of the Secretary. The Assistant Secretary(ies)
shall perform such other duties and have such other powers as from time to time
may be prescribed by the Board of Directors.
Section 10. Treasurer. The Treasurer shall have the custody of
the corporate funds, securities, other similar valuable effects, and evidences
of indebtedness, shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as from time to time may be designated by the
Board of Directors. The Treasurer shall disburse the funds of the Corporation
in such manner as may be ordered by the Board of Directors from time to time
and shall render to the Chairman of the Board, the Chief Executive Officer, the
President and the Board of Directors, at regular meetings of the Board or
whenever any of them may so require, an account of all transactions and of the
financial condition of the Corporation.
Section 11. Assistant Treasurer. The Assistant Treasurer, if any
(or in the event there is more than one, the Assistant Treasurers in the order
designated, or in the absence of any designation, in the order of their
election), in the absence or disability of the Treasurer, shall perform the
duties and exercise the powers of the Treasurer. The Assistant Treasurer(s)
shall perform such other duties and have such other powers as from time to time
may be prescribed by the Board of Directors.
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ARTICLE VII
NOTICES
Section 1. Form; Delivery. Notice of any meeting of the Board
of Directors may be given orally. Any other notice required or permitted to be
given to any officer, stockholder or committee member shall be in writing,
given personally, or by first-class mail with postage prepaid, by express
delivery service or by telegraph, teletype, electronic mail or other form of
wire or wireless communication, provided the sender retains proof of the
content and delivery of such notice. In every case the notice shall be
addressed to the recipient at his or her address as it appears in the records
of the Corporation. Except as otherwise allowed by law, notice sent by mail,
postage prepaid, or by express delivery service is effective when mailed or
provided to the express delivery service. All other notices shall be deemed to
be given at the time they are delivered at the address of the named recipient
as it appears in the records of the Corporation.
Section 2. Waiver; Effect of Attendance. Whenever any notice is
required to be given by law, the Articles of Incorporation or these Bylaws, a
written waiver thereof, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be the
equivalent of the giving of such notice when delivered to the Secretary of the
Corporation and filed with the Minutes or Corporate records. In addition, any
stockholder who attends a meeting of stockholders in person, or who is
represented at such meeting by a proxy, or any director or committee member who
attends a meeting of the Board of Directors or a committee thereof shall be
deemed to have had timely and proper notice of the meeting, unless such
stockholder (or his or her proxy) or director or committee member attends for
the express purpose of objecting to the transaction of any business on the
grounds that the meeting is not lawfully called or convened.
ARTICLE VIII
TRANSACTIONS WITH AFFILIATED PERSONS
The officers and directors shall exercise their powers and duties in
good faith and with a view to the best interests of the Corporation. No
contract or other transaction between the Corporation and one or more of its
officers or directors, or between the Corporation and any corporation, firm,
association, or other entity in which one or more of the officers or directors
of the Corporation are officers or directors, or are pecuniarily or otherwise
interested, shall be either void or voidable because of such common
directorate, officership or interest, because such officers or directors are
present at the meeting of the Board of Directors or any committee thereof which
authorizes, approves or ratifies the contract or transaction, or because his,
her or their votes are counted for such purpose, if (unless otherwise
prohibited by law) any of the conditions specified in the following paragraphs
exist:
(a) the material facts of the common directorate or interest or
contract or transaction are disclosed or known to the Board of Directors or
Committee thereof and the Board or Committee authorizes or ratifies such
contract or transaction in good faith by the affirmative vote of a majority of
the disinterested directors, even though the number of such disinterested
directors may be less than a quorum; or
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(b) the material facts of the common directorate or interest or
contract or transaction are disclosed or known to the stockholders entitled to
vote thereon and the contract or transaction is specifically approved in good
faith by vote of the stockholders; or
(c) the contract or transaction is fair to the Corporation.
A quorum is present at any meeting of the Board of Directors or Committee
thereof which authorizes, approves or ratifies any contract or transaction when
a majority of the Directors who have no direct or indirect personal interest in
the contract or transaction votes in favor of such transaction or contract. No
contract or transaction may be authorized, approved or ratified under this
section by a single director.
ARTICLE IX
STOCK CERTIFICATES
Section 1. Form; Signatures. Each stockholder who has fully
paid for any stock of the Corporation shall be entitled to receive a
certificate representing such shares, and such certificates shall be signed by
the Chairman of the Board (if any), the Chief Executive Officer, the President
or a Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation. Signatures on the
certificate may be facsimile, in the manner prescribed by law. Each
certificate shall exhibit on its face the number and class (series, if any) of
the shares it represents. Each certificate also shall state upon its face the
name of the person to whom it is issued and that the Corporation is organized
under the laws of the Commonwealth of Virginia. Each certificate may (but need
not) be sealed with the seal of the Corporation or facsimile thereof. In the
event any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate ceases to be such
officer, transfer agent or registrar before the certificate is issued, the
certificate nevertheless may be issued by the Corporation with the same effect
as if such person were such officer at the date of issue of the certificate.
All stock certificates representing shares of capital stock which are subject
to restrictions on transfer or to other restrictions shall have imprinted
thereon a notation of such restriction.
Section 2. Registration of Transfer. Upon surrender to the
Corporation or to any transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, the Corporation, or its transfer agent,
shall issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon the Corporation's books.
Section 3. Registered Stockholders. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the exclusive
right of a person who is registered on its books as the owner of shares of its
capital stock to receive dividends or other distributions (to the extent
otherwise distributable or distributed), to vote (in the case of voting stock)
as such owner, and to hold liable for calls and assessments a person who is
registered on its books as the owner of shares of its capital stock. The
Corporation shall not be bound to recognize any equitable or legal claim to or
interest in such shares on the part of any other person. The Corporation (or
its
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transfer agent) shall not be required to send notices or dividends to names or
addresses other than the names or addresses of the stockholders appearing on
the stock ledger maintained by the Corporation (or by the transfer agent or
registrar, if any), unless any such stockholder shall have notified the
Corporation (or the transfer agent or registrar, if any), in writing, of
another name or address at least ten (10) days prior to the mailing of such
notice or dividend.
Section 4. Record Date. In order that the Corporation may
determine the stockholders of record who are entitled (i) to notice of or to
vote at any meeting of stockholders or any adjournment thereof, (ii) to express
written consent to corporate action in lieu of a meeting, (iii) to receive
payment of any dividend or other distribution, or (iv) to allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock for the purpose of any other lawful action or in order that
the Corporation may make a determination of the stockholders of record for any
other lawful purpose, the Board of Directors, in advance, may fix a date as the
record date for any such determination. Such date shall not be more than
seventy (70) days nor less than ten (10) days before the date of such meeting,
nor more than seventy (70) days prior to the date of any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of the stockholders shall apply to any adjournment of the meeting taken
pursuant to Section 6 of Article II; provided, however, that the Board of
Directors, in its discretion, may fix a new record date for the adjourned
meeting.
Section 5. Lost, Stolen or Destroyed Certificate. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation which is claimed to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing
such issue of a new certificate, the Board of Directors, in its discretion, may
require as a condition precedent to issuance that the owner of such lost,
stolen or destroyed certificate, or his or her legal representative, advertise
the same in such manner as the Board shall require and/or to give the
Corporation a bond in such sum, or other security in such form, as the Board
may direct, as indemnity against any claim that may be made against the
Corporation with respect to the certificate claimed to have been lost, stolen
or destroyed.
ARTICLE X
GENERAL PROVISIONS
Section 1. Dividends. Subject to the Virginia Stock
Corporation Act and to any provisions of the Articles of Incorporation relating
to dividends, dividends upon the outstanding capital stock of the Corporation
may be declared by the Board of Directors at any annual, regular or special
meeting and may be paid in cash, in property or in shares of the Corporation's
capital stock.
Section 2. Reserves. The Board of Directors, in its sole
discretion, may fix a sum which may be set aside or reserved over and above the
paid-in capital of the Corporation for working capital or as a reserve for any
proper purpose, and from time to time may increase, diminish or vary such fund
or funds.
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Section 3. Fiscal Year. The fiscal year of the Corporation
shall be as determined from time to time by the Board of Directors.
Section 4. Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its incorporation and the
words "Corporate Seal" and "Commonwealth of Virginia."
Section 5. Benefit Program. Directors shall have the power to
install and authorize any pension, profit sharing, stock option, insurance,
welfare, educational, bonus, health and accident or other benefit program which
the Board deems to be in the interest of the Corporation, at the expense of the
Corporation, and to amend or revoke any plan so adopted.
Section 6. Amendment of the Bylaws. The stockholders of the
Corporation shall have the power to make, alter and repeal these Bylaws, and to
adopt new Bylaws. The Board of Directors shall also have the power to make,
alter and repeal these Bylaws, and to adopt new Bylaws, except to the extent
that (a) the stockholders in adopting or amending particular Bylaw provisions
expressly provide that the Board of Directors may not amend or repeal those
Bylaw provisions, or (b) the Corporation's Articles of Incorporation or the
Virginia Stock Corporation Act reserves this power exclusively to the
stockholders. Notice of any proposal to make, alter or repeal these Bylaws, or
to adopt new Bylaws, shall be included in the notice of the meeting of the
stockholders or the Board of Directors, as applicable, at which such action
takes place.
CERTIFICATION
I, Ralph E. Alexander, President of Landmark Systems Corporation (the
"Corporation"), DO HEREBY CERTIFY that the foregoing is a true and correct copy
of the Corporation's Fourth Amended and Restated Bylaws as adopted by the Board
of Directors of the Corporation by resolution effective as of September 15,
1997.
--------------------------------
Ralph E. Alexander, President
[Corporate Seal]
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") dated April 9, 1997 (the
"Effective Date"), is entered into by and between LANDMARK SYSTEMS CORPORATION,
a Virginia corporation (the "Company") and RALPH E. ALEXANDER (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the development of mainframe and
client-server computer software products and the continued personal services of
its key executives, including the Executive, are essential to the continued
growth and profitability of the Company;
WHEREAS, the Executive entered into employment with the Company on
November 1, 1995 (the "Employment Effective Date") as Chief Financial Officer
and Vice President of Financial Operations of the Company;
WHEREAS, the Executive is currently employed as the Vice President and
Chief Operating Officer of the Company and his performance in that capacity is
material to the business of the Company;
WHEREAS, the Company wishes to assure itself of the continued services
of the Executive for the term of employment provided for in this Agreement; and
WHEREAS, the Executive is willing to continue to serve, and is now
free to serve, in the employ of the Company upon the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements hereinafter set forth, the Company and the Executive
agree as follows:
1. DEFINITIONS
1.1 DEFINED TERMS.
As used in this Agreement:
(a) "Affiliate" shall mean any corporation or other business
entity controlling, controlled by or under common control with the Company.
(b) "Cause" shall mean (i) any act or acts of the Executive
constituting a felony under the laws of the United States, any state thereof or
any foreign jurisdiction; (ii) the intentional failure to perform assigned
duties after the Executive has been notified in writing of such failure; (iii)
any material breach by the Executive of this Agreement or the policies of the
Company or the willful and persistent (after written notice to the Executive)
failure or refusal of the Executive to comply with any lawful directives of the
Board; (iv) a course of conduct
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amounting to gross negligence, willful misconduct or dishonesty; or (v) any
misappropriation of material property of the Company by the Executive,
misappropriation of a corporate or business opportunity of the Company by the
Executive or breach of a fiduciary duty owed by the Executive to the Company.
(c) "clients" and "customers" shall mean, when used in reference
to clients and customers of the Company, persons, whether natural persons,
corporations, partnerships, associations or other entities, for whom the
Company has provided software products or other products or services for fees
or for whose benefit services have been performed under arrangement between
the Company and such person.
(d) "Competitor" shall mean any business or activity within the
Territory which is or which becomes directly or indirectly competitive with the
business of the Company, as the same may be conducted during the Restricted
Period (excluding, however, any lines of business which are discontinued by the
Company during such period); provided that, as of the Separation Date,
Competitors shall be limited to no more than five (5) of such businesses or
activities as identified to the Executive in a written notice on or about the
Separation Date.
(e) "Disability" shall mean any physical or mental illness,
disability or incapacity which prevents the Executive from performing
substantially all of his material duties hereunder for a period of not less
than one hundred twenty (120) consecutive days (or for shorter periods totaling
not less than one hundred eighty (180) days during any period of twelve (12)
consecutive months).
(f) "Restricted Period" shall mean the period commencing on the
Effective Date and ending upon the expiration of the twenty-four (24) month
period immediately following the Separation Date; provided that, upon any
finding by a court or arbitral tribunal of competent jurisdiction that the
Company wrongfully terminated the Executive's employment with the Company, the
Restricted Period shall terminate immediately.
(g) "Separation Date" shall mean: (i) in the event the
Executive's employment with the Company is not earlier terminated for any
reason, the date the Employment Term expires; or (ii) in the event the
Executive's employment with the Company is terminated for any reason, the
effective date of termination of the Executive's employment with the Company.
(h) "Territory" shall mean the United States of America, its
territories and possessions, Canada, the United Kingdom, Spain, Australia, Hong
Kong, The Netherlands and Germany, together with such other jurisdictions in
which the business of the Company is conducted as of the date hereof or may be
conducted during all actual periods of the Executive's employment hereunder.
1.2 OTHER DEFINITIONS.
Other terms used in this Agreement are defined in the context in which
they are used and shall have the meanings there indicated.
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2. EMPLOYMENT AND DUTIES
2.1 POSITION AND RESPONSIBILITIES. The Company hereby employs the
Executive to render full-time executive services to the Company on an exclusive
basis during the "Employment Term" (as that term is hereinafter defined) as the
Vice President and Chief Operating Officer of the Company, subject to the
direction of the President and Chief Executive Officer of the Company (the
"President") and the Board of Directors of the Company (the "Board"). In such
capacity and subject to such direction, the Executive shall have such powers
and perform such duties, consistent with such executive capacity, as may be
assigned or delegated to him from time to time by the President or the Board.
2.2 ACCEPTANCE. The Executive hereby accepts such employment and agrees
to devote his full time attention and best efforts exclusively to rendering the
services described above. The Executive further agrees to accept election, and
to serve during all or any part of the Employment Term, as a director of the
Company or of any Affiliate, in the event that he is elected to any such
position by the Board or by the Board of Directors or similar governing body of
any Affiliate, and to perform such services for any such Affiliate as may be
assigned to him, in each case without additional compensation therefor other
than as specified in this Agreement.
2.3 EXCLUSIVE SERVICES.
(a) It is understood and agreed that the Executive may not engage
in any other business activities during the Employment Term, whether or not for
profit or other pecuniary advantage; provided, however: (i) that the Executive
may (A) make personal financial investments which do not involve any material
active participation on his part, (B) engage in charitable, educational,
religious, civic and similar types of activities and (C) serve as an outside
director on the board of directors of other corporations which are not
Affiliates of the Company, but only to the extent that any such activities do
not hinder or otherwise interfere with the business of the Company or any
Affiliate or the performance of the Executive's duties under this Agreement or
conflict with the Company's or any Affiliate's policies concerning conflicts of
interest, and (ii) that, with respect to the activities described in subclause
(C) above, such activities have been approved in advance by the President or
are listed on Schedule 1.3 hereto.
(b) The Executive agrees that he will not take personal advantage
of any business opportunities which arise during his employment with the
Company and which may be of benefit to the Company. All material facts
regarding such opportunities must be promptly reported to the President or the
Board for consideration by the Company.
3. TERM
The Executive will be employed by the Company for a period of three
(3) years commencing on the Effective Date, which shall be subject to renewal,
upon completion of the initial three-year period of employment, for consecutive
terms of one (1) year each commencing on the day after the expiration of the
then-current term unless either party elects not to renew this Agreement by
giving notice to the other party at least ninety (90) days prior to the
expiration of
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the then-current term, and subject in any event to earlier termination at any
time during the Executive's period of employment hereunder pursuant to the
provisions of Article 5 below. The initial three-year period of employment
hereunder, together with any one-year renewal periods thereafter, are referred
to herein as the "Employment Term".
4. COMPENSATION
4.1 BASIC SALARY. The Company shall pay the Executive salary for the
services to be rendered by him during the Employment Term at the rate of One
Hundred Seventy Five Thousand Dollars ($175,000) per annum (or portion
thereof, as applicable), subject to such increases, if any, as the Board may
determine after annual review ("Salary"), payable in periodic installments in
accordance with the Company's regular payroll practices as in effect from
time-to-time during the Employment Term.
4.2 BONUS PLAN. In addition to the Salary provided for in Section 4.1
above, the Executive shall be entitled to continue to participate in the
Company's bonus plan (the "Bonus Plan"), as the same shall be in effect from
time-to-time during the Employment Term, as determined and approved by the
Board. Under the Bonus Plan, as such plan exists as of the Effective Date:
(i) a target annual incentive has been set for the Executive in the amount of
Fifty Thousand Dollars ($50,000), subject to such increases, if any, as the
Board, or any authorized committee of the Board may determine (the "Target
Annual Incentive"); and (ii) the Company shall pay the Executive, as a bonus,
some or all of the Target Annual Incentive, as determined exclusively by
reference to the terms of the Bonus Plan (the "Bonus"). In addition, the
timing and manner of distribution of the Bonus shall be determined exclusively
by reference to the terms of the Bonus Plan.
4.3 OTHER INCENTIVES. In addition to the Salary and Bonus provided for in
Sections 4.1 and 4.2 above respectively, and the stock options listed on
Exhibit A attached hereto which were previously granted to the Executive under
the Company's 1994 Stock Incentive Plan, the Executive shall have such other
incentives as may be approved by the Board, or any authorized committee of the
Board, for the Executive from time-to-time.
4.4 BENEFITS. Except as otherwise expressly provided herein, the
Executive shall be entitled to participate in, and to receive benefits under,
the Company's standard medical, dental, life and disability insurance plans,
policies or programs and any other employee benefit or fringe benefit plans,
perquisites or arrangements which the Company makes available generally to
other senior executives of the Company (including, without limitation, a Tower
Club membership and a car telephone), pursuant to the provisions of such plans
or arrangements, as the same may be in effect from time-to-time during the
Employment Term.
4.5 VACATION. During the period of his employment hereunder, the
Executive shall be entitled to four (4) weeks paid non-cumulative vacation each
year.
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4.6 EXPENSES. The Company shall pay or reimburse the Executive for all
reasonable, ordinary and necessary business expenses actually incurred or paid
by the Executive in the performance of the Executive's services under this
Agreement, in accordance with the expense reimbursement policies of the Company
in effect from time to time during the Employment Term, upon presentation of
proper expense statements or vouchers or such other written supporting
documentation as the Company may reasonably require.
5. TERMINATION OF EMPLOYMENT
5.1 GENERAL. The Executive's employment may be terminated during the
Employment Term only as provided in this Article 5. Upon termination of
employment as provided hereunder, the Executive shall be paid any accrued but
unpaid Salary through the effective date of termination and, except as may
otherwise be specifically provided herein, the Executive's rights, if any,
under the Company's employee benefit plans or such other plans in which the
Executive is a participant shall be determined under the provisions of such
plans and any payments due under such plans shall be distributed pursuant to
the provisions thereof.
5.2 TERMINATION FOR CONVENIENCE.
(a) At its option, the Company may elect at any time, effective
upon thirty (30) days' prior written notice to the Executive, to terminate the
Executive's employment for convenience. In the event of any termination of
employment for convenience, the Company shall, subject only to the provisions
of Section 5.1 above, have no further obligations or liabilities to the
Executive under this Agreement; provided that, subject to Section 5.2(b) below:
(i) the Company shall pay the Executive, as a severance payment, an amount
equal to three-fourths (3/4) of the Salary in effect at the time notice of
termination is given (the "Severance Payment"), to be paid to the Executive
during the nine (9) month period following the effective date of termination of
the Executive's employment (the "Severance Payment Period") on the same payment
schedule as the Executive's regular salary was paid prior to the effective date
of termination of the Executive's employment; and (ii) during the Severance
Payment Period, the Executive's rights, if any, under the Company's employee
benefit plans or such other plans in which the Executive was a participant
immediately prior to the effective date of termination shall continue as if the
Executive were still employed by the Company (items (i) and (ii) collectively,
the "Severance Package"). The Company reserves the right, in its sole
discretion, and in lieu of providing the Executive with prior written notice of
termination, to terminate the Executive's employment immediately upon written
notice and pay the Executive an amount equal to one-twelfth (1/12) of the
Salary in effect at the time notice of termination is given by increasing the
Severance Payment by such amount.
(b) The Executive shall, as conditions to the Company's obligation
to provide, and the Executive's right to receive, the Severance Package: (i)
execute and deliver to the Company the Agreement and General Release attached
hereto as Exhibit D (the "Release"); and (ii) not revoke the Release during the
revocation period referred to in Paragraph 7 of the Release (the "Revocation
Period"). In the event the Executive satisfies both conditions set forth in
the preceding sentence, the Company's obligation to provide, and the
Executive's right to receive, the Severance Package in the manner set forth
herein, shall arise on the next business day following
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the expiration of the Revocation Period. The Executive acknowledges and agrees
that: (i) the Severance Package is above and beyond the compensation otherwise
payable to him for the services rendered by him during the Employment Term;
(ii) he would not otherwise be entitled to receive the Severance Package but
for his promises in the Release, without revocation by the Executive; and (iii)
the Company's provision of the Severance Package in the manner set forth herein
is in consideration for Executive's promises in the Release.
5.3 TERMINATION FOR CAUSE. At its option, the Company may elect at any
time, effective immediately upon written notice to the Executive after the
Board determines the existence of Cause, to terminate the Executive's
employment for Cause. In the event of any termination of employment for Cause,
the Company shall, subject only to the provisions of Section 5.1 above, have no
further obligations or liabilities to the Executive under this Agreement.
5.4 TERMINATION UPON DEATH OR DISABILITY. The Executive's employment
hereunder shall terminate automatically as of the date of his death. At its
option, the Company may elect at any time, effective immediately upon notice to
the Executive after the Board determines the existence of a Disability, and in
a manner otherwise consistent with the Americans with Disabilities Act, to
terminate the Executive's employment for such Disability. In the event of any
termination of employment by reason of death or Disability, the Company shall,
subject only to the provisions of Section 5.1 above, have no further
obligations or liabilities to the Executive under this Agreement. It is the
intention of the parties that, prior to any termination of the Executive's
employment hereunder by reason of Disability, the Executive shall have been
afforded a reasonable period of time in which to attempt to qualify for
disability benefits under the Company's group disability coverage then in
effect on the basis of such Disability and which time period shall in any event
be at least ninety (90) days from the date the physical or mental illness,
disability or incapacity giving rise to such Disability first arose.
5.5 SATISFACTION OF LIABILITIES. Upon payment of the amounts provided in
this Article 5, the Company shall have no further liability of any kind or
nature whatsoever to the Executive under law or this Agreement relating to this
Agreement or to the Executive's employment hereunder. All payments to the
Executive provided for under this Article 5 shall be in lieu of, and shall be
deemed to be in discharge of, any obligations of the Company to the Executive
for Salary or under any separation or severance pay plan of the Company or any
Affiliate or for other compensation or expectation of remuneration or benefit
in connection with the Executive's employment by the Company or the termination
thereof, subject only to the Executive's rights set forth in any stock option
agreements between the Company and the Executive.
6. CERTAIN COVENANTS AND REPRESENTATION
6.1 NON-COMPETITION AND SOLICITATION. The Executive acknowledges that he
will have access at the highest level to, and the opportunity to acquire
knowledge of, trade secrets and other valuable confidential and proprietary
information of the Company and that he is entering into the covenants in this
Article 6 in order to preserve the goodwill and going concern value of the
Company. The Executive further acknowledges that the business of software
development is very competitive and that competition by him in that business
during his employment, or after his
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employment terminates, would severely injure the Company. Accordingly, the
Executive hereby undertakes and covenants as follows:
(a) The Executive agrees that, during the Restricted Period, he
will refrain, alone, or as a partner, member, employee or agent of any
partnership or other entity, or as an officer, employee, agent, director,
stockholder or investor of any corporation (except as to not more than one
percent (1%) of the outstanding stock of any corporation the securities of
which are traded on a regular basis an a recognized securities exchange or on a
regular basis in over-the-counter markets), or in any other individual or
representative capacity, from directly or indirectly owning managing, operating
or controlling, or participating in the ownership, management, operation or
control of, or working for or providing consulting services (including, without
limitation, consulting services without fee other compensation) to, or
permitting the use of his name by, or lending money to, any Competitor.
(b) The Executive and any entity controlled by him or with which
he is associated (as the terms "control" and "associate" are defined under the
Securities Exchange Act of 1934 (the "Exchange Act")) shall not during the
Restricted Period, without the prior written consent of the Company, directly
or indirectly, solicit, interfere with, hire, offer to hire or induce any
person, who is or was an officer or employee of the Company or any Affiliate
(other than secretarial and clerical personnel) during all actual periods of
employment hereunder or during the twelve (12) month period prior to the
expiration of the Employment Term or any termination of the Executive's
employment with the Company during the Employment Term, as applicable, to
discontinue his or her relationship with the Company or such Affiliate or to
accept employment by, or enter into a business relationship with, any other
entity or person, provided that the foregoing restriction shall not apply to
unsolicited requests for character references received by the Executive, and
further provided that, with respect to any entity with which the Executive is
associated, the foregoing restriction shall only be applicable to actions taken
by such entity as a result of the participation or involvement, directly or
indirectly, of the Executive.
(c) The Executive and any entity controlled by him or with which
he is associated (as the terms "control" and "associate" are defined under the
Exchange Act) shall not, during the Restricted Period, directly or indirectly,
(i) solicit, interfere with, induce or entice away any person or entity that is
or was a client, customer or agent of the Company or any Affiliate all actual
periods of employment hereunder or during the twelve (12) month period prior to
the expiration of the Employment Term or any termination of the Executive's
employment with the Company during the Employment Term, as applicable, or (ii)
in any manner persuade or attempt to persuade any such person or entity (A) to
discontinue a business relationship with the Company or such Affiliate, or (B)
to enter into a business relationship with any other entity or person which
would be detrimental to the Company in any material respect, provided that,
with respect to any entity with which the Executive is associated, the
foregoing restrictions shall only be applicable to actions taken by such entity
as a result of the participation or involvement, directly or indirectly, of the
Executive.
(d) Without limiting the foregoing, the Executive agrees that he
will not, during the Restricted Period, use, or authorize any other person to
use, any corporate, firm or business
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name, title or logo, or trademark, service mark or trade name, in connection
with any business within the Territory, whether alone or in conjunction with
any other names or words, in a manner which would be likely to create confusion
with any of the trademarks, service marks, trade names, corporation, firm or
business names or titles or logos associated with the business of the Company.
(e) The Executive hereby acknowledges that the business of the
Company is national and international in scope; that clients of the Company are
located throughout the Territory; and that, accordingly, any geographical
limitation on the scope of the foregoing covenants to less than those areas
specified above would be meaningless, and that, by reason thereof, the
Executive acknowledges that the scope of the foregoing covenants is reasonable
and necessary in order to protect the interests of the Company sought to be
protected hereby.
6.2 CONFIDENTIAL INFORMATION AND INVENTIONS. The Executive acknowledges,
and agrees to remain bound to (i) that certain Landmark Systems Corporation
Employee Agreement on Ideas, Inventions, and Confidential Information by and
between Landmark Systems Corporation and Ralph Alexander, dated September 8,
1995 and (ii) that certain Salary Confidentiality Agreement acknowledged by
Ralph Alexander, dated November 11, 1995. The Executive further acknowledges
and agrees that his obligations under the Landmark Systems Corporation Employee
Agreement on Ideas, Inventions, and Confidential Information referred to herein
shall extend to Landmark's Affiliates to the same extent as if the Executive
had entered into the same agreement with each of Landmark's Affiliates.
6.3 ENFORCEMENT.
(a) The parties hereby acknowledge and agree that, inasmuch as the
services to be rendered by the Executive hereunder are of a special, unique and
extraordinary nature, any breach thereof will cause irreparable injury to the
Company and that money damages will not provide an adequate remedy to the
Company. The Executive, therefore, expressly agrees that the Company shall be
entitled, without prejudice to any other rights that it may have under this
Agreement, to seek injunctive and/or other equitable relief to prevent any
anticipatory or continuing breach of this Agreement, or any part thereof, and
to secure its enforcement. Such rights and remedies shall be in addition to,
and not in lieu of, any other rights and remedies available to the Company at
law or in equity, including without limitation, the right to seek monetary
damages.
(b) It is expressly understood and agreed that, although the
Executive and the Company consider the restrictions contained in this Article 6
to be reasonable for the purpose of preserving the Company's good will,
proprietary rights and going concern value, if a final determination is made by
a court of competent jurisdiction that the time or territory or any other
restriction contained in this Agreement is an unenforceable restriction against
the Executive, the provisions of this Agreement shall nevertheless not be
rendered void but shall be deemed amended to apply as to such maximum time and
territory and to such other maximum extent as such court may judicially
determine to be enforceable. Alternatively, if any court of competent
jurisdiction finds that any restriction contained in this Agreement is
unenforceable, and such restriction cannot
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be amended so as to make it enforceable, it is the parties' intention that such
finding shall not affect the enforceability of any of the other restrictions
contained herein.
6.4 CONTINUATION OF EMPLOYMENT. The parties agree and understand that the
Executive's continuation of employment during the Employment Term is necessary
for the purpose of preserving the Company's and its Affiliates' good will,
proprietary rights and going concern value. To the extent permitted by law,
the parties intend that the Executive may not voluntarily terminate his
employment hereunder, except at the expiration of the initial three-year period
of employment or any subsequent one-year renewal periods of employment by
electing not to renew this Agreement as provided in Article 3 hereof. The
Executive agrees that he will not directly or indirectly take any action or
solicit any proposals or discussions that reasonably could be expected to
result in a breach of the undertakings or agreements in this Section 6.4.
6.5 REPRESENTATIONS. The Executive represents and warrants to the Company
that he has full power to enter into this Agreement and perform his duties
hereunder and that his execution and delivery of this Agreement and his
performance of his duties hereunder shall not result in a breach of, or
constitute a default under, any agreement or understanding, oral or written, to
which he is a party or by which he may be bound.
7. MISCELLANEOUS
7.1 NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, by courier or by
facsimile transmission, telexed or mailed by registered or certified mail
(return receipt requested), with all facsimile, telex or postage fees prepaid,
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice; provided, however, that notices of a
change of address or telex or facsimile number shall be effective only upon
receipt thereof):
To the Executive:
Ralph E. Alexander
15623 Meherrin Drive
Centreville, Virginia 22020
To the Company:
Landmark Systems Corporation
8000 Towers Crescent Drive
Vienna, Virginia 22182
Attention: Katherine K. Clark, President
Facsimile: 703-734-0363
7.2 NON-ASSIGNABILITY. Neither of the parties shall have the right to
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other party;
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<PAGE> 10
provided, however, that this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any sale of all or
substantially all of the Company's assets, or upon any merger or consolidation
of the Company with or into any other corporation, all as though such
successors and assigns of the Company and their respective successors and
assigns were the Company.
7.3 APPLICABLE LAW. This Agreement and the relationships of the parties
in connection with the subject matter of this Agreement shall be construed and
enforced according to the laws of the Commonwealth of Virginia without giving
effect to the conflict of laws rules thereof. The Executive hereby irrevocably
consents to, and waives any objection to the exercise of, personal jurisdiction
by the state and federal courts located in the Commonwealth of Virginia with
respect to any action or proceeding arising out of this Agreement.
7.4 ENTIRE AGREEMENT. This Agreement (which includes and incorporates
Exhibits A and B attached hereto) contains the full and complete agreement of
the parties relating to the employment of the Executive hereunder and
supersedes all prior agreements, arrangements or understandings, whether
written or oral, relating thereto (including, without limitation, that certain
letter agreement dated September 5, 1995 between the Company and Ralph
Alexander attached hereto as Exhibit C).
7.5 AMENDMENTS. This Agreement may not be amended, modified or
supplemented, and no provision or requirement hereof may be waived, except by
written instrument signed by each of the parties hereto.
7.6 WITHHOLDING TAXES. All amounts payable under this Agreement, whether
such payment is to be made in cash or other property, shall be subject to
withholding for Federal, state and local income taxes, employment and payroll
taxes, and other legally required withholding taxes and contributions to the
extent appropriate in the determination of the Company, and the Executive
agrees to report all such amounts as ordinary income on his personal income
returns and for all other purposes.
7.7 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable by any judgment of a tribunal of competent
jurisdiction, the remainder of this Agreement shall not be affected by such
judgment, and this Agreement shall be carried out as nearly as possible
according to its original terms and intent and, to the full extent permitted by
applicable law, any provisions or restrictions found to be invalid shall be
amended with such modifications as may be necessary to cure such invalidity,
and such restrictions shall apply as so modified.
7.8 WAIVER. The failure to enforce at any time any of the provisions of
this Agreement or to require at any time performance by another party of any of
the provisions hereof shall in no way be construed to be a waiver of such
provisions or to affect either the validity of this Agreement or any part
hereof or the right of any party thereafter to enforce each and every provision
in accordance with the terms of this Agreement.
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<PAGE> 11
7.9 DESIGNATION OF BENEFICIARY. If the Executive shall die before receipt
of all payments to which he is entitled under this Agreement, payment of the
amounts to which he is entitled under this Agreement shall be made to such
beneficiary as he shall have designated by an instrument in writing filed with
the Secretary of the Company or, in the absence of such designation, to his
estate. Such payment shall be made in the same manner and at the same
intervals as they would have been made to the Executive had he continued to
live.
7.10 EXECUTIVE'S RIGHTS NOT SECURED. Nothing contained in this Agreement
and no action taken pursuant to the provisions hereof shall create, or be
construed to create, a trust of any kind, a fiduciary relationship between the
Company and any Affiliate and the Executive or any other person, nor shall any
money, property or equity securities be segregated for the benefit of the
Executive.
7.11 COUNTERPARTS. This agreement may be executed in counterparts, each of
which shall constitute one and the same instrument.
7.12 SURVIVAL. Any provision of this Agreement which contemplates
performance subsequent to any termination or expiration of this Agreement, such
as Section 6.1 or Section 6.2, will survive any termination or expiration of
this Agreement and continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
LANDMARK SYSTEMS CORPORATION
By: /s/ KATHERINE K. CLARK
----------------------------------
Katherine K. Clark, President
RALPH E. ALEXANDER
By: /s/ RALPH E. ALEXANDER
------------------------------------
Ralph E. Alexander
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<PAGE> 12
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement (the "Amendment"), dated
as of October 9, 1997, is entered into by and between LANDMARK SYSTEMS
CORPORATION, a Virginia corporation (the "Company"), and RALPH E. ALEXANDER
(the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive are parties to that certain
Employment Agreement dated April 9, 1997 (the "Employment Agreement");
WHEREAS, the Board of Directors of the Company on September 15, 1997
appointed the Executive to serve as President of the Company; and
WHEREAS, the Company and the Executive desire to amend the Employment
Agreement to reflect the appointment of the Executive as President of the
Company;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and agreements hereinafter set forth, the Company and the Executive
agree as follows:
1. The Employment Agreement is hereby amended by deleting Section
2.1 thereof and replacing it in its entirety with the following:
2.1 POSITION AND RESPONSIBILITIES. The Company hereby
employs the Executive to render full-time executive services
to the Company on an exclusive basis during the "Employment
Term" (as that term is hereinafter defined) as the President
and Chief Operating Officer of the Company, subject to the
direction of the Chief Executive Officer of the Company (the
"CEO") and the Board of Directors of the Company (the
"Board"). In such capacity and subject to such direction,
the Executive shall have such powers and perform such duties,
consistent with such executive capacity, as may be assigned
or delegated to him from time to time by the CEO and the
Board.
2. The Employment Agreement is hereby amended to replace the
term "President" with "CEO" wherever such term is used in the Employment
Agreement, except as used in Section 2.1 above.
3. All other provisions of the Employment Agreement shall remain
in full force and effect.
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed and delivered this
Amendment as of the date first written above.
LANDMARK SYSTEMS CORPORATION
By:
---------------------------
Katherine K. Clark
Chief Executive Officer
RALPH E. ALEXANDER
By:
----------------------------
Ralph E. Alexander
<PAGE> 1
EXHIBIT 10.2
LANDMARK SYSTEMS CORPORATION
FIRST AMENDED AND RESTATED
1989 STOCK INCENTIVE PLAN
1. Purpose.
The purpose of this Amended and Restated Stock Incentive Plan (this
"Plan") is to offer to those key employees who contribute materially to the
successful operation of LANDMARK SYSTEMS CORPORATION (the "Company') additional
incentive and encouragement to remain in the service of the Company by
increasing their personal participation in the Company through stock ownership.
This Plan provides a means whereby these individuals may acquire shares of the
Company's Common Stock pursuant to Qualified Options, Nonqualified Options,
Restricted Stock Awards and Stock Bonuses.
2. Definitions.
A. "Board" means the Board of Directors of the Company.
B. "Bonus Stock" means the shares of Common Stock issued to a Grantee
pursuant to a Stock Bonus.
C. "Code" means the Internal Revenue Code of 1986, as amended.
D. "Common Stock" means the common stock of the Company, $.01 par value
per share.
E. "Conditions" means the conditions attached to a Restricted Stock Award
pursuant to Section 7.B which if not met will result in the repurchase of
Restricted Stock at the price paid by the Grantee for such Restricted Stock as
provided in Section 7.E.
F. "Employee" means any employee of the Company or of any Parent or
Subsidiary, including an employee who serves as an officer or director of the
Company or of a Parent or Subsidiary.
G. "Fair Market Value" means the most recent determination of the fair
market value of each share of Common Stock made in accordance with Section 9.
H. "Grantee" includes both Optionees and recipients of Restricted Stock
Awards and Stock Bonuses.
I. "Nonqualified Option" means a stock option granted under this Plan
which is NOT intended to qualify as an incentive stock option under Section 422
of the Code.
J. "Option" includes both Nonqualified Options and Qualified Options.
K. "Option Shares" mean the shares of Common stock purchased by a Grantee
upon
<PAGE> 2
exercise of an Option.
L. "Optionee" means an Employee to whom an option has been granted.
M. "Parent" means a parent corporation of the Company within the meaning
of Section 425(e) of the Code.
N. "Qualified Option" means a stock option granted under this Plan which
qualifies as an incentive stock option under Section 422 of the Code.
O. "Restricted Stock" means the shares of Common Stock issued to a Grantee
pursuant to a Restricted Stock Award.
P. "Restricted Stock Award" means the grant under this Plan, at a price
determined by the Board, of Common Stock which is nontransferable and subject
to substantial risk of being repurchased at the price paid for such Common
Stock until the Conditions have been met.
Q. "Stock Bonus" means the grant under this Plan of Common Stock as a
bonus for services rendered by an Employee.
R. "Subsidiary" means a subsidiary corporation of the Company within the
meaning of Section 425(f) of the Code.
S. "Terminating Event" means the consummation of a merger or
consolidation of the Company into or with another corporation under
circumstances in which the Company is not the surviving corporation (other than
circumstances involving a mere change in the identity, form or place of
organization of the Company); (ii) the consummation of a sale of more than 50%
of the Company's outstanding stock to persons who are not shareholders of the
Company on the date of grant of the Option, Restricted Stock Award or Stock
Bonus; or (iii) the liquidation or dissolution of the Company.
3. Administration of the Plan.
This Plan will be administered by the Board, which will have the right to
delegate any and all of its powers under this Plan to a committee of members of
the Board comprised of no fewer than three members (the "Committee"). If the
Board appoints a Committee to administer this Plan, in whole or in part, the
Committee's determination will not be subject to approval by the Board, and to
the extent of such delegation, references in this Plan to the Board shall be
deemed to refer to the Committee. The Committee, however, shall report to the
Board periodically concerning its administration of the Plan.
The Board will have the authority and discretion to adopt and revise such
rules and regulations as it deems necessary for the administration of this Plan
and to determine, consistent with the provisions of this Plan, the Employees
to be granted Options, Restricted Stock Awards and Stock Bonuses, the times at
which Options, Restricted Stock Award and Stock Bonuses will
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<PAGE> 3
be granted, the option price of the shares subject to each Option and the price
at which a Restricted Stock Award is made, the number of shares subject to each
Option, Restricted Stock Award and Stock Bonus, the vesting schedule of
Options, the method of payment for shares acquired upon the exercise of
Options, the expiration dates of the Options, and the Conditions attached to
each Restricted Stock Award. In addition, the Board will have the authority,
in connection with any Option, Restricted Stock Award Or Stock Bonus granted or
to be granted to any Employee, to eliminate, restrict, expand or otherwise
modify, in such manner as the Board, in its discretion, deems appropriate, the
put and call rights granted under Section 10 of this Plan, provided that any
modification of such rights are set forth in a written agreement signed by the
Company and such Employee. The Board's actions, including any interpretation
or construction of any provisions or this Plan and any Option, Restricted Stock
Award and Stock Bonus, shall be final, conclusive and binding. No member of
the Board shall be liable for any action or determination made in good faith.
4. Eligibility.
All Employees will be eligible to receive Options, Restricted Stock
Awards and Stock Bonuses. An Employee may be granted more than one Option,
Restricted Stock A-ward or Stock Bonus.
5. Shares of Stock Subject to the Plan.
The number of shares which may be issued pursuant to this Plan shall not
exceed 136,645 shares of Common Stock. Only 40,000 shares of Common Stock may
be issued under this Plan as Stock Bonuses. A proportionate adjustment in the
number of shares subject to the Plan shall be made to account for any increase
or decrease in the number of issued shares of Common Stock of the Company
resulting from a stock split (whether by subdivision or consolidation of
shares) or any payment of a share dividend (but only on the Common Stock). Any
or all shares subject to this Plan may be issued under Qualified Options.
Shares subject to this Plan may be authorized and unissued shares or shares
previously acquired by the Company and held in its treasury. Any shares
subject to an Option which expires for any reason or is terminated unexercised
as to such shares, and any Restricted Stock, Bonus Stock and Option Shares
which are repurchased by the Company, may again be subject to an Option,
Restricted Stock Award or Stock Bonus under this Plan.
6. Terms and Conditions of Options.
A. Option Agreement. Each Option shall be evidenced by
a written agreement between the Company and the Optionee (an "Option
Agreement"), which sets forth ( i) the number of shares subject to the Option;
(ii) the exercise price, vesting schedule and expiration date of the Option;
(iii) the method of payment on exercise of the Option; (iv) whether the Option
is a Qualified Option or Nonqualified Option; and (v) such additional
provisions, not inconsistent with this Plan, as the Board may prescribe.
B. Grant of Options. No Option may be granted after the expiration of
ten years from the
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<PAGE> 4
date this Plan is adopted.
C. Exercise of Options. Optionees may exercise at any time or from time
to time all or any portion of a vested Option. An Option shall be exercisable
only to the extent it is vested. Options will vest either immediately or
periodically over a period not exceeding ten years as set forth in the Option
Agreement. Vesting of all or any portion of an option may be accelerated at
the discretion of the Board.
To the extent that the aggregate Fair Market Value of the Common Stock
with respect to which options qualifying as incentive stock options under
Section 422 of the Code are exercisable by the Grantee for the first time
during any calendar year (under all stock option plans of the Company, its
Parents and Subsidiaries) exceeds $100,000, such Options are not incentive
stock options. For the purposes of this paragraph, the Fair Market Value of
the Common Stock shall be determined as of the time the option with respect to
such Common Stock is granted. This paragraph shall be applied by taking
options into account in the order in which they were granted.
An Optionee shall exercise an Option by delivering to the Secretary of
the Company a written notice signed by the Optionee which states the Optionee's
election to exercise the option and the number of shares of Common Stock the
Optionee elects to purchase. The Optionee's notice shall be accompanied by
payment of the exercise price. Payment, may be (i) in cash, (ii) by exchange
of Common Stock having an aggregate Fair Market Value equal to the cash
exercise price, or (iii) partly in cash and partly by exchange of Common Stock.
The Optionee's right to pay the exercise price by exchange of Common
Stock is subject to the following limitations:
(a) Common Stock being exchanged must have been held by the
Optionee for more than one month, and
(b) if the Common Stock being exchanged was acquired upon the
Optionee's exercise of a Qualified Option, the Common Stock must have been held
by the Optionee at least one year, and the Qualified Option must have been
granted at least two years, before the date the Optionee exchanges the Common
Stock.
As soon as Practicable following payment of the exercise price, the
Company will deliver to the Optionee a certificate representing the Option
Shares, provided that the Optionee has made appropriate arrangements with the
Company for any federal, state or local taxes required to be withheld. An
Optionee shall not have any of the rights and privileges of a shareholder of
the Company in respect of any of the Option Shares until the Company has
delivered the certificate.
D. Exercise Price. The exercise price of each Qualified Option shall be
at least equal to the Fair Market Value of the Common Stock on the date the
Qualified Option is granted. In the case of a Qualified Option granted to a
person who owns, immediately after the grant of such Qualified Option, stock
possessing more than 10% of the total combined voting power of the
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<PAGE> 5
Company, or of its Parent or Subsidiary, the exercise price of the Qualified
Option shall be at least 110% of the Fair Market Value of the Common Stock on
the date the Qualified Option is granted.
The exercise price of each Nonqualified Option shall be at least equal to
85% of the Fair Market Value of the Common Stock on the date the Nonqualified
Option is granted. In the case of a Nonqualified Option granted to a person
who owns, immediately after the grant of such Nonqualified Option, stock
possessing more than 10% of the total combined voting power of the Company, or
its Parent or Subsidiary, the exercise price of the Nonqualified Option shall
be at least 110% of the Fair Market Value of the Common Stock on the date such
Nonqualified Option is granted.
E. Expiration of Options. Each Option shall expire on the date set forth
in the Option Agreement, provided that (i) each Option shall expire not later
than ten years after the date it is granted, and (ii) each Qualified Option
granted to any person who owns stock possessing more than 10% of the total
combined voting power of the Company, or of its Parent or Subsidiary, shall
expire not later than five years after the date it is granted. Notwithstanding
the foregoing, if an Optionee's employment with the Company is terminated for
any reason before the expiration date set forth in the Option Agreement, the
Option granted under the Option Agreement shall terminate on the date the
Optionee's employment is terminated provided, however, that the portion of the
Option which is vested as of the date of such termination of employment shall
be exercisable for a period of sixty days thereafter (or, if employment is
terminated due to the Optionee's death or disability, for a period ending no
later than (i) the six-month anniversary of the date of termination or (ii)
sixty days following the appointment of a personal representative for the
Optionee's estate).
F. Non-Transferability of Options. Options may not be transferred by the
Optionee otherwise than by will or the laws of descent and distribution, and
each Option shall be exercisable during the Optionee's lifetime only by the
Optionee. Upon any attempt to transfer an Option or any interest therein
contrary to the provisions of this Plan, or to subject the Option or any
interest therein to execution, attachment or similar process, the Option shall
immediately terminate and become null and void.
G. Adjustment Provisions. Subject to any required action by the
shareholders of the Company, the Board will make a proportionate adjustment in
the number of shares of Common Stock covered by each outstanding Option and the
exercise price per share to account for any increase or decrease in the number
of issued shares of Common Stock of the Company resulting from a stock split
(whether by subdivision or consolidation of shares) or any payment of a share
dividend (but only on the Common Stock).
In the event of a change in the Common Stock of the Company as presently
constituted, which is limited to a change of all of its authorized shares with
par value into the same number of shares with a different par value or without
par value, the shares resulting from any such change shall be deemed to be
Common Stock within the meaning of this Plan.
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<PAGE> 6
H. Terminating Event. All Options shall terminate immediately prior to
the occurrence of a Terminating Event. The Company will provide each Grantee
with at least fifteen days advance notice of the occurrence of a Terminating
Event.
I. Notice of Disposition of Shares. The Optionee shall give written
notice to the Company of his intent to make any disposition of the shares
acquired upon exercise of a Qualified Option if such disposition occurs within
two years after the date the Qualified Option was granted or within one year
after the date the Qualified Option was exercised. The Optionee shall be
required to make appropriate arrangements with the Company for satisfaction of
any federal, state or local taxes the Company is required to withhold as a
result of such disposition.
7. Terms and Conditions of Restricted Stock Awards.
A. Restricted Stock Award Agreement. Each Restricted Stock Award shall
be evidenced by a written agreement between the Company and the recipient of
the Restricted Stock Award (a "Restricted Stock Award Agreement"), which sets
forth (i) the number of shares awarded to the recipient, (ii) the price the
recipient is required to pay for such shares, (iii) the Conditions applicable
to such Restricted Stock Award, and (iv) such additional provisions, not
inconsistent with this Plan, as the Board may prescribe.
B. Conditions. The Board may impose such Conditions on any Restricted
Stock as it may deem advisable, including Conditions based on the continuing
performance of services as an Employee and the achievement of individual, group
and/or Company performance objectives. The Board may require the recipient of
a Restricted Stock Award to enter into an escrow agreement providing that the
certificates representing Restricted Stock will remain in the physical custody
of an escrow agent, which may be the Company, until all Conditions have been
met. Each certificate representing Restricted Stock will bear a legend making
appropriate reference to the Conditions imposed.
C. Purchase Price. The Board may set the price at which Restricted Stock
may be purchased at any amount which is not less than 85% of the Fair Market
Value of the Common Stock on the date of the Restricted Stock Award. In the
case of a Restricted Stock Award to a person who owns, immediately after the
award, stock possessing more than 10% of the total combined voting power of the
Company, or of its Parent or Subsidiary, the purchase price of the Restricted
Stock shall be at least 100% of the Fair Market Value of the Common Stock on
the date of the Restricted Stock Award.
D. Terminating Event. Unless otherwise provided in the Restricted Stock
Award Agreement , all Conditions imposed on Restricted Stock will lapse
immediately prior to the occurrence of a Terminating Event.
E. Repurchase of Restricted Stock. If any of the Conditions set forth in
a Restricted Stock Award Agreement shall not have been met within the
prescribed period, or upon the occurrence of an event which makes it impossible
for one or more of the Conditions to be met, all Restricted
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<PAGE> 7
Stock subject to any such Conditions shall be repurchased by the Company at the
price paid by the holder for such Restricted Stock. The closing of any
repurchase of Restricted Stock shall take place at a mutually convenient time
at the Company's headquarters within forty-five days after the date the
Condition fails. At the closing, the holder shall surrender his stock
certificates and the Company shall pay to the holder in cash the repurchase
price of the Restricted Stock.
F. Rights as Shareholder. Subject to the provisions of this Section 7,
the holder shall have all rights of a shareholder with respect to the
Restricted Stock, including the right to vote the shares and receive
distributions.
G. Section 83 Election. The holder of a Restricted Stock Award may make
an election under Section 83(b) of the Code, within thirty days of the date the
Restricted Stock Award is granted, if the holder wishes to include in income
for the taxable year in which the grant of the Restricted Stock Award occurs,
the difference between the Fair Market Value of the Common Stock granted
pursuant to a Restricted Stock Award and the price the holder was required to
pay for such Common Stock. If the holder intends to make such election, a copy
of the completed election form required to be filed with the Internal Revenue
Service shall be provided to the Company and shall be attached to the
Restricted Stock Award Agreement as an exhibit.
H. Payment of Withholding Tax. The holder of a Restricted Stock Award
shall be responsible for the payment of all federal and state income taxes and
Social Security (FICA) taxes required to be withheld and paid with respect to a
Restricted Stock Award. At the Company's option, the Company may (i) withhold
the appropriate amount from the holder's regular compensation and from any
dividends paid on Restricted Stock, or (ii) require the holder to pay the
amount of the withholding tax to the Company and treat the holder's timely
payment of such amount to the Company as an additional Condition.
I. Adjustment Provisions. Subject to any required action by the
shareholders of the Company, the Board will make a proportionate adjustment in
the number of shares of Restricted Stock covered by each Restricted Stock Award
to account for any increase or decrease in the number of issued shares of
Common Stock of the Company resulting from a stock split (whether by
subdivision or consolidation of shares) or the payment of a share dividend (but
only on the Common Stock).
8. Stock Bonuses.
Each Stock Bonus shall be evidenced by a written agreement between the
Company and the recipient of the Stock Bonus (a "Stock Bonus Agreement"), which
sets forth (i) the number of shares awarded to the recipient, and (ii) such
additional provisions, not inconsistent with this Plan, as the Board may
prescribe. The recipient of a Stock Bonus shall be responsible for the payment
of all federal and state income taxes and Social Security (FICA) taxes required
to be withheld and paid with respect to a Stock Bonus. At the Company's
option, the Company may withhold the appropriate amount from the recipient's
regular compensation and from any dividends paid on Bonus Stock, or the Company
may require the recipient to pay the amount of
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<PAGE> 8
the withholding tax to the Company.
9. Valuation of Common Stock.
The Fair Market Value of each share of Common Stock will be determined by
the Board as of the end of each fiscal year of the Company and, in the Board's
discretion, at any other time during any fiscal year. In its discretion, the
Board may retain an independent appraiser to assist it in the determination of
the Fair Market Value of the Common Stock. The Board's determination of the
Fair Market Value of the Common Stock shall be final, binding and conclusive.
10. Repurchase of Shares.
A. Put and Call Rights. During the period of a Grantee's employment with
the Company and for a period of ninety days thereafter (or, if employment is
terminated due to the Grantee's death, for a period of ninety days following
the appointment of a personal representative for his estate), the Grantee shall
have the right to require the Company to repurchase at their Fair Market Value
all or any portion of his (i) Option Shares, (ii) Restricted Stock with respect
to which all of the Conditions have been met, and (iii) Bonus Stock. The
Grantee shall exercise this put right by providing written notice to the
Secretary of the Company stating the number of shares he desires the Company to
repurchase at any time before the put right expires.
The Company shall have the right to repurchase at their Fair Market
Value, at any time following the termination of the Grantee's employment with
the Company for any reason (including retirement, death or disability), all or
any portion of the Option Shares, Restricted Stock or Bonus Stock then held by
the Grantee. The Company shall exercise this call right by providing written
notice to the Grantee stating the number of shares the Company desires to
repurchase. If the Company is required under Section 7.E to repurchase
Restricted Stock as a result of the termination of the Grantee's employment,
the provisions of Section 7.E shall govern the repurchase of such Restricted
Stock.
B. Payment Terms. The closing of any repurchase of shares pursuant to
this Section 10 shall take place at a mutually convenient time at the Company's
headquarters within forty-five days after the date of the Grantee's or the
Company's notice, as applicable. At the closing, the Grantee shall surrender
his stock certificates and the Company shall pay to the Grantee in cash the
repurchase price of such shares. Notwithstanding the foregoing, if the sum of:
(i) the number of Option Shares and shares of
Restricted Stock and Bonus Stock which the
Company has become obligated to repurchase
from all Grantees (both under this Section
10 and Section 7.E) during the twelve month
period immediately preceding the date of the
Grantee's notice invoking his put right, and
(ii) the number of shares the Grantee puts to the
Company,
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exceeds 2% of the sum of:
(a) the number of issued and outstanding shares
of Common Stock of the Company as of the
date of the Grantee's notice, and
(b) the number of shares under item (i) above
which the Company has repurchased prior to
that date,
then the Company shall have the right to pay the repurchase price to the
Grantee over a period of three years in twelve equal quarterly installments of
principal beginning on the date of the closing. The Company's obligation to
pay the repurchase price to the Grantee shall be evidenced by a promissory note
made by the Company which contains such terms and provisions as are customary
and reasonable. The Company shall pay interest on the unpaid principal balance
of the promissory note at the rate of 9% per annum or the "applicable federal
rate" applied to installment purchases pursuant to Section 483 of the Code,
whichever is less.
11. Transfer Restrictions.
A. General. Without the prior written consent, of the Company, which
consent may be withheld in its sole discretion, a Grantee may not sell, assign
or otherwise transfer any Option Shares, Restricted Stock or Bonus Stock to any
person or entity other than the Company, another shareholder of the Company or
another Grantee who is an Employee. Further, Restricted Stock may not be sold
to any person or entity other than to the Company until all Conditions have
been met. With regard to any Option Shares, Restricted Stock and Bonus Stock
which the Grantee proposes to sell, assign or otherwise transfer to another
shareholder of the Company or another Grantee who is an Employee (a "Permitted
Transferee"), the Company shall have a right of first refusal (the "Right of
First Refusal") to purchase such shares in the manner set forth below:
1. Upon receiving an offer to Purchase or otherwise acquire any Option
Shares, Restricted Stock or Bonus Stock, a Grantee shall require the Permitted
Transferee to submit a written offer with respect to such shares stating his
name and accompanied by a deposit in the form of a certified or cashier's check
in an amount equal to not less than 10% of the proposed purchase price (a "Bona
Fide Offer"). The Grantee then shall transmit a copy of the Bona Fide Offer
to the Company. The Company shall have thirty days following receipt of the
Bona Fide Offer in which to purchase all, but not less than all, of the shares
referred to in the Bona Fide Offer at the price stated in the Bona Fide Offer.
In its discretion, the Company may either pay the entire purchase price for the
shares in cash or on the terms stated in the Bona Fide Offer. If the Company
falls to tender the full cash purchase price (or to match such other terms as
are stated in the Bona Fide Offer) for such shares against the proper
endorsement and delivery of the certificate(s) evidencing the shares within
such thirty day period, the Right of First Refusal shall expire with respect to
that particular Bona Fide Offer, but shall remain in full force and effect with
respect to all material modifications of the Bona Fide Offer and all future
offers.
2. Any offered shares which are not purchased by the Company as provided
in
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<PAGE> 10
(1) above may be sold to the Permitted Transferee named in the Bona Fide Offer,
but not at a lower price, or upon more favorable terms to the Permitted
Transferee, than the price and terms set forth in the Bona Fide Offer. Title
to the offered shares shall pass not later than ninety days after the
expiration of the thirty day period referred to in (1) above. The Permitted
Transferee shall take such shares subject to the same rights and restrictions
regarding transferability and repurchase as would have applied to him had he
acquired such shares upon exercise of an Option granted to him under this Plan
or upon issuance to him of Restricted Stock or Bonus Stock under this Plan. If
the Grantee desires to sell such shares to the Permitted Transferee at a lower
price, or upon terms more favorable to the Permitted Transferee, than the price
and terms stated in the Bona Fide Offer, the Grantee shall, before he can sell
to the Permitted Transferee, again offer the shares in accordance with the
procedure set forth in this Section 11.
B. Transfer Restrictions Imposed by the 1933 Act.
1. Notwithstanding any other provision of this Plan, any
Option Agreement, any Restricted Stock Award Agreement or any Stock Bonus
Agreement, no transfer for value of any Option Shares or Restricted Stock shall
be valid unless (i) there is an effective registration statement under the
Securities Act of 1933 (the "1933 Act") covering the stock; (ii) the holder has
furnished an opinion of counsel satisfactory to the Company that such
registration is not required; or (iii) the holder has furnished a "no-action"
letter from the staff of the Securities and Exchange Commission satisfactory to
the Company that such registration is not required.
2. There shall be imprinted on the face of each certificate
for such shares a legend stating the transferability of such shares is
restricted, and the following legend shall be imprinted on the back of each
such certificate:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE (I) HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, OR APPLICABLE
STATE LAWS, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SUCH ACT OR LAWS OR AN OPINION OF
COUNSEL (WHICH MAY BE COUNSEL TO THE COMPANY) SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH
REGISTRATION IS NOT REQUIRED, AND (2) ARE SUBJECT TO, AND ARE
TRANSFERABLE ONLY UPON COMPLIANCE WITH, CERTAIN TRANSFER AND OTHER
RESTRICTIONS CONTAINED IN AN AGREEMENT BETWEEN LANDMARK SYSTEMS
CORPORATION AND THE HOLDER OF THIS CERTIFICATE, A COPY OF WHICH IS
ON FILE AT THE
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<PAGE> 11
OFFICE OF THE COMPANY."
3. Optionees and holder of Restricted Stock Awards and Stock
Bonuses may acquire stock only for their own account and not with a view to, or
for resale in connection with, any distribution thereof within the meaning of
the 1933 Act, and may dispose of such stock only in a manner consistent with
the provisions of this Section. The Company may require Optionees and holders
of Restricted Stock Awards and Stock Bonuses to execute and be bound by an
"Investment Letter" representing such investment intent.
12. Lapse of Repurchase Rights and Transfer Restrictions.
Notwithstanding anything to the contrary in this Plan, the repurchase
rights set forth in Section 10 and the transfer restrictions set forth in
Section 11(A) shall lapse under the earlier to occur of (i) the effective date
of a registration statement filed with the Securities and Exchange Commission
under the 1933 Act covering securities of the Company whether or not such
shares are covered, or (ii) the date on which a class of securities of the
Company is registered under Section 12 of the Securities Exchange Act of 1934.
13. Indemnification of Board.
In addition to such other rights as they may have as directors, the
members of the Board (in their capacity as such and also as members of the
Committee) shall be indemnified by the Company against the reasonable expenses
(including attorneys' fees) incurred in connection with the defense of any
action, suit or proceeding, and in connection with any appeal therein, to which
they or any of them may be a party by reason of any action or failure to act in
connection with this Plan, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be finally adjudged in such action, suit or proceeding that the Board
member is liable for willful misconduct or gross negligence in the performance
of his duties or that the Board member knowingly violated criminal law;
provided that within 60 days after institution of any such action, suit, or
proceeding (or within 30 days after service upon such member of legal process
in such case, if later) the Board member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
14. Termination and Amendment of the Plan.
Unless sooner terminated as provided herein, this Plan shall remain in
effect through February 22, 1999. The Board may terminate this Plan at any time
or modify or amend it as it deems advisable and may from time to time suspend,
discontinue or abandon this Plan, except that (i) the number of shares
available under this Plan shall not be increased (except as provided in Section
5) and the class of eligible employees shall not be modified without
shareholder approval, and (ii) no such action by the Board shall adversely
affect any right or obligation with respect to any grant previously made unless
the written consent of the affected Grantee is
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<PAGE> 12
obtained.
15. Miscellaneous.
The provisions of this Plan shall be binding upon, and inure to the
benefit of, all successors of any Grantee, including, without limitation, his
estate and the executors, administrators or trustees thereof, his heirs and
legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Grantee.
Nothing contained in this Plan or in any Option Agreement, Restricted
Stock Award Agreement or Stock Bonus Agreement shall confer upon any Employee
the right to continued employment or shall interfere in any way with the right
to terminate the employment of such Employee at any time, with or without
cause.
Except as expressly provided in this Plan, Grantees shall have no rights
by reason of any subdivision or consolidation of shares of stock of any class
or the payment of any stock dividend of any other increase or decrease in the
number of shares of stock of any class; the dissolution or liquidation of the
Company; the merger or consolidation of the Company with or into any other
corporation; the sale or other transfer of assets or stock of the Company; or
any issue by the Company of shares of stock of any class or securities
convertible into shares of stock of any class.
The grant of an Option, Restricted Stock Award or Stock Bonus pursuant to
this Plan shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, or to merge or consolidate, or to dissolve or liquidate, or
to sell or transfer all or any part of its business or assets.
All Grantees, including those who have exercised their Options, shall be
furnished at least annually financial statements and management's discussion
and analysis of the financial condition and results of operations of the
Company. Such information shall be subject to any agreements regarding the
confidentiality of proprietary information between the Company and any Grantee;
however, each Grantee shall be permitted to remove and copy such information
and review and discuss such information with an attorney or other financial
adviser for the legitimate personal investment planning of such Grantee.
16. Approval of Plan.
This Plan was adopted by resolution of the Board on April 12, 1989 and
approved by the shareholders on April 12, 1989, in each case subject to an
amendment to the Company's Articles of Incorporation becoming effective which
increases the number of authorized shares of Common Stock from 2,000 to
2,000,000 and decreases the par value per share from $1.00 to $.001.
This Plan was amended and restated by resolution of the Board effective
as of June 26, 1992.
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<PAGE> 1
EXHIBIT 10.4
LANDMARK SYSTEMS CORPORATION
1992 EXECUTIVE STOCK INCENTIVE PLAN
1. Purpose.
The purpose of this Executive Stock Incentive Plan (this "Plan") is to
offer to employees of LANDMARK SYSTEMS CORPORATION (the "Company") who are not
residents of the State of California additional incentive and encouragement to
remain in the service of the Company by increasing their personal participation
in the Company through stock ownership. This Plan provides a means whereby
these individuals may acquire shares of the Company's Common Stock pursuant to
Qualified Options, Nonqualified Options, Restricted Stock Awards and Stock
Bonuses.
2. Definitions.
A. "Board" means the Board of Directors of the Company.
B. "Bonus Stock" means the shares of Common Stock issued to a Grantee
pursuant to a Stock Bonus.
C. "Code" means the Internal Revenue Code of 1986, as amended.
D. "Common Stock" means the common stock of the Company, $.01 par
value per share.
E. "Conditions" means the conditions attached to a Restricted Stock
Award pursuant to Section 7.B which if not met will result in the repurchase of
Restricted Stock at the price paid by the Grantee for such Restricted Stock as
provided in Section 7.E.
F. "Employee" means any employee of the Company or any Parent or
Subsidiary who is not a resident of the State of California, including an
employee who serves as an officer or director of the Company or of a Parent or
Subsidiary.
G. "Fair Market Value" means the most recent determination of the fair
market value of each share of Common Stock made in accordance with Section 9.
H. "Grantee" includes both Optionees and recipients of Restricted
Stock Awards and Stock Bonuses.
I. "Nonqualified Option" means a stock option granted under this
Plan which is not intended to qualify as an incentive stock option under
Section 422 of the Code.
J. "Option" includes both Nonqualified Options and Qualified Options.
K. "Option Shares" mean the shares of Common stock purchased by a
Grantee upon
<PAGE> 2
exercise of an Option.
L. "Optionee" means an Employee to whom an option has been granted.
M. "Parent" means a parent corporation of the Company within the
meaning of Section 425(e) of the Code.
N. "Qualified Option" means a stock option granted under this Plan
which qualifies as an incentive stock option under Section 422 of the Code.
O. "Restricted Stock" means the shares of Common Stock issued to a
Grantee pursuant to a Restricted Stock Award.
P. "Restricted Stock Award" means the grant under this Plan, at a
price determined by the Board, of Common Stock which is nontransferable and
subject to substantial risk of being repurchased at the price paid for such
Common Stock until the Conditions have been met.
Q. " Stock Bonus" means the grant under this Plan of Common Stock as a
bonus for services rendered by an Employee.
R. "Subsidiary" means a subsidiary corporation of the Company within
the meaning of Section 425(f) of the Code.
S. "Terminating Event" means (i) the consummation of a merger or
consolidation of the Company into or with another corporation under
circumstances in which the Company is not the surviving corporation (other than
circumstances involving a mere change in the identity, form or place of
organization of the Company); (ii) the consummation of a sale of more than 50%
of the Company's outstanding stock to persons who are not shareholders of the
Company on the date of grant of the Option, Restricted Stock Award or Stock
Bonus; or (iii) the liquidation or dissolution of the Company.
3. Administration of the Plan.
This Plan will be administered by the Board, which will have the right
to delegate any and all of its powers under this Plan to a committee of members
of the Board comprised of no fewer than three members (the "Committee"). If the
Board appoints a Committee to administer this Plan, in whole or in part, the
Committee's determination will not be subject to approval by the Board, and to
the extent of such delegation, references in this Plan to the Board shall be
deemed to refer to the Committee. The Committee, however, shall resort to the
Board periodically concerning its administration of the Plan.
The Board will have the authority and discretion to adopt and revise
such rules and regulations as it deems necessary for the administration of this
Plan and to determine, consistent with the provisions of this Plan, the
Employees to be granted Options, Restricted Stock Awards and Stock Bonuses, the
times at which Options, Restricted Stock Award and Stock Bonuses will
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<PAGE> 3
be granted, the option price of the shares subject to each Option and the price
at which a Restricted Stock Award is made, the number of shares subject to each
Option, Restricted Stock Award and Stock Bonus, the vesting schedule of
Options, the method of payment for shares acquired upon the exercise of
Options, the expiration dates of the Options, and the Conditions attached to
each Restricted Stock Award. In addition, the Board will have the authority, in
connection with any Option, Restricted Stock Award or Stock Bonus granted or to
be granted to any Employee, to eliminate, restrict, expand or otherwise modify,
in such manner as the Board, in its discretion, deems appropriate, the put and
call rights granted under Section 10 of this Plan and the transfer restrictions
set forth in Section 11 of this Plan, provided that any modification of such
rights are set forth in a written agreement signed by the Company and such
Employee. The Board's actions, including any interpretation or construction of
any provisions of this Plan and any Option, Restricted Stock Award and Stock
Bonus, shall be final, conclusive and binding. No member of the Board shall be
liable for any action or determination made in good faith.
4. Eligibility.
All Employees will be eligible to receive Options, Restricted Stock
Awards and Stock Bonuses. An Employee may be granted more than one Option,
Restricted Stock Award or Stock Bonus.
5. Shares of Stock Subject to the Plan.
The number of shares which may be issued pursuant to this Plan shall
not exceed 203,125 shares of Common Stock, subject to a proportionate
adjustment to account for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a stock split (whether by
subdivision or consolidation of shares) or any payment of a share dividend (but
only on the Common Stock). Any or all of such shares may be issued under
Qualified Options. Such shares may be authorized and unissued shares or shares
previously acquired by the Company and held in its treasury. Any shares subject
to an Option which expires for any reason or is terminated unexercised as to
such shares, and any Restricted Stock, Bonus Stock and Option Shares which are
repurchased by the Company, may again be subject to an Option, Restricted Stock
Award or Stock Bonus under this Plan.
6. Terms and Conditions of Options.
A. Option Agreement. Each Option shall be evidenced by a written
agreement between the Company and the Optionee (an "Option Agreement'), which
sets forth ( i) the number of shares subject to the Option; (ii) the exercise
price, vesting schedule and expiration date of the Option; (iii) the method of
payment on exercise of the Option; (iv) whether the Option is a Qualified
Option or Nonqualified Option; and (v) such additional provisions, not
inconsistent with this Plan, as the Board may prescribe.
B. Grant of Options. No Option may be granted after the expiration of
ten years from the date this Plan is adopted.
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<PAGE> 4
C. Exercise of Options. Optionees may exercise at any time or from
time to time all or any portion of a vested Option. An Option shall be
exercisable only to the extent it is vested. Options will vest either
immediately or periodically over a period not exceeding ten years as set forth
in the Option Agreement. Vesting of all or any portion of an Option may be
accelerated at the discretion of the Board.
To the extent that the aggregate Fair Market Value of the Common Stock
with respect to which options qualifying as incentive stock options under
Section 422 of the Code are exercisable by the Grantee for the first time
during any calendar year (under all stock option plans of the Company, its
Parents and Subsidiaries) exceeds $100,000, such Options are not incentive
stock options. For the purposes of this paragraph, the Fair Market Value of
the Common Stock shall be determined as of the time the option with respect to
such Common Stock is granted. This paragraph shall be applied by taking options
into account in the order in which they were granted.
An Optionee shall exercise an Option by delivering to the Secretary of
the Company a written notice signed by the Optionee which states the Optionee's
election to exercise the option and the number of shares of Common Stock the
Optionee elects to purchase. The Optionee's notice shall be accompanied by
payment or the exercise price. Payment, may be (i) in cash, (ii) by exchange of
Common Stock having an aggregate Fair Market Value equal to the cash exercise
price, or (iii) partly in cash and partly by exchange of Common Stock.
The Optionee's right to pay the exercise price by exchange of Common
Stock is subject to the following limitations:
(a) the Common Stock being exchanged must have been held by
the Optionee for more than one month, and
(b) if the Common Stock being exchanged was acquired upon the
Optionee's exercise of a Qualified Option, the Common Stock must have been held
by the Optionee at least one year, and the Qualified Option must have been
granted at least two years, before the date the Optionee exchanges the Common
Stock.
As soon as practicable following payment of the exercise price, the
Company will deliver to the Optionee a certificate representing the Option
Shares, provided that the Optionee has made appropriate arrangements with the
Company for any federal, state or local taxes required to be withheld. An
Optionee shall not have any of the rights and privileges of a shareholder of
the Company in respect of any of the Option Shares until the Company has
delivered the certificate.
D. Exercise Price. The exercise price of each Qualified Option shall
be at least equal to the Fair Market Value of the Common Stock on the date the
Qualified Option is granted. In the case of a Qualified Option granted to a
person who owns, immediately after the grant of such Qualified Option, stock
possessing more than 10% of the total combined voting power of the Company, or
of its Parent or Subsidiary, the exercise price of the Qualified Option shall
be at
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<PAGE> 5
least 110% of the Fair Market Value of the Common Stock on the date the
Qualified Option is granted.
The Board may set the exercise price of any Nonqualified Option at any
price which is not less than the par value, if any, of the Common Stock.
E. Expiration of Options. Each Option shall expire on the date set
forth in the Option Agreement, provided that (i) each Option shall expire not
later than ten years after the date it is granted, and (ii) each Qualified
Option granted to any person who owns stock possessing more than 10% of the
total combined voting power of the Company, or of its Parent or Subsidiary,
shall expire not later than five years after the date it is granted.
Notwithstanding the foregoing, if an Optionee's employment with the Company is
terminated for any reason before the expiration date set forth in the Option
Agreement, the Option granted under the Option Agreement shall terminate on the
date the Optionee's employment is terminated; provided, however, that the
portion of the Option which is vested as of the date of such termination of
employment shall be exercisable for a period of sixty days thereafter (or, if
employment is terminated due to the Optionee's death or disability, for a
period ending no later than (i) the six-month anniversary of the date of
termination or (ii) sixty days following the appointment of a personal
representative of the Optionee's estate).
F. Non-Transferability of Options. Options may not be transferred by
the Optionee otherwise than by will or the laws of descent and distribution,
and each Option shall be exercisable during the Optionee's lifetime only by the
Optionee. Upon any attempt to transfer an Option or any interest therein
contrary to the provisions of this Plan, or to subject the Option or any
interest therein to execution, attachment or similar process, the Option shall
immediately terminate and become null and void.
G. Adjustment Provisions. Subject to any required action by the
shareholders of the Company, the Board will make a proportionate adjustment in
the number of shares of Common Stock covered by each outstanding Option and the
exercise price per share to account for any increase or decrease in the number
of issued shares of Common Stock of the Company resulting from a stock split
(whether by subdivision or consolidation of shares) or any payment of a share
dividend (but only on the Common Stock).
In the event of a change in the Common Stock of the Company as
presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par
value or without par value, the shares resulting from any such change shall be
deemed to be Common Stock within the meaning of this Plan.
H. Terminating Event. Notwithstanding the vesting schedule set forth
in any Option Agreement, the unvested portions of all Options shall vest, and
such Options shall be exercisable in full, immediately prior to the occurrence
of a Terminating Event. All Options shall terminate immediately following the
occurrence of a Terminating Event. The Company will provide each Grantee with
at least fifteen days advance notice of the occurrence of a Terminating Event.
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<PAGE> 6
I. Notice of Disposition of Shares. The Optionee shall give written
notice to the Company of his intent to make any disposition of the shares
acquired upon exercise of a Qualified Option if such disposition occurs within
two years after the date the Qualified Option was granted or within one year
after the date the Qualified Option was exercised. The Optionee shall be
required to make appropriate arrangements with the Company for satisfaction of
any federal, state or local taxes the Company is required to withhold as a
result of such disposition.
7. Terms and Conditions of Restricted Stock Awards.
A. Restricted Stock Award Agreement. Each Restricted Stock Award shall
be evidenced by a written agreement between the Company and the recipient of
the Restricted Stock Award (a "Restricted Stock Award Agreement"), which sets
forth (i) the number of shares awarded to the recipient, (ii) the price the
recipient is required to pay for such shares, (iii) the Conditions applicable
to such Restricted Stock Award, and (iv) such additional provisions, not
inconsistent with this Plan, as the Board may prescribe.
B. Conditions. The Board may impose such Conditions on any Restricted
Stock as it may deem advisable, including Conditions based on the continuing
performance of services as an Employee and the achievement of individual, group
and/or Company performance objectives. The Board may require the recipient of a
Restricted Stock Award to enter into an escrow agreement providing that the
certificates representing Restricted Stock will remain in the physical custody
of an escrow agent, which may be the Company, until all Conditions have been
met. Each certificate representing Restricted Stock will bear a legend making
appropriate reference to the Conditions imposed.
C. Purchase Price. The Board may set the price at which Restricted
Stock may be purchased at any amount which is not less than the par value, if
any, of the Common Stock.
D. Terminating Event. Unless otherwise provided in the Restricted
Stock Award Agreement , all Conditions imposed on Restricted Stock will lapse
immediately prior to the occurrence of a Terminating Event.
E. Repurchase of Restricted Stock. If any of the Conditions set forth
in a Restricted Stock Award Agreement shall not have been met within the
prescribed period, or upon the occurrence of an event which makes it impossible
for one or more of the Conditions to be met, all Restricted Stock subject to
any such Conditions shall be repurchased by the Company at the price paid by
the holder for such Restricted Stock. The closing of any repurchase of
Restricted Stock shall take place at a mutually convenient time at the
Company's headquarters within forty-five days after the date the Condition
fails. At the closing, the holder shall surrender his stock certificates and
the Company shall pay to the holder in cash the repurchase price of the
Restricted Stock.
F. Rights as Shareholder. Subject to the provisions of this Section 7,
the holder shall have all rights of a shareholder with respect to the
Restricted Stock, including the right to vote the shares and receive
distributions.
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<PAGE> 7
G. Section 83 Election. The holder of a Restricted Stock Award may
make an election under Section 83(b) of the Code, within thirty days of the
date the Restricted Stock Award is granted, if the holder wishes to include in
income for the taxable year in which the grant of the Restricted Stock Award
occurs, the difference between the Fair Market Value of the Common Stock
granted pursuant to a Restricted Stock Award and the price the holder was
required to pay for such Common Stock. If the holder intends to make such
election, a copy of the completed election form required to be filed with the
Internal Revenue Service shall be provided to the Company and shall be attached
to the Restricted Stock Award Agreement as an exhibit.
H. Payment of Withholding Tax. The holder of a Restricted Stock Award
shall be responsible for the payment of all federal and state income taxes and
Social Security (FICA) taxes required to be withheld and paid with respect to a
Restricted Stock Award. At the Company's option, the Company may (i) withhold
the appropriate amount from the holder's regular compensation and from any
dividends paid on Restricted Stock, or (ii) require the holder to pay the
amount of the withholding tax to the Company and treat the holder's timely
payment of such amount to the Company as an additional Condition.
I. Adjustment Provisions. Subject to any required action by the
shareholders of the Company, the Board will make a proportionate adjustment in
the number of shares of Restricted Stock covered by each Restricted Stock Award
to account for any increase or decrease in the number of issued shares of
Common Stock of the Company resulting from a stock split (whether by
subdivision or consolidation of shares) or the payment of a share dividend (but
only on the Common Stock).
8. Stock Bonuses.
Each Stock Bonus shall be evidenced by a written agreement between the
Company and the recipient of the Stock Bonus (a "Stock Bonus Agreement"), which
sets forth (i) the number of shares awarded to the recipient, and (ii) such
additional provisions, not inconsistent with this Plan, as the Board may
prescribe. The recipient of a Stock Bonus shall be responsible for the payment
of all federal and state income taxes and Social Security (FICA) taxes required
to be withheld and paid with respect to a Stock Bonus. At the Company's
option, the Company may withhold the appropriate amount from the recipient's
regular compensation and from any dividends paid on Bonus Stock, or require the
recipient to pay the amount of the withholding tax to the Company.
9. Valuation of Common Stock.
The Fair Market Value of each share of Common Stock will be determined
by the Board as of the end of each fiscal year of the Company and, in the
Board's discretion, at any other time during any fiscal year. In its
discretion, the Board may retain an independent appraiser to assist it in the
determination of the Fair Market Value of the Common Stock. The Board's
determination of the Fair Market Value of the Common Stock shall be final,
binding and conclusive.
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<PAGE> 8
10. Repurchase of Shares.
A. Put and Call Rights. During the period of a Grantee's employment
with the Company and for a period of ninety days thereafter (or, if employment
is terminated due to the Grantee's death, for a period of ninety days following
the appointment of a personal representative for his estate), the Grantee shall
have the right to require the Company to repurchase at their Fair Market Value
all or any portion of his (i) Option Shares, (ii) Restricted Stock with respect
to which all of the Conditions have been met, and (iii) Bonus Stock. The
Grantee shall exercise this put right by providing written notice to the
Secretary of the Company stating the number of shares he desires the Company to
repurchase at any time before the put right expires.
The Company shall have the right to repurchase at their Fair Market
Value, at any time following the termination of the Grantee's employment with
the Company for any reason (including retirement, death or disability), all or
any portion of the Option Shares, Restricted Stock or Bonus Stock then held by
the Grantee. The Company shall exercise this call right by providing written
notice to the Grantee stating the number of shares the Company desires to
repurchase. If the Company is required under Section 7.E to repurchase
Restricted Stock as a result of the termination of the Grantee's employment,
the provisions of Section 7.E shall govern the repurchase of such Restricted
Stock.
B. Payment Terms. The closing of any repurchase of shares pursuant to
this Section 10 shall take place at a mutually convenient time at the Company's
headquarters within forty-five days after the date of the Grantee's or the
Company's notice, as applicable. At the closing, the Grantee shall surrender
his stock certificates and the Company shall pay to the Grantee in cash the
repurchase price of such shares. Notwithstanding the foregoing, if the sum of:
(i) the number of Option Shares, shares of Restricted Stock
and Bonus Stock, and other shares of Common Stock, which
the Company has become obligated to repurchase from all
employees of the Company (and of any Parent or
Subsidiary), including employees who are California
residents, under this Plan, any other plan, or other
agreements with Employees, during the twelve month
period immediately preceding the date of the Grantee's
notice invoking his put right, and
(ii) the number of shares the Grantee puts to the Company,
exceeds 2% of the sum of:
(a) the number of issued and outstanding shares of Common
Stock of the Company as of the date of the Grantee's
notice, and
(b) the number of shares under item (i) above which the
Company has repurchased prior to that date,
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<PAGE> 9
then the Company shall have the right to pay the repurchase price to the
Grantee over a period of three years in twelve equal quarterly installments of
principal beginning on the date of the closing. The Company's obligation to pay
the repurchase price to the Grantee shall be evidenced by a promissory note
made by the Company which contains such terms and provisions as are customary
and reasonable. The Company shall pay interest on the unpaid principal balance
of the promissory note at the rate of 9% per annum or the "applicable federal
rate" applied to installment purchases pursuant to Section 483 of the Code,
whichever is less.
11. Transfer Restrictions.
A. General. Without the prior written consent, of the Company, which
consent may be withheld in its sole discretion, a Grantee may not sell, assign
or otherwise transfer any Option Shares, Restricted Stock or Bonus Stock to any
person or entity other than the Company, another shareholder of the Company or
another Grantee who is an Employee. Further, Restricted Stock may not be sold
to any person or entity other than to the Company until all Conditions have
been met. With regard to any Option Shares, Restricted Stock and Bonus Stock
which the Grantee proposes to sell, assign or otherwise transfer to another
shareholder of the Company or another Grantee who is an Employee (a "Permitted
Transferee"), the Company shall have a right of first refusal (the "Right of
First Refusal") to purchase such shares in the manner set forth below:
1. Upon receiving an offer to Purchase or otherwise acquire
any Option Shares, Restricted Stock or Bonus Stock, a Grantee shall require the
Permitted Transferee to submit a written offer with respect to such shares
stating his name and accompanied by a deposit in the form of a certified or
cashier's check in an amount equal to not less than 10% of the proposed
purchase price (a "Bona Fide Offer"). The Grantee then shall transmit, a copy
of the Bona Fide Offer to the Company. The Company shall have thirty days
following receipt of the Bona Fide Offer in which to purchase all, but not less
than all, of the shares referred to in the Bona Fide Offer at the price stated
in the Bona Fide Offer. In its discretion, the Company may either pay the
entire purchase price for the shares in cash or on the terms stated in the Bona
Fide Offer. If the Company falls to tender the full cash purchase price (or to
match such other terms as are stated in the Bona Fide Offer) for such shares
against the proper endorsement and delivery of the certificate(s) evidencing
the shares within such thirty day period, the Right of First Refusal shall
expire with respect to that particular Bona Fide Offer, but shall remain in
full force and effect with respect to all material modifications of the Bona
Fide Offer and all future offers.
2. Any offered shares which are not purchased by the
Company as provided in (1) above may be sold to the Permitted Transferee named
in the Bona Fide Offer, but not at a lower price, or upon more favorable terms
to the Permitted Transferee, than the price and terms set forth in the Bona
Fide Offer. Title to the offered shares shall pass not later than ninety days
after the expiration of the thirty day period referred to in (1) above. The
Permitted Transferee shall take such shares subject to the same rights and
restrictions regarding transferability and repurchase as would have applied to
him had he acquired such shares upon exercise of an Option granted to him under
this Plan or upon issuance to him of Restricted Stock or Bonus Stock under this
Plan. If the Grantee desires to sell such shares to the Permitted Transferee at
a lower price,
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<PAGE> 10
or upon terms more favorable to the Permitted Transferee, then the price and
terms stated in the Bona Fide Offer, the Grantee shall, before he can sell to
the Permitted Transferee, again offer the shares in accordance with the
procedure set forth in this Section.
B. Transfer Restrictions Imposed by the 1933 Act.
1. Notwithstanding any other provision of this Plan, any
Option Agreement, any Restricted Stock Award Agreement or any Stock Bonus
Agreement, no transfer for value of any Option Shares, Restricted Stock or Bonus
Stock shall be valid unless (i) there is an effective registration statement
under the Securities Act of 1933 (the "1933 Act") covering the stock; (ii) the
holder has furnished an opinion of counsel satisfactory to the Company that
such registration is not required; or (iii) the holder has furnished a
"no-action" letter from the staff of the Securities and Exchange Commission
satisfactory to the Company that such registration is not required.
2. There shall be imprinted on the face of each
certificate for such shares a legend stating the transferability of such shares
is restricted, and the following legend shall be imprinted on the back of each
such certificate:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE (I)
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
OR APPLICABLE STATE LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SUCH ACT OR LAWS OR AN OPINION OF COUNSEL (WHICH MAY BE
COUNSEL TO THE COMPANY) SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED OR A "NO ACTION" LETTER
FROM THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH
REGISTRATION IS NOT REQUIRED, AND (2) ARE SUBJECT TO, AND
ARE TRANSFERABLE ONLY UPON COMPLIANCE WITH, CERTAIN
TRANSFER AND OTHER RESTRICTIONS CONTAINED IN AN AGREEMENT
BETWEEN LANDMARK SYSTEMS CORPORATION AND THE HOLDER OF THIS
CERTIFICATE, A COPY OF WHICH IS ON FILE AT THE OFFICE OF
THE COMPANY."
3. Optionees and holder of Restricted Stock Awards and
Stock Bonuses may acquire stock only for their own account and not with a view
to, or for resale in connection with, any distribution thereof within the
meaning of the 1933 Act, and may dispose of such stock only in a manner
consistent with the provisions of this Section. The Company may require
Optionees and holders of Restricted Stock Awards and Stock Bonuses to execute
and be bound by an "Investment Letter" representing such investment intent.
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<PAGE> 11
12. Lapse of Repurchase Rights and Transfer Restrictions.
Notwithstanding anything to the contrary in this Plan, the repurchase
rights set forth in Section 10 and the transfer restrictions set forth in
Section 11(A) shall lapse under the earlier to occur of (i) the effective date
of a registration statement filed with the Securities and Exchange Commission
under the 1933 Act covering securities of the Company whether or not such
shares are covered, or (ii) the date on which a class of securities of the
Company is registered under Section 12 of the Securities Exchange Act of 1934.
13. Indemnification of Board.
In addition to such other rights as they may have as directors, the
members of the Board (in their capacity as such and also as members of the
Committee) shall be indemnified by the Company against the reasonable expenses
(including attorneys' fees) incurred in connection with the defense of any
action, suit or proceeding, and in connection with any appeal therein, to which
they or any of them may be a party by reason of any action or failure to act in
connection with this Plan, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be finally adjudged in such action, suit or proceeding that the Board
member is liable for willful misconduct or gross negligence in the performance
of his duties or that the Board member knowingly violated criminal law;
provided that within 60 days after institution of any such action, suit, or
proceeding (or within 30 days after service upon such member of legal process
in such case, if later) the Board member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
14. Termination and Amendment of the Plan.
Unless sooner terminated as provided herein, this Plan shall remain in
effect through March 31, 1999. The Board may terminate this Plan at any time
or modify or amend it as it deems advisable and may from time to time suspend,
discontinue or abandon this Plan, except that (i) the number of shares
available under this Plan shall not be increased (except as provided in Section
5) and the class of eligible employees shall not be modified without
shareholder approval, and (ii) no such action by the Board shall adversely
affect any right or obligation with respect to any grant previously made unless
the written consent of the affected Grantee is obtained.
15. Miscellaneous.
The provisions of this Plan shall be binding upon, and inure to the
benefit of, all successors of any Grantee, including, without limitation, his
estate and the executors, administrators or trustees thereof, his heirs and
legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Grantee.
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<PAGE> 12
Nothing contained in this Plan or in any Option Agreement, Restricted
Stock Award Agreement or Stock Bonus Agreement shall confer upon any Employee
the right to continued employment or shall interfere in any way with the right
to terminate the employment of such Employee at any time, with or without
cause.
Except as expressly provided in this Plan, Grantees shall have no
rights by reason of any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend of any other increase or decrease in
the number of shares of stock of any class; the dissolution or liquidation of
the Company; the merger or consolidation of the Company with or into any other
corporation; the sale or other transfer of assets or stock of the Company; or
any issue by the Company of shares of stock of any class or securities
convertible into shares of stock of any class.
The grant of an Option, Restricted Stock Award or Stock Bonus pursuant
to this Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, or to merge or consolidate, or to dissolve or liquidate,
or to sell or transfer all or any part of its business or assets.
All Grantees, including those who have exercised their Options, shall
be furnished at least annually financial statements and management's discussion
and analysis of the financial condition and results of operations of the
Company. Such information shall be subject to any agreements regarding the
confidentiality of proprietary information between the Company and any Grantee;
however, each Grantee shall be permitted to remove and copy such information
and review and discuss such information with an attorney or other financial
adviser for the legitimate personal investment planning of such Grantee.
16. Approval of Plan.
This Plan was adopted by resolution of the Board on October 27, 1992
and approved by the shareholders on May ___, 1993.
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<PAGE> 1
EXHIBIT 10.7
LANDMARK SYSTEMS CORPORATION
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made as of the
seventh day of March, 1997, among Landmark Systems Corporation, a Virginia
corporation (the "Company"), the persons and entities listed on the "Schedule
of Purchasers" attached hereto as Attachment A (the "Purchasers"), and Patrick
H. McGettigan, Katherine K. Clark and Jeffrey H. Bergman (collectively, the
"Founders" and singly "McGettigan", "Clark" and "Bergman" respectively).
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto mutually agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Commission" means the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
(b) "Common Stock" means the authorized common stock, one cent
($0.01) par value per share, of the Company.
(c) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect from time to time.
(d) "Other Shares" means at any time those shares of Common Stock
which do not constitute Primary Shares or Registrable Shares.
(e) "Preferred Stock" means the authorized preferred stock, one
cent ($0.01) par value per share, of the Company.
(f) "Primary Shares" means at any time the authorized but unissued
shares of Common Stock.
(g) "Registrable Purchaser Shares" means at any time, with respect
to any Purchaser, the shares of Common Stock held (or to be held upon
conversion of any Restricted Purchaser Shares) by such Purchaser that
constitute Restricted Purchaser Shares.
(h) "Registrable Founder Shares" means at any time, with respect
to any Founder, the shares of Common Stock held by such Founder that constitute
Restricted Founder Shares.
(i) "Registrable Bergman Shares" means at any time, the shares of
Common Stock held (or to be held upon conversion of any Restricted Bergman
Shares) by Bergman that constitute Restricted Bergman Shares.
(j) "Registrable Shares" means Registrable Bergman Shares,
Registrable Founder Shares and Registrable Purchaser Shares collectively.
<PAGE> 2
(k) "Restricted Bergman Shares" means at any time, the shares of
Series A Preferred Stock held by Bergman on the date hereof, any shares of
Common Stock issued or issuable upon conversion thereof, and any shares or
other securities received in respect thereof, which are held by Bergman and
which have not previously been sold to the public pursuant to a registration
statement under the Securities Act or pursuant to Rule 144.
(l) "Restricted Founder Shares" means at any time, with respect to
any Founder, the shares of Common Stock held by him or her on the date hereof,
and any shares or other securities received in respect thereof, which are held
by such Founder and which have not previously been sold to the public pursuant
to a registration statement under the Securities Act or pursuant to Rule 144.
(m) "Restricted Purchaser Shares" means at any time, with respect
to any Purchaser, the shares of Series B Preferred Stock held by it on the date
hereof, any shares of Common Stock issued or issuable upon conversion thereof,
and any shares or other securities received in respect thereof, which are held
by such Purchaser and which have not previously been sold to the public
pursuant to a registration statement under the Securities Act or pursuant to
Rule 144.
(n) "Restricted Shares" means Restricted Bergman Shares,
Restricted Founder Shares and Restricted Purchaser Shares collectively.
(o) "Rule 144" means Rule 144 promulgated under the Securities Act
or any successor rule thereto or any complementary rule thereto.
(p) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect from time to time.
(q) "Series A Preferred Stock" means the authorized shares of
Preferred Stock which are designated as "Series A Preferred Stock."
(r) "Series B Preferred Stock" means the authorized shares of
Preferred Stock which are designated as "Series B Preferred Stock."
(s) "Stock" means Common Stock, Preferred Stock or any other class
of authorized stock of the Company.
(t) "Stockholder" means any Purchaser or Founder, Bergman and any
person or entity that has acquired or acquires Restricted Purchaser Shares from
a Purchaser, Restricted Founder Shares from a Founder or Restricted Bergman
Shares from Bergman in accordance with Section 14.
(u) "Transfer" means any disposition of any Restricted Shares or
of any interest therein which constitutes a sale within the meaning of the
Securities Act, other than any disposition pursuant to an effective
registration statement under the Securities Act and complying with all
applicable state securities and "blue sky" laws.
2. REQUESTED REGISTRATION. If the Company shall be requested by
Purchasers, who or which hold Restricted Purchaser Shares constituting more
than fifty percent (50%) of the then-outstanding Restricted Purchaser Shares
held by all Purchasers, to effect the registration under the Securities Act of
Registrable Purchaser Shares in accordance with this Section 2, then the
Company shall promptly give written notice of such proposed registration to all
holders of
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<PAGE> 3
Restricted Purchaser Shares and shall offer to include in such proposed
registration any Registrable Purchaser Shares requested to be included in such
proposed registration by such holders who respond in writing to the Company's
notice within thirty (30) days after delivery of such notice (which response
shall specify the number of Registrable Purchaser Shares proposed to be
included in such registration). The Company shall promptly use its best
efforts to effect such registration under the Securities Act of the Registrable
Purchaser Shares which the Company has been so requested to register; provided,
however, that the Company shall not be obligated to effect any registration
under the Securities Act except in accordance with the following provisions:
(a) the Company shall not be obligated to file (i) more than one
registration statement initiated pursuant to this Section 2 which becomes
effective, or (ii) any registration statement during any period in which any
other registration statement pursuant to which Primary Shares are to be or were
sold has been filed and not withdrawn or has been declared effective within the
prior one hundred eighty (180) days;
(b) the Company shall not be obligated to effect any registration
unless the anticipated aggregate offering proceeds, net of underwriting
discounts and commissions, are expected to exceed $5,000,000;
(c) the Company shall not be obligated to effect any registration
prior to the earlier of (i) December 31, 2000 and (ii) one hundred eighty (180)
days after the time the Company makes an initial offering of Common Stock to
the public pursuant to an effective registration statement under the Securities
Act;
(d) the Company may delay the filing or effectiveness of any
registration statement for a period not to exceed one hundred fifty (150) days
after the date of a request for registration pursuant to this Section 2 if (i)
at the time of such request the Company is engaged, or has fixed plans to
engage within sixty (60) days of the time of such request, in a firm commitment
underwritten public offering of Primary Shares in which the holders of
Restricted Purchaser Shares may include Registrable Purchaser Shares pursuant
to Section 3 below or (ii) the Corporation shall furnish to the Purchasers
requesting such registration a certificate signed by the President of the
Company stating that, in the good faith judgment of the Board of Directors of
the Company, and with the concurrence of the investment banker, if any, that is
currently being retained by the Company, it would be seriously detrimental to
the Company and its shareholders for such registration statement to be filed
and it is therefore essential to defer the filing of such registration
statement (provided that the Company may not utilize the right set forth in
this Section 2(d) more than once in any twelve (12) month period and in the
event the Company does utilize such right, the holders of Restricted Purchaser
Shares requesting such registration will be entitled to withdraw such request
and, if such request is withdrawn, such registration will not count as a
registration pursuant to this Section 2, and the holders of Restricted
Purchaser Shares requesting such registration shall have no obligation to
reimburse the Company for the Company's expenses in connection with such
rescinded registration); and
(e) with respect to any registration pursuant to this Section 2,
the Company or the Founders may include in such registration any Primary
Shares, Registrable Founder Shares, Registrable Bergman Shares or Other Shares;
provided, however, that in the event the registration is for a registered
public offering involving an underwriting, if the underwriter (or
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<PAGE> 4
the managing underwriter on behalf of the underwriters) advises the Company
that the inclusion of all Registrable Shares, Primary Shares and Other Shares
proposed to be included in such registration would interfere with the
successful marketing (including pricing) of all such securities, then the
number of Registrable Shares, Primary Shares and Other Shares proposed to be
included in such registration shall be included in the following order:
(i) first, the Registrable Purchaser Shares, pro
rata based upon the number of Registrable Purchaser Shares (based upon Common
Stock equivalents) proposed to be included by each Purchaser;
(ii) second, the Primary Shares;
(iii) third, the Registrable Founder Shares and
Registrable Bergman Shares, pro rata based upon the number of Registrable
Founder Shares and Registrable Bergman Shares (based on Common Stock
equivalents) proposed to be included by each Founder; and
(iv) fourth, the Other Shares.
A requested registration under this Section may be rescinded by
written notice to the Company by the Purchasers initiating such request;
provided, however, that such rescinded registration shall not count as a
registration statement initiated pursuant to this Section 2 for purposes of
Section 2(a) above if, notwithstanding Section 7 below, the Purchasers
initiating such request shall have reimbursed the Company for all out-of-pocket
expenses incurred by the Company in connection with such rescinded
registration.
A registration pursuant to this Section 2 shall not be deemed to have
been effected (i) unless a registration statement with respect thereto has
become effective, (ii) if after it has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court for any reason, or (iii)
if the conditions to closing specified in the purchase agreement or
underwriting agreement entered into in connection with such registration are
not satisfied, other than by reason of some act or omission by the holders of
Restricted Purchaser Shares requesting such registration.
3. PIGGYBACK REGISTRATION.
(a) If the Company at any time proposes for any reason to register
Primary Shares under the Securities Act, other than a registration relating
solely to employee benefit plans or a Commission Rule 145 (or any rule adopted
by the Commission in substitution thereof or in Amendment thereto) transaction,
it shall promptly give written notice to each Stockholder of its intention so
to register the Primary Shares and, upon the written request, given within
thirty (30) days after delivery of any such notice by the Company, of any
Stockholder to include in such registration Registrable Shares (which request
shall specify the number of Registrable Shares proposed to be included in such
registration), the Company shall use its best efforts to cause all such
Registrable Shares to be included in such registration on the same terms and
conditions as the securities otherwise being sold in such registration;
provided, however, that in the event the
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<PAGE> 5
registration is for a registered public offering involving an underwriting, if
the underwriter (or the managing underwriter on behalf of the underwriters)
advises the Company that the inclusion of all Registrable Shares proposed to be
included in such registration would interfere with the successful marketing
(including pricing) of the Primary Shares proposed to be registered by the
Company, then the number of Primary Shares and Registrable Shares proposed to
be included in such registration shall be included in the following order:
(i) first, the Primary Shares;
(ii) second, the Registrable Purchaser Shares, pro
rata based upon the number of Registrable Purchaser Shares (based upon Common
Stock equivalents) proposed to be included by each Purchaser; and
(iii) third, the Registrable Founder Shares and
Registrable Bergman Shares, pro rata based upon the number of Registrable
Founder Shares and Registrable Bergman Shares (based upon Common Stock
equivalents) proposed to be included by each Founder.
(b) Each Stockholder who has requested that Registrable Shares be
included in a registration pursuant to Section 3(a) above, shall be bound by
the Company's choice of managing underwriter stated in the Company's notice and
to execute an underwriting agreement with such underwriter that is (i)
reasonably satisfactory to such Stockholder and (ii) in customary form. No
registration effected under this Section 3 shall relieve the Company of its
obligation to effect any registration upon request under Section 2 above.
4. REGISTRATIONS ON FORM S-3.
(a) Subject to Sections 4(b) and 4(c) below, at such time as the
Company shall have qualified for the use of Form S-3 promulgated under the
Securities Act or any successor form thereto, the Purchasers shall have the
right to request up to three (3) or, if the Company has not effected any
registration pursuant to Section 2 above that was declared or ordered
effective, four (4) registrations on such Form S-3 under this Section 4. Such
requests shall (i) specify the number of Registrable Purchaser Shares intended
to be sold or disposed of, (ii) state the intended method of disposition of
such Registrable Purchaser Shares, and (iii) relate to at least ten percent
(10%) of all the Registrable Purchaser Shares then outstanding.
(b) If the Company furnishes to the Purchasers a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company, and with the concurrence of the
investment banker, if any, that is currently being retained by the Company, it
would be seriously detrimental to the Company or its shareholders for any
registration statements to be filed in the near future, then the Company's
obligation to take any action pursuant to this Section 4 shall be deferred for
a period not to exceed one hundred and fifty (150) days from the receipt of the
request to file such registration by the Purchasers; provided, however, that
the Company may not make such certification more than once in any twelve (12)
month period.
(c) A requested registration on Form S-3 or any successor form in
compliance with this Section 4 shall not count as a registration statement
demanded pursuant to Section 2, but
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<PAGE> 6
shall otherwise be treated as a registration initiated pursuant to and shall,
except as otherwise expressly provided in this Section 4, be subject to Section
2..
5. "MARKET STAND-OFF" AGREEMENT. If in connection with the initial
public offering of shares of Common Stock of the Company registered pursuant to
the Securities Act, the managing underwriter for such registration shall so
request, the Stockholders shall not sell, make any short sale of, grant any
option for the purchase of, or otherwise dispose of any Restricted Shares
(other than those shares of Common Stock included in such registration) without
the prior written consent of the Company for a period designated by the Company
in writing to the Stockholders, which period shall not begin more than ten (10)
days prior to the effectiveness of the registration statement pursuant to which
such public offering shall be made and shall not last more than one hundred
eighty (180) days (or such other period as the officers and directors of the
Company and holders of greater than one percent (1%) of all Registrable Shares
mutually agree) after the effective date of such registration statement.
6. PREPARATION AND FILING. If and whenever the Company is under an
obligation pursuant to the provisions of this Agreement to effect the
registration of any Registrable Shares, the Company shall, as expeditiously as
practicable:
(a) use its best efforts to cause a registration statement that
registers such Registrable Shares to become and remain effective for a period
of one hundred eighty (180) days or until all of such Registrable Shares have
been disposed of (if earlier);
(b) furnish, at least five (5) business days before filing a
registration statement that registers such Registrable Shares, a prospectus
relating thereto or any amendments or supplements relating to such a
registration statement or prospectus, to one counsel selected by the holders of
a majority of such Registrable Shares (the "Selling Stockholders' Counsel"),
copies of all such documents proposed to be filed (it being understood that
such five (5) business day period need not apply to successive drafts of the
same document proposed to be filed so long as such successive drafts are
supplied to such counsel in advance of the proposed filing by a period of time
that is customary and reasonable under the circumstances);
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for at least a period of one hundred eighty (180) days or until all
of such Registrable Shares have been disposed of (if earlier) and to comply
with the provisions of the Securities Act with respect to the sale or other
disposition of such Registrable Shares;
(d) notify in writing the Selling Stockholders' Counsel promptly
(i) of the receipt by the Company of any notification with respect to any
comments by the Commission with respect to such registration statement or
prospectus or any amendment or supplement thereto or any request by the
Commission for the amending or supplementing thereof or for additional
information with respect thereto, (ii) of the receipt by the Company of any
notification with respect to the issuance by the Commission of any stop order
suspending the effectiveness of such registration statement or prospectus or
any amendment or supplement thereto or the initiation or threatening of any
proceeding for that purpose and (iii) of the receipt by the Company of any
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<PAGE> 7
notification with respect to the suspension of the qualification of such
Registrable Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purposes;
(e) use its best efforts to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions as
any seller of Registrable Shares reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable such
seller of Registrable Shares to consummate the disposition in such
jurisdictions of the Registrable Shares owned by such seller; provided,
however, that the Company will not be required to qualify generally to do
business, subject itself to general taxation or consent to general service of
process in any Jurisdiction where it would not otherwise be required so to do
but for this Section 6(e);
(f) furnish to each seller of such Registrable Shares such number
of copies of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such seller of Registrable Shares may reasonably request in
order to facilitate the public sale or other disposition of such Registrable
Shares;
(g) use its best efforts to cause such Registrable Shares to be
registered with or approved by such other governmental agencies or authorities
as may be necessary by virtue of the business and operations of the Company to
enable the seller or sellers thereof to consummate the disposition of such
Registrable Shares;
(h) notify on a timely basis each seller of such Registrable
Shares at any time when a prospectus relating to such Registrable Shares is
required to be delivered under the Securities Act within the appropriate period
mentioned in Section 6(a) above, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing and, at the
request of such seller, prepare and furnish to such seller a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the offerees of such shares, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
(i) make available for inspection by any seller of such
Registrable Shares, any underwriter participating in any disposition pursuant
to such registration statement and any attorney, accountant or other agent
retained by any such seller or underwriter (collectively, the "Inspectors"),
all pertinent financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be reasonably
necessary to enable them to exercise their due diligence responsibility, and
cause the Company's officers, directors and employees to supply all information
(together with the Records, the "Information") reasonably requested by any such
Inspector in connection with such registration statement. Any of the
Information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, shall not be disclosed
by the Inspectors unless (i) the disclosure of such Information is necessary to
avoid or correct a misstatement or omission in the
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<PAGE> 8
registration statement, (ii) the release of such Information is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction or
(iii) such Information has been made generally available to the public. The
seller of Registrable Shares agrees that he, she or it will, upon learning that
disclosure of such Information is sought in a court of competent jurisdiction,
give notice to the Company and allow the Company, at the Company's expense, to
undertake appropriate action to prevent disclosure of the Information deemed
confidential;
(j) use its best efforts to obtain from its independent certified
public accountants "comfort" letters in customary form and at customary times
and covering matters of the type customarily covered by comfort letters;
(k) use its best efforts to obtain from its counsel an opinion or
opinions in customary form;
(l) provide a transfer agent and registrar (which may be the same
entity and which may be the Company) for such Registrable Shares;
(m) issue to any underwriter to which any seller of Registrable
Shares may sell shares in such offering certificates evidencing such
Registrable Shares;
(n) list such Registrable Shares on any national securities
exchange on which any shares of the Common Stock are listed or, if the Common
Stock is not listed on a national securities exchange, use its best efforts to
qualify such Registrable Shares for inclusion on the automated quotation system
of the National Association of Securities Dealers, Inc. (the "NASD") or such
national securities exchange as the holders of a majority of such Registrable
Shares shall request;
(o) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make available to its security
holders, as soon as reasonably practicable, earnings statements (which need not
be audited) covering a period of twelve (12) months beginning within three (3)
months after the effective date of the registration statement, which earnings
statements shall satisfy the provisions of Section 11(a) of the Securities Act;
and
(p) use its best efforts to take all other steps necessary to
effect the registration of such Registrable Shares contemplated hereby.
In connection with the preparation and filing of each registration
statement under the Securities Act pursuant to this Agreement, the Company will
give the holder of Registrable Shares registered under such registration
statement a reasonable opportunity to review and comment upon such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto, all prior to finalization.
7. EXPENSES. All expenses incurred by the Company in complying with
Section 6 above, including, without limitation, all registration and filing
fees (including all expenses incident to filing with the NASD), fees and
expenses of complying with securities and blue sky laws, printing expenses, and
fees and expenses of the Company's counsel and accountants, and the fees and
expenses of the Selling Stockholders' Counsel shall be paid by the Company;
provided, however, that all underwriting discounts and selling commissions
applicable to the Registrable
8
<PAGE> 9
Shares, and all fees and expenses of any special or interim audit for any
registration initiated by Stockholders pursuant to Section 2 above that is not
otherwise required under the Securities Act or by the managing underwriter, if
any, in connection with such registration shall be borne by the seller or
sellers thereof, in proportion to the number of Registrable Shares sold by such
seller or sellers.
8. INDEMNIFICATION.
(a) In connection with any registration of any Registrable Shares
under the Securities Act pursuant to this Agreement, the Company shall
indemnify and hold harmless each Stockholder selling such Registrable Shares,
its officers and directors, each underwriter, broker or any other person acting
on behalf of such selling Stockholder and each other person, if any, who
controls any of the foregoing persons within the meaning of the Securities Act
against any losses, claims, damages or liabilities, joint or several, (or
actions in respect thereof) to which any of the foregoing persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in the registration statement under which such Registrable Shares
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein or otherwise filed with the Commission, any
amendment or supplement thereto or any document incident to registration or
qualification of any Registrable Shares, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or,
with respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made not misleading, or any
violation by the Company of the Securities Act or state securities or blue sky
laws applicable to the Company and relating to action or inaction required of
the Company in connection with such registration or qualification under such
state securities or blue sky laws; and shall reimburse such selling
Stockholder, such officer or director, such underwriter, such broker or such
other person acting on behalf of such selling Stockholder and each such
controlling person for any legal or other expenses reasonably incurred by any
of them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, preliminary prospectus, final prospectus, amendment,
supplement or document incident to registration or qualification of any
Registrable Shares in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by such selling
Stockholder or underwriter that states that it is specifically for use in the
preparation thereof.
(b) In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each Stockholder selling
Registrable Shares shall indemnify and hold harmless (in the same manner and to
the same extent as set forth in the preceding paragraph of this Section) the
Company, each director of the Company, each officer of the Company who shall
sign such registration statement, each underwriter, broker or other person
acting on behalf of such selling Stockholder, each person who controls any of
the foregoing persons within the
9
<PAGE> 10
meaning of the Securities Act and each other Stockholder selling Registrable
Shares under such registration statement with respect to any statement or
omission from such registration statement, any preliminary prospectus or final
prospectus contained therein or otherwise filed with the Commission, any
amendment or supplement thereto or any document incident to registration or
qualification of any Registrable Shares, if such statement or omission was made
in reliance upon and in conformity with written information furnished to the
Company or such underwriter through an instrument duly executed by such selling
Stockholder or underwriter that states that it is specifically for use in
connection with the preparation of such registration statement, preliminary
prospectus, final prospectus, amendment, supplement or document; provided,
however, that the obligation to indemnify will be several, not joint and
several, among the Stockholders selling Registrable Shares, and the maximum
amount of liability in respect of such indemnification shall be in proportion
to and limited to, in the case of each Stockholder selling Registrable Shares,
an amount equal to the net proceeds actually received by such selling
Stockholder from the sale of Registrable Shares effected pursuant to such
registration.
(c) The indemnification required by this Section 8 will be made by
periodic payments during the course of the investigation or defense, as and
when bills are received or expenses incurred, subject to prompt refund in the
event any such payments are determined not to have been due and owing
hereunder.
(d) Promptly after receipt by an indemnified party of notice of
the commencement of any action involving a claim referred to in this Section 8,
such indemnified party will, if a claim in respect thereof is made against an
indemnifying party, give written notice to the latter of the commencement of
such action. In case any such action is brought against an indemnified party,
the indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be responsible for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof;
provided, however, that if any indemnified party shall have reasonably
concluded that there may be one or more legal or equitable defenses available
to such indemnified party which are additional to or conflict with those
available to the indemnifying party, or that such claim or litigation involves
or could have an effect upon matters beyond the scope of the indemnity
agreement provided in this Section 8, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party
and such indemnifying party shall reimburse such indemnified party and any
person controlling such indemnified party for that portion of the fees and
expenses of any counsel retained by the indemnified party which is reasonably
related to the matters covered by the indemnity agreement provided in this
Section 8.
(e) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling person
of such indemnified party and will survive the transfer of securities.
(f) If the indemnification provided for in this Section 8 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, claim,
10
<PAGE> 11
damage, liability or action referred to herein, then the indemnifying party, in
lieu of indemnifying such indemnified party hereunder, shall contribute to the
amounts paid or payable by such indemnified party as a result of such loss,
claim, damage, liability or action in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
which resulted in such loss, claim, damage or liability as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the
Stockholders selling Registrable Shares agree that it would not be just and
equitable if contributions pursuant to this paragraph were determined by pro
rata allocation or by any other method of allocation which did not take into
account the equitable considerations referred to herein. The amount paid or
payable to an indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to above shall be deemed to include, subject
to the limitation set forth in Section 8(d) above, any legal or other expenses
reasonably incurred in connection with investigating or defending the same.
Notwithstanding the foregoing, in no event shall the amount contributed by a
Stockholder selling Registrable Shares exceed the aggregate net offering
proceeds received by such selling Stockholder from the sale of such selling
Stockholder's Registrable Shares.
9. UNDERWRITING AGREEMENT. Notwithstanding the provisions of Sections 5,
6, 7 and 8 above, to the extent that the Company and the Stockholders selling
Registrable Shares in a proposed registration shall enter into an underwriting
or similar agreement, which agreement contains provisions covering one or more
issues addressed in such Sections, the provisions contained in such Sections
addressing such issue or issues shall be superseded with respect to such
registration by such other agreement.
10. INFORMATION BY HOLDER. Each Stockholder selling Registrable Shares in
a proposed registration shall furnish to the Company such written information
regarding such holder and the distribution proposed by such Stockholder as the
Company may reasonably request in writing and as shall be reasonably required
in connection with any registration, qualification or compliance referred to in
this Agreement.
11. EXCHANGE ACT COMPLIANCE. From and after the date upon which the
registration statement pursuant to which the Company shall have initially
registered shares of Common Stock under the Securities Act for sale to the
public shall have been declared effective or such earlier date as a
registration statement filed by the Company pursuant to the Exchange Act
relating to any class of the Company's securities shall have become effective,
the Company shall comply with all of the reporting requirements of the Exchange
Act and with all other public information reporting requirements of the
Commission which are conditions to the availability of Rule 144 for the sale of
the Common Stock. Upon the request of any Stockholder, the Company will
deliver to such Stockholder a written statement as to whether it has complied
with such requirements. The Company shall cooperate with each Stockholder in
supplying such
11
<PAGE> 12
information as may be necessary for such Stockholder to complete and file any
information reporting forms presently or hereafter required by the Commission
as a condition to the availability of Rule 144.
12. TERMINATION. This Agreement shall terminate and be of no further
force or effect when there shall not be any Restricted Shares, provided that
the rights of the Stockholders and obligations of the Corporation under
Sections 2, 3 and 4 hereof shall earlier terminate and be of no further force
or effect at such earlier time as to any Stockholder as the provisions of Rule
144(k) are applicable to the Restricted Shares then held by such Stockholder.
13. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the Company and the Stockholders and, subject to Section 14, their
respective successors, permitted assigns, heirs and legal representatives (as
the case may be).
14. ASSIGNMENT. This Agreement and the rights and obligations of the
parties hereunder shall not be assignable, except that a Stockholder may assign
its rights hereunder (a) if such Stockholder is a partnership or a limited
liability company, to any partner or member thereof (in the case of a pro rata
distribution by a Stockholder that is a partnership or a limited liability
company to its partners or members), (b) if such Stockholder is a corporation,
to any majority-owned subsidiary of such Stockholder (provided that such rights
may be exercised by such subsidiary only for so long as such subsidiary
continues to be majority-owned by such Stockholder), (c) if such Stockholder is
a natural person, to the spouse or descendants of such person or any trust for
the benefit of any thereof or (d) otherwise to any other person or entity to
whom at least 50,000 Restricted Shares, as constituted on the date hereof, or
lesser number of such shares if representing all of the shares then held by
such Stockholder, have been properly sold or otherwise transferred in
accordance with the terms of the applicable agreement(s) governing such
transactions;; provided, however, that the Company is given written notice at
the time of such assignment stating the name and address of the assignee and
identifying the securities with respect to which the rights and benefits
hereunder are being assigned and such assignee expressly agrees in writing with
the Company and the other Stockholders to be bound by and to comply with all
applicable provisions of this Agreement, whereupon such person or entity shall
have the benefits of, and shall be subject to the restrictions contained in,
this Agreement with respect to such securities. Any assignment pursuant to
this Section 14 shall not relieve, release or otherwise discharge the
Stockholder effecting such assignment from its obligations under this
Agreement. This Agreement shall bind and inure to the benefit of the Company,
each Stockholder, and its or his respective successors, permitted assigns,
heirs and legal representatives.
15. ENTIRE AGREEMENT. This Agreement contains the entire agreement among
the parties with respect to the subject matter hereof and supersedes all prior
arrangements or understandings with respect hereto.
16. NOTICES. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument and shall be deemed to have been duly given when delivered
in person, by telecopy, by nationally-recognized overnight
12
<PAGE> 13
courier, or by first class registered or certified mail, postage prepaid,
addressed to such party at the address set forth below or such other address as
may hereafter be designated in writing by the addressee to the addressor:
If to Bergman: Mr. Jeffrey H. Bergman
9521 Woodington Drive
Potomac, Maryland 20854
If to McGettigan : Mr. Patrick H. McGettigan
Landmark Systems Corporation
8000 Towers Crescent Drive
Suite 1600
Vienna, Virginia 22182
If to Clark: Ms. Katherine K. Clark
Landmark Systems Corporation
8000 Towers Crescent Drive
Suite 1600
Vienna, Virginia 22182
If to the Purchasers: Blue Water Strategic Fund I, LLC
8300 Greensboro Drive, Suite 1020
McLean, Virginia 22012
If to the Company: Landmark Systems Corporation
8000 Towers Crescent Drive
Suite 1600
Vienna, Virginia 22182
Attn: Ms. Katherine K. Clark,
President
All such notices, requests, consents and other communications shall be deemed
to have been delivered (a) in the case of personal delivery or delivery by
telecopy, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day and (c) in
the case of mailing, on the third business day following such mailing if sent
by certified mail, return receipt requested.
17. MODIFICATIONS; AMENDMENTS; WAIVERS. The terms and provisions of this
Agreement may not be modified or amended, except pursuant to a writing signed
by the parties.
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but
one agreement.
13
<PAGE> 14
19. HEADINGS. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
20. SEVERABILITY. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible
under the law and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any provision of this Agreement would
be held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn
so as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
21. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the Commonwealth of Virginia, without
giving effect to any law or rule that would cause the laws of any jurisdiction
other than the Commonwealth of Virginia to be applied.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
LANDMARK SYSTEMS CORPORATION
By:
--------------------------------------
Title:
-----------------------------------
BLUE WATER STRATEGIC FUND I, LLC
By: Blue Water Capital, LLC, Managing Member
By:
--------------------------------------
KIM D. COOKE,
MANAGING DIRECTOR
-----------------------------------------
JEFFREY H. BERGMAN
-----------------------------------------
PATRICK H. MCGETTIGAN
14
<PAGE> 15
-----------------------------------------
KATHERINE K. CLARK
15
<PAGE> 16
ATTACHMENT A
Schedule of Purchasers
<TABLE>
<CAPTION>
Name and Address Number of Series B
of Purchaser Preferred Shares
----------------------- ----------------
<S> <C>
Blue Water Strategic Fund I, LLC,
8300 Greensboro Drive, Suite 1020 316,156
McLean, VA 22012
TOTAL 316,156
</TABLE>
A-1
<PAGE> 1
LANDMARK SYSTEMS CORPORATION
COMPUTATION OF PRO FORMA NET (LOSS) INCOME PER SHARE
SEPTEMBER 30, 1997
EXHIBIT 11.1
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DEC 31 SEP 30 SEP 30
PRIMARY NET INCOME (LOSS) PER SHARE 1996 1996 1997
- ----------------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
Weighted average common shares outstanding(1) 7,699,992 7,699,992 7,684,893
Conversion of mandatorily redeemable Series A Preferred Stock 648,500 648,500 648,500
Conversion of SAB 83 shares:
Mandatorily redeemable Series B Preferred Stock (as if converted method) 592,793 592,793 592,793
Common stock options and warrants (treasury stock method) 538,442 538,442 538,442
Conversion of common stock options and warrants (treasury stock method)(1) - - 788,577
-------------- -------------- ------------
Total weighted average common and common equivalent shares 9,479,727 9,479,727 10,253,204
Net Income $ (1,202,281) (1,895,442) $ 1,222,675
-------------- -------------- ------------
Pro forma primary net (loss) income per share $ (0.13) $ (0.20) $ 0.12
============== ============== ============
FULLY DILUTED NET (LOSS) INCOME PER SHARE
- -----------------------------------------
Weighted average common shares outstanding(1) 7,699,992 7,699,992 7,684,893
Conversion of mandatorily redeemable Series A Preferred Stock 648,500 648,500 648,500
Conversion of SAB 83 shares:
Mandatorily redeemable Series B Preferred Stock (as if converted method) 592,793 592,793 592,793
Common stock options and warrants (treasury stock method) 538,442 538,442 538,442
Conversion of common stock options and warrants (treasury stock method)(1) - - 1,289,245
-------------- -------------- -------------
Total weighted average common and common equivalent shares 9,479,727 9,479,727 10,753,872
Net Income $ (1,202,281) (1,895,442) $ 1,222,675
-------------- -------------- -------------
Pro forma fully diluted net (loss) income per share
$ (0.13) $ (0.20) $ 0.11
============= ============== =============
</TABLE>
Note: All items reflect a 3 for 2 split of the Company's common stock expected
to take effect immediately prior to the closing of the offering.
(1) Includes redeemable common stock instruments.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of
Amendment No. 1 to the Registration Statement on Form S-1 (No. 333-35629) of our
report dated April 30, 1997, relating to the consolidated financial statements
of Landmark Systems Corporation, which appears in such Prospectus. We also
consent to the application of such report to the Financial Statement Schedule
for the three years ended December 31, 1996 listed under Item 16(b) of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included such schedule. We also consent to the references to us
under the headings "Experts" and "Selected Consolidated Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Data."
PRICE WATERHOUSE LLP
Falls Church, Virginia
October 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,168,081
<SECURITIES> 0
<RECEIVABLES> 8,140,742
<ALLOWANCES> 497,000
<INVENTORY> 0
<CURRENT-ASSETS> 17,847,100
<PP&E> 13,439,164
<DEPRECIATION> 10,143,949
<TOTAL-ASSETS> 28,634,934
<CURRENT-LIABILITIES> 20,424,990
<BONDS> 190,588
10,333,274
0
<COMMON> 73,840
<OTHER-SE> (5,933,383)
<TOTAL-LIABILITY-AND-EQUITY> 28,634,934
<SALES> 10,548,607
<TOTAL-REVENUES> 30,377,191
<CGS> 1,898,957
<TOTAL-COSTS> 4,331,870
<OTHER-EXPENSES> 24,323,338
<LOSS-PROVISION> 199,395
<INTEREST-EXPENSE> 243,559
<INCOME-PRETAX> 2,038,252
<INCOME-TAX> 815,578
<INCOME-CONTINUING> 1,222,674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,222,674
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
