INTELLECTUAL PROPERTY
Rational regards its software as proprietary and attempts to protect it
under a combination of copyright, trademark, and trade-secret laws, employee
and third-party nondisclosure agreements, and other methods of protection.
Despite these precautions, it may be possible for unauthorized third parties
to copy certain portions of Rational's products or to reverse engineer or
obtain and use information Rational regards as proprietary. Although
Rational's competitive position may be affected by its ability to protect its
proprietary information, Rational believes that trademark and copyright
protections are less significant to Rational's success than other factors,
such as trade-secret protection, the knowledge, ability, and experience of
Rational's personnel, name recognition, and ongoing product development and
support.
Rational's software products are generally licensed to end users on a right-
to-use basis pursuant to a perpetual license. Rational licenses its products
primarily under "shrink wrap" licenses (that is, licenses included as part of
the product packaging). Shrink-wrap licenses are not negotiated with or signed
by individual licensees and purport to take effect upon the opening of the
product package. Certain provisions of such licenses, including provisions
protecting against unauthorized use, copying, transfer, and disclosure of the
licensed program, may be unenforceable under the laws of certain
jurisdictions. In addition, the laws of some countries do not protect
Rational's proprietary rights to the same extent as the laws of the United
States.
As the number of software products in the industry increases and the
functionality of these products further overlaps, Rational believes that
software programs will increasingly become subject to infringement claims.
There can be no assurance that third parties will not assert infringement
claims against Rational in the future with respect to current or future
products. Any such assertion could require Rational to enter into royalty
arrangements or result in costly litigation.
EMPLOYEES
As of March 31, 1998, Rational employed 1,743 full-time personnel, including
626 in product development and support, 861 in sales, marketing, and technical
consulting, and 256 in finance and administration. Rational's employees are
not represented by any collective bargaining organization, and Rational has
never experienced a work stoppage. Rational believes its success will depend
in part on its continued ability to attract and retain highly qualified
personnel in a competitive market for experienced and talented software
engineers and sales and marketing personnel.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant are as follows:
NAME POSITION
---- --------
Paul D. Levy......................... Chairman and Chief Executive Officer
Michael T. Devlin.................... President
David H. Bernstein................... Senior Vice President and General Manager,
Products
Timothy A. Brennan................... Senior Vice President, Chief Financial
Officer, and Secretary
Robert H. Dickerson.................. Senior Vice President and General Manager,
Products
Kevin J. Haar........................ Vice President, North American Field
Operations
John R. Lovitt....................... Senior Vice President, Worldwide Field
Operations
Joseph N. Marasco.................... Senior Vice President, Operations
Paul D. Levy, age 42, cofounded Rational in 1981. He is currently Chairman
of the Board and Chief Executive Officer. Before September 1996, Mr. Levy
served as President and Chief Executive Officer of Rational. Mr. Levy is the
son-in-law of James S. Campbell, member of Rational's Board of Directors.
Michael T. Devlin, age 43, cofounded Rational in 1981. He is currently
President and a Director. Before September 1996, Mr. Devlin served as Chairman
of the Board of Rational.
David H. Bernstein, age 46, joined Rational in 1982 as Vice President,
Product Development. In 1991, Mr. Bernstein was named Vice President and
General Manager of the Ada business unit. Mr. Bernstein was named Vice
President and General Manager, Object Technology Products, and Senior Vice
President and General Manager, Object Technology Products, in 1994 and 1995,
respectively. In May 1996, Mr. Bernstein was named Senior Vice President and
General Manager, Products.
Timothy A. Brennan, age 42, joined Rational as Corporate Controller in 1994.
In 1995, he was promoted to Vice President, Finance and Administration. In
January 1998, Mr. Brennan was named Senior Vice President, Chief Financial
Officer, and Secretary. From 1987 to 1994, Mr. Brennan held various financial
management and controllership positions with the ASK Group, Inc.
Robert Dickerson, age 41, is Senior Vice President and General Manager,
Products. He joined Rational in 1994 as Vice President, Developer and
Performix Products Groups. Prior to that, Mr. Dickerson was Senior Vice
President, Client/Server Division of Borland International.
Kevin J. Haar, age 41, is Vice President, North American Field Operations.
He joined Rational in 1986 as an account representative in the field sales
force. Since then, he has held a number of positions, most recently Vice
President, Major Accounts, North American Field Operations.
John R. Lovitt, age 53, joined Rational as a regional manager responsible
for sales and marketing in 1986. In 1990, he was promoted to Vice President,
and subsequently to Senior Vice President, North American Field Operations. In
November 1996, Mr. Lovitt was promoted to Senior Vice President, Worldwide
Field Operations, where he is responsible for worldwide field sales and
marketing and technical services.
Joseph N. Marasco, age 52, is Senior Vice President, Operations. He joined
Rational in 1986 as a product manager. Since then he has held a number of
positions in Rational, most recently, Vice President and General Manager,
Programming Environments.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Risks Associated with Recent and Future Acquisitions
Rational acquired Pure Atria Corporation (Pure Atria) on July 30, 1997, with
the expectation that the acquisition would result in long-term strategic
benefits. The realization of these anticipated benefits will continue to
depend in part on whether the companies' operations can be integrated in an
efficient and effective manner. There can be no assurance that this will
occur. The successful integration of Pure Atria's operations into Rational
continues to require, among other things, integration of the companies'
respective product offerings and coordination of the companies' sales and
marketing efforts and research and development efforts. Successful integration
of the companies' respective sales forces will continue to require sales
personnel to become familiar with the sales cycles and sales approaches
required for products recently added to their portfolios, and any failure to
do so may result in sales delays and decreased revenues for the Company. It is
possible that the continued integration of the companies' respective products
and the creation of integrated bundles and suites may not be accomplished in a
timely manner or may prove to be technologically infeasible. The difficulties
of integrating the two companies' respective operations is compounded by the
fact that each company had significant operations on both the East Coast and
the West Coast of the United States and in a number of other countries. The
acquisition of Pure Atria has been accounted for as a pooling of interests.
Accordingly, if such accounting treatment were to be nullified for any reason,
it would materially and adversely affect Rational's reported earnings and,
potentially, its stock price.
In addition to the acquisition of Pure Atria, during approximately the past
three years, Rational has made a number of strategic acquisitions, including
SQA, Inc., Performance Awareness Corporation, Requisite, Inc., Softlab AB, and
Software 9000 in the quarter ended March 31, 1997, the Visual Test product
from Microsoft in October 1996, and other acquisitions in earlier periods.
Rational has recently acquired 19.9% of the outstanding capital stock of
ObjecTime, Ltd. Acquisitions result in the diversion of management's attention
from day-to-day operations and include numerous other risks, including
difficulties in the integration of operations, products, and personnel. To the
extent that acquisitions have in the past resulted, or may in the future
result, in a diversion of resources or that efforts to integrate recent and
future acquisitions fail, there could be a material adverse effect on
Rational's business, results of operations, and financial condition.
Acquisitions have the potential to result in dilutive issuances of equity
securities, the incurrence of debt, and amortization expenses related to
goodwill and other intangible assets. Rational's management has historically
evaluated on an ongoing basis the strategic opportunities available to the
Company. Rational may in the near-term or long-term future pursue acquisitions
of complementary products, technologies, or businesses. |
