<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 2000
REGISTRATION NO. 333-89537
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ELOQUENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7379 94-3221868
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NUMBER)
</TABLE>
2000 ALAMEDA DE LAS PULGAS, SUITE 100
SAN MATEO, CA 94403
(650) 294-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ABRAHAM KLEINFELD
CHIEF EXECUTIVE OFFICER
ELOQUENT, INC.
2000 ALAMEDA DE LAS PULGAS, SUITE 100
SAN MATEO, CA 94403
(650) 294-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
KENNETH L. GUERNSEY ROBERT P. LATTA
JODIE M. BOURDET CHRISTOPHER F. FENNELL
STEVEN R. HARMON CHRISTIAN E. MONTEGUT
DAVID J. PAUL PRIYA CHERIAN HUSKINS
COOLEY GODWARD LLP JILL K. BJORKHOLM
ONE MARITIME PLAZA, 20TH FLOOR WILSON SONSINI GOODRICH & ROSATI,
SAN FRANCISCO, CA 94111 A PROFESSIONAL CORPORATION
(415) 693-2000 650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement number 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C>
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<S> <C>
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</TABLE>
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value per share..... 5,175,000 $12.00 $62,100,000 $17,199
- ---------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(2) Fee of $15,985 was previously paid.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION
DECLARES OUR REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 21, 2000
4,500,000 SHARES
ELOQUENT, INC.
COMMON STOCK
$ PER SHARE
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<TABLE>
<S> <C>
- - Eloquent, Inc. is offering 4,500,000 - This is our initial public offering and
shares. no public market currently exists for our
shares.
- - We anticipate that the initial public - Proposed trading symbol: Nasdaq National
offering price will be between $10.00 and Market -- ELOQ.
$12.00 per share.
</TABLE>
---------------------------------------------
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A
DESCRIPTION OF SOME OF THE RISKS OF INVESTING IN OUR STOCK.
<TABLE>
<CAPTION>
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PER SHARE TOTAL
--------- -------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Eloquent, Inc. ............... $ $
=================================================================================
</TABLE>
The underwriters have a 30-day option to purchase up to 675,000 additional
shares of common stock from us to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF ANYONE'S INVESTMENT IN THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
U.S. BANCORP PIPER JAFFRAY
BANC OF AMERICA SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
THE DATE OF THIS PROSPECTUS IS , 2000.
[ELOQUENT, INC. LOGO]
<PAGE> 3
GATEFOLD
GRAPHICS: GRAPHICAL DEPICTION OF PRODUCTION PROCESS AND USES OF
ELOQUENT SOLUTION
TEXT:
ELOQUENT OFFERS COMPLETE END-TO-END SOLUTIONS FOR WEB-BASED RICH MEDIA
BUSINESS-TO-BUSINESS COMMUNICATIONS
ELOQUENT APPLICATIONS SERVER SOFTWARE
Content aggregation
Personalized delivery
Usage reporting
Bandwidth management
Integration with enterprise systems
Open architecture
ELOQUENT PRESENTER!
Browser-based player
ELOQUENT CONTENT PRODUCTION
Full motion video and audio
Presentation materials
Electronic documents
INTEGRATED CD-ROM DELIVERY
INTERNET/INTRANET
SALES CHANNEL COMMUNICATIONS
Customers use Eloquent solutions to educate their field personnel and
resellers about new products and marketing strategies. User have continued
on-demand access to the information.
EMPLOYEE COMMUNICATIONS
Eloquent solutions deliver senior management's messages to a globally
distributed workforce, including employees who joined the company after the
presentation was initially made.
SALES AND MARKETING PRESENTATIONS
Companies use Eloquent solutions on their Web sites to present corporate
information and to demonstrate their products to potential customers or
business partners.
CUSTOMER SUPPORT
Businesses use Eloquent solutions to deliver technical and product support
information to their customers on an ongoing basis.
<PAGE> 4
INSIDE FRONT COVER
GRAPHIC: SCREEN SHOT OF ELOQUENT DESKTOP PLAYER SOFTWARE
TEXT:
THE ELOQUENT PRESENTER! PLAYER SOFTWARE IS DESIGNED SPECIFICALLY FOR RICH MEDIA
BUSINESS-TO-BUSINESS COMMUNICATIONS
1. FULL MOTION VIDEO OF PRESENTER
2. SYNCHRONIZED SLIDES/DEMONSTRATIONS
3. SYNCHRONIZED TEXT TRANSCRIPT
4. HYPERLINKS TO OTHER WEB-BASED INFORMATION
5. FULL-FEATURED NAVIGATION TOOLS
- CONTENT SEARCH CAPABILITIES
- SPEED CONTROL
- BOOKMARKS
- SLIDE NAVIGATION
- TRANSLATED TRANSCRIPTS
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 4
Risk Factors................................................ 8
Special Note on Forward-Looking Statements.................. 16
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 29
Management.................................................. 41
Certain Transactions........................................ 56
Principal Stockholders...................................... 58
Description of Capital Stock................................ 61
Shares Eligible for Future Sale............................. 66
Underwriting................................................ 68
Legal Matters............................................... 70
Experts..................................................... 70
Where You Can Find More Information......................... 71
Index to Financial Statements............................... F-1
</TABLE>
---------------------------------------------
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is complete and accurate as
of the date on the front cover, but the information may have changed since that
date.
3
<PAGE> 6
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SUMMARY
The items in the following summary are described in more detail later in this
prospectus. This summary provides an overview of selected information and does
not contain all the information you should consider. Therefore, you should also
read the more detailed information contained in this prospectus, including the
financial statements and related notes.
ELOQUENT
Eloquent provides rich media solutions for business-to-business communications.
"Rich media" is the combination of video, audio, sophisticated graphics and text
into a synchronized, interactive, navigable and searchable format. We have
developed a unique and proprietary combination of software and services that we
use together, in what we call a "solutions platform," to create and deliver rich
media presentations, or "events," on behalf of our customers. These events can
be delivered over Web-based channels or CD-ROMs to be viewed by end users on
their personal computers. "Web-based channels" includes the World Wide Web,
internal computer networks known as "intranets," and computer networks known as
"extranets" that provide access to customers and business partners but not to
the public.
Our customers, which are primarily large companies, use our solutions to
communicate time-sensitive, business-critical information to target audiences in
an effective, consistent and cost-efficient manner. Customers use our events for
product launch briefings to sales teams, strategic and corporate alignment
presentations to employees, sales pitches to potential customers, employee
training seminars, business partner education programs and complex customer
support activities. Since our inception in March 1995, we have produced over 700
rich media events consisting of over 3,500 hours of content for more than 150
customers.
Business-to-business communications involve the dissemination of corporate
information to audiences both inside and outside an organization, including
employees, customers and business partners. The ability to communicate
effectively with these audiences represents an important competitive advantage
for companies under increasing pressure to operate more efficiently and to
better serve the needs of their customers. Companies disseminate information to
their target audiences through a variety of means and a number of different
technologies that, although useful, do not always provide the most efficient and
robust means of delivering communications.
The emergence of the Web as a global communications medium has enabled companies
to gather information, communicate and conduct business electronically over
Web-based channels. Furthermore, the development of streaming media technologies
and the proliferation of multimedia-capable computers has enabled the delivery
of continuous "streams" of video and audio content, including our rich media
events. Most streaming media applications, however, have been focused on
entertainment applications and do not provide for synchronization of multiple
media or sophisticated search and navigation capabilities. Additionally, a
number of technical challenges have limited the adoption of streaming media
technology for business-to-business communications. We believe our customers
recognize the benefits of outsourcing the production and delivery of rich media
events to Eloquent because we have specialized rich media expertise, the ability
to deliver a complete set of products and services, and the ability to achieve
economies of scale in producing rich media events.
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4
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Our platform includes all of the software and services our customers need to
deliver rich media business-to-business communications to their target
audiences. We have developed what we believe to be the most effective,
comprehensive and robust platform available for producing and delivering rich
media events for business-to-business communications that are:
- easier to produce and deliver -- we have the capability to produce rich
media events for our clients in a turnkey fashion. By "turnkey" we mean
that we do substantially all of the work to produce an event ourselves
from start to finish, rather than providing our customers with tools
with which to produce an event themselves. In addition, by delivering
rich media events through the Web, intranets, extranets and CD-ROMs, we
enable our customers to reach their entire target audience easily.
- more effective -- our rich media events provide users with
business-critical information in an interactive, searchable and
navigable format that we believe makes our events more engaging than
other forms of business-to-business communication, enhancing
comprehension and retention of the information.
- faster -- we enable our customers to disseminate critical information
rapidly due to our unique and efficient production process and Web-based
channel and CD-ROM delivery. Using our proprietary scheduling software
and production expertise, we can produce a typical four- to five-hour
rich media event in nine business days, compared to months for
alternative solutions.
- less expensive -- our solutions eliminate many of the costs associated
with traditional business presentations, including airline, hotel and
other travel expenses for event participants, facilities costs and the
opportunity costs associated with diverting employees from their work
schedules.
We believe that these benefits can result in a number of strategic and
competitive advantages for our customers, including accelerating the commercial
launch of new products, increasing employee productivity, strengthening
important business relationships and enhancing sales and marketing efforts.
Our objective is to enhance our leadership position in rich media solutions for
business-to-business communications. Key elements of our strategy include:
- further penetration of our existing customer base of large corporate
accounts;
- expansion into additional industries;
- identification of new applications for our solutions;
- expansion and enhancement of our existing set of customer solutions by
broadening the functionality of our platform and adding value-added
services; and
- expansion into international markets.
OFFICE LOCATION
Our principal executive offices are located at 2000 Alameda de las Pulgas, Suite
100, San Mateo, California 94403 and our telephone number is (650) 294-6500. Our
primary Web site is located at www.eloquent.com. Information contained on our
Web site is not part of this prospectus.
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5
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THE OFFERING
Common stock offered...................... 4,500,000 shares
Common stock and common stock warrants
outstanding after the offering............ 16,917,267 shares
Offering price............................ $ per share
Use of proceeds........................... We will receive net proceeds from
this offering of approximately
$ million. We intend to
use approximately $23.0 million of
these net proceeds for the
repayment of debt. We intend to
use $7.5 million to $9.0 million
of the remaining net proceeds to
increase the size of our sales and
marketing organizations, and $1.5
million to $2.0 million to expand
research and development efforts
in order to enhance the
functionality of our solutions
platform. We anticipate using the
remaining net proceeds for working
capital and for general corporate
purposes, including international
expansion. See "Use of Proceeds"
on page 17 for a more detailed
description of our plans to use
the net proceeds of this offering.
Proposed Nasdaq National Market symbol.... ELOQ
The common stock and common stock warrants outstanding after the offering set
forth above are based on the total number of shares of common stock outstanding
on December 31, 1999 and shares issuable upon exercise of warrants outstanding
on that date. These warrants are exercisable for 1,685,387 shares of common
stock. Of these warrants, warrants to purchase 14,450 shares will expire upon
the closing of this offering if not exercised by that time. The number of shares
and warrants set forth above excludes:
- 3,327,342 shares of common stock issuable upon exercise of stock options
outstanding as of December 31, 1999; and
- 2,162,849 shares of common stock reserved for issuance pursuant to
future grants of stock options made under our equity incentive plans and
our stock purchase plan.
Unless otherwise specifically stated, information contained in this prospectus:
- does not take into account the exercise of the underwriters'
over-allotment option to purchase up to 675,000 shares of our common
stock; and
- gives effect to the conversion of all of our outstanding preferred stock
into common stock upon the closing of this offering.
"Eloquent" and the Eloquent logo are trademarks of Eloquent, Inc. that are
registered in the United States and other jurisdictions. All other trademarks or
service marks appearing in this prospectus are trademarks or service marks of
the respective companies that use them.
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6
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SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
INCEPTION
(MARCH 29,
1995)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Content production services........... $ 55 $ 944 $ 3,519 $ 6,750 $ 8,412
Software licenses and
maintenance........................... -- -- 406 993 2,959
Professional services................. -- -- -- -- 1,121
-------- -------- -------- -------- --------
Total revenues................. 55 944 3,925 7,743 12,492
-------- -------- -------- -------- --------
Cost of revenues:
Content production services........... -- 405 3,717 5,730 5,021
Software licenses and maintenance..... -- -- 50 445 646
Professional services................. -- -- -- -- 1,496
-------- -------- -------- -------- --------
Total cost of revenues......... -- 405 3,767 6,175 7,163
-------- -------- -------- -------- --------
Gross margin.......................... 55 539 158 1,568 5,329
Operating expenses:
Sales and marketing................... 81 846 3,785 6,812 8,856
Research and development.............. 86 659 845 1,510 1,959
General and administrative............ 208 597 1,876 2,211 3,499
Stock-based compensation.............. -- -- -- 992 5,756
-------- -------- -------- -------- --------
Total operating expenses....... 375 2,102 6,506 11,525 20,070
-------- -------- -------- -------- --------
Loss from operations......... (320) (1,563) (6,348) (9,957) (14,741)
Interest expense and other charges...... 1 (21) (100) (259) (2,175)
Interest income and other income........ -- 49 79 208 301
-------- -------- -------- -------- --------
Net loss................................ $ (319) $ (1,535) $ (6,369) $(10,008) $(16,615)
======== ======== ======== ======== ========
Net loss per share, basic and diluted... $ (1.33) $ (1.97) $ (4.59) $ (4.74) $ (5.47)
======== ======== ======== ======== ========
Weighted average shares, basic and
diluted............................... 240 781 1,388 2,111 3,036
======== ======== ======== ======== ========
Pro forma net loss per share, basic and
diluted............................... $ (1.63)
========
Pro forma weighted average shares, basic
and diluted........................... 10,195
========
</TABLE>
The following table summarizes our balance sheet as of December 31, 1999:
- on an actual basis; and
- on a pro forma basis to reflect the sale of 4,500,000 shares of common
stock offered hereby at an assumed initial offering price of $11.00 per
share, after deducting estimated underwriting discounts, commissions and
offering expenses, the application of $20.0 million of the net proceeds
from the offering to repay our subordinated notes and the application of
$3.0 million of the net proceeds from the offering to repay borrowings
under our existing line of credit.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL PRO FORMA
------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $17,174 $38,931
Working capital............................................. 12,706 37,463
Total assets................................................ 25,265 45,354
Long-term obligations and subordinated notes................ 9,254 777
Total stockholders' equity.................................. 7,688 39,256
</TABLE>
Long-term obligations and subordinated notes presented above in the "Actual"
column are net of $11.5 million of unamortized debt discount. Total
stockholders' equity presented above in the "Pro Forma" column reflects a loss
on extinguishment of debt of $8.0 million. For more detail on the accounting
treatment of our subordinated notes and their repayment, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 21.
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7
<PAGE> 10
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the risks described below as well as the other information in
this prospectus before investing in our common stock. Our business, financial
condition or operating results could be seriously harmed by any of the following
risks. In addition, the trading price of our common stock could decline due to
any of the following risks, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT MAY BE DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS AND PROSPECTS.
Eloquent was formed in March 1995. Thus, we have a limited operating history,
which may make it difficult for you to evaluate our business. In part because we
are subject to the risks, expenses and uncertainties frequently encountered by
companies in new and rapidly evolving technology and Web-related markets, we
cannot be sure that our business model and future operating performance will
yield the results that we seek. Moreover, because these markets are constantly
changing, we may need to change our business model to adapt. When making your
investment decision, you should consider the risks, expenses and uncertainties
that we may encounter as an early-stage company. Among other things, we have not
yet proven our ability, on a sustained basis, to achieve the following:
- maintain and expand our customer base;
- identify new applications for our existing products;
- expand and enhance our customer solutions;
- maintain market prices for our solutions despite competition;
- effectively integrate any acquired businesses or technologies with our
operations;
- prevent technologies we use in our operations from failing or operating
poorly; and
- identify, attract, retain and motivate qualified personnel.
We may not be successful in achieving these objectives on a long-term basis. If
we are unable to do so, our business, financial condition and operating results
would suffer.
WE EXPECT TO CONTINUE TO INCUR LOSSES, AND AS A RESULT WE MAY NOT ACHIEVE
PROFITABILITY.
We have not achieved profitability on a quarterly or annual basis to date and we
anticipate that we will continue to incur net losses for the foreseeable future.
Our failure to achieve profitability could deplete our current capital resources
and reduce our ability to raise additional capital. We incurred net losses of
approximately $6.4 million in 1997, $10.0 million in 1998 and $16.6 million in
1999. As of December 31, 1999, we had an accumulated deficit of approximately
$34.8 million. We expect to increase our operating expenses significantly,
expand our sales and marketing operations and continue to develop and expand our
service offerings. If these increased expenses are not accompanied by increased
revenues, we will not achieve profitability.
In addition, our October 1999 sale of subordinated notes and warrants will
result in accounting charges that will inhibit our ability to achieve
profitability in the near term. Upon repayment of the notes when this offering
is consummated, we must recognize an extraordinary loss on extinguishment of
debt of up to $8.0 million. See "Management's Discussion and Analysis of
Financial Condition and Operations -- Overview" beginning on page 21 for a more
detailed description of the accounting consequences of the financing.
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OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, AND AN
UNANTICIPATED DECLINE IN REVENUES MAY CAUSE OUR STOCK PRICE TO FALL.
In some future quarter, our operating results may be below the expectations of
public market analysts and investors, which would cause the price of our common
stock to fall. The factors that may cause our quarterly operating results to
fall short of expectations include:
- delays of large customer orders, which could prevent us from recognizing
revenues until later quarters;
- seasonal trends in sales of our solutions, which could result in lower
quarterly revenues in the fourth quarter;
- downward pressure on prices paid by our customers, as a result of
competition or other factors, which could reduce our quarterly revenues
even if we maintain or increase the number of sales;
- new product and service introductions by our competitors, which could
cause our competitors to capture revenues that we otherwise could have
received;
- increased costs incurred as we expand operations, increase our marketing
efforts or undertake other initiatives, which could reduce our profit
margin if not matched by a corresponding growth in revenues; and
- technical difficulties or system downtime affecting the Web generally or
the operation of our network or servers, which could cause customer
dissatisfaction and reduce our revenues.
We have experienced and expect to continue to experience seasonality in our
business. Due to the marketing cycles of our customers, sales of our content
production services generally tend to be lower in the fourth calendar quarter of
each year. Because the market for rich media business-to-business communications
using the Web is still new, additional seasonal and other patterns in the usage
of our products and services may emerge as the market matures.
Our quarterly operating results may fluctuate significantly in the future
because of a variety of factors, many of which are outside our control. As a
result, operating results for any particular quarter may not be indicative of
future operating results.
WE DEPEND ON A LIMITED NUMBER OF LARGE CUSTOMERS FOR A MAJORITY OF OUR REVENUES,
SO THE LOSS OF OR DELAY IN PAYMENT FROM ONE OR A SMALL NUMBER OF CUSTOMERS COULD
HAVE A LARGE IMPACT ON OUR REVENUES AND OPERATING RESULTS.
If we were to lose a key customer, our business, financial condition and
operating results would suffer. In addition, if a key customer fails to pay
amounts it owes us, or does not pay those amounts on time, our revenues and
operating results would suffer. A limited number of large customers have
accounted for a majority of our revenues and will continue to do so for the
foreseeable future. For example, our top 15 customers during the year ended
December 31, 1999 accounted for a majority of our revenues during that period.
Due to our limited number of large customers, the cancellation or delay of a
customer order during a given quarter is likely to significantly reduce revenues
for the quarter.
THE LENGTH OF OUR SALES CYCLE IS UNCERTAIN AND THEREFORE COULD CAUSE SIGNIFICANT
VARIATIONS IN OUR OPERATING RESULTS.
Because our customers are typically large corporations, the length of our sales
cycle -- the time between an initial customer contact and completing a
sale -- can be unpredictable. The time between the date of our initial contact
with a potential new customer and the execution of a sales contract with that
customer ranges from less than two weeks to more than three months, depending on
the size of the customer, the application of our solution and other factors. Our
sales cycle is also subject to delays as a result of customer-specific factors
over which we have little or no control, including budgetary constraints and
9
<PAGE> 12
internal acceptance procedures. During the sales cycle, we may expend
substantial sales and management resources without generating corresponding
revenues. Our expense levels are relatively fixed in the short term and are
based in part on our expectations of our future revenues. As a result, any delay
in our sales cycle could cause significant variations in our operating results,
particularly because a relatively small number of customer orders represents a
large portion of our revenues.
WE MAY NOT BE ABLE TO INCREASE THE SIZE OF OUR SALES ORGANIZATION, WHICH WOULD
PREVENT US FROM ACHIEVING THE INCREASED SALES VOLUME NECESSARY FOR US TO ACHIEVE
PROFITABILITY.
In order to increase our revenues, we must recruit, train and retain a
significant number of sales personnel. If we do not do so, we will not be able
to increase our sales sufficiently to achieve profitability. In the past, we
have had difficulty recruiting and retaining qualified sales personnel. We
cannot guarantee that we will not encounter similar difficulties in the future.
Competition for personnel, particularly in the San Francisco Bay Area, where we
are located, is intense. Many of the companies competing with us for qualified
sales personnel are larger and more established than we are and have greater
financial resources than we do. This may make it even more difficult for us to
recruit and retain such personnel.
Our operational history suggests that the level of sales we achieve is generally
determined by the number of sales personnel we employ. In 1998 and early 1999,
we suffered a significant decline in sales to customers in the western United
States primarily due to attrition in our West Coast sales force. If we
experience turnover in our sales force in the future, our business, financial
condition and operating results will suffer. Newly hired sales personnel
generally do not become fully productive until they have worked for at least two
quarters. Because of the time required to recruit new sales personnel and for
them to become fully productive, an unanticipated loss of sales personnel could
result in an underproductive sales organization and reduced sales for a
significant period of time.
WE FACE INTENSE COMPETITION FOR PERSONNEL, WHICH COULD IMPAIR OUR ABILITY TO
RECRUIT AND RETAIN KEY PERSONNEL.
Our ability to develop, market and sell our solutions and to maintain our
competitive position depends on our ability to attract, retain and motivate
highly skilled technical, sales and marketing and other personnel. There is a
limited number of people with the necessary technical skills and understanding,
and competition for their services, particularly in the San Francisco Bay Area,
is intense. If we fail to recruit or retain these personnel, our ability to
develop, market and sell our solutions will suffer.
WE DEPEND ON TECHNOLOGY LICENSED FROM OTHER COMPANIES. WE MAY NOT BE ABLE TO
RENEW THESE LICENSES AS THEY EXPIRE FROM TIME TO TIME, AND WE MAY NOT BE ABLE TO
REPLACE THE LICENSED TECHNOLOGY WITHOUT SIGNIFICANT EXPENSE OR ENGINEERING
EFFORTS, IF AT ALL.
Our desktop player software, which runs on an end user's personal computer to
allow the user to view an event, and our Enterprise Communications server
product, which enables customers to deliver events to their target audiences
through Web-based channels, include technologies that other companies have
licensed to us. If we are unable to maintain or renew these licenses when they
expire, we would be forced to remove these technologies from our products and
develop or license comparable technologies. This could require additional
license fees or extensive engineering efforts, or significantly decrease our
products' functionality, either of which could harm our business, financial
condition and operating results.
In addition, we have developed our products to integrate well with the Microsoft
Windows NT operating system, the operating system used by most of our customers
to run our software. If the Windows NT operating system is changed by Microsoft
so that it no longer integrates well with our products, or if Windows NT
experiences technical problems, the operation of our software could be impaired.
In that
10
<PAGE> 13
event, our business, financial condition and operating results could be harmed.
Microsoft is not obligated to ensure that Windows NT integrates well with our
products.
We may be required to obtain licenses from third parties to refine, develop,
market and deliver new products. We may be unable to obtain any needed license
on commercially reasonable terms or at all and rights granted under any licenses
may not be valid and enforceable.
WE OPERATE IN MARKETS THAT WILL BECOME INCREASINGLY COMPETITIVE, WHICH COULD
LEAD TO DECREASING PRICES AND REDUCED PROFITABILITY.
The market for rich media business-to-business communications solutions is new
and rapidly evolving. We expect that competition will intensify. Increased
competition could lead to decreasing prices and profitability. We compete with
companies that offer components of a rich media business-to-business
communications solution, including:
- providers of rich media software tools;
- multimedia content production and delivery companies;
- companies that provide content hosting services, which include storing,
delivering and tracking the distribution of content; and
- traditional business-to-business communications and learning solution
companies that offer live meeting and seminar services.
In addition, our customers and potential customers represent a source of
competition to the extent they determine to develop in-house
business-to-business communications solutions.
Many of our current and potential competitors have longer operating histories,
significantly greater financial, technical and marketing resources, greater name
recognition and larger existing customer bases than we do. These competitors may
also be able to undertake more extensive marketing campaigns for their brands
and services, adopt more aggressive pricing policies and make more attractive
offers to potential employees and partners. We may be unable to compete
successfully against current or future competitors and competitive pressures may
cause our business to suffer.
MOST OF OUR MANAGEMENT TEAM HAS ONLY RECENTLY JOINED ELOQUENT AND HAS LITTLE
EXPERIENCE WORKING TOGETHER, WHICH COULD LIMIT THE TEAM'S EFFECTIVENESS IN
OPERATING OUR BUSINESS.
Our management team does not have significant experience working together at
Eloquent, because most members of our management team have been employed by
Eloquent for a short period of time. This could prevent or limit our management
team's ability to work together effectively. The failure of our new management
team to work together effectively could delay efficient decision-making and
execution of business objectives, which would negatively impact our business,
financial condition and operating results. See "Management -- Executive
Officers, Directors and Other Management Employees" beginning on page 41 for
additional information about our management team.
WE MAY NOT BE ABLE TO ADEQUATELY MANAGE OUR ANTICIPATED GROWTH, WHICH COULD
IMPAIR OUR EFFICIENCY AND NEGATIVELY IMPACT OUR OPERATIONS.
We may not be able to manage our growth effectively, which could impair our
efficiency, reduce the quality of our solutions, impair further growth and harm
our business, financial condition and operating results. If we do not
effectively manage this growth, we will not be able to operate efficiently or
maintain the quality of our products. Either outcome would harm our operating
results. In the past, we have experienced rapid growth, and we plan to continue
to expand our operations. This expansion is expensive
11
<PAGE> 14
and places a significant strain on our personnel and other resources. To manage
our expanded operations effectively, we will need to further improve our
operational, financial and management systems and successfully hire, train,
motivate and manage our employees.
WE PLAN TO EXPAND OUR BUSINESS INTO INTERNATIONAL MARKETS, IN WHICH WE HAVE NO
PRIOR EXPERIENCE. INTERNATIONAL EXPANSION WILL REQUIRE SIGNIFICANT RESOURCES AND
WILL SUBJECT US TO NEW RISKS THAT MAY LIMIT OUR RETURN FROM OUR INTERNATIONAL
SALES EFFORTS.
One of our strategies to increase our sales sufficiently to achieve
profitability is to add an international sales force and operations. This
expansion will involve a significant use of management and financial resources,
particularly because we have no previous experience with international
operations. We may not be successful in creating international operations or
sales. In addition, international business activities are subject to a variety
of risks, including the adoption of laws, currency fluctuations, actions by
third parties and political and economic conditions, any of which could restrict
or eliminate our ability to do business in foreign jurisdictions.
WE WILL DEPEND ON REVENUES FROM OUR CONTENT HOSTING BUSINESS, WHICH WILL SUFFER
IF OUR HOSTING EQUIPMENT AND SOFTWARE EXPERIENCE SYSTEM FAILURES.
Our future success depends in part on our ability to successfully host our
customers' content on our servers. Our ability to host content will depend on
the efficient and uninterrupted operation of our computer and communications
hardware and software systems. We do not have fully redundant content hosting
systems, a formal disaster recovery plan or alternative providers of hosting
services. We also may not have business interruption insurance sufficient to
compensate us for losses that may occur. All of our content hosting servers are
located at Concentric Network Corporation's facilities in Cupertino, California.
These systems and operations are vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures or similar
events. They are also subject to computer viruses, break-ins, sabotage,
intentional acts of vandalism and similar misconduct. Despite any precautions we
may take, the occurrence of a natural disaster or other unanticipated problems
at the Concentric Network facility could result in interruptions in our content
hosting service. In addition, the failure by Concentric Network to provide the
data communications capacity that we require could result in interruptions in
our content hosting service. Any damage to or failure of our content hosting
systems could result in interruptions in our content hosting service. System
interruptions will reduce our revenues and profits, and our future revenues and
profits will be harmed if our customers believe that our content hosting system
is unreliable.
POTENTIAL ERRORS IN OUR SOFTWARE COULD HARM OUR REPUTATION AND REDUCE OUR SALES
AND PROFITABILITY.
Software defects discovered after we release our software could result in loss
of revenues, delays in market acceptance and harm to our reputation. Any product
liability claim against us, if successful and of sufficient magnitude, could
harm our profitability and future sales. Our software has in the past contained,
and may in the future contain, "bugs" or errors. Although we typically design
our customer license agreements to contain provisions that limit our exposure to
potential product liability claims, we cannot guarantee that contractual
limitations of liability would be enforceable or would otherwise protect us from
liability for damages to a customer resulting from a defect in our software.
Even though we maintain insurance that covers damages arising from the
implementation and use of our software, we cannot assure you that our insurance
would cover or be sufficient to cover any product liability claims against us.
THE FAILURE OF OUR PRODUCTS AND COMPUTER SYSTEMS TO BE YEAR 2000 COMPLIANT WOULD
HURT OUR BUSINESS.
Our business would suffer if our products and the computer systems we use, as
well as the computer systems used by our customers, users and vendors, do not
correctly process date-sensitive information in the year 2000 and beyond. We
believe that our products and critical business systems accurately process
12
<PAGE> 15
year 2000 date information, but there may be parts of our products and business
systems and aspects of the year 2000 issue, including the potential cost of
addressing the year 2000 issue, that we have failed to consider or have not yet
encountered.
WE HAVE IN THE PAST EXPERIENCED RETURNS OF OUR PRODUCTS, AND AS OUR BUSINESS
GROWS WE MAY EXPERIENCE INCREASED RETURNS, WHICH COULD HARM OUR REPUTATION AND
NEGATIVELY IMPACT OUR OPERATING RESULTS.
In the past, some of our customers have returned our rich media events to us
because they felt that modifications were required for the product to meet
project specifications and the customer's requirements. It is likely that we
will experience some level of returns in the future and, as our business grows,
the amount of returns may increase despite our efforts to minimize returns.
Also, returns may adversely affect our relationship with affected customers and
may harm our reputation. This could cause us to lose potential customers and
business in the future. We maintain a reserve for future returns that we believe
is adequate given our historical level of returns. If returns increase, however,
our reserve may not be sufficient and our operating results would be negatively
affected.
THE FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY IMPAIR OUR COMPETITIVE
POSITION.
Our copyrights, service marks, trademarks, trade secrets, proprietary technology
and similar intellectual property are critical to our success. If we are unable
to adequately protect our rights from infringement by competitors or others, or
from misuse by our licensees, the competitive advantage that our rights provide
will be weakened.
We rely on trademark and copyright law, trade secret protection and
confidentiality and license agreements with our employees and independent
contractors to protect our proprietary rights. We strategically pursue the
registration of trademarks and service marks in the United States and abroad.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our products and services are made
available.
We have licensed in the past, and expect to license in the future, certain of
our proprietary rights to third parties. The steps taken by us to protect our
proprietary rights may not be adequate. Although we attempt to ensure that the
quality of our brand is maintained by these licensees, licensees may take
actions that may harm the value of our proprietary rights or reputation.
WE MAY BECOME SUBJECT TO INTELLECTUAL PROPERTY LITIGATION IN THE FUTURE THAT
COULD CAUSE US TO INCUR SIGNIFICANT EXPENSE AND COULD REQUIRE US TO ALTER OUR
PRODUCTS.
We may be subject to legal proceedings and claims associated with our
intellectual property from time to time in the future. These claims, even if
without merit, could cause us to expend significant financial and managerial
resources. Further, if these claims are successful, we may be required to change
our trademarks, alter our copyrighted material or pay financial damages, any of
which could harm our business. Third parties may infringe or misappropriate our
copyrights, trademarks or similar proprietary rights in the future. In such
event, we may be forced to pursue infringement claims against such third
parties. These claims also could cause us to expend significant financial and
managerial resources.
13
<PAGE> 16
RISKS RELATED TO THE INTERNET
OUR FUTURE SUCCESS DEPENDS ON CONTINUED GROWTH IN USE OF THE WORLD WIDE WEB FOR
BUSINESS-TO-BUSINESS COMMUNICATIONS.
Our business could suffer if Web usage does not continue to grow. Web usage may
be inhibited for a number of reasons, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service;
- lack of availability of cost-effective and high-speed service; and
- changes in government regulation of the Web.
If Web usage grows, the Web infrastructure may not be able to support the
demands placed on it by this growth or its performance and reliability may
decline. In addition, future outages and other interruptions occurring
throughout the Web could lead to decreased use of our products and would
therefore harm our business.
IF WE ARE UNABLE TO KEEP UP WITH THE RAPID TECHNOLOGICAL CHANGES THAT
CHARACTERIZE THE WEB, OUR BUSINESS WOULD SUFFER.
Our future success will depend on our ability to continually improve our
solutions. To do so, we will need to continually enhance our solutions in
response to the rapid technological developments, evolving industry standards
and user demands, and frequent new product introductions and enhancements that
characterize the market for Web products and services. In the event new
multimedia-enabling technologies are developed and widely adopted, we may be
required to make fundamental and costly changes in our technology. We may not be
able to make these enhancements or changes in a cost-effective manner, fast
enough to keep up with our competitors or at all. In this event, our business
would suffer.
RISKS RELATED TO THIS OFFERING
OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO USE THE PROCEEDS OF THIS OFFERING
AND THEIR USES MAY NOT YIELD A FAVORABLE RETURN.
Most of the net proceeds of this offering have not been allocated for specific
uses. Our management will have broad discretion to spend the proceeds from this
offering in ways with which stockholders may not agree. The failure of our
management to use these funds effectively could result in unfavorable returns.
This could have significant adverse effects on our financial condition and could
cause the price of our common stock to decline.
THERE MAY BE NO ACTIVE TRADING MARKET IN OUR COMMON STOCK AFTER THIS OFFERING,
WHICH MAY MAKE IT DIFFICULT FOR YOU TO RESELL YOUR SHARES.
There has been no public trading market for our common stock prior to this
offering. If no public trading market for our common stock develops, or if this
market is not active or sustained, it may be difficult for you to resell your
shares at a price at or above the initial public offering price. We cannot be
sure that an active trading market will develop upon completion of this offering
or, if one does develop, that it will be sustained.
14
<PAGE> 17
OUR STOCK PRICE IS LIKELY TO BE EXTREMELY VOLATILE, WHICH COULD CAUSE YOU TO
LOSE ALL OR A PART OF YOUR INVESTMENT AND MAY RESULT IN COSTLY AND DISTRACTING
SECURITIES LITIGATION.
The market price of our common stock is likely to be extremely volatile. In the
past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
such a company. Securities litigation could result in substantial costs and a
diversion of our management's attention and resources. The stocks of Web-related
and technology companies like ours have experienced extreme price and volume
fluctuations in recent months, many of which fluctuations appear unrelated to
the companies' business, financial condition or operating results. Although the
market price of our stock will in part be based on our business, financial
condition and operating results, we expect that it will also be affected to a
significant degree by these industry-wide price and volume fluctuations.
OUR DIRECTORS AND EXECUTIVE OFFICERS OWN A MAJORITY OF OUR COMMON STOCK, WHICH
ENABLES THEM TO CONTROL MATTERS DECIDED BY THE STOCKHOLDERS.
After this offering, our directors and executive officers and their affiliates
will beneficially own a majority of our outstanding common stock. As a result of
their beneficial ownership, our directors and executive officers, acting alone
or with others, will be able to control most matters requiring stockholder
approval, including the election of directors and approval of significant
transactions. This concentration of ownership may also have the effect of
delaying or preventing a change in control of Eloquent. This could prevent our
stockholders from realizing a premium over the market price for their shares or
from bringing about a change in management.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND THE DELAWARE GENERAL
CORPORATION LAW MAY INHIBIT A TAKEOVER OF ELOQUENT, EVEN IF THE TAKEOVER WOULD
BE BENEFICIAL TO ELOQUENT STOCKHOLDERS.
Provisions in our certificate of incorporation and bylaws and the Delaware
General Corporation Law could make it more difficult for a third party to
acquire us, even if a change in control would be beneficial to our stockholders.
These provisions include:
- the requirement that a special meeting of stockholder not be called by
stockholders, but instead may be called only by our board of directors,
Chairman of the Board, Chief Executive Officer or President; and
- the ability of our board of directors to issue preferred stock without
stockholder approval.
Furthermore, Section 203 of the Delaware General Corporation Law prohibits a
stockholder owning 15% or more of our outstanding shares from acquiring Eloquent
unless it receives board approval of the transaction or unless 66 2/3% of our
outstanding shares not owned by this stockholder approve the transaction. See
"Description of Capital Stock -- Delaware Anti-Takeover Law and Certain Charter
and Bylaw Provisions" beginning on page 63 for a more detailed description of
the provisions in our charter documents and the Delaware General Corporation Law
that may inhibit a takeover of Eloquent.
THE LARGE NUMBER OF SHARES THAT MAY BE RESOLD IN THE PUBLIC MARKET AFTER THIS
OFFERING COULD CAUSE OUR STOCK PRICE TO DECLINE.
As our shares become eligible for public resale, the market price of our common
stock may drop if the holders of these shares sell them or are perceived by the
market as intending to sell them. Most of the shares we will have outstanding or
issuable upon exercise of options or warrants after this offering will become
eligible for public resale 180 days after the closing of this offering. See
"Shares Eligible for Future Sale" beginning on page 66 for a more detailed
description of the eligibility of the outstanding shares of our common stock for
resale in the public market after this offering.
15
<PAGE> 18
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate to
our future plans, objectives and expectations and our current intentions. In
some cases, you can identify these statements by the use of the words such as
"anticipates," "believes," "may," "should," "will," "could," "plans," "expects,"
"future," "intends" and similar expressions. Each of these forward-looking
statements involves risks and uncertainties. In addition to forward-looking
statements made by us, this prospectus also contains forward-looking statements
attributed to certain third parties. Our actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including the risks faced by us described above and elsewhere in this
prospectus.
16
<PAGE> 19
USE OF PROCEEDS
We estimate that our net proceeds from the offering will be approximately $44.5
million, at an assumed public offering price of $11.00 per share and after
deducting the estimated underwriting discount and commissions and estimated
offering expenses. If the underwriters' over-allotment option is exercised in
full, we estimate that the net proceeds will be approximately $51.4 million.
We plan to use approximately $3.0 million of the net proceeds of this offering
to repay existing indebtedness owed under our existing secured credit facility
and approximately $20.0 million of the proceeds to repay the subordinated notes
we issued in October 1999. The secured credit facility bears interest at prime
plus 3.5% per annum, compounded annually, and is due in January 2001. The
subordinated notes bear interest at 12% per annum, compounded quarterly, and are
due upon the closing of this offering. We plan to use $7.5 million to $9.0
million of the remaining net proceeds to increase the size of our sales and
marketing organization, and $1.5 million to $2.0 million to expand research and
development efforts in order to enhance the functionality of our solutions
platform. We anticipate using the remaining net proceeds for working capital and
for general corporate purposes, including international expansion. In addition,
we may use a portion of the net proceeds from this offering to make strategic
acquisitions of companies or technology. We are not currently a party to any
discussions with respect to any acquisitions.
As of the date of this prospectus, other than with respect to the debt repayment
described above, we have no specific plan detailing the expected amount of the
proceeds to be used for each of the purposes described above and cannot specify
with certainty the particular uses for the net proceeds to be received upon
completion of this offering. The actual amounts and timing of these expenditures
will vary significantly depending on a number of factors including, but not
limited to, the amount of cash used in or generated by our operations. Our
management will have discretion over the use and investment of the net proceeds
of this offering. Pending such uses, we intend to invest the net proceeds from
this offering in short-term, interest-bearing, investment grade securities until
they are used.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
intend to retain future earnings, if any, to finance the expansion of our
business and we do not expect to pay any cash dividends in the foreseeable
future. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our financial
condition, operating results and capital requirements. Additionally, the terms
of our existing secured credit facility prohibit us from paying cash dividends
on our common stock.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth our total capitalization as of December 31, 1999:
- on an actual basis; and
- on a pro forma basis to reflect (1) an increase in the authorized number
of shares of common and preferred stock, (2) the conversion of all of
our outstanding preferred stock into common stock upon the closing of
this offering, (3) the 4,500,000 shares of common stock offered hereby
at an assumed initial offering price of $11.00 per share, after
deducting estimated underwriting discounts, commissions and offering
expenses, and (4) the application of $20.0 million of the net proceeds
from the offering to repay our subordinated notes and the application of
$3.0 million of the net proceeds from the offering to repay borrowings
under our existing line of credit.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL PRO FORMA
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations and subordinated notes................ $ 9,254 $ 777
-------- --------
Preferred stock, $0.001 par value: 9,938,844 shares
authorized actual; 10,000,000 shares authorized pro forma;
7,159,009 shares issued and outstanding actual; no shares
issued and outstanding, pro forma......................... 7 --
Common stock, $0.001 par value: 30,000,000 shares authorized
actual; 40,000,000 shares authorized pro forma; 3,572,871
shares issued and outstanding actual; 15,231,880 shares
issued and outstanding pro forma.......................... 3 15
Additional paid-in capital.................................. 52,089 91,620
Unearned stock-based compensation........................... (9,564) (9,564)
Accumulated deficit......................................... (34,847) (42,815)
-------- --------
Total stockholders' equity........................ 7,688 39,256
-------- --------
Total capitalization.............................. $ 16,942 $ 40,033
======== ========
</TABLE>
The above information excludes:
- 3,327,342 shares of common stock issuable upon exercise of stock options
outstanding as of December 31, 1999 with a weighted average exercise
price of $1.80 per share;
- 2,162,849 shares of common stock reserved for issuance pursuant to
future grants of stock options made under our equity incentive plans and
our stock purchase plan; and
- 1,685,387 shares of common stock issuable upon exercise of warrants
outstanding with a weighted average exercise price of $0.36 per share,
14,450 of which will expire upon the closing of this offering if not
exercised by that time.
Long-term obligations and subordinated notes presented above in the "Actual"
column are net of $11.5 million of unamortized debt discount. Total
stockholders' equity presented above in the "Pro Forma" column reflects a loss
on extinguishment of debt of $8.0 million. For more detail on the accounting
treatment of our subordinated notes and their repayment, see "Management's
Division and Analysis of Financial Condition and Results of Operations"
beginning on page 21.
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<PAGE> 21
DILUTION
Our pro forma net tangible book value at December 31, 1999 was approximately
$5.7 million, or $0.53 per share. Pro forma net tangible book value per share is
determined by dividing our pro forma tangible net worth, which is our total
tangible assets less total liabilities, by the number of shares of outstanding
common stock, after giving effect to:
- an increase in the authorized number of shares of common and preferred
stock; and
- the conversion of all of our outstanding preferred stock into common
stock upon the closing of this offering.
Assuming the sale of the 4,500,000 shares of common stock offered hereby at an
assumed offering price of $11.00 per share, after deducting estimated
underwriting discounts, commissions and offering expenses payable by us, the
application of $20.0 million of net proceeds from this offering to repay the
subordinated notes, and the application of $3.0 million of net proceeds from
this offering to repay borrowing under our existing line of credit, our pro
forma, as adjusted net tangible book value as of December 31, 1999 would have
been approximately $38.9 million, or $2.55 per share. This represents an
immediate increase in the pro forma net tangible book value per share of $2.02
per share to existing stockholders and an immediate dilution of $8.45 per share
to new investors purchasing shares at the initial public offering price. If the
initial public offering price is higher or lower, the dilution to new investors
will be greater or less. The following table illustrates that new investors
could pay as much as $11.00 per share in this offering to acquire shares of
Eloquent that each have a net tangible book value of $2.55, based on the pro
forma per share value of Eloquent's tangible assets after subtracting its
liabilities:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share as of December
31, 1999............................................... $0.53
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 2.02
-----
Pro forma, as adjusted net tangible book value per share
after the offering........................................ 2.55
------
Dilution per share to new investors......................... $ 8.45
======
</TABLE>
The following table summarizes, on a pro forma basis as of December 31, 1999,
the number of shares of common stock purchased from us, the total consideration
provided to us and the average price per share provided by existing stockholders
and new investors after giving effect to the events described in the pro forma
net tangible book value calculation noted above. The calculation is based on an
assumed initial public offering of $11.00 per share, before deducting the
estimated underwriting discounts, commissions and offering expenses. The table
illustrates that, while investors purchasing shares in this offering will have
contributed approximately 68% of the total amount of capital contributed by
Eloquent stockholders, they will own only approximately 30% of the outstanding
shares of common stock of Eloquent.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 10,731,880 70.5% $22,897,820 31.6% $ 2.13
New investors........................... 4,500,000 29.5 49,500,000 68.4 $11.00
---------- ----- ----------- -----
Total......................... 15,231,880 100.0% $72,397,820 100.0%
========== ===== =========== =====
</TABLE>
The foregoing discussion and tables are based on the total number of shares
outstanding on December 31, 1999 and exclude:
- 3,327,342 shares of common stock issuable upon exercise of stock options
outstanding as of December 31, 1999 with a weighted average exercise
price of $1.80 per share;
- 2,162,849 shares of common stock reserved for issuance pursuant to
future grants of stock options made under our equity incentive plans and
our stock purchase plan; and
- 1,685,387 shares of common stock issuable upon exercise of warrants
outstanding with a weighted average exercise price of $0.36 per share,
14,450 of which will expire upon the closing of this offering if not
exercised by that time.
To the extent that any of these options or warrants are exercised, new investors
will suffer additional dilution.
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<PAGE> 22
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected Eloquent statement of operations data for the years ended
December 31, 1997, 1998 and 1999 and the balance sheet data at December 31, 1998
and 1999 are derived from the financial statements of Eloquent that have been
audited by PricewaterhouseCoopers LLP, independent accountants, and are included
elsewhere in this prospectus. The Eloquent statement of operations data for the
period from March 29, 1995, our date of inception, to December 31, 1995 and for
the year ended December 31, 1996 and the balance sheet data at December 31,
1995, 1996 and 1997 are derived from the financial statements of Eloquent that
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
are not included in this prospectus. The results of operations for the year
ended December 31, 1999, or any other period are not necessarily indicative of
our future results. The selected financial data should be read in conjunction
with our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
INCEPTION
(MARCH 29, 1995)
THROUGH YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------
1995 1996 1997 1998 1999
---------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Content production services.............. $ 55 $ 944 $ 3,519 $ 6,750 $ 8,412
Software licenses and maintenance........ -- -- 406 993 2,959
Professional services.................... -- -- -- -- 1,121
-------- -------- -------- -------- --------
Total revenues.................... 55 944 3,925 7,743 12,492
-------- -------- -------- -------- --------
Cost of revenues:
Content production services.............. -- 405 3,717 5,730 5,021
Software licenses and maintenance........ -- -- 50 445 646
Professional services.................... -- -- -- -- 1,496
-------- -------- -------- -------- --------
Total cost of revenues............ -- 405 3,767 6,175 7,163
-------- -------- -------- -------- --------
Gross margin............................. 55 539 158 1,568 5,329
-------- -------- -------- -------- --------
Operating expenses:
Sales and marketing...................... 81 846 3,785 6,812 8,856
Research and development................. 86 659 845 1,510 1,959
General and administrative............... 208 597 1,876 2,211 3,499
Stock-based compensation................. -- -- -- 992 5,756
-------- -------- -------- -------- --------
Total operating expenses.......... 375 2,102 6,506 11,525 20,070
-------- -------- -------- -------- --------
Loss from operations............ (320) (1,563) (6,348) (9,957) (14,741)
Interest expense and other charges......... 1 (21) (100) (259) (2,175)
Interest income and other income........... -- 49 79 208 301
-------- -------- -------- -------- --------
Net loss................................... $ (319) $ (1,535) $ (6,369) $(10,008) $(16,615)
======== ======== ======== ======== ========
Net loss per share, basic and diluted...... $ (1.33) $ (1.97) $ (4.59) $ (4.74) $ (5.47)
======== ======== ======== ======== ========
Weighted average shares, basic and
diluted.................................. 240 781 1,388 2,111 3,036
======== ======== ======== ======== ========
Pro forma net loss per share, basic and
diluted.................................. $ (1.63)
========
Pro forma weighted average shares, basic
and diluted.............................. 10,195
========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1995 1996 1997 1998 1999
---- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................ $216 $2,280 $4,016 $ 6,661 $17,174
Working capital.......................................... 120 2,124 2,551 4,164 12,706
Total assets............................................. 390 3,124 8,073 11,461 25,265
Long-term obligations and subordinated notes............. 61 189 1,271 1,254 9,254
Total stockholders' equity............................... 184 2,455 3,589 5,356 7,688
</TABLE>
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the accompanying notes appearing elsewhere in this prospectus.
The following discussion contains forward-looking statements that involve risks
and uncertainties. These statements relate to our future plans, objectives,
beliefs, expectations and intentions. These statements may be identified by the
use of words such as "expects," "anticipates," "believes," "intends," "plans"
and similar expressions. Our actual results may differ significantly from those
projected in the forward-looking statements. Factors that may cause future
results to differ materially from those projected in the forward-looking
statements include, but are not limited to, those discussed in "Risk Factors"
and elsewhere in this prospectus.
OVERVIEW
We incorporated in Delaware in March 1995. In February 1996, we launched Version
1.0 of our solutions platform, which included the essential elements of content
production and navigation, including synchronized video, audio, graphics and
text as well as searchable transcripts, for delivery on CD-ROM only. In July
1996, we launched Version 2.0, which expanded delivery from CD-ROM to intranets,
included searchable slides and added variable speed playback. In November 1997,
we launched Version 3.0. It further expanded delivery options to include
Web-based transmission at 28.8 Kbps and added tracking and reporting and
software demonstrations. In April 1998, we introduced our content hosting
service and software. In January 1999, we launched our professional services
organization to provide integration services and professional media development
services. In April 1999, we launched Version 4.0 of our solutions platform,
which includes our publishing tools and added support for high-resolution video
and the ability for application developers to customize certain aspects of our
software. In December 1999, we launched Version 5.0, which offers advanced
integration, search, navigation and analysis features.
We generate revenues through content production services, software licenses and
maintenance and professional services. For each content production transaction,
we charge our customers a fixed project set-up fee plus a fee for each hour of
finished content. Our software licenses revenues consist of one-time fees
charged for the use of our desktop player and applications server software and
monthly fees for content hosting. Our maintenance revenues consist of prepaid
contracts related to software, which are recognized over the contract term,
usually one year. Our professional services revenues are from contracted
services to customize the content and software for our customers. Most of our
revenues to date have been from our content production services. We expect
content production services to produce the largest portion of our revenues for
the foreseeable future, but we intend to increase sales of our applications
server software and content hosting so that software license revenues constitute
an increasing percentage of our revenues. The gross margins attributable to
software license revenues are significantly higher than those for our content
production services. We cannot assure you that we will be able to increase the
proportion of software license revenues and, therefore, we cannot assure you
that we will be able to proportionally improve our gross margins.
We generally recognize content production revenues upon shipment of the final
rich media event to the customer and software license revenues upon delivery of
software to the customer. Included within content production services are
revenues for CD-ROM duplication. We recognize these revenues upon shipment of
the duplicated CD-ROMs. The revenues for software licenses are recognized upon
shipment, or upon notification by the customer, dependent on the delivery
medium. We recognize revenues for maintenance and content hosting ratably over
the period of the maintenance or content hosting contract. We recognize
professional services revenues on a percentage of completion basis as services
are performed.
A limited number of large customers have accounted for a majority of our
revenues, and will continue to do so for the foreseeable future. Although no
customer accounted for more than 10% of our total revenues
21
<PAGE> 24
in the year ended December 31, 1999, Cisco Systems accounted for more than 10%
of our total revenues in 1998. Cisco Systems, Inc. and Tandem Computers
Incorporated, which is now a division of Compaq Computer Corporation, each
accounted for more than 10% of our total revenues in 1997. To date, most of our
customers have been in the telecommunications, software, high-technology
manufacturing, financial services and pharmaceuticals industries.
Stock-based compensation charges consist primarily of charges related to the
difference between employee option exercise prices and deemed fair market values
on the date of grant amortized over the vesting period of the options. Through
December 31, 1999, we have recorded a total of $16.3 million in stock-based
compensation charges in connection with stock option grants to our employees and
consultants, which is being amortized using an accelerated method of
amortization as described in Financial Accounting Standards Board Interpretation
No. 28, over the vesting periods of the options, generally four to five years.
Through December 31, 1999 we have recognized total stock based-compensation
expense of $6.7 million.
In October 1999, we raised $20.0 million in gross proceeds from the sale of
subordinated notes and warrants to purchase common stock. Applicable accounting
rules require that we allocate the gross proceeds among the notes, the
beneficial conversion feature of the notes and the warrants. As a result of that
allocation, the subordinated notes were recorded on our balance sheet at a
discounted value of approximately $7.5 million. The $7.5 million discount
resulting from the issuance of warrants is being amortized over the five-year
term of the notes and the $5.0 million discount resulting from the beneficial
conversion feature is being amortized over the period from issuance to December
31, 2000, during which the note may not be converted. If the notes are repaid by
us prior to the end of their term, the unamortized portion of the discount
resulting from the issuance of the warrants and debt issuance costs will be
recorded as an extraordinary loss on extinguishment of debt on the date the
notes are repaid. We are required to repay the notes upon the completion of this
offering. Accordingly, upon completion of this offering, we will have to
recognize an extraordinary loss on extinguishment of debt of up to $8.0 million.
Upon repayment of the notes, the unamortized beneficial conversion feature will
be reversed by a charge to additional paid in capital.
No costs for our internal software development efforts have been capitalized as
of December 31, 1999 because Eloquent's products generally have reached
technological feasibility and been released for sale at substantially the same
time. However, costs incurred for outside contractors to develop aspects of our
internal production management system were capitalized as an asset on our
balance sheet.
We have not achieved profitability on a quarterly or annual basis to date and we
anticipate that we will continue to incur net losses for the foreseeable future.
As of December 31, 1999, we had an accumulated deficit of $34.8 million. We
expect to increase our operating expenses significantly, expand our sales and
marketing operations and continue to develop and expand our solutions platform.
If these increased expenses are not accompanied by increased revenues, our
business, financial condition and operating results would suffer.
As of December 31, 1999, we had available federal net operating loss
carryforwards of approximately $25.4 million and state net operating loss
carryforwards of $16.2 million, which expire beginning in 2004. These
carryforwards have not been recorded on our balance sheet as an asset because
they have been fully reserved against due to uncertainty about our ability to
utilize such carryforwards. In addition, the Tax Reform Act of 1986 imposes
limitations on the use of net operating loss carryforwards if certain stock
ownership changes occur in the future.
22
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data for the
periods indicated as a percentage of total revenues.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues:
Content production services............................... 90% 87% 67%
Software licenses and maintenance......................... 10 13 24
Professional services..................................... -- -- 9
---- ---- ----
Total revenues.................................... 100 100 100
---- ---- ----
Cost of revenues:
Content production services............................... 95 74 40
Software licenses and maintenance......................... 1 6 5
Professional services..................................... -- -- 12
---- ---- ----
Total cost of revenues............................ 96 80 57
---- ---- ----
Gross margin.............................................. 4 20 43
---- ---- ----
Operating expenses:
Sales and marketing....................................... 96 88 71
Research and development.................................. 22 20 16
General and administrative................................ 48 28 28
Stock-based compensation.................................. -- 13 46
---- ---- ----
Total operating expenses.......................... 166 149 161
---- ---- ----
Loss from operations............................ (162) (129) (118)
Interest expenses and other charges......................... (3) (3) (17)
Interest income and other income............................ 2 3 2
---- ---- ----
Net loss.................................................... (163)% (129)% (133)%
==== ==== ====
</TABLE>
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
REVENUES. Total revenues were $12.5 million, $7.7 million and $3.9 million in
1999, 1998 and 1997. The increase in revenues from 1998 to 1999 is attributable
to an increase in the number and average size of sales of our products and
services generated by a larger sales force in 1999 and, to a lesser extent,
higher prices in 1999. The increase in revenues from 1997 to 1998 is
attributable to an increase in the number of sales of our products and services.
The primary reason for the increase in number of sales was a growing sales force
and increased market acceptance of our solutions.
Content production services. Content production services revenues were $8.4
million, $6.8 million and $3.5 million in 1999, 1998 and 1997. Over 80% of the
increase from 1998 to 1999 was attributable to an increase in the number of rich
media events we produced, from 255 events in 1998 to 308 events in 1999. The
remainder was primarily attributable to increased prices in 1999. Approximately
14% of the increase from 1997 to 1998 was attributable to an increase in CD-ROM
duplication and approximately 23% was due to additional service charges. The
remainder was primarily attributable to an increase in the number of rich media
events we produced, from 149 events in 1997 to 255 events in 1998.
Software licenses and maintenance. Revenues from software licenses and
maintenance were $3.0 million, $993,000 and $406,000 in 1999, 1998 and 1997. The
increase from 1998 to 1999 was due primarily to the introduction of a new server
product, the Enterprise Communications server, which added functionality and
23
<PAGE> 26
was offered at a substantially higher price than our previously available server
products. The list price of the Enterprise Communications server is $125,000,
compared to the list price of $30,000 for the previously available server
products. The increase from 1997 to 1998 was due primarily to the increased
number of CD-ROMs shipped to customers, for which we were generally paid a
software license fee of approximately $2 per CD-ROM, to an increased number of
server licenses sold and to the introduction of content hosting in 1998.
Professional services. We launched our professional services organization in the
first quarter of 1999. Professional services revenues were $1.1 million for the
year ended December 31, 1999.
COST OF REVENUES. Cost of revenues consists primarily of content production
costs, software licenses and maintenance costs, and professional services costs.
Cost of content production consists of event production costs and direct
personnel expenses associated with event production, with some fixed overhead
components for facilities and infrastructure support charges. Direct labor costs
associated with content production are deferred until revenues are recognized,
at which time they are expensed as cost of revenues. Cost of software licenses
and maintenance consists of customer support and content hosting personnel and
royalty payments due to the owners of licensed third-party software. Cost of
professional services consists of direct labor costs associated with providing
professional services, which are deferred until revenues are recognized, at
which time they are expensed as cost of revenues.
Content production services. Cost of content production was $5.0 million, $5.7
million and $3.7 million in 1999, 1998 and 1997. The decrease from 1998 to 1999
was primarily due to a reduced fixed and variable cost structure in 1999, which
we achieved in early 1999 through a restructuring of our production facility and
processes. The restructuring included the termination of eight full-time content
production employees, six of whom previously had been classified as production
overhead. We also undertook to more closely manage the correlation of our direct
labor force with content production volume, resulting in reduced utilization of
approximately 36 temporary direct labor employees. Several efficiency measures
were also introduced, including initiating content production on an event-only
basis only after all customer materials are received, parallel processing paths
for certain production activities, electronic exchange with customers for
revisions of certain event elements, greater workflow and document integration
with our automated event management system to minimize paper documents, and
earlier production involvement in the post-sales process to clearly delineate
customer requirements. These restructuring initiatives yielded higher production
efficiency, including faster content production times and higher production
capacity. The increase from 1997 to 1998 was primarily due to personnel costs
expended for the production of additional rich media events.
Software licenses and maintenance. Cost of software licenses and maintenance was
$646,000 in 1999, $445,000 in 1998 and $50,000 in 1997. Approximately 57% of the
increase from 1998 to 1999 reflects increases in customer service personnel and
content hosting activities to support software licenses and maintenance, and the
remainder reflects higher royalty payments due to increased revenues.
Approximately 90% of the increase from 1997 to 1998 reflects increases in
customer service personnel and content hosting activities to support software
licenses and maintenance, and the remainder reflects higher royalty payments due
to increased revenues.
Professional services. Cost of professional services was $1.5 million for the
year ended December 31, 1999.
To the extent we are successful in increasing revenues, we expect the cost of
revenues to increase in absolute dollars, but to decrease as a percentage of
total revenues.
OPERATING EXPENSES. Operating expenses were $20.1 million, $11.5 million and
$6.5 million in 1999, 1998 and 1997. Without the effect of stock-based
compensation charges, operating expenses for 1999 and 1998 would have been $14.3
million and $10.5 million.
24
<PAGE> 27
Sales and marketing. Sales and marketing expenses consist primarily of personnel
expenses associated with the sale of our products and services, personnel and
marketing materials and expenses associated with the marketing of our products
and services. Sales and marketing expenses were $8.9 million, $6.8 million and
$3.8 million in 1999, 1998 and 1997. The increases were due primarily to higher
personnel expenses and recruiting costs associated with growth in our sales
force and marketing staff. We expect sales and marketing expenses to increase in
absolute dollars and as a percentage of total revenues in the near future as we
seek to build our sales organization.
Research and development. Research and development expenses consist primarily of
personnel expenses associated with software development. Research and
development expenses were $2.0 million, $1.5 million and $845,000 in 1999, 1998
and 1997. The increases were due primarily to higher personnel expenses
associated with growth in our engineering staff. We expect research and
development expenses to increase in absolute dollars as we seek to increase the
functionality of our solutions platform.
General and administrative. General and administrative expenses consist
primarily of administrative personnel expenses, professional fees and facilities
costs. General and administrative expenses were $3.5 million, $2.2 million and
$1.9 million in 1999, 1998 and 1997. Approximately 60% of the increase in
general and administrative expenses from 1998 to 1999 reflects higher personnel
expenses. Approximately 10% of the increase relates to our allowance for
identified doubtful accounts, and 10% of the increase reflects additional
professional fees necessary to support our growth. Higher personnel expenses
accounted for approximately 132% of the increase from 1997 to 1998, but this
factor was partially offset by a decrease in professional fees, in an amount
equal to approximately 24% of the increase in general and administrative
expenses. Increased facilities costs also accounted for approximately 16% of the
increase in general administrative expenses from 1997 to 1998. We expect general
and administrative expenses to increase in absolute dollars but to decrease as a
percentage of total revenues.
INTEREST EXPENSE AND OTHER CHARGES. In 1997 and 1998, interest expense and other
charges consist primarily of interest payments on equipment leases and bank
lines of credit. In 1999, interest expense also includes amortization of the
debt issuance costs and the discount related to the $20.0 million subordinated
notes and warrants. Interest expense and other charges were $2.2 million,
$259,000 and $100,000 in 1999, 1998, 1997. Approximately 80% of the increase in
expense from 1998 to 1999 reflects interest costs associated with the $20.0
million subordinated notes. The remaining increase reflects higher average
borrowing balances. The increase from 1997 to 1998 reflects higher average
borrowing balances.
INTEREST INCOME AND OTHER INCOME. Interest income and other income consists
primarily of interest earnings on our cash and cash equivalents. Interest income
and other income was $301,000, $208,000 and $79,000 in 1999, 1998 and 1997. The
increases were due to increasing average cash balances.
25
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following tables contain statement of operations data for each of the six
quarters ended December 31, 1999, as well as the percentage of revenues
represented by such items. All data is unaudited. The data has been prepared on
the same basis as the audited financial statements contained elsewhere in this
prospectus and, in the opinion of management, include all adjustments, which
consist only of normal recurring adjustments, considered necessary for a fair
presentation of such information. Historical results are not necessarily
indicative of the results to be expected in the future and the results of
interim periods are not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1999 1999 1999 1999
------------- ------------ --------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Content production services......... $ 2,083 $ 1,616 $ 1,602 $ 2,042 $ 2,760 $ 2,008
Software licenses and maintenance... 229 316 340 540 712 1,367
Professional services............... -- -- 5 218 156 742
------- ------- ------- ------- ------- -------
Total revenues.............. 2,312 1,932 1,947 2,800 3,628 4,117
------- ------- ------- ------- ------- -------
Cost of revenues:
Content production services......... 1,347 1,453 1,154 1,245 1,508 1,114
Software licenses and maintenance... 125 126 96 135 176 239
Professional services............... -- -- 109 355 319 713
------- ------- ------- ------- ------- -------
Total cost of revenues...... 1,472 1,579 1,359 1,735 2,003 2,066
------- ------- ------- ------- ------- -------
Gross margin........................ 840 353 588 1,065 1,625 2,051
------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................. 1,710 1,980 1,806 1,862 2,016 3,172
Research and development............ 408 399 466 484 467 542
General and administrative.......... 665 665 855 816 915 913
Stock-based compensation............ 305 412 1,129 913 1,301 2,413
------- ------- ------- ------- ------- -------
Total operating expenses.... 3,088 3,456 4,256 4,075 4,699 7,040
------- ------- ------- ------- ------- -------
Loss from operations... (2,248) (3,103) (3,668) (3,010) (3,074) (4,989)
Interest expense and other charges.... (53) (52) (94) (103) (221) (1,757)
Interest income and other income...... 71 88 50 38 35 178
------- ------- ------- ------- ------- -------
Net loss.............................. $(2,230) $(3,067) $(3,712) $(3,075) $(3,260) $(6,568)
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Content production services......... 90% 84% 83% 73% 76% 49%
Software licenses and maintenance... 10 16 17 19 20 33
Professional services............... -- -- -- 8 4 18
------- ------- ------- ------- ------- -------
Total revenues.............. 100 100 100 100 100 100
------- ------- ------- ------- ------- -------
Cost of revenues:
Content production services......... 58 75 59 44 41 27
Software licenses and maintenance... 5 7 5 5 5 6
Professional services............... -- -- 6 13 9 17
------- ------- ------- ------- ------- -------
Total cost of revenues...... 63 82 70 62 55 50
------- ------- ------- ------- ------- -------
Gross margin........................ 37 18 30 38 45 50
------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................. 74 102 92 67 56 77
Research and development............ 18 21 24 17 13 13
General and administrative.......... 29 35 44 29 25 22
Stock-based compensation............ 13 21 58 33 36 59
------- ------- ------- ------- ------- -------
Total operating expenses.... 134 179 218 146 130 171
------- ------- ------- ------- ------- -------
Loss from operations... (97) (161) (188) (108) (85) (121)
Interest expense and other charges.... (2) (3) (5) (3) (6) (43)
Interest income and other income...... 3 5 3 1 1 4
------- ------- ------- ------- ------- -------
Net loss.............................. (96)% (159)% (191)% (110)% (90)% (160)%
======= ======= ======= ======= ======= =======
</TABLE>
26
<PAGE> 29
We have experienced and expect to continue to experience seasonality in our
business. Due to the marketing cycles of our customers, sales of our content
production services generally tend to be lower in the fourth calendar quarter of
each year. Because the market for rich media business-to-business communications
using the Web is still new, additional seasonal and other patterns in the usage
of our products and services may emerge as the market matures.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through private sales of
preferred stock and, to a lesser extent, borrowings under lines of credit. Net
proceeds from sales of preferred stock from inception to December 31, 1999 have
totaled approximately $22.4 million. In addition, we raised $18.7 million in net
proceeds through the sale of exchangeable subordinated notes and warrants in
October 1999. At December 31, 1999, we had approximately $17.2 million of cash
and cash equivalents. We have entered into capital lease arrangements that
provide for up to $4.2 million for equipment purchases, of which we have
utilized approximately $2.9 million as of December 31, 1999. Our capital
expenditure budget for the 12 months ending December 31, 2000 is approximately
$3.0 million. In addition, we have a revolving line of credit and debt facility
that provides for borrowings up to $6.0 million for working capital requirements
and equipment purchases.
As of December 31, 1999, we had no borrowings outstanding against the revolving
line of credit and $3.0 million outstanding under the debt facility. The line of
credit bears interest at prime plus 2% per annum, compounded annually, and the
debt facility bears interest at prime plus 3.5% per annum, compounded annually.
All borrowing under the line of credit and debt facility is due in January 2001.
The revolving line of credit was repaid in its entirety using the proceeds from
our sale of subordinated notes. The subordinated notes bear interest at 12.0%
per annum, compounded quarterly, and are due upon the closing of this offering.
We intend to repay the debt facility and the subordinated notes in their
entirety using proceeds from this offering.
Net cash used in operating activities was $8.2 million, $8.8 million and $5.5
million in 1999, 1998 and 1997. Net cash used in operating activities in all
such periods was primarily attributable to net losses.
Net cash used in investing activities was $976,000 in 1999 and $146,000 in 1998.
Net cash provided by investing activities was $925,000 in 1997. Net cash used in
investing activities in 1998 and 1999 was primarily related to purchases of
property and equipment. Net cash provided by investing activities in 1997 was
primarily related to the maturity of short-term investments, offset in part by
purchases of property and equipment.
Net cash provided by financing activities was $19.7 million, $11.6 million and
$7.5 million in 1999, 1998 and 1997. Net cash provided by financing activities
resulted primarily from the sale of preferred stock and subordinated notes and
warrants and borrowings under our lines of credit.
We believe that the net proceeds from this offering, together with our current
cash and cash equivalents, will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next 12 months. We
may need to raise additional funds thereafter through public or private
financings, or other arrangements. There can be no assurance that such
additional financings, if needed, will be available on terms attractive to us,
if at all. Our failure to raise capital when needed could have a material
adverse effect on our business, financial condition and operating results. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our then-current stockholders would be reduced.
Furthermore, such equity securities may have rights, preferences or privileges
senior to those of our common stock.
27
<PAGE> 30
YEAR 2000 READINESS
In preparation for the year 2000, we engaged in efforts to ensure that our
products and critical business systems properly recognize date-sensitive
information in the year 2000 and beyond. These efforts and their costs are
described below. We have not experienced any significant "year 2000 problems"
with our products and critical business systems and do not expect that we will
do so in the future.
STATE OF READINESS. In 1999, we assessed the ability of our software and
critical business systems to operate properly in the year 2000 and beyond. We
investigated the year 2000 readiness of our software and hardware vendors and
conducted internal tests of the operation of our products and critical business
systems. The only problems we encountered were some date-related errors in our
sales force automation software, which caused no significant disruptions to our
sales operation and were remedied through a software upgrade completed in
January 2000.
COST OF ASSESSMENT AND REMEDIATION. We have incurred direct costs of less than
$100,000 in assessing and remediating year 2000 problems, and we do not expect
to spend more than $100,000 in the aggregate to complete the process.
RISKS. We could be exposed to a loss of revenues and our operating expenses
could increase if our products or critical business systems have year 2000
problems. Our potential areas of exposure include products purchased from third
parties, information technology, including computers and software, and non-
information technology, including telephone systems and other equipment used
internally. The reasonably likely worst case scenario for year 2000 problems
would be if a significant defect exists in key hardware or software and if a
solution for such a problem were not immediately available.
CONTINGENCY PLAN. Although we have not experienced any year 2000-related
problems affecting our internal systems, we have developed contingency plans to
be implemented if our efforts to identify and correct year 2000 problems are not
effective. Depending on the systems affected, these plans include:
- accelerated replacement of affected equipment or software;
- short to medium-term use of back-up equipment and software or other
redundant systems;
- increased work hours for our personnel or the hiring of additional
information technology staff; and
- the use of contract personnel to correct, on an accelerated basis, any
year 2000 problems that arise or to provide interim alternate solutions
for information system deficiencies.
The discussion of our efforts and expectations relating to year 2000 compliance
are forward-looking statements. Our ability to achieve year 2000 compliance, and
the level of incremental costs associated with compliance, could be adversely
affected by, among other things, the availability and cost of contract personnel
and external resources, third party suppliers' ability to modify proprietary
software, and unanticipated problems not identified in our ongoing review.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Our exposure to market risk is limited to interest income sensitivity, which is
affected by changes in the general level of U.S. interest rates, particularly
because the majority of our investments are in short-term debt securities issued
by corporations. We place our investments with high-quality issuers and limit
the amount of credit exposure to any one issuer. Due to the nature of our
short-term investments, we believe that we are not subject to any material
market risk exposure. We do not have any foreign currency or other derivative
financial instruments.
28
<PAGE> 31
BUSINESS
OVERVIEW
Eloquent provides rich media solutions for business-to-business communications.
"Rich media" is the combination of video, audio, sophisticated graphics and text
into a synchronized, interactive, navigable and searchable format. We have
developed a unique, proprietary solutions platform consisting of software and
services that we use to create and deliver rich media presentations, or
"events," on behalf of our customers. Our customers, which are primarily large
companies, use our solutions to communicate time-sensitive, business-critical
information to target audiences, primarily customers, employees and business
partners, in an effective, consistent and cost-efficient manner. Our rich media
events can be delivered over Web-based channels, including the World Wide Web,
intranets and extranets, and CD-ROMs to be viewed by end users on their personal
computers. Since our inception in March 1995, we have produced over 700 rich
media events consisting of over 3,500 hours of content for more than 150
customers.
INDUSTRY BACKGROUND
NEED FOR MORE EFFECTIVE BUSINESS-TO-BUSINESS COMMUNICATIONS. As companies face
increasing pressure to operate more efficiently and to better serve customer
needs, effective business-to-business communications represent a key competitive
advantage. Business-to-business communications are the production and
dissemination of corporate information to audiences both inside and outside an
organization, including employees, customers and business partners. Examples of
business-to-business communications include product launch briefings to sales
teams, strategic and corporate alignment presentations to employees, sales
pitches to potential customers, employee training seminars, business partner
education programs and complex customer support activities. These communications
are essential to a company's ability to unify its work force and strengthen its
relationships with customers and partners.
In order to increase the effectiveness of business-to-business communications,
companies need to deliver information in a timely, economical and attractive
way -- a requirement that is even more critical given today's increasingly
dispersed work force, accelerated product cycles and complex products and
services. Companies disseminate information to their constituents through a
variety of means and using a number of different technologies that, although
useful, do not always provide the most efficient and robust means of delivering
business-to-business communications. For example:
- In-person presentations using audio/visual equipment provide rich
presentations, but are often inconvenient and time-consuming for both
the presenter and the audience, and often involve costly travel
expenses.
- Teleconferencing is a relatively inexpensive and fast means of
communication, but provides for limited use of visual aids, does not
easily accommodate large audiences and requires everyone to participate
at the same time.
- Web and satellite broadcasts, although convenient and useful for large
audiences, do not provide personalization and interactivity with
different constituencies in the audience.
GROWTH OF THE WEB. The Web has emerged as a global communications medium,
enabling millions of people to gather information, communicate and conduct
business electronically. The broad acceptance of the Internet Protocol standard
has also led to the emergence of corporate intranets and extranets and the
development of new ways to access the Web, intranets and extranets, such as
through the television.
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EMERGENCE OF STREAMING MEDIA TECHNOLOGY. The Web has recently evolved from a
mass of static, text-oriented pages to a much richer environment, capable of
delivering graphical, interactive and multimedia content. Prior to the
development of streaming media technologies, accessing video and audio files
over the Web was impractical because users could not experience the content
until the time-consuming process of downloading the files was complete. Today,
streaming media technologies and the proliferation of multimedia-capable
computers allow almost immediate playback of continuous "streams" of video and
audio content over the Web, intranets and extranets. The emergence of streaming
media technology has enabled highly interactive, rich media applications to be
effectively delivered over the Web and Web-based channels such as corporate
intranets and extranets.
OPPORTUNITY FOR RICH MEDIA BUSINESS-TO-BUSINESS COMMUNICATIONS SOLUTIONS
PROVIDERS. Companies now have the ability to deliver business-to-business
communications over Web-based channels using streaming media technology.
However, existing streaming media technology by itself does not give companies
the ability to deliver compelling business-to-business communications that
include multiple media, such as video, audio, sophisticated graphics and text,
in a synchronized, easy-to-use format. Most streaming media applications have
been focused on the delivery of films, videos or news to consumers. They do not
provide for synchronization of multiple media or sophisticated search and
navigation capabilities required by business users. While companies can obtain
each of the component technologies required to produce and deliver their own
rich media events, they face a variety of challenges in doing so, particularly
in a timely manner. These challenges include:
- Producing engaging rich media events is complicated and, for companies
lacking particular expertise in producing such events, very difficult.
- Enhancing existing streaming media technology to deliver high-quality
rich media events is technologically complicated.
- Producing rich media events for internal use generally cannot result in
the economies of scale of producing dozens of rich media events per
month, without which production is inefficient, expensive and
time-consuming.
- Integrating rich media products into existing enterprise applications,
such as sales force automation systems, is expensive and difficult.
Despite the compelling benefits of streaming media technology, we believe these
challenges have limited its adoption for business-to-business communications. We
believe most companies recognize that it is easier and more cost-effective to
outsource the production and delivery of rich media events to a company that has
specialized rich media expertise, the ability to deliver a complete solution and
the ability to achieve economies of scale in producing rich media events.
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THE ELOQUENT RICH MEDIA SOLUTIONS PLATFORM
ELEMENTS OF THE PLATFORM. We use our unique, proprietary rich media solutions
platform to create rich media events for our customers in a complete turnkey
process. Our platform includes all of the software and services our customers
need to deliver custom rich media business-to-business communications to their
target audiences. The following diagram illustrates the components of our
platform:
[GRAPHICS: GRAPHICAL DEPICTION OF THE SOLUTIONS PLATFORM]
Production Solution. We provide all of the necessary software and services for
producing rich media events from videotapes of speakers and their slides.
Elements of our production solution include:
- Content Production Services. We quickly produce and deliver rich media
events in a complete turnkey process. We can produce events for delivery
over the Web, intranets, extranets or CD-ROM, or a combination of them,
enabling our customers to provide their business-to-business
communications to their entire target audience.
- Professional Media Services. Our professional services organization
enables us to offer our customers advanced content development services.
These services are used by our customers to add elements of visual
interest and interactivity to their rich media events.
- Content Production Software. We also license our suite of internally
used publishing tools, excluding our proprietary workflow management
software, to some of our larger customers. We offer these customers
perpetual, nonexclusive licenses to use our publishing tools and, for an
annual fee, we will provide periodic enhancements and other maintenance.
The licenses allow these customers to use the publishing tools to
assemble, for their internal use only, their own Eloquent events from
digital video and electronic slides.
Delivery Solution. We provide all of the necessary software and services for
delivering rich media events to end users and allowing those users to interact
with the rich media events. To enable our customers to reach their entire target
audience, we provide multiple methods of delivery: over the Web using the
customer's own network connections, over the Web using our network connections
and by CD-ROM. The CD-ROM option gives customers the ability to reach users who
do not have ready access to the Web, such as constituents in less-developed
countries or who are traveling. Elements of our delivery solution include:
- Applications Server Software. Our applications server software enables
customers to load Eloquent-produced events onto their own servers and
deliver the events to their target audience over their network
connections. It allows users with Eloquent desktop player software to
navigate through the Eloquent content and access related content in
other, non-Eloquent formats, such as HTML documents or Macromedia
Authorware pieces.
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Our server software helps users find their way through large collections
of content by personalizing the content for each user based on a profile
of the user's interests. It keeps track of which users watched which
Eloquent content and can produce reports detailing the exact usage of
each event. Our software can also record the results of users answering
quizzes and produce "report cards." Our customers can either license our
application server software and run it on their internal hardware, or
they can have us run the software for them as part of our content
hosting service. The applications server software delivers the same
content over the Web that the desktop player delivers to the user from
CD-ROM. Eloquent content can be produced in Eloquent's standard
Microsoft format, or reformatted into the RealNetworks SMIL format. We
typically offer a perpetual, nonexclusive license to use our
applications server software for the purposes identified above and, for
an annual fee, we will provide periodic enhancements and other
maintenance.
- Desktop Player Software. Our user-friendly desktop player software
enables users to view rich media events on their computers. The desktop
player software is included with the event on the CD-ROM or stored on a
customer's network and delivered using our applications server software.
The player includes search and navigation capabilities that allow users
to interact with the content at their own pace in their preferred
sequence. Users may navigate through the content by speeding up or
slowing down playback of the video and audio without distortion of the
speaker's voice, scrolling through the transcript, stepping through the
slides and searching for key words in the transcript and slides. We
typically offer a perpetual, nonexclusive license to use our desktop
player software for these purposes.
- Content Hosting. Our optional content hosting service enables customers
to deliver rich media events to their target audience over the Web on
our servers utilizing our content hosting software, which relieves our
customers of the need to manage the servers and solve integration
issues.
- Professional Integration Services. Our professional services
organization enables us to offer our customers custom application
development and integration services. For example, we will integrate our
customers' rich media sales applications with their sales force
automation systems.
BENEFITS OF THE ELOQUENT SOLUTIONS PLATFORM. We believe that we have developed
the most effective, comprehensive and robust platform available for producing
and delivering rich media events for business-to-business communications. We
believe that our platform provides our customers with business-to-business
communications that are:
- Complete Outsource Solutions. We have the capability to produce rich
media events for our clients from start to finish in a turnkey fashion.
For event production, the customer's input is needed only for
information content and guidance on the general tone, look and feel of
the presentations. In addition, by delivering rich media events through
the Web, intranets, extranets and CD-ROM, or a combination of them, we
enable our customers to reach their entire target audience. The CD-ROM
alternative is particularly important to customers with traveling or
international target audiences, such as a global sales force, who may
not have easy access to Web-based channels. Through our translation
service, we ensure that our rich media events can be used by a
customer's international audience. Furthermore, companies can use our
solutions to build a central Web site, or "portal," for employees,
customers and business partners around the world to obtain information
on a multitude of topics, delivered on demand through Eloquent rich
media events.
- More Effective. Our rich media events provide users with
business-critical information in an interactive, searchable, navigable
format. We believe this format, combined with our delivery of multiple
media -- video, audio, text and graphics -- makes our rich media events
more engaging than other forms of business-to-business communication. We
also believe that users comprehend and retain the information contained
in a rich media event better than that contained in other
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methods of business-to-business communications. Our applications server
and content hosting software automatically keeps track of the
interactions each user has had with particular rich media events.
Customers can view a set of reports that show how much of each rich
media event is used, how often each rich media event is used and the
persons using each rich media event. By adding optional testing
capabilities, our customers can ensure that members of their target
audience have understood the presentation. In addition, by delivering
the same business-to-business communication to each member of the target
audience, our customers can ensure that consistent information is
delivered to the entire enterprise.
- Faster. Getting critical information to employees, customers and
business partners rapidly is a significant competitive advantage for our
customers. We enable our customers to disseminate critical information
contained in a rich media event rapidly due to our unique and efficient
production process and Web and CD-ROM delivery. Using our proprietary
scheduling software and production expertise, we quickly produce and
deliver rich media events to our customers in a complete turnkey
process. We can produce a typical four- to five-hour rich media event
within nine business days after obtaining the raw video and audio
material, compared to months for alternative solutions. By delivering
our rich media events through the Web, intranets, extranets and CD-ROM,
the critical information contained in the events can be disseminated
quickly to each member of the target audience regardless of location.
Our rapid production and delivery of rich media events can accelerate
dissemination of information by weeks or even months by eliminating the
need for the presenter to travel to multiple locations to deliver the
presentation. This is particularly significant for customers with a
geographically dispersed target audience, such as a worldwide employee
base. In addition, users can get the information they need from our
events quickly because they can search and navigate the event so that
they only view exactly what they need.
- Less Expensive. Our solutions eliminate many of the costs associated
with traditional business presentations, including airline, hotel and
other travel expenses for event participants, facilities costs and the
opportunity costs associated with diverting employees from their work
schedules. In addition, we believe our technology and expertise enable
us to charge fees to create a rich media event that are lower than the
cost our typical customer would incur producing the event in-house.
We believe that these benefits can result in a number of strategic and
competitive advantages for our customers. For example:
- Faster Time to Market. By using an Eloquent rich media event to educate
its sales force about a new product introduction instead of having the
product manager travel to each sales office to do so in person, our
customers can commercially launch new products more quickly.
- Increased Employee Productivity. Using our solutions means that a key
business presentation only needs to be made once, thereby freeing the
presenter to focus on his or her work instead of traveling to different
offices to make the presentation. Work interruptions can be minimized
because employees view the presentation at a time and place convenient
to them instead of when the presenter is available. In addition, we
believe our interactive, searchable, navigable format and engaging
multimedia presentation enables employees to comprehend and retain
information in a rich media event better than that contained in
traditional forms of business presentation.
- Stronger Relationships with Important Constituencies. By keeping their
employees, customers and business partners well-informed on a timely
basis about topics that are important to them, our customers can
strengthen their relationships with these constituencies. For example, a
company can bolster employee morale by having its chief executive
officer speak to employees about recent business developments. This is
often difficult to accomplish when the company has a large or
geographically dispersed workforce. Our solutions enable our customers
to keep their constituencies up-to-date by providing rapid delivery of
consistent information to large and widely dispersed
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audiences. Using our example, a rich media event containing the chief
executive officer's speech could be deployed on the company's Web site,
allowing every employee to view the same speech at his or her desk on
demand.
- Enhanced Sales and Marketing Efforts. Some of our customers are using
our solutions to make company presentations and product demonstrations
on their Web sites. Potential consumers or business partners can visit
the company's Web site and view a carefully produced sales pitch without
using sales force resources. Our customers may also use this type of
event to educate their third-party distribution channel partners and to
provide customer support.
STRATEGY
Our objective is to enhance our leadership position in rich media solutions for
business-to-business communications. The key elements of our strategy are:
FURTHER PENETRATE LARGE CORPORATE ACCOUNTS. We believe that our existing
customer base of large corporations presents a significant opportunity for
additional revenues. Historically, over 90% of our customers have purchased
additional Eloquent products or services within 12 months after their initial
orders. We believe we have an opportunity to deepen our relationships with these
customers by selling additional products and services and by selling to
different divisions of the same company. For example, as our customers
increasingly adopt Web-based methods of communication with their constituencies,
we believe there is a significant opportunity to sell our applications server
software and content hosting to our existing customers.
EXPAND INTO ADDITIONAL INDUSTRIES. Because the format and delivery of a business
presentation is virtually the same in every industry, our solutions do not
require modification for use by any particular industry. As a result, we believe
that there is a significant opportunity to increase revenues by identifying and
selling our solutions into many new industries. We have found that our most
effective sales and marketing efforts have been those that are
industry-specific. We have generated most of our revenues by selling into
industries that we believed would be "early adopters" of our solutions,
including telecommunications, software, high-technology manufacturing, financial
services and pharmaceuticals. New industries that we have targeted include
manufacturing, automotive, consumer products, health care and energy. We intend
to continue industry-specific sales and marketing efforts in order to maximize
our penetration of new and existing industries.
IDENTIFY NEW APPLICATIONS FOR OUR SOLUTIONS. Our flexible rich media solutions
platform allows us to develop specific applications designed to capture
strategic revenue opportunities. Traditional applications of our solutions
include sales channel communications and employee communications. Newer
applications include sales and marketing presentations and customer support. We
continually seek to identify new applications, within existing markets and
within new industries, that can benefit from our solutions.
EXPAND AND ENHANCE CUSTOMER SOLUTIONS. Our goal is to provide our customers with
the most comprehensive portfolio of rich media business-to-business
communications products and services. We intend to increase revenues by
continually broadening the functionality of our rich media solutions platform
and adding value-added services to our offerings, through both in-house
development efforts and strategic acquisitions. For example, through our
applications server and content hosting software, we are now assisting customers
in building Web "portals" using Eloquent rich media events. We intend to add
live broadcast capabilities, which will allow instant, simultaneous and
interactive delivery of business-to-business communications, to our platform. We
plan for these broadcasts to be viewed by users live from their computers. These
products will then be available on demand for later viewing in our synchronized,
navigable, searchable format. In addition, we plan to explore
business-to-customer communications applications.
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EXPAND INTERNATIONALLY. We currently sell our solutions within the United
States. Many of our customers have international operations and use our rich
media events around the world. As a result, we believe there is a significant
opportunity to increase revenues by selling our products and services
internationally. To exploit this opportunity, we intend to increase our sales
and marketing efforts abroad, beginning with Europe and Japan.
RICH MEDIA EVENT PRODUCTION AND DELIVERY
We have developed significant expertise and proprietary technology in order to
produce rich media events for our customers in a fast, turnkey process and
enable our customers to deliver those rich media events to their constituencies
in an engaging, interactive manner.
PRODUCTION OF RICH MEDIA CONTENT. Our customers generally use Eloquent to
produce the rich media content for use with our software. The production steps
and the technologies used in the production process are summarized below:
- Video and Audio. We videotape live speakers, using local video crews and
simple lighting. We convert the video into digital format and divide
long segments into short talks and remove outtakes. We then "compress"
the digital video and audio tracks using our proprietary compression
technology and other compression technologies. One of the features of
our software is the ability to play back an event at different speeds
without a change in the speaker's pitch. To enable this, we index the
audio track for variable speed playback using our proprietary pitch
compression technology.
- Transcription. We transcribe the audio track to create a transcript,
utilizing a proprietary transcription tool that automatically
synchronizes the text to the audio track, and proofread it carefully in
conjunction with the customer. If desired by the customer, we will have
the transcript translated into different languages.
- Graphics. We obtain electronic copies of the speaker's slides or we
electronically capture the speaker's software demonstration. If the
presentation contains slides, we transform the slides into a format
suitable for delivery over a low-bandwidth network. If the event
contains a software demonstration, we compress the demonstration using
our proprietary video compression technology.
- Assembly. We assemble the video, audio, graphics and text using our
proprietary synchronization technology. To enable full navigation and
search capabilities, we create a table of contents and electronic links
and index the text and slides so that the user may search for a chosen
portion of the event using an embedded search engine. At the request of
a customer, we will incorporate user tests in our standard format and
add other features developed by our professional services staff.
Our proprietary Event Management System, which we refer to as "EMS," enables our
production staff to organize, track and simultaneously produce high volumes of
projects. The EMS enables us to efficiently allocate staff to tasks that ensures
on-time completion.
CONTENT DELIVERY. We provide our customers with three ways to deliver an
Eloquent event:
- Web, Intranets and Extranets -- Using Applications Server
Software. Customers can run our desktop player using our applications
server software on their own Microsoft Windows NT servers. Our
professional services organization can integrate the Eloquent
applications servers with existing enterprise applications, such as
sales force automation systems.
- Web -- Using Content Hosting. In addition, we allow our customers to
store their rich media events and the Eloquent desktop player on our
server hardware running our content hosting software. Users can then
download the Eloquent desktop player to their desktop PC and interact
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with the customer's rich media events. Our content-hosting servers are
located at Concentric Network Corporation's facilities in Cupertino,
California.
- CD-ROM. We will duplicate and ship CD-ROMs containing the event to our
customers. The CD-ROM contains the Eloquent desktop player software as
well as the event. We have found that our customers need the CD-ROM
alternative because many of their constituents do not have ready access
to the Web. This is particularly true for customers with international
target audiences or that seek to educate their traveling sales forces.
Customers may order rich media events on CD-ROM alone or in conjunction
with Web, intranet or extranet delivery.
CUSTOMERS
Our customers use our solutions for a number of applications, including:
SALES CHANNEL COMMUNICATIONS. Some of our customers use our solutions to educate
their sales forces and resellers about newly-launched products. We can create
rich media events out of traditional sales force presentations about new
products and deliver these events to our customers' sales forces. Through our
events, our customers are able to educate their sales forces faster and more
economically than by flying speakers around the country or world to deliver the
presentation. Our solutions also enable our customers to provide consistent,
controlled information to their sales representatives in a format that is more
appealing and interactive than a teleconference presentation or videotape.
EMPLOYEE COMMUNICATIONS. Some of our customers use our solutions to deliver
senior management messages to a globally distributed workforce. We create a rich
media event out of, for example, a chief executive officer's presentation to
employees about the customer's strategic direction or a pending merger or
acquisition, which is then delivered to employees. By doing so, our customer is
able to economically deliver a consistent message to all of its employees,
including those who joined the company after the presentation was made.
SALES AND MARKETING PRESENTATIONS. Some of our customers use our solutions on
their Web sites to present company information or demonstrate their products to
potential consumers or business partners. These events provide an engaging,
low-cost mechanism for offering consistent company or product demonstrations to
a large audience of potential buyers.
CUSTOMER SUPPORT. Some of our customers use our solutions to deliver technical
product support information to their end users. The Eloquent event format gives
end users the needed information in the "user-friendly" format of an in-person
presentation instead of through a technical manual. Eloquent's search and
navigation capabilities allow end users to quickly find the information they
need.
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The following table lists our ten largest customers for the year ended December
31, 1999, as well as the applications for which they have used our solutions.
Each of these customers accounted for more than $200,000 of our revenues during
the year ended December 31, 1999.
<TABLE>
<CAPTION>
CUSTOMER APPLICATIONS
- -----------------------------------------------------------------------------------------------------
<S> <C>
Advisor Resource Alliance (ARA) E-commerce product information delivery
- -----------------------------------------------------------------------------------------------------
AT&T Corporation Marketing strategy rollouts
Technical conferences
Software system rollouts
- -----------------------------------------------------------------------------------------------------
Citibank Technical expertise dissemination
Employee certification
Sales force product cross-training
- -----------------------------------------------------------------------------------------------------
Compaq Computer Corporation Sales force and partner product rollouts
Sales force and partner technical education
Account management education
- -----------------------------------------------------------------------------------------------------
FileNET Corporation New product rollouts
Product updates
- -----------------------------------------------------------------------------------------------------
IBM Corporation Field employee updates
Partner program rollouts
- -----------------------------------------------------------------------------------------------------
Hill Associates Industry expertise dissemination
- -----------------------------------------------------------------------------------------------------
Lucent Technologies Sales force product education
Sales force technical updates
National marketing communications
Marketing program tool rollouts
Executive sales presentation tool education
- -----------------------------------------------------------------------------------------------------
Microsoft Corporation OEM product education
Sales force product rollouts
Customer support product education
- -----------------------------------------------------------------------------------------------------
Unisys Corporation New product rollouts
Sales force product education
</TABLE>
SALES AND MARKETING
We sell our solutions in the United States through a direct sales force. Our
sales organization consisted of 52 employees as of December 31, 1999, including
six sales representatives located at our San Mateo, California headquarters. We
also have sales representatives in the Los Angeles, Chicago, Dallas, Boston, New
York City, New Jersey and Washington, D.C. metropolitan areas. Our sales
strategy is to pursue opportunities with large accounts and industry leaders and
to penetrate various targeted vertical market segments. To implement this
strategy, each customer has a dedicated sales representative who is responsible
for maintaining the customer relationship. To assist our customers in maximizing
the benefits of our solutions, we have built an experienced professional
services organization to facilitate the successful production and utilization of
rich media events. We intend to expand our sales and professional services
organizations and to establish additional sales offices domestically and
internationally.
We market our solutions through an in-house marketing staff and an outside
public relations firm. Our in-house marketing organization consisted of four
employees as of December 31, 1999, all of whom were located in our San Mateo,
California headquarters. We conduct a variety of marketing programs nationwide
to educate our target market, create awareness and generate leads for our
solutions. To achieve these goals, we have engaged in activities such as direct
mail campaigns, seminars, print advertising and trade shows. These programs are
targeted at key executives within identified vertical markets. In addition, we
conduct comprehensive public relations efforts that include establishing and
maintaining relationships
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with key trade press, business press and industry analysts as well as an active
executive speakers' bureau. We intend to expand our marketing activities in
conjunction with the planned expansion of our sales force.
COMPETITION
The market for rich media business-to-business communications solutions is new
and rapidly evolving. We expect that competition will intensify. Increased
competition could lead to decreasing prices and profitability. We compete with
companies that offer components of a rich media business-to-business
communications solution, including:
- providers of rich media software tools;
- multimedia content production and delivery companies;
- companies that provide content hosting services; and
- traditional business-to-business communications and learning solution
companies that offer live meeting and seminar services.
We believe that our competitors include, principally, Digital Lava Inc., a rich
media production tools company that enables its customers to develop rich media
content similar to ours; Pacific Media, a media production company that produces
custom rich media content similar to ours; and DigitalThink, Inc., an
educational curriculum development company that offers custom content production
services similar to ours. In addition, our customers and potential customers
represent a source of competition, to the extent they determine to develop
in-house business-to-business communications solutions.
We believe the principal competitive factors in the rich media
business-to-business communications solutions are:
- quality, price and timeliness of content production services and
associated professional services;
- quality of the end-user experience provided by the desktop player
software;
- ease of use of our applications and tools;
- amount and quality of customer support; and
- brand recognition.
We believe that we compete favorably with respect to each of these factors and
that our competitors generally do not offer the broad range of software and
services for rich media production and delivery that we offer our customers.
Nevertheless, many of our current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, greater name recognition and larger existing customer bases than we
do. These competitors may also be able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive pricing policies
and make more attractive offers to potential employees and partners. We may be
unable to compete successfully against current or future competitors and
competitive pressures may cause our business to suffer.
INTELLECTUAL PROPERTY
We regard our copyrights, service marks, trademarks, trade secrets, proprietary
technology and similar intellectual property as critical to our success, and we
rely on trademark and copyright law, trade secret protection and confidentiality
and license agreements with our employees and independent contractors to protect
our proprietary rights. We strategically pursue the registration of trademarks
and service marks in
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the United States and abroad. Effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which our
products and services are made available.
We have licensed in the past, and expect to license in the future, certain of
our proprietary rights to third parties. Specifically, we have licensed the
right to reproduce our desktop player software to customers that desire to
arrange for their own CD-ROM duplication services. While we attempt to ensure
that the quality of our brand is maintained by these licensees, licensees may
take actions that may harm the value of our proprietary rights or reputation.
The steps taken by us to protect our proprietary rights may not be adequate and
third parties may infringe or misappropriate our copyrights, trademarks or
similar proprietary rights. In addition, other parties may assert claims of
infringement of intellectual property rights against us.
We may be subject to legal proceedings and claims associated with our
intellectual property from time to time in the future. These claims, even if
without merit, could cause us to expend significant financial and managerial
resources. Further, if these claims are successful, we may be required to change
our trademarks, alter our copyrighted material or pay financial damages, any of
which could harm our business.
Our products and internally used authoring tools incorporate technology licensed
to us as follows:
- We have a license from Verity, Inc. that grants us the rights to use
Verity's proprietary search software in developing our products and
authoring tools, and also grants us the worldwide right to use,
reproduce, market and distribute Verity's search software as an embedded
component of our products. Verity is free to grant identical or similar
licenses to others. Generally, we are not permitted to transfer our
license rights to others, other than in connection with a sale of our
products. In consideration for our license rights, we have paid Verity
an initial license fee of $25,000, and we pay royalties to Verity equal
to 2.5% of all sales of our products containing the licensed software.
The Verity license expires in May 2000, but automatically renews for
successive one-year terms if neither party gives 30 days' notice of
nonrenewal prior to the end of each term.
- We have a license from Voxware, Inc. that grants us the right to use
Voxware's proprietary compression software in developing our products
and to incorporate Voxware's compression software into our products.
Voxware is free to grant identical or similar licenses to others.
Generally, we are not permitted to transfer our license rights to
others, other than in connection with a sale of our products. In
consideration for our license rights, we have paid Voxware an initial
license fee of $20,000 and we pay royalties to Voxware equal to 1.5% of
all sales of our products containing the licensed software. The license
from Voxware expires in April 2000, but automatically renews for
successive one-year terms if neither party gives 90 days' notice of
nonrenewal prior to the end of each term.
- We have a license from WebXpress, Inc., a subsidiary of BEA Systems,
Inc., that grants us the right to integrate various versions of its
proprietary WebXpress server software into our Enterprise Communications
server product. WebXpress is free to grant identical or similar licenses
to others. Generally, we are not permitted to transfer our license
rights to others, other than in connection with the distribution of our
Enterprise Communications server product. In consideration for our
license rights, we pay license fees to WebXpress for each sale of our
Enterprise Communications server product containing the licensed
software. Initially, the license fees range from $2,125 to $12,750 per
central processing unit on which our customers use our Enterprise
Communications server product, depending on the version of WebXpress
software that is integrated into the Enterprise Communications server
product distributed. Our fees will be lowered based on our cumulative
license fee payments; if our cumulative fees reach certain levels, our
license fee per unit could be reduced to approximately one-half of our
initial fees. We also pay WebXpress certain maintenance fees and
additional license fees when we make sales of an Enterprise
Communications server product that incorporates the version of WebXpress
software that itself
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incorporates security functions that WebXpress has licensed from another
party. The WebXpress license expires in August 2002 and does not provide
for any automatic renewals thereafter.
If we are unable to maintain or renew such licenses, we would be forced to
remove such technologies from our software and develop or license comparable
technology. This could require additional license fees or extensive engineering
efforts, or significantly decrease our software's functionality, either of which
could harm our business, financial condition and operating results.
In addition, we have developed our products to integrate well with the Microsoft
Windows NT operating system, the operating system used by most of our customers
to run our software. If the Windows NT operating system is changed by Microsoft
so that it no longer integrates well with our products, or if Windows NT
experiences technical problems, the operation of our software could be impaired.
In such event, our business, financial condition and operating results could be
harmed. Microsoft is not obligated to ensure that Windows NT integrates well
with our products.
We may be required to obtain licenses from third parties to refine, develop,
market and deliver new products. We may be unable to obtain any needed license
on commercially reasonable terms or at all and rights granted under any licenses
may not be valid and enforceable.
EMPLOYEES
As of December 31, 1999, we had a total of 138 full-time employees, all of whom
were located in the United States. Of the total, 37 were in content production
services, 56 were in sales and marketing, 8 were in research and development, 10
were in professional services, 24 were in general and administrative and 3 were
in customer service and software support. None of our employees is represented
by a labor union. We have not experienced any work stoppages, and we consider
our relations with our employees to be good.
FACILITIES
Our principal offices currently occupy approximately 28,000 square feet in San
Mateo, California under three leases, which expire in April 2002, May 2002 and
July 2002. In addition, we also lease sales and support offices in Washington,
D.C., Boston, Chicago and Dallas. We anticipate that we will require additional
space within the next 12 months and that suitable additional space will be
available on commercially reasonable terms.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings.
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<PAGE> 43
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER MANAGEMENT EMPLOYEES
The following table sets forth certain information regarding our executive
officers, directors and other management employees, including their ages as of
December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Abraham Kleinfeld........................... 42 Chief Executive Officer, President and Director
Clifford A. Reid, Ph.D...................... 40 Chairman of the Board and Director
R. John Curson.............................. 56 Chief Financial Officer, Secretary and Treasurer
David Glazer................................ 38 Chief Technical Officer
Jane Beule.................................. 48 Vice President, Marketing
Marc A. Schnabolk........................... 42 Vice President, Sales
Anthony P. Brenner.......................... 42 Director
David F. Millet............................. 55 Director
Kathryn C. Gould............................ 49 Director
Terry L. Opdendyk........................... 52 Director
Mark C. Thompson............................ 42 Director
Michael E. Herman........................... 58 Director
Alan Atlas.................................. 48 Vice President, Engineering
Deborah L. Miller........................... 46 Vice President, Production
Robert A. Kliger............................ 46 Vice President, Professional Services
</TABLE>
Abraham Kleinfeld has served as our Chief Executive Officer and President and as
a director since January 1999. From October 1995 to October 1998, Mr. Kleinfeld
worked at Open Text Corporation, a knowledge management software products
company, where he was the Vice President of North American Sales from October
1995 to June 1997 and the Senior Vice President of Marketing from April 1997 to
October 1998. From January 1991 to October 1995, Mr. Kleinfeld served as Vice
President of Sales at Odesta Systems, a document management software products
company that he co-founded and that was acquired by Open Text in 1995. From 1989
to 1991, Mr. Kleinfeld worked at Oracle Corporation, where he was the Business
Development Manager for Office Automation Products. Mr. Kleinfeld holds a B.A.
in computer science from the State University of New York-Oswego.
Clifford A. Reid, Ph.D. co-founded Eloquent in March 1995 and has served as our
Chairman of the Board since Eloquent's inception. From March 1995 to January
1999, he also served as our Chief Executive Officer and President. In April
1988, Dr. Reid co-founded Verity, Inc., a search software products company,
where he was Vice President of Engineering from 1988 to 1992 and Executive Vice
President from 1992 to 1993. Dr. Reid holds an S.B. in physics from the
Massachusetts Institute of Technology, an M.B.A. from Harvard University and a
Ph.D. in engineering-economic systems from Stanford University.
R. John Curson has served as our Chief Financial Officer, Secretary and
Treasurer since June 1999. From March 1999 to June 1999, Mr. Curson served as a
consultant to Pinnacle Systems, Inc., assisting with the integration into
Pinnacle of Truevision, Inc., formerly known as RasterOps, a digital imaging and
video products company that Pinnacle acquired in March 1999. Prior to that, Mr.
Curson served as Truevision's Chief Financial Officer from December 1993 to
March 1999. From 1992 to 1993, Mr. Curson served as Chief Financial Officer of
LH Research Inc., a power-supply developer and manufacturer. From 1989 to 1992,
Mr. Curson served as Chief Financial Officer for Martec Controls, a high-tech
surveillance and remote tracking products company. From 1987 to 1989, Mr. Curson
served as Vice President of Finance for Xidex Inc./Dysan International, a memory
media products company. From 1976 to 1987, Mr. Curson worked at Dataproducts
Corporation, a computer printer company, where he held a variety of financial
positions. Mr. Curson holds a B.S.C. in mechanical engineering from the
University of Leeds, an M.B.A. from the University of Leeds and an M.B.A. from
the University of California, Los Angeles.
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<PAGE> 44
David Glazer co-founded Eloquent in March 1995 and has served as our Chief
Technical Officer since Eloquent's inception. From November 1994 to March 1995,
he was an independent Web information delivery systems consultant to clients
including Netscape Communications Corporation, Adobe Systems Incorporated and
Tandem Computers Incorporated, which is now a division of Compaq Computer
Corporation. In April 1988, Mr. Glazer co-founded Verity, Inc., a search
software products company, where he served as Senior Software Architect from
June 1988 to November 1994 . From 1984 to 1988, Mr. Glazer worked as an
independent contractor for Lotus Development Corporation, a software products
company. Mr. Glazer holds an S.B. in physics from the Massachusetts Institute of
Technology.
Jane Beule has served as our Vice President, Marketing since March 1999. From
September 1998 to March 1999, Ms. Beule was a freelance marketing consultant.
From February 1998 to September 1998, Ms. Beule was Vice President of Marketing
at MarketFirst Software, Inc., a marketing automation software products company.
From November 1997 to February 1998, Ms. Beule was a marketing consultant to
ProBusiness Services, Inc., a provider of employee services and software to
large employers. Prior to that, she served as ProBusiness' Vice President of
Marketing from October 1994 to November 1997. Ms. Beule holds a B.A. in
linguistics from the University of Wisconsin-Madison and an M.B.A. from Harvard
University.
Marc A. Schnabolk has served as our Vice President, Sales since July 1999. Prior
to joining Eloquent, Mr. Schnabolk worked at Open Text Corporation, a knowledge
management software products company, where he was Director of Eastern Regional
Sales from September 1996 to June 1997 and Vice President of North American
Sales from July 1997 to June 1999. From January 1995 to September 1996, Mr.
Schnabolk served as Regional Sales Manager, New Media Sales, at Oracle
Corporation, a database manufacturer. From November 1992 to December 1994, Mr.
Schnabolk served as Regional Sales Manager of Interleaf, Inc., a content
management and publishing software company. From 1985 to 1992, Mr. Schnabolk
held various technical, sales and sales management positions at Oracle. Mr.
Schnabolk holds a B.S. in mathematics from Bates College and an M.B.A. from
Fairleigh Dickinson University.
Anthony P. Brenner has served as a director of Eloquent since July 1998. Mr.
Brenner has been a managing director and partner at Crosslink Capital, Inc., a
venture capital firm that was formerly the Omega Ventures arm of Robertson,
Stephens & Company, since January 1998, prior to which he was a independent
consultant to Omega Ventures from September 1997 to December 1997. Since January
1989, Mr. Brenner has served as President of Cedar Point Partners, L.P., a
private equity investment partnership. From May 1994 to September 1996, Mr.
Brenner was Senior Managing Director of Advanta Partners, a venture capital firm
affiliated with Advanta Corporation, a financial services company. Mr. Brenner
also served as a member of the board of directors of Advanta Corporation from
May 1992 to August 1996. Mr. Brenner holds a B.A. in economics from Yale
University and an M.B.A. from Stanford University.
Kathryn C. Gould has served as a director of Eloquent since July 1996. Ms. Gould
has been a member of Foundation Capital Management, LLC, since December 1995.
Foundation Capital Management is the general partner of the Foundation Capital
venture capital funds that have invested in Eloquent. From September 1989 to
December 1995, Ms. Gould was a partner of Merrill, Pickard, Anderson & Eyre, a
venture capital firm. Ms. Gould also serves on the board of directors of
Interwoven, Inc. Ms. Gould holds a B.S. in physics from the University of
Toronto and an M.B.A. from the University of Chicago.
David F. Millet has served as a director of Eloquent since October 1999. Mr.
Millet is a founding member of Gemini Investors LLC, a venture capital firm, and
has served as its Managing Director since 1997. Gemini Investors manages GMN
Investors II, L.P., which purchased subordinated sales and common stock warrants
from Eloquent in October 1999. Prior to joining Gemini Investors, Mr. Millet
spent the preceding ten years as Vice President and President of Chatham Venture
Corp., a venture capital firm. From 1983 to 1988, Mr. Millet served as Chief
Executive Officer of Continuing Care Associates, a provider of home healthcare
products and services. Prior to 1983, Mr. Millet served in various management
roles in NEC Electronics, USA, the U.S. subsidiary of NEC Corp. of Tokyo, Japan.
From
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<PAGE> 45
1966 to 1975, Mr. Millet was a member of the Senior Staff of Arthur D. Little,
Inc., an international consulting firm. Mr. Millet is on the Board of Directors
of Wall Data Incorporated and View Tech, Inc. Mr. Millet holds a B.A. in
physical sciences from Harvard University.
Terry L. Opdendyk has served as a director of Eloquent since October 1995. Mr.
Opdendyk has been a partner of ONSET Ventures since 1984. He currently serves as
Chairman of ONSET Venture Services Corporation; General Partner of OEA
Management, L.P., the General Partner of ONSET Enterprise Associates, L.P.;
General Partner of OEA II Management, L.P., the General Partner of ONSET
Enterprise Associates II, L.P.; and Managing Director of OEA III Management,
LLC, the General Partner of ONSET Enterprise Associates III, L.P. Mr. Opdendyk
holds a B.S. in computer science from Michigan State University and an M.S. in
computer science from Stanford University.
Mark C. Thompson has served as a director of Eloquent since October 1999. Since
1988, Mr. Thompson has served in a number of positions with Charles Schwab &
Co., Inc., a financial services center, including most recently Executive
Producer and Senior Vice President, Electronic Brokerage. Mr. Thompson serves on
the board of directors of Interwoven, Inc. Mr. Thompson holds a B.A. in
international relations and an M.A. in new media from Stanford University.
Michael E. Herman has served as a director of Eloquent since November 1999.
Since 1993, Mr. Herman has served as President of the Kansas City Royals, a
major league baseball team. Since 1990, Mr. Herman has also served as the
Chairman of the Investment Committee of the Ewing Marion Kauffman Foundation, a
private foundation, of which Mr. Herman was President and Chief Operating
Officer from 1985 to 1990. From 1974 to 1990, Mr. Herman served as Executive
Vice President and Chief Financial Officer of Marion Laboratories, a
pharmaceutical company. Mr. Herman serves on the board of directors of Janus
Capital Corporation and Cerner Corporation. Mr. Herman holds a B.S. in
Metallurgical Engineering from Rensselaer Polytechnic Institute and an M.B.A.
from the University of Chicago.
Alan Atlas has served as our Vice President, Engineering since February 1999.
From May 1996 to February 1999, Mr. Atlas was Director of Newsroom System
Engineering at Avid Technology, Inc., a digital video editing tools company.
From February 1994 to April 1996, Mr. Atlas was Vice President of Engineering at
Sarrus Software, a NextStep groupware company. Mr. Atlas holds a B.A. in
Psychology from Brown University, a B.S. in electrical engineering from the
University of Massachusetts and an M.S. in electrical engineering from Georgia
Institute of Technology.
Deborah L. Miller has served as our Vice President, Production since July 1998.
From September 1996 to June 1998, Ms. Miller was Director, Materials at
Electronic Arts, a multimedia games production company. From March 1994 to
August 1996, Ms. Miller was Business Development Manager and Global Program
Manager at Solectron, Inc., a contract manufacturer. From June 1982 to February
1994, Ms. Miller held various positions in finance and manufacturing at Amdahl
Corporation, a manufacturer of mainframe computers. Ms. Miller holds a B.A. in
business from San Francisco State University and an M.B.A. from the University
of Washington.
Robert A. Kliger has served as our Vice President, Professional Services since
March 1999. From January 1998 to June 1998, Mr. Kliger was Western Regional
Manager at Documentum, Inc., a document management software products company.
From 1990 to January 1998, Mr. Kliger was President and Chief Executive Officer
of Workgroup Management, Inc., a professional services firm founded by Mr.
Kliger that specialized in document management applications development and was
acquired by Documentum in 1998. Mr. Kliger holds a B.A. in music from Mercy
College and an M.B.A. from the University of Illinois.
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<PAGE> 46
BOARD COMPOSITION
Eloquent has authorized eight directors. In accordance with the terms of our
amended and restated certificate of incorporation and amended and restated
bylaws, each of which will become effective upon the completion of this
offering, the board of directors will be divided into three classes, Class I,
Class II and Class III, with each class serving staggered three-year terms. Upon
the completion of this offering, the members of classes will be divided as
follows:
- Class I: David Millet and Abraham Kleinfeld
- Class II: Clifford Reid, Kathryn Gould and Michael Herman
- Class III: Anthony Brenner, Terry Opdendyk and Mark Thompson
The Class I directors will stand for re-election or election at the 2000 annual
meeting of stockholders. The Class II directors will stand for re-election or
election at the 2001 annual meeting of stockholders. The Class III directors
will stand for re-election or election at the 2002 annual meeting of
stockholders. At each annual meeting of stockholders after the initial
classification, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following the election or special meeting held in lieu thereof.
The amended and restated certificate of incorporation provides that the
authorized number of directors may be changed only by resolution of the board of
directors. Any additional directorships resulting from an increase in the number
of directors will be distributed between the three classes so that, as nearly as
possible, each class will consist of one third of the directors. This
classification of the board of directors may have the effect of delaying or
preventing changes in the control or management of Eloquent. However, if
Eloquent is subject to Section 2115 of the California General Corporation Law,
all directors will be designated of the same class, and such directors will be
elected by cumulative voting if any stockholder requests cumulative voting. See
"Description of Capital Stock -- Section 2115" beginning on page 63 for a more
detailed description of the applicability of Section 2115 to Eloquent and its
effect, if applicable, on election of our directors.
Our directors may be removed for cause by the affirmative vote of the holders of
a majority of our voting stock, and directors may be removed without cause by
the affirmative vote of the holders of at least two-thirds of our voting stock.
However, if we are subject to Section 2115 of the California General Corporation
Law, unless the entire board is removed, no single director may be removed
without cause when the votes cast against such director's removal would be
sufficient to elect that director if voted cumulatively. See "Description of
Capital Stock -- Section 2115" beginning on page 63 for a more detailed
description of the applicability of Section 2115 to Eloquent.
BOARD COMMITTEES
The Audit Committee of our board of directors consists of Messrs. Brenner and
Opdendyk. The Audit Committee reviews our financial statements and accounting
practices, makes recommendations to the board regarding the selection of
independent auditors and reviews the results and scope of the audit and other
services provided by our independent auditors. The Compensation Committee of our
board of directors consists of Mr. Opdendyk, Ms. Gould and Mr. Millet. The
Compensation Committee makes recommendations to the board concerning salaries
and incentive compensation for our officers and employees and administers our
employee benefit plans.
DIRECTOR COMPENSATION
We have not provided cash compensation to non-employee directors for their
services as directors or members of committees of the board of directors.
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<PAGE> 47
We granted options to acquire 25,000 shares of our common stock at an exercise
price of $5.00 per share to Mr. Thompson in October 1999 and to Mr. Herman in
November 1999. These options vest over three years. By virtue of their receipt
of these options, Messrs. Thompson and Herman will be ineligible to receive the
initial option to acquire 25,000 shares of our common stock that each of our
other non-employee directors will receive upon the completion of this offering.
See "-- Employee Benefit Plans" beginning on page 48 for a more detailed
description of automatic stock option grants to non-employee directors.
Following the completion of this offering, all directors will be eligible to
participate in our 1999 Equity Incentive Plan. Employee directors also will be
eligible to participate in our 1999 Employee Stock Purchase Plan. See
"-- Employee Benefit Plans" beginning on page 48 for a more detailed description
of each of these plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee was at any time since the
formation of Eloquent one of our officers or employees. None of our executive
officers serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving on our board of
directors or Compensation Committee.
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<PAGE> 48
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth cash and certain
other compensation earned during 1999 by the persons serving as our Chief
Executive Officer during 1999 and our only other executive officers who earned
more than $100,000 in 1999. These people are referred to as the named executive
officers. The information in the table includes salaries, bonuses, stock options
granted and other miscellaneous compensation. We have not granted stock
appreciation rights or restricted stock awards and provide no long-term
compensation benefits other than stock options.
In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits received by the named executive officers that are
available generally to all of our salaried employees and perquisites and other
personal benefits received by the named executive officers that do not exceed
$50,000 or 10% of any such officer's salary and bonus disclosed in this table,
whichever is less.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
Abraham Kleinfeld(1)....................................... 206,042 71,800 1,225,000
Chief Executive Officer and President
Clifford A. Reid, Ph.D.(2)................................. 140,000 45,720 125,000
Chairman of the Board and Former Chief
Executive Officer and President
David Glazer............................................... 145,000 22,860 100,000
Chief Technical Officer
Jane Beule(3).............................................. 122,211 28,900 179,200
Vice President, Marketing
R. John Curson(4).......................................... 98,622 7,814 210,000
Chief Financial Officer, Secretary and Treasurer
Marc A. Schnabolk(5)....................................... 73,365 26,250 175,000
Vice President, Sales
Gloria M. Purdy(6)......................................... 119,088 -- --
Former Chief Financial Officer, Secretary
and Treasurer
</TABLE>
- ---------------------------------------------
(1) Mr. Kleinfeld joined Eloquent in January 1999.
(2) Mr. Reid served as our Chief Executive Officer and President from our
inception until January 1999.
(3) Ms. Beule joined Eloquent in March 1999.
(4) Mr. Curson joined Eloquent in June 1999.
(5) Mr. Schnabolk joined Eloquent in July 1999.
(6) Ms. Purdy joined Eloquent as our Chief Financial Officer, Secretary and
Treasurer in April 1998, resigned from these positions in January 1999 and
ceased to be an employee of Eloquent in August 1999. She exercised the
above-referenced option as to 60,000 shares, constituting the vested portion
at the time she ceased to be an employee. The unvested remaining shares
subject to the option were cancelled.
OPTION GRANTS DURING 1999. Options granted in 1999 to the named executive
officers were granted under the 1997 Equity Incentive Plan. Generally, the
exercise price per share of each option granted was equal to the fair market
value of the common stock as determined by the board of directors on the date of
the
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<PAGE> 49
grant. However, the exercise price per share of the option granted to Mr. Reid
was equal to 110% of the fair market value of the common stock on the grant
date. In determining the fair market value of the stock granted on the grant
date, the board of directors considered, among other things, our absolute and
relative levels of revenues and other operating results. All options granted to
the named executive officers were immediately exercisable and were intended to
qualify as incentive stock options, to the extent permissible under applicable
IRS regulations. Generally, options vest as to 25% of the shares subject to the
option one year after the vesting commencement date and 1/36 of the remaining
shares subject to the option vest on each of the 36 monthly anniversaries
thereafter. Unvested shares are subject to Eloquent's right of repurchase upon
termination of employment. Options expire ten years from the date of grant.
We granted options covering an aggregate of 2,941,000 shares to our employees
during 1999, including named executive officers.
The following table sets forth each grant of stock options made during 1999 to
each of the named executive officers.
1999 STOCK OPTION GRANTS
<TABLE>
<CAPTION>
PERCENTAGE POTENTIAL REALIZABLE VALUE AT
NUMBER OF OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO TERM(1)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION ------------------------------
NAME GRANTED IN 1999 ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------- -------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Abraham Kleinfeld................ 1,160,000 39.4% $1.00 1/19/09 19,624,695 31,936,153
65,000 2.2% $2.00 10/18/09 1,034,660 1,724,526
Clifford A. Reid, Ph.D........... 125,000 4.3% $2.20 9/30/04 1,479,887 1,939,451
David Glazer..................... 100,000 3.4% $2.00 9/30/09 1,591,784 2,653,117
Jane Beule....................... 179,200 6.1% $1.00 3/16/08 3,031,677 4,933,585
R. John Curson................... 210,000 7.1% $1.00 6/16/09 3,552,747 5,781,545
Marc A. Schnabolk................ 175,000 6.0% $1.00 7/26/09 2,960,622 4,817,954
Gloria M. Purdy.................. -- -- -- -- -- --
</TABLE>
- ---------------------------------------------
(1) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by an assumed initial
public offering price of $11.00 per share, (b) assuming that the aggregate
stock value derived from that calculation compounds at the annual 5% or 10%
rate shown in the table for the term of the option and (c) subtracting from
that result the aggregate option exercise price. The 5% and 10% assumed
annual rates of stock price appreciation are mandated by the rules of the
SEC and do not represent our estimate or projection of future common stock
prices.
AGGREGATE OPTION VALUES AT DECEMBER 31, 1999. Options granted to named executive
officers may be exercised prior to vesting, pursuant to early exercise
provisions contained in option agreements. Any unvested shares issued pursuant
to any such early exercise are subject to a repurchase option in favor of
Eloquent at the original exercise price paid per share upon the optionee's
cessation of service as an employee, director or consultant prior to the vesting
of such shares. Such repurchase option lapses at a rate reflecting the vesting
schedule of the underlying option.
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<PAGE> 50
The following table sets forth the number of shares of common stock subject to
stock options held as of December 31, 1999 by each of the named executive
officers, all of which are exercisable. Value at fiscal year end is measured as
the difference between the exercise price per share and the initial public
offering price per share of $11.00. No options to acquire shares of our common
stock were exercised by the named executive officers during 1999.
AGGREGATE OPTION VALUES AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE OPTIONS AT OPTIONS AT
NAME ON EXERCISE REALIZED($)(1) DECEMBER 31, 1999 DECEMBER 31, 1999($)(1)
---- --------------- -------------- ---------------------- -----------------------
<S> <C> <C> <C> <C>
Abraham Kleinfeld............ -- -- 1,225,000 12,185,000
Clifford A. Reid, Ph.D....... -- -- 125,000 1,100,000
David Glazer................. -- -- 100,000 900,000
Jane Beule................... 100,000 1,000,000 79,200 792,000
R. John Curson............... -- -- 210,000 2,100,000
Marc A. Schnabolk............ -- -- 175,000 1,750,000
Gloria M. Purdy.............. 60,000 636,600 -- --
</TABLE>
- ---------------------------------------------
(1) Based on the assumed initial public offering price of $11.00 per share,
minus the per share exercise price, multiplied by the number of shares
issued or issuable upon exercise of the option.
EMPLOYEE BENEFIT PLANS
Since 1995, we have established three equity incentive plans under which we may
offer incentive stock options, nonstatutory stock options, restricted stock and
stock bonuses to employees, officers, non-employee directors and consultants.
The plans are intended to help us retain the services of individuals who can
operate and grow our business and align their interests with those of our
stockholders.
EQUITY INCENTIVE PLAN. In December 1995, the board of directors adopted, and the
stockholders approved, the Equity Incentive Plan. The incentive plan was most
recently amended in November 1999. The incentive plan will terminate in December
2005 unless it is terminated earlier by the board of directors. The incentive
plan provides for the grant of stock awards, which are:
- incentive stock options, as defined under the Internal Revenue Code of
1986, as amended, which may be granted solely to officer and non-officer
employees; and
- nonstatutory stock options, restricted stock purchase awards, and stock
bonuses, which may be granted to officer and non-officer employees,
non-employee directors and consultants.
Plan administration. The incentive plan is administered by the board of
directors. The board of directors may delegate authority to administer the
incentive plan to a committee. Subject to the terms of the plan, the board of
directors or its authorized committee determines recipients, the numbers and
types of stock awards to be granted, and the terms and conditions of the stock
awards including the period of their exercisability and vesting. Subject to the
plan limitations set forth below, the board of directors or its authorized
committee also determines the exercise price of options granted and the right to
purchase restricted stock.
Stock options. Stock options are granted pursuant to stock option agreements.
The exercise price for an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the date of grant. The exercise price
for a nonstatutory stock option cannot be less than 85% of the fair market value
of the common stock on the date of grant. Options granted under the incentive
plan vest at the rate specified in the option agreement.
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<PAGE> 51
The term of stock options granted under the incentive plan may not exceed 10
years. Unless the terms of an optionee's stock option agreement provide for
earlier termination, in the event an optionee's service relationship with us, or
any affiliate or ours, ceases due to disability, the optionee may exercise any
vested options up to 12 months after the date such service relationship ends. In
the case of the optionee's death, absent a provision for earlier termination in
the stock option agreement, a beneficiary of the optionee may exercise any
vested options up to 18 months after the date the service relationship ends. If
an optionee's relationship with us, or any affiliate of ours, ceases for any
reason other than disability or death, absent a provision for earlier
termination in the stock option agreements, the optionee may exercise any vested
options up to three months from cessation of service. However, an option may not
be exercised after the expiration of its term.
Acceptable consideration for the purchase of common stock issued under the
equity incentive plan is determined by the board of directors and may include
cash, common stock previously owned by the optionee, a deferred payment
arrangement and other legal consideration approved by the board of directors.
An optionee may not transfer a stock option other than by will or the laws of
descent or distribution unless the optionee holds a nonstatutory stock option
that provides otherwise. However, an optionee may designate a beneficiary who
may exercise the option following the optionee's death.
Tax limitations on stock option grants. Under current tax laws, incentive stock
options may be granted only to our employees. Only the first $100,000 worth of
stock options exercisable for the first time in one calendar year can be treated
as an incentive stock option. For this purpose, the value of the stock option
grant is the fair market value of the underlying stock at the date of grant. No
incentive stock option may be granted to any person who, at the time of the
grant, owns or is deemed to own stock possessing more than 10% of the total
combined voting power of Eloquent or any affiliate unless the following
conditions are satisfied:
- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
- the term of any incentive stock option award must not exceed five years
from the date of grant.
Restricted stock and stock bonus awards. The purchase price for each restricted
stock award granted must be at least 85% of the fair market value of the stock
on the date of the award or at the time the purchase is consummated. Rights to
acquire shares under a stock bonus or restricted stock bonus agreement may not
be transferred other than by will or by the laws of descent and distribution and
are exercisable during the life of the optionee only by the optionee.
Changes in control. In the event of certain changes in control, all outstanding
stock awards under the incentive plan either will be assumed, continued or
substituted for by any surviving entity. If the surviving entity refuses to
assume, continue or substitute for outstanding stock awards, they will be
terminated upon the change in control if not previously exercised.
Authorized shares. An aggregate of 1,070,000 shares of common stock currently
are authorized for issuance under the incentive plan. As of December 31, 1999,
options to purchase a total of 161,250 shares of our common stock were held by
all participants under the incentive plan. After the date of the offering, no
further stock awards will be made under the incentive plan. Shares subject to
stock options that have expired or otherwise terminated without having been
exercised in full will again become available for the grant of awards under the
incentive plan. Shares issued under the incentive plan may be previously
unissued shares or reacquired shares bought on the market or otherwise.
49
<PAGE> 52
1997 EQUITY INCENTIVE PLAN. In July 1997, the board of directors adopted, and
the stockholders approved, the 1997 Equity Incentive Plan. The 1997 incentive
plan was most recently amended in November 1999. The 1997 incentive plan will
terminate in July 2007 unless it is terminated earlier by the board of
directors. The 1997 incentive plan provides for the grant of stock awards, which
are:
- incentive stock options, as defined under the Internal Revenue Code of
1986, as amended, which may be granted solely to officer and non-officer
employees, including officers; and
- nonstatutory stock options, restricted stock purchase awards, and stock
bonuses which may be granted to officer and non-officer employees,
non-employee directors and consultants.
Plan administration. The 1997 incentive plan is administered by the board of
directors. The board of directors may delegate authority to administer the 1997
incentive plan to a committee. Subject to the terms of the plan, the board of
directors or its authorized committee determines recipients, the numbers and
types of stock awards to be granted, and the terms and conditions of the stock
awards including the period of their exercisability and vesting. Subject to the
plan limitations set forth below, the board of directors or its authorized
committee also determines the exercise price of options granted and the right to
purchase restricted stock.
Stock options. Stock options are granted pursuant to stock option agreements.
The exercise price for an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the date of grant. The exercise price
for a nonstatutory stock option cannot be less than 85% of the fair market value
of the common stock on the date of grant. Options granted under the 1997
incentive plan vest at the rate specified in the option agreement.
The term of stock options granted under the 1997 incentive plan may not exceed
10 years. Unless the terms of an optionee's stock option agreement provide for
earlier termination, in the event an optionee's service relationship with us, or
any affiliate or ours, ceases due to disability, the optionee may exercise any
vested options up to 12 months after the date such service relationship ends. In
the case of the optionee's death, absent a provision for earlier termination in
the stock option agreement, a beneficiary of the optionee may exercise any
vested options up to 18 months after the date the service relationship ends. If
an optionee's relationship with us, or any affiliate of ours, ceases for any
reason other than disability or death, absent a provision for earlier
termination in the stock option agreement, the optionee may exercise any vested
options up to three months from cessation of service. However, an option may not
be exercised after the expiration of its term.
Acceptable consideration for the purchase of common stock issued under the 1997
incentive plan is determined by the board of directors and may include cash,
common stock previously owned by the optionee, a deferred payment arrangement
and other legal consideration approved by the board of directors.
An optionee may not transfer a stock option other than by will or the laws of
descent or distribution unless the optionee holds a nonstatutory stock option
that provides otherwise. However, an optionee may designate a beneficiary who
may exercise the option following the optionee's death.
Tax limitations on stock option grants. Under current tax laws, incentive stock
options may be granted only to our employees. Only the first $100,000 worth of
stock options exercisable for the first time in one calendar year can be treated
as an incentive stock option. For this purpose, the value of the stock option
grant is the fair market value of the underlying stock at the date of grant. No
incentive stock option may be granted to any person who, at the time of the
grant, owns or is deemed to own stock possessing
50
<PAGE> 53
more than 10% of the total combined voting power of Eloquent or any affiliate
unless the following conditions are satisfied:
- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
- the term of any incentive stock option award must not exceed five years
from the date of grant.
Restricted stock and stock bonus awards. The purchase price for each restricted
stock award granted must be at least 85% of the fair market value of the stock
on the date of the award or at the time the purchase is consummated. Rights to
acquire shares under a stock bonus or restricted stock bonus agreement may not
be transferred other than by will or by the laws of descent and distribution and
are exercisable during the life of the optionee only by the optionee.
Changes in control. In the event of certain changes in control, all outstanding
stock awards under the 1997 incentive plan either will be assumed, continued or
substituted for by any surviving entity. If the surviving entity refuses to
assume, continue or substitute for outstanding stock awards, they will be
terminated upon the change in control if not previously exercised.
Authorized shares. An aggregate of 4,934,500 shares of common stock currently
are authorized for issuance under the 1997 incentive plan. As of December 31,
1999, options to purchase a total of 3,166,092 shares of our common stock were
held by all participants under the 1997 incentive plan. After the date of this
offering, no further stock awards will be made under the 1997 incentive plan.
Shares subject to stock options that have expired or otherwise terminated
without having been exercised in full will again become available for the grant
of awards under the 1997 incentive plan. Shares issued under the 1997 incentive
plan may be previously unissued shares or reacquired shares bought on the market
or otherwise.
1999 EQUITY INCENTIVE PLAN. In October 1999, the board of directors adopted, and
in November 1999, the stockholders approved, the 1999 Equity Incentive Plan. The
1999 incentive plan will terminate in October 2009 unless it is terminated
earlier by the board of directors. The 1999 incentive plan provides for the
grant of stock awards, which are:
- incentive stock options, as defined under the Internal Revenue Code of
1986, as amended, which may be granted solely to officer and non-officer
employees including officers; and
- nonstatutory stock options, restricted stock purchase awards, and stock
bonuses which may be granted to officer and non-officer employees,
non-employee directors and consultants.
Plan administration. The 1999 incentive plan is administered by the board of
directors. The board of directors may delegate authority to administer the 1999
incentive plan to a committee. Subject to the terms of the plan, the board of
directors or its authorized committee determines recipients, the numbers and
types of stock awards to be granted, and the terms and conditions of the stock
awards including the period of their exercisability and vesting. Subject to the
plan limitations set forth below, the board of directors or its authorized
committee also determines the exercise price of options granted and the right to
purchase restricted stock.
Stock options. Stock options are granted pursuant to stock option agreements.
The exercise price for an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the date of grant. The exercise price
for a nonstatutory stock option cannot be less than 85% of the fair market value
of the common stock on the date of grant. Options granted under the 1999
incentive plan vest at the rate specified in the option agreement.
The term of incentive stock options granted under the 1999 incentive plan may
not exceed 10 years. Unless the terms of an optionee's stock option agreement
provide for earlier termination, in the event an optionee's service relationship
with us, or any affiliate or ours, ceases due to disability, the optionee may
exercise any vested options up to 12 months after the date such service
relationship ends. In the case of the optionee's death, absent a provision for
earlier termination in the stock option agreement, a beneficiary
51
<PAGE> 54
of the optionee may exercise any vested options up to 18 months after the date
the service relationship ends. If an optionee's relationship with us, or any
affiliate of ours, ceases for any reason other than disability or death, absent
a provision for earlier termination in the stock option agreement, the optionee
may exercise any vested options up to three months from cessation of service.
However, an option may not be exercised after the expiration of its term.
Acceptable consideration for the purchase of common stock issued under the 1999
incentive plan is determined by the board of directors and may include cash,
common stock previously owned by the optionee, a deferred payment arrangement
and other legal consideration approved by the board of directors.
An optionee may not transfer a stock option other than by will or the laws of
descent or distribution unless the optionee holds a nonstatutory stock option
that provides otherwise. However, an optionee may designate a beneficiary who
may exercise the option following the optionee's death.
Tax limitations on stock option grants. Under current tax laws, incentive stock
options may be granted only to our employees. Only the first $100,000 worth of
stock options exercisable for the first time in one calendar year can be treated
as an incentive stock option. For this purpose, the value of the stock option
grant is the fair market value of the underlying stock at the date of grant. No
incentive stock option may be granted to any person who, at the time of the
grant, owns or is deemed to own stock possessing more than 10% of the total
combined voting power of Eloquent or any affiliate unless the following
conditions are satisfied:
- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
- the term of any incentive stock option award must not exceed five years
from the date of grant.
Section 162(m). Section 162(m) of the Internal Revenue Code of 1986 denies an
income tax deduction to publicly held corporations for certain compensation paid
to specified employees in a taxable year to the extent that the compensation
exceeds $1 million, unless the compensation constitutes "performance-based
compensation." In order to ensure that option grants under the 1999 incentive
plan constitute "performance-based compensation," no person may be granted
options under the 1999 incentive plan covering more than 2,500,000 shares of
common stock in any calendar year. Under its general authority to grant options,
the board of directors has the implicit authority to reprice outstanding options
or to offer optionees the opportunity to replace outstanding options with new
options for the same or a different number of shares. Both the original and new
options will count toward the Section 162(m) limitation.
Restricted stock and stock bonus awards. The purchase price for each restricted
stock award granted must be at least 85% of the fair market value of the stock
on the date of the award or at the time the purchase is consummated. Rights to
acquire shares under a stock bonus or restricted stock bonus agreement may not
be transferred other than by will or by the laws of descent and distribution and
are exercisable during the life of the optionee only by the optionee. Certain
restricted stock awards made following the completion of this offering may be
otherwise transferable if the stock bonus agreement so provides.
Changes in control. In the event of certain changes in control, all outstanding
stock awards under the 1999 incentive plan either will be assumed, continued or
substituted for by any surviving entity. If the surviving entity refuses to
assume, continue or substitute for such awards, the vesting provisions of
outstanding stock awards held by persons whose service relationship with us has
not terminated at the time of the change in control will be accelerated. These
stock awards will be terminated upon the change in control if not previously
exercised.
Authorized shares. Upon the effectiveness of the 1999 incentive plan, shares
available for issuance under our two pre-existing incentive plans will become
authorized for issuance under the 1999 incentive plan. Based on options
outstanding at December 31, 1999, the initial reserve under the 1999 incentive
plan will
52
<PAGE> 55
be approximately 1,462,849 shares. Beginning January 1, 2001, the number of
shares of common stock authorized for issuance under the 1999 incentive plan
will be increased on each January 1 by 4% of the number of shares of common
stock outstanding on that date. However, the board of directors has the
authority to designate a smaller number of shares by which the authorized number
of shares of common stock will be increased on that date. As of the date hereof,
no stock awards have been granted under the 1999 incentive plan.
Shares subject to stock options granted under the incentive plan, the 1997
incentive plan and the 1999 incentive plan that have expired or otherwise
terminated without having been exercised in full will again become available for
the grant of awards under the 1999 incentive plan. Likewise, shares of
restricted stock awarded under these three plans that have not become fully
vested will again become available for the grant of awards under the 1999
incentive plan. Shares issued under the 1999 incentive plan may be previously
unissued shares or reacquired shares bought on the market or otherwise.
STOCK OPTION GRANTS TO NON-EMPLOYEE DIRECTORS. The 1999 incentive plan provides
for the automatic grant of nonstatutory stock options to purchase shares of
common stock to our non-employee directors.
Administration and terms. The board of directors administers automatic option
grants to non-employee directors, unless and until it delegates administration
to a committee. Options granted to non-employee directors are generally subject
to the following terms:
- the exercise price of options granted will be equal to the fair market
value of the common stock on the date of grant;
- no option granted may be exercised after the expiration of 10 years from
the date it was granted;
- options granted are not transferable other than by will or by the laws
of descent and distribution and are exercisable during the life of the
optionee only by the optionee;
- an optionee may designate a beneficiary who may exercise the option
following the optionee's death; and
- an optionee whose service relationship with Eloquent or any affiliate,
whether as a non-employee director of Eloquent or subsequently as an
employee, director or consultant of either Eloquent or an affiliate,
ceases for any reason may exercise vested options for the term provided
in the option agreement, which is generally 12 months, or 18 months in
the event of the optionee's death. However, an option may not be
exercised after the expiration of its term.
Automatic grants. Upon the completion of this offering, subject to certain
exceptions, each non-employee director that has not previously received Eloquent
stock options will automatically be granted an option to purchase 25,000 shares
of common stock. Any individual who becomes a non-employee director after this
offering will automatically receive this initial grant upon being elected to the
board of directors. Each year, on the day after our annual stockholders'
meeting, commencing in 2000, any person who is then a non-employee director will
automatically be granted an option to purchase 5,000 shares of common stock,
provided that if any non-employee director that had not served in that capacity
for the entire period since the preceding annual stockholders' meeting, then the
number of shares subject to the annual grant shall be reduced, pro rata, for
each full quarter the person did not serve during the previous period. Initial
grants vest over a three-year period, and annual grants vest one year from the
date of grant. All automatic director grants become immediately exercisable upon
grant.
53
<PAGE> 56
1999 EMPLOYEE STOCK PURCHASE PLAN. In October 1999, the board of directors
adopted, and in November 1999, the stockholders approved, the 1999 Employee
Stock Purchase Plan, authorizing the issuance of shares of common stock pursuant
to purchase rights granted to our employees or to employees of any of our
affiliates. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Code. The purchase plan
provides a means by which employees may purchase our common stock through
payroll deductions. As of the date hereof, no shares of common stock have been
purchased under the purchase plan.
Administration. The purchase plan is administered by the board of directors. The
board of directors may delegate authority to administer the purchase plan to a
committee. Subject to the terms of the plan, the board of directors or its
authorized committee determines when and how rights to purchase shares will be
granted and the provisions of each offering of rights. Under the plan, we may
specify offerings with a duration of not more than 27 months, and may specify
shorter purchase periods within each offering. The first offering will begin on
the effective date of this offering and be approximately 25 months in duration,
with purchases occurring every six months. Unless otherwise determined by the
board of directors, common stock is purchased for accounts of employees
participating in the purchase plan at a price per share equal to the lower of:
- 85% of the fair market value of a share of our common stock on the date
of commencement of participation in the offering; or
- 85% of the fair market value of a share of our common stock on the date
of purchase.
Eligibility. The purchase plan is implemented by offerings of rights to eligible
employees. Generally, all regular employees, including executive officers, who
work at least 20 hours per week and are customarily employed by Eloquent or by
an affiliate of Eloquent for at least five months per calendar year may
participate in the purchase plan and may authorize payroll deductions of up to
15% of their earnings for the purchase of stock under the purchase plan.
Eligible employees may be granted rights only if the rights, together with any
other rights granted under employee stock purchase plans, do not permit such
employee's rights to purchase our stock to accrue at a rate which exceeds
$25,000 of the fair market value of such stock for each calendar year in which
such rights are outstanding. No employee shall be eligible for the grant of any
rights under the purchase plan if immediately after such rights are granted,
such employee has voting power over 5% or more of our outstanding capital stock
measured by vote or value.
Changes in control. In the event of changes in control described in the plan,
the surviving entity may assume or substitute for rights outstanding under the
purchase plan. If the surviving entity does not assume or substitute for
outstanding rights, then the board of directors has discretion to cause:
- the rights to continue in full force and effect; or
- a participant's accumulated payroll deductions to be used to purchase
shares, immediately prior to the change in control, and their
outstanding rights thereafter to be terminated.
Authorized shares. The purchase plan authorizes the issuance of 700,000 shares
of common stock under the purchase plan which amount is increased each January
1, beginning January 1, 2001, by 1.0% of the number of shares of common stock
outstanding on that date. However, the board of directors has the authority to
designate a smaller number of shares by which the authorized number of shares of
common stock will be increased on that date.
54
<PAGE> 57
EMPLOYMENT AGREEMENTS
In December 1998, we entered into an employment agreement with Mr. Kleinfeld,
under which Mr. Kleinfeld is compensated at a rate of $215,000 per year and is
eligible to receive a 1999 cash bonus of up to $100,000, subject to fulfillment
of objectives established by the board of directors. In addition, pursuant to
this agreement, Mr. Kleinfeld received options to purchase 1,160,000 shares of
our common stock at an exercise price of $1.00 per share in January 1999 and
options to purchase 65,000 shares of our common stock at an exercise price of
$2.00 per share in October 1999. These options vest over four years. To the
extent permissible under applicable IRS rules, these options will be incentive
stock options. In the event Mr. Kleinfeld is terminated without "cause," he is
entitled to receive from us continued payment of his base salary for a period of
six months and continued vesting of outstanding stock options during such
period. In addition, in the event of a change in control of Eloquent, one-half
of the then-unvested shares subject to the options will immediately vest.
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<PAGE> 58
CERTAIN TRANSACTIONS
In March 1995, we issued and sold an aggregate of 3,300,000 shares of our common
stock at $0.001 per share. In October 1995, we issued and sold an aggregate of
1,250,000 shares of our Series A preferred stock at $0.80 per share. From August
to September 1996, we issued and sold an aggregate of 1,907,513 shares of our
Series B preferred stock at $1.73 per share. From August to October 1997, we
issued and sold an aggregate of 1,912,233 shares of Series C preferred stock at
$3.90 per share. In June 1998, we issued and sold an aggregate of 2,089,263
shares of Series D preferred stock at $5.10 per share. Each outstanding share of
Series A, Series B, Series C and Series D preferred stock is convertible at the
election of the holder into one share of common stock and, upon the closing of
this offering, each of these shares not previously converted to common stock
will be automatically converted to common stock.
In October 1999, we issued and sold subordinated notes with an aggregate initial
principal amount of $20.0 million and warrants to purchase 1,500,000 shares of
common stock with an exercise price of $0.01 per share. The subordinated notes
are convertible into Series E preferred stock at an initial conversion rate of
$8.00 per share after December 31, 2000. However, because these subordinated
notes must be repaid with proceeds from this offering, we do not expect any
shares of Series E preferred stock to be issued.
The following table identifies the directors, executive officers and five
percent stockholders who have purchased shares of our preferred stock or common
stock, or purchased our subordinated notes and warrants. See "Principal
Stockholders" beginning on page 58 for additional information relating to the
beneficial ownership of these stockholders.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK SUBJECT
TO WARRANTS
SHARES OF COMMON SHARES OF PREFERRED PRINCIPAL AMOUNT OF ASSOCIATED
INVESTOR STOCK PURCHASED STOCK PURCHASED NOTES PURCHASED WITH NOTES
-------- ---------------- ------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Clifford A. Reid, Ph.D.(1).... 2,100,000 -- -- --
Bruce A. Forgrieve(2)......... 600,000 -- -- --
David Glazer(3)............... 600,000 -- -- --
Entities associated with ONSET
Ventures(4)................. -- 2,768,151 $2,000,000 150,000
Entities associated with
Foundation Capital(5)....... -- 1,604,096 $1,000,000 75,000
Entities associated with
Crosslink Capital,
Inc.(6)..................... -- 1,372,548 $1,000,000 75,000
Entities associated with Menlo
Ventures(7)................. -- 1,305,129 $1,000,000 75,000
GMN Investors II, L.P.(8)..... -- -- $5,000,000 375,000
</TABLE>
- ---------------------------------------------
(1) Dr. Reid contributed 420,000 of such shares to Eloquent in October 1995 and
sold 96,000 of such shares to Mr. Forgrieve in November 1995. Dr. Reid is a
director, executive officer and beneficial owner of more than 5% of the
common stock of Eloquent.
(2) Mr. Forgrieve purchased an additional 96,000 shares from Dr. Reid in
November 1995. In June 1998, Eloquent repurchased 140,000 of the shares
listed above at cost in connection with Mr. Forgrieve's termination of
employment. Mr. Forgrieve is a former director, former executive officer and
beneficial owner of more than 5% of the common stock of Eloquent.
(3) Mr. Glazer is an executive officer and beneficial owner of more than 5% of
the common stock of Eloquent.
(4) Terry L. Opdendyk, a director of Eloquent, is a general partner of each of
the referenced entities associated with ONSET Ventures (collectively, the
"ONSET Funds"), and the ONSET Funds, collectively, are the beneficial owner
of more than 5% of our common stock.
(5) Kathryn C. Gould, a director of Eloquent, is a general partner of each of
the referenced entities associated with Foundation Capital (collectively,
the "Foundation Funds"), and the Foundation Funds, collectively, are the
beneficial owner of more than 5% of our common stock.
56
<PAGE> 59
(6) Anthony P. Brenner, a director of Eloquent, is either a member or a member
of the general partner of each of the referenced entities associated with
Crosslink Capital, Inc. (collectively, the "Crosslink Funds"), and the
Crosslink Funds, collectively, are the beneficial owner of more than 5% of
our common stock.
(7) The referenced entities associated with Menlo Ventures, collectively, are
the beneficial owner of more than 5% of our common stock.
(8) David F. Millet, a director of Eloquent, is an officer of the general
partner of GMN Investors II, L.P.
In July 1996, we entered into a Note and Warrant Purchase Agreement with ONSET
Enterprise Associates II, L.P., a holder of more than five percent of our
outstanding capital stock and an entity affiliated with Mr. Opdendyk, a director
of Eloquent. Pursuant to this agreement, we borrowed $250,000 from ONSET and
issued and sold to ONSET a warrant to purchase 14,450 shares of our common stock
at an exercise price of $0.173 per share that will expire upon the closing of
this offering. The loan was evidenced by a promissory note in the amount of
$250,000, bearing interest at an annual rate of six percent, with principal and
accrued interest due and payable in October 1996. The note provided that ONSET
had the option to convert outstanding principal and interest on the loan into
shares of Eloquent stock upon a subsequent sale of stock to institutional
venture investors with proceeds to Eloquent of at least $2,000,000. The
principal and interest amount was paid to ONSET in August 1996.
Pursuant to an agreement dated October 20, 1999, between Eloquent and investors
that have purchased our preferred stock or subordinated notes or that hold
certain warrants to purchase our stock, the investors have certain registration
rights for the shares of common stock held by them, or subject to acquisition
upon exercise of certain warrants. See "Description of Capital
Stock -- Registration Rights" beginning on page 62 for a more detailed
description of these registration rights.
In December 1998, we entered into our standard Player Package Agreement with
eCicero Corporation pursuant to which we agreed to produce rich media events for
eCicero from time to time and we granted eCicero a license to distribute our
desktop player software together with the events. Bruce A. Forgrieve, a former
executive officer and director of Eloquent, founded eCicero and serves as its
President and Chief Executive Officer and a member of its board of directors. In
addition, in March 1999, we entered into a Software and Services Agreement with
eCicero. Pursuant to this agreement, we licensed to eCicero certain of our
content production software and our applications server software, and eCicero
agreed to use our content production services to produce at least forty hours of
content over a two-year period. The agreement permits eCicero to produce
standardized events presented by subject matter experts, using our platform, or
to have us produce the events, and to resell the events to its own customers.
eCicero is required to pay Eloquent a one-time software site license fee of
$100,000, an annual software maintenance fee of $15,000 and content production
fees of $2,000 per finished hour of content for an event.
In January 1999, we entered into a Confidential Agreement and General Release
with Gloria M. Purdy, providing for her resignation, effective as of February 1,
1999, from the positions of Chief Financial Officer, Secretary and Treasurer.
The agreement further provided for Ms. Purdy's continued service as a consultant
to Eloquent through August 1, 1999. In exchange for her release of all claims
against Eloquent and in consideration for her services as a consultant, Ms.
Purdy continued to receive her base pay and certain health, vacation, executive
bonus and reimbursement benefits through August 1, 1999. The aggregate value of
such benefits provided to Ms. Purdy under the agreement was approximately
$113,000. Additionally, Ms. Purdy's grant of options to purchase 225,000 shares
of our common stock, originally granted in April 1998, continued to vest at a
rate of 3,750 shares per month during the six-month period that she served as a
consultant. For additional information relating to Ms. Purdy's compensation see
"Management -- Executive Compensation" beginning on page 46.
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<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect to
beneficial ownership of our common stock as of December 31, 1999 by:
- each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
- each of our directors;
- the named executive officers;
- all current executive officers and directors as a group.
Unless otherwise indicated below, the persons and entities named in the table
have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Percentage ownership is based on 10,731,880 shares of common stock outstanding
as of December 31, 1999 and 15,231,880 shares outstanding immediately following
the completion of this offering, assuming no exercise by the underwriters of
their over-allotment option to purchase additional shares of our common stock.
Shares of common stock subject to options and warrants that are currently
exercisable or exercisable within 60 days of December 31, 1999 are deemed to be
outstanding and to be beneficially owned by the person holding such options for
the purpose of computing the percentage ownership of that person but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person.
Unless otherwise noted, the address for the individuals listed below is: c/o
Eloquent, Inc., 2000 Alameda de las Pulgas, Suite 100, San Mateo, California
94403.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF BEFORE AFTER
NAME OF BENEFICIAL OWNER SHARES OFFERING OFFERING
------------------------ ---------- -------- --------
<S> <C> <C> <C>
Entities associated with ONSET Ventures(1).................. 2,932,601 26.9% 19.0%
2490 Sand Hill Road
Menlo Park, CA 94025
Entities associated with Foundation Capital(2).............. 1,679,096 15.5% 11.0%
70 Willow Road, Suite 200
Menlo Park, CA 94025
Clifford A. Reid, Ph.D.(3).................................. 1,709,000 15.7% 11.1%
Entities associated with Crosslink Capital, Inc.(4)......... 1,447,548 13.4% 9.5%
555 California Street
Suite 2350
San Francisco, CA 94104
Entities associated with Menlo Ventures(5).................. 1,380,129 12.8% 9.0%
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Abraham Kleinfeld(6)........................................ 1,225,000 10.2% 7.4%
David Glazer(7)............................................. 700,000 6.5% 4.6%
Bruce A. Forgrieve(8)....................................... 556,000 5.2% 3.7%
2720 Wakefield Drive
Belmont, CA 94002
</TABLE>
58
<PAGE> 61
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF BEFORE AFTER
NAME OF BENEFICIAL OWNER SHARES OFFERING OFFERING
------------------------ ---------- -------- --------
<S> <C> <C> <C>
Anthony P. Brenner(4)....................................... 1,447,548 13.4% 9.5%
c/o Crosslink Capital, Inc.
555 California Street
Suite 2350
San Francisco, CA 94104
Kathryn C. Gould(2)......................................... 1,679,096 15.5% 11.0%
c/o Foundation Capital
70 Willow Road, Suite 200
Menlo Park, CA 94025
Michael E. Herman(9)........................................ 25,000 * *
David F. Millet(10)......................................... 375,000 3.4% 2.4%
Terry L. Opdendyk(1)........................................ 2,932,601 26.9% 19.0%
c/o ONSET Ventures
2490 Sand Hill Road
Menlo Park, CA 94025
Mark C. Thompson(11)........................................ 25,000 * *
R. John Curson(12).......................................... 210,000 1.9% 1.4%
Jane Beule(13).............................................. 179,200 1.7% 1.2%
Marc A. Schnabolk(14)....................................... 175,000 1.6% 1.1%
Gloria M. Purdy............................................. 60,000 * *
All directors and current executive officers
As a group (12 persons)(15)............................... 10,682,445 79.8% 59.7%
</TABLE>
- ---------------------------------------------
* Less than one percent.
(1) Includes 2,413,700 shares, a warrant to purchase 14,450 shares and a
warrant to purchase 75,000 shares held by ONSET Enterprise Associates II,
L.P. and 354,451 shares and a warrant to purchase 75,000 shares, held by
ONSET Enterprise Associates III, L.P. (collectively, the "ONSET Funds").
Mr. Opdendyk, a director of Eloquent, is a general partner of each of the
ONSET Funds. Mr. Opdendyk disclaims beneficial ownership of these shares
within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934.
(2) Includes 1,470,022 shares and a warrant to purchase 67,500 shares held by
Foundation Capital, L.P. and 134,074 shares and a warrant to purchase 7,500
shares held by Foundation Capital Entrepreneurs Fund, LLC (collectively,
the "Foundation Funds"). Ms. Gould, a director of Eloquent, is a general
partner of each of the Foundation Funds. Ms. Gould disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934.
(3) Includes 125,000 shares underlying currently exercisable stock options
granted to Mr. Reid under our 1997 Equity Incentive Plan. If these options
were exercised in full within 60 days of December 31, 1999, all of these
shares would be subject to a repurchase right in favor of Eloquent. Darlene
K. Mann, Mr. Reid's domestic partner, is a general partner of each of the
ONSET Funds. Mr. Reid disclaims beneficial ownership of any of the shares
held by the ONSET Funds.
(4) Includes 63,747 shares and a warrant to purchase 3,487 shares held by Omega
Bayview, L.L.C., 118,982 shares held by Crosslink Crossover Fund II, L.P.,
a warrant to purchase 6,502 shares held by Crosslink Crossover Fund III,
L.P., 464,984 shares and a warrant to purchase 25,407 shares held by
Crosslink Omega Ventures III, L.L.C., and 724,835 shares and a warrant to
purchase 39,604 shares held by Crosslink Offshore Omega Ventures III, A
Cayman Islands Trust (collectively, the "Crosslink Funds"). Mr. Brenner, a
director of Eloquent, is a member of Omega Bayview, L.L.C. and is a member
of the general partner of each of the other Crosslink Funds. Mr. Brenner
disclaims beneficial ownership of these shares within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934.
(5) Includes 55,559 shares and a warrant to purchase 3,000 shares held by Menlo
Entrepreneurs Fund VII, L.P. and 1,249,570 shares and a warrant to purchase
72,000 shares held by Menlo Ventures VII, L.P. (collectively, the "Menlo
Funds").
(6) Includes 1,225,000 shares underlying currently exercisable stock options
granted to Mr. Kleinfeld under our 1997 Equity Incentive Plan. If these
options were exercised in full within 60 days of December 31, 1999, 487,917
shares would be subject to a repurchase right in favor of Eloquent.
(7) Includes 100,000 shares underlying currently exercisable stock options
granted to Mr. Glazer under our 1997 Equity Incentive Plan. If these
options were exercised in full within 60 days of December 31, 1999, all of
these shares would be subject to a repurchase right in favor of Eloquent.
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<PAGE> 62
(8) Includes 556,000 shares held in the Bruce A. Forgrieve Living Trust, for
which Mr. Forgrieve, a former executive officer of Eloquent, serves as a
trustee.
(9) Includes 25,000 shares underlying currently exercisable stock options
granted to Mr. Herman under our 1997 Equity Incentive Plan and transferred
by Mr. Herman to Herman Family Trading Company, L.P. Mr. Herman serves as
the sole trustee of the sole general partner of Herman Family Trading
Company. If these options were exercised in full within 60 days of December
31, 1999, all of these shares would be subject to a repurchase right in
favor of Eloquent.
(10) Includes a warrant to purchase 375,000 shares held by GMN Investors II,
L.P. Mr. Millet is an officer of the general partner of such fund. Mr.
Millet disclaims beneficial ownership of those shares within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934.
(11) Includes 25,000 shares underlying currently exercisable stock options
granted to Mr. Thompson under our 1997 Equity Incentive Plan. If these
options were exercised in full within 60 days of December 31, 1999, all of
these shares would be subject to a repurchase right in favor of Eloquent.
(12) Includes 210,000 shares underlying currently exercisable stock options
granted to Mr. Curson under our 1997 Equity Incentive Plan. If these
options were exercised in full within 60 days of December 31, 1999, all of
these shares would be subject to a repurchase right in favor of Eloquent.
(13) Includes 100,000 shares purchased upon exercise of stock options granted to
Ms. Beule under our 1997 Equity Incentive Plan, 55,200 of which will be
subject to a repurchase right in favor of Eloquent on the date that is 60
days after December 31, 1999. Also includes 79,200 shares underlying
remaining options that are currently exercisable. If the remaining options
were exercised in full within 60 days of December 31, 1999, all of the
shares would be subject to a repurchase right in favor of Eloquent.
(14) Includes 175,000 shares underlying currently exercisable stock options
granted to Mr. Schnabolk under our 1997 Equity Incentive Plan. If these
options were exercised in full within 60 days of December 31, 1999, all of
these shares would be subject to a repurchase right in favor of Eloquent.
(15) Includes 1,839,200 shares underlying currently exercisable stock options
granted to seven of our executive officers and directors under our 1997
Equity Incentive Plan. If these options were exercised in full within 60
days of December 31, 1999, 1,282,317 shares would be subject to a
repurchase right in favor of Eloquent.
60
<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
The following section describes the capital stock of Eloquent and certain
provisions of our certificate of incorporation and bylaws that will govern the
rights of and restrictions on our capital stock after the completion of this
offering. To learn more about the terms of our capital stock, you are encouraged
to review the complete provisions of our certificate of incorporation and
bylaws, which have been filed as exhibits to the registration statement, of
which this prospectus is a part.
Upon the closing of this offering, the authorized capital stock of Eloquent will
consist of 40,000,000 shares of common stock, $0.001 par value per share, and
10,000,000 shares of preferred stock, $0.001 par value per share.
COMMON STOCK
As of December 31, 1999, there were 3,572,871 shares of our common stock
outstanding, held of record by 76 stockholders. Subject to preferences that
apply to shares of preferred stock outstanding at the time, the holders of
outstanding shares of common stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the board
of directors may from time to time determine. Each stockholder is entitled to
one vote for each share of common stock held on all matters submitted to a vote
of stockholders. Unless Section 2115 of the California General Corporation Law
is applicable to us, holders of common stock are not entitled to cumulative
voting rights with respect to the election of directors and, as a consequence,
minority stockholders will not be able to elect directors on the basis of their
votes alone. The common stock is not entitled to preemptive rights and is not
subject to redemption. Upon a liquidation, dissolution or winding-up of
Eloquent, the assets legally available for distribution to stockholders are
distributable ratably among the holders of the common stock and any
participating preferred stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding preferred stock and payment
of other claims of creditors. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, fully paid and nonassessable.
PREFERRED STOCK
As of December 31, 1999, there were 7,159,009 shares of our Series A, Series B,
Series C and Series D preferred stock outstanding, held of record by 16
stockholders. Upon the closing of this offering, all outstanding shares of
Series A, Series B, Series C and Series D preferred stock will be converted into
7,159,009 shares of common stock. Following the conversion, the shares converted
will be retired from the number of authorized shares of preferred stock. In
connection with our subordinated note and warrant financing in October 1999, we
authorized the issuance of 2,500,000 shares of Series E preferred stock. The
subordinated notes are convertible into Series E preferred stock after December
31, 2000, but must be repaid with proceeds from this offering, so we do not
expect any shares of Series E preferred stock to be issued.
Upon the closing of this offering, the board of directors will have the
authority, without further action by the stockholders, to issue up to 10,000,000
shares of preferred stock in one or more series, to establish from time to time
the number of shares to be included in each such series, to fix the rights,
preferences and privileges of the shares of each wholly unissued series and any
qualifications, limitations or restrictions thereon, and to increase or decrease
the number of shares of any such series, although the board cannot reduce the
number of shares of a series below the number of shares of such series then
outstanding. The board of directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of the common stock. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, have the
effect of delaying, deferring or preventing a change in
61
<PAGE> 64
control of Eloquent and may adversely affect the market price of the common
stock and the voting and other rights of the holders of common stock.
WARRANTS
Between November 1995 and March 1998, we issued warrants to purchase an
aggregate of 108,986 shares of our common stock at a weighted average exercise
price of $2.15 per share to Lighthouse Capital Partners, L.P. and Lighthouse
Capital Partners II, L.P. In July 1996, we issued and sold a warrant to purchase
up to 14,450 shares of our common stock at an exercise price of $0.173 per share
to ONSET Enterprise Associates II, L.P.
In May 1997, we issued a warrant to purchase up to 14,451 shares of our Series B
preferred stock at an exercise price of $1.73 per share to Imperial Bank. In
July 1999, we issued a warrant to purchase up to 70,000 shares of our common
stock at an exercise price of $5.10 per share to an affiliate of Transamerica
Business Credit Corporation, TBCC Funding Trust II.
In October 1999, we issued warrants to purchase an aggregate of 1,500,000 shares
of our common stock with an exercise price of $0.01 per share to purchasers of
our subordinated notes.
All warrants are subject to the provisions of an investors' rights agreement.
See "-- Registration Rights" beginning on this page for additional information
relating to this agreement.
REGISTRATION RIGHTS
Pursuant to an investors' rights agreement dated October 20, 1999, between
Eloquent and some of our investors and warrantholders, the investors and
warrantholders have registration rights for the 8,659,009 shares of common stock
held by them, or issuable upon conversion of their preferred stock and exercise
of their warrants. Under the rights agreement, investors holding more than 50%
of the then outstanding registrable securities may demand that we file a
registration statement under the Securities Act covering all or a portion of the
investors' registrable securities. A registration demand must cover at least 20%
of the investors' then outstanding registrable securities or any lesser
percentage of such securities if the registration has an aggregate offering
price to the public of at least $2 million. These registration rights are
subject to our right to delay the filing of a registration statement for a
period not to exceed 180 days after receiving the registration demand, although
we cannot delay more than once in a 12-month period. The managing underwriter,
if any, of any such offering has the right to limit the number of the
registrable securities proposed to be included in such registration.
If we are eligible to effect a registration on Form S-3, the investors holding
more than 25% of the then outstanding registrable securities may demand, that we
file a registration statement on Form S-3 covering all or a portion of the
investors' registrable securities, provided that the registration has an
aggregate offering price to the public of more than $500,000. These registration
rights are subject to our right to delay the filing of a registration statement
for a period not to exceed 90 days after receiving the registration demand,
although we cannot delay more than twice in a 12-month period.
In addition, the investors have "piggyback" registration rights. If we propose
to register any of our securities under the Securities Act other than pursuant
to the investors' demand registration rights noted above, the investors may
require us to include all or a portion of their registrable securities in the
registration. The managing underwriter, if any, of any such offering will have
the right to limit the number of the registrable securities to no less than
one-third of the total number of securities proposed to be included in such
registration.
All registration expenses incurred in connection with the first three
registrations requested pursuant to each of the three foregoing paragraphs, will
be borne by us. Thereafter, all registration expenses will be paid by the
selling investors pro rata in proportion to the number of securities sold. In
any registration, including
62
<PAGE> 65
the first three, each selling investor will pay all underwriting discounts and
selling commissions applicable to the sale of his or its registrable securities.
All registration rights described above will terminate seven years after this
offering. Following the closing of this offering, the rights of each investor
holding less than 1% of our outstanding common stock under the rights agreement
will terminate when that investor may sell all of its shares during any 90-day
period under Rule 144 of the Securities Act.
SECTION 2115
Eloquent is a corporation formed under Delaware law, and therefore is governed
by the Delaware General Corporation Law. However, we are also currently subject
to Section 2115 of the California General Corporation Law. Section 2115 provides
that, regardless of a company's state of incorporation, certain provisions of
California corporate law will apply to that company if more than 50% of its
outstanding voting securities are held of record by persons having addresses in
California and the majority of the company's operations occur in California. For
example, while we are subject to Section 2115, stockholders may cumulate votes
in electing directors. This means that each stockholder may vote the number of
votes equal to the number of candidates multiplied by the number of votes to
which the stockholder's shares are normally entitled in favor of one candidate.
This potentially allows minority stockholders to elect some members of the board
of directors. When we are no longer subject to Section 2115, cumulative voting
will not be allowed and a holder of 50% or more of our voting stock will be able
to control the election of all directors. In addition to this difference,
Section 2115 has the following additional effects:
- enables removal of directors with or without cause with majority
stockholder approval;
- places limitations on the distribution of dividends;
- extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of
shares; and
- provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.
We anticipate that our common stock will be qualified for trading as a national
market security on the Nasdaq National Market and that we will have at least 800
stockholders of record by the record date for our 2001 annual meeting of
stockholders. If these two conditions occur, then we will no longer be subject
to Section 2115 as of the record date for our 2001 annual meeting of
stockholders. See "-- Common Stock" beginning on page 61 and
"Management -- Board Composition" beginning on page 44 for additional
information relating to the effects of Section 2115 on Eloquent.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
DELAWARE LAW. We are subject to Section 203 of the Delaware General Corporation
Law regulating corporate takeovers. Section 203, subject to exceptions,
prohibits a Delaware corporation from engaging in any "business combination"
with any "interested stockholder" for a period of three years following the date
that the stockholder became an interested stockholder unless:
- prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not
63
<PAGE> 66
have the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or
- on or subsequent to that date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by
the interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation involving
the interested stockholder;
- subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder;
- any transaction that has the effect of increasing the proportionate
share of the stock of any class or series beneficially owned by the
interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
Section 203 defines an "interested stockholder" as:
- any entity or person beneficially owning 15% or more of the outstanding
voting stock of the corporation; and
- any entity or person affiliated with or controlling or controlled by the
entity or person.
A Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate or incorporation or bylaws resulting from a stockholders' amendment
approved by at least a majority of the outstanding voting shares. We have not
"opted out" of the provisions of Section 203. The statute could prohibit or
delay mergers or other takeover or change-in-control attempts with respect to
Eloquent and, accordingly, may discourage attempts to acquire Eloquent.
CHARTER PROVISIONS. Our bylaws, which will become effective upon the closing of
this offering, divide the board of directors into three classes as nearly equal
in size as possible with staggered three-year terms. The classification of the
board of directors could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from acquiring, control of
Eloquent. In addition, the bylaws provide that any action required or permitted
to be taken by our stockholders at an annual meeting or a special meeting of the
stockholders may be taken only if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The Bylaws also provide
that special meetings of the stockholders may be called only by the board of
directors, the chairman of the board or the chief executive officer. See
"Management -- Board Composition" beginning on page 44 for additional
information relating to the classification of the board of directors.
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<PAGE> 67
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our amended and restated certificate of incorporation, which will become
effective upon the closing of this offering, contains provisions permitted under
Delaware law relating to the liability of directors. These provisions eliminate
a director's personal liability for monetary damages resulting from a breach of
fiduciary duty, except in circumstances involving wrongful acts, such as:
- any breach of the director's duty of loyalty;
- acts or omissions which involve a lack of good faith, intentional
misconduct or a knowing violation of the law;
- payment of dividends or approval of stock repurchases or redemptions
that are unlawful under Delaware law; or
- any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws.
Our bylaws, which will become effective upon the closing of this offering,
require us to indemnify our directors and executive officers to the fullest
extent not prohibited by the Delaware law. We may modify the extent of such
indemnification by individual contracts with our directors and executive
officers. Further, we may decline to indemnify any director or executive officer
in connection with any proceeding initiated by such person, unless such
indemnification is expressly required to be made by law or the proceeding was
authorized by our board of directors.
We have entered into indemnity agreements with each of our current directors and
executive officers to give such directors and officers additional contractual
assurances regarding the scope of the indemnification set forth in our
certificate of incorporation and bylaws and to provide additional procedural
protections. At present, there is no pending litigation or proceeding involving
any of our directors, officers or employees for which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
We have the power to indemnify our other officers, employees and other agents,
as permitted by Delaware law, but we are not required to do so.
We plan to obtain directors' and officers' liability insurance.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is ChaseMellon Shareholder
Services, LLC.
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<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding 15,231,880 shares of
common stock, based on common stock outstanding as of December 31, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options and warrants. In addition, as of December 31, 1999, we
had outstanding options to purchase 3,327,342 shares of common stock and
outstanding warrants to purchase 1,685,387 shares of common stock.
The 4,500,000 shares sold in this offering will be freely tradable without
restriction under the Securities Act unless purchased by "affiliates" of
Eloquent as that term is defined in Rule 144 under the Securities Act. All of
the remaining shares, options and warrants are subject to lock-up agreements
generally providing that the holder will not:
- offer, pledge, sell, offer to sell, contract to sell, sell any option or
contract to purchase, purchase any option to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any common stock or any securities convertible
into, or exercisable or exchangeable for, common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the common stock
or any securities convertible into, or exercisable or exchangeable for,
common stock,
whether any such transaction above is to be settled by delivery of common stock
or other securities, in cash or otherwise, without the prior written consent of
U.S. Bancorp Piper Jaffray Inc. on behalf of the underwriters, for a period of
180 days after the date of this prospectus.
The table below indicates approximately when the restricted stock and stock
issuable upon exercise of options and warrants outstanding as of December 31,
1999 will be eligible for sale in the public market as a result of the lock-up
agreements described above, the operation of Rules 144, 144(k) and 701 and
vesting restrictions. Some of the shares that will be eligible for sale in the
public market will be subject to volume and other resale restrictions as a
result of Rule 144 because the holders are affiliates of Eloquent.
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING OUTSTANDING
SHARES OPTIONS WARRANTS
----------- ----------- -----------
<S> <C> <C> <C>
On the effective date of the offering....................... 0 0 0
90 days after the effective date............................ 0 0 0
181 days after the effective date........................... 10,716,880 1,706,149 207,887
After 181 days after the effective date..................... 15,000 1,621,193 1,477,500
</TABLE>
In general, a person, or group of persons whose shares are aggregated must have
beneficially owned restricted shares for at least one year to be eligible to
sell shares under Rule 144. The holding period of a prior owner that is not an
affiliate may be included for purposes of satisfying the one-year holding period
requirement. A person or group of persons eligible to sell shares under Rule 144
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 152,319 shares immediately after this offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
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<PAGE> 69
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
Eloquent. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Eloquent at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
The holding period of a prior owner that is not an affiliate may be included for
purposes of satisfying the two-year holding period requirement.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period requirement,
of Rule 144. Any of our employees, officers, directors or consultants who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on Rule 701's resale provisions 90 days after the
effective date of this offering. Rule 701 permits affiliates to sell their Rule
701 shares under Rule 144 without complying with the holding period requirements
of Rule 144. Rule 701 further provides that non-affiliates may sell such shares
in reliance on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144.
Certain holders of shares of common stock are also entitled to certain rights
with respect to registration of such shares of common stock for offer and sale
to the public. See "Description of Capital Stock -- Registration Rights"
beginning on page 62 for a more detailed description of these registration
rights.
We intend to file, within 180 days after the effective date of the offering, a
Form S-8 registration statement under the Securities Act to register shares
issued in connection with option exercises and shares reserved for issuance
under our equity incentive plans. Common stock issued upon exercise of options
after the effective date of the Form S-8 will be available for sale in the
public market, subject to Rule 144 volume limitations applicable to affiliates
and to lock-up agreements.
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<PAGE> 70
UNDERWRITING
The underwriters named below, for whom U.S. Bancorp Piper Jaffray Inc., Banc of
America Securities LLC and Thomas Weisel Partners LLC are acting as
representatives, have agreed to buy, subject to the terms and conditions of the
purchase agreement, the number of shares listed opposite their names below. The
underwriters are committed to purchase and pay for all of the shares if any are
purchased, other than those shares covered by the over-allotment option
described below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
U.S. Bancorp Piper Jaffray Inc.......................
Banc of America Securities LLC.......................
Thomas Weisel Partners LLC...........................
---------
Total....................................... 4,500,000
=========
</TABLE>
The underwriters have advised us that they propose to offer the shares to the
public at $ per share. The underwriters propose to offer the shares to
certain dealers at the same price less a concession of not more than $ per
share. The underwriters may allow and the dealers may reallow a concession of
not more than $ per share on sales to certain other brokers and dealers.
After this offering, these amounts may be changed by the underwriters.
We have granted to the underwriters an option to purchase up to an additional
675,000 shares of common stock from us at the same price to the public, and with
the same underwriting discount, as set forth in the prior paragraph. The
underwriters may exercise this option any time during the 30-day period after
the date of this prospectus, but only to cover over-allotments, if any. To the
extent the underwriters exercise the option, each underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of the additional shares as it was obligated to purchase under the
purchase agreement.
The following table shows the per share and total underwriting discount to be
paid to the underwriters in connection with this offering. These amounts are
shown assuming both no exercise and full exercise of the over-allotment option.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share.............................. $ $
Total.................................. $ $
</TABLE>
The underwriting discount is an amount equal to the offering price per share to
the public of the common stock, less the amount paid by the underwriters to
Eloquent per share of common stock. The underwriting discount is %.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act of 1933, as amended, or to
contribute to payments that the underwriters may be required to make in respect
of those liabilities.
The expenses of the offering, exclusive of the underwriting discount, include
the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers filing fee, the Nasdaq National
68
<PAGE> 71
Market listing fee, printing expenses, legal fees and expenses, accounting fees
and expenses, road show expenses, Blue Sky fees and expenses, transfer agent and
registrar fees and other miscellaneous fees. We estimate that these fees and
expenses will be an aggregate of approximately $1,500,000. These fees and
expenses are payable entirely by us.
We and each of our directors, executive officers and certain stockholders have
agreed to restrictions on our ability to sell additional shares of our common
stock for a period of 180 days after the date of this prospectus. We have agreed
not to directly or indirectly offer for sale, sell, contract to sell, grant any
option for the sale of, or otherwise issue or dispose of, any shares of common
stock, options or warrants to acquire shares of common stock, or any related
security or instrument, without the prior written consent of U.S. Bancorp Piper
Jaffray. The agreements provide exceptions for:
- sales to underwriters pursuant to the purchase agreement;
- our sales in connection with the exercise of options granted and the
granting of options to purchase shares under our existing stock option
plans; and
- certain other exceptions specified in the purchase agreement and lock-up
agreements.
Of the 4,500,000 shares of common stock offered by us, 225,000 shares will be
reserved for sale to persons designated by us. Total shares reserved for sale to
persons designated by us will not exceed 5% of the total shares offered. Shares
not sold to these persons will be reoffered immediately by the underwriters to
the public at the initial public offering price.
Thomas Weisel Partners LLC, one of the representatives of the underwriters, was
organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager of 110 filed
public offerings of equity securities, of which 79 have been completed, and has
acted as a syndicate member in an additional 54 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
Eloquent or any of our officers, directors or other controlling persons, except
for its contractual relationship with Eloquent under the terms of the
underwriting agreement entered into in connection with this offering.
Prior to the offering, there has been no established trading market for our
common stock. The initial public offering price will be negotiated by us and the
underwriters. The factors considered in determining the initial public offering
price will include:
- the history of and the prospects for the industry in which we compete;
- our past and present operations;
- our historical results of operations;
- our prospects for future earnings;
- the recent market prices of securities of generally comparable
companies;
- the general condition of the securities markets at the time of the
offering; and
- other relevant factors.
We cannot assure you that the initial public offering price of the common stock
will correspond to the price at which the common stock will trade in the public
market subsequent to this offering or that an active public market for the
common stock will develop and continue after this offering.
To facilitate the offering, the underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during and
after the offering. Specifically, the underwriters may over-allot or otherwise
create a short position in the common stock for their own account by selling
more shares
69
<PAGE> 72
of common stock than have been sold to them by us. The underwriters may elect to
cover any such short position by purchasing shares of common stock in the open
market or by exercising the over-allotment option granted to the underwriters.
In addition, the underwriters may stabilize or maintain the price of the common
stock by bidding for or purchasing shares of common stock in the open market and
may impose penalty bids. If penalty bids are imposed, selling concessions
allowed to syndicate members or other broker-dealers participating in the
offering are reclaimed if shares of common stock previously distributed in the
offering are repurchased, whether in connection with stabilization transactions
or otherwise. The effect of these transactions may be to stabilize or maintain
the market price of the common stock at a level above that which might otherwise
prevail in the open market. The imposition of a penalty bid may also affect the
price of the common stock to the extent that it discourages resales of the
common stock. The magnitude or effect of any stabilization or other transactions
is uncertain. These transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
U.S. Bancorp Piper Jaffray acted as placement agent in connection with our sale
of exchangeable subordinated notes and warrants to purchase common stock in
October 1999. As compensation for those services, we paid U.S. Bancorp Piper
Jaffray a cash fee of $1,000,100 and issued to U.S. Bancorp Piper Jaffray 15,000
shares of our common stock. In addition, three individuals affiliated with U.S.
Bancorp Piper Jaffray and one individual affiliated with Banc of America
Securities LLC participated in our subordinated notes and warrant financing in
October 1999. These individuals purchased notes with an aggregate principal
amount of $300,000 and acquired warrants to purchase a total of 22,500 shares of
common stock. These warrants were exercised in full immediately after they were
issued. Rule 2710(c)(7) of the National Association of Securities Dealers'
conduct rules prohibits the sale or transfer of the shares for one year from the
date of the closing of this offering.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for Eloquent by Cooley Godward LLP, San Francisco, California. Certain legal
matters will be passed upon for the underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The financial statements of Eloquent, Inc., as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
70
<PAGE> 73
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the stock we
are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for copies of the actual
contract, agreement or other document. When we complete this offering, we will
also be required to file annual, quarterly and special reports, proxy statements
and other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, NW, Washington, DC 20549, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference facilities. Our
SEC filings are also available at the office of the Nasdaq National Market. For
further information on obtaining copies of our public filings at the Nasdaq
National Market, you should call (212) 656-5060.
71
<PAGE> 74
ELOQUENT, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 1997, DECEMBER 31, 1998 AND DECEMBER 31,
1999:
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 75
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Eloquent, Inc:
In our opinion, the accompanying balance sheets and the related statements of
operations and of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Eloquent, Inc. at December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Jose, California
January 18, 2000
F-2
<PAGE> 76
ELOQUENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
---------------------------- DECEMBER 31,
1998 1999 1999
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 6,660,939 $ 17,174,027
Accounts receivable, net of allowances for
doubtful accounts of $104,950 and $334,005
in 1998 and 1999, respectively.............. 1,981,827 3,438,923
Deferred production costs...................... 263,573 37,199
Prepaid expenses............................... 109,210 377,393
------------ ------------
Total current assets................... 9,015,549 21,027,542
Property and equipment, net.................... 2,187,815 1,914,694
Deferred charges............................... -- 1,782,755
Other assets................................... 258,011 539,523
------------ ------------
Total assets........................... $ 11,461,375 $ 25,264,514
============ ============
LIABILITIES
Current liabilities:
Bank line of credit............................ $ 1,500,000 $ 3,000,000
Accounts payable and other liabilities......... 1,955,375 3,916,913
Capital lease obligation -- current portion.... 689,891 617,927
Deferred revenue............................... 706,422 787,166
------------ ------------
Total current liabilities.............. 4,851,688 8,322,006
Capital lease obligation, net of current
portion........................................ 1,253,883 776,932
Long-term notes payable.......................... -- 8,477,104
------------ ------------
Total liabilities...................... 6,105,571 17,576,042
------------ ------------
Commitments and contingencies (Note 6)
STOCKHOLDERS' EQUITY
Convertible preferred stock, $0.001 par value:
Authorized shares; 7,438,844 shares in 1998 and
9,938,844 shares in 1999, actual, 10,000,000
in 1999, pro forma (unaudited)..............
Issued and outstanding; 7,159,009 shares in
1998 and 1999, actual, no shares in 1999,
pro forma (unaudited) (Liquidation value of
$22,412,948)................................ 7,159 7,159 --
Common stock, $0.001 par value:
Authorized shares; 17,000,000 shares in 1998
and 30,000,000 shares in 1999, actual,
40,000,000 in 1999, pro forma (unaudited)...
Issued and outstanding; 3,471,316 shares in
1998 and 3,572,871 shares in 1999, actual,
10,731,880 in 1999, pro forma (unaudited)... 3,472 3,573 10,732
Unearned stock-based compensation................ (2,344,042) (9,564,384) (9,564,384)
Additional paid-in capital....................... 25,921,704 52,089,430 52,089,430
Accumulated deficit.............................. (18,232,489) (34,847,306) (34,847,306)
------------ ------------ ------------
Total stockholders' equity............. 5,355,804 7,688,472 7,688,472
------------ ------------ ------------
Total liabilities and stockholders'
equity............................... $ 11,461,375 $ 25,264,514 $ 25,264,514
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 77
ELOQUENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Content production services..................... $ 3,518,600 $ 6,750,200 $ 8,412,518
Software licenses and maintenance............... 405,595 993,293 2,958,564
Professional services........................... -- -- 1,121,257
----------- ------------ ------------
Total revenues.......................... 3,924,195 7,743,493 12,492,339
----------- ------------ ------------
Cost of revenues:
Content production services..................... 3,716,426 5,729,765 5,021,022
Software licenses and maintenance............... 49,924 445,267 645,881
Professional services........................... -- -- 1,495,843
----------- ------------ ------------
Total cost of revenues.................. 3,766,350 6,175,032 7,162,746
----------- ------------ ------------
Gross margin.................................... 157,845 1,568,461 5,329,593
----------- ------------ ------------
Costs and expenses:
Sales and marketing............................. 3,784,703 6,812,416 8,856,340
Research and development........................ 845,104 1,509,846 1,958,775
General and administrative...................... 1,876,228 2,210,907 3,499,028
Stock-based compensation........................ -- 991,533 5,756,395
----------- ------------ ------------
Total operating expenses................ 6,506,035 11,524,702 20,070,538
----------- ------------ ------------
Loss from operations............... (6,348,190) (9,956,241) (14,740,945)
Interest expense and other charges................ (100,211) (259,343) (2,174,808)
Interest income and other income.................. 79,103 207,544 300,936
----------- ------------ ------------
Net loss................................ $(6,369,298) $(10,008,040) $(16,614,817)
----------- ------------ ------------
Net loss per share:
Basic and diluted............................... $ (4.59) $ (4.74) $ (5.47)
=========== ============ ============
Weighted average shares -- basic and diluted...... 1,388,023 2,110,982 3,036,477
=========== ============ ============
Pro forma net loss per share:
Basic and diluted............................... $ (1.63)
============
Pro forma weighted average shares -- basic and
diluted...................................... 10,195,486
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 78
ELOQUENT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED
STOCK COMMON STOCK ADDITIONAL UNEARNED
------------------- ------------------ PAID-IN STOCK-BASED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
---------- ------ --------- ------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31,
1996..................... 3,157,513 $3,158 2,955,000 $2,955 $ 4,305,560 $ -- $ (1,855,151) $ 2,456,522
Issuance of Series C
convertible preferred
stock.................. 1,912,233 1,912 -- -- 7,455,796 -- -- 7,457,708
Exercise of stock
options................ -- -- 232,900 233 37,750 -- -- 37,983
Issuance of common and
preferred stock
warrants in exchange
for services........... -- -- -- -- 6,215 -- -- 6,215
Net loss................. -- -- -- -- -- -- (6,369,298) (6,369,298)
---------- ------ --------- ------ ----------- ----------- ------------ ------------
BALANCES, DECEMBER 31,
1997..................... 5,069,746 5,070 3,187,900 3,188 11,805,321 -- (8,224,449) 3,589,130
Issuance of Series D
convertible preferred
stock.................. 2,089,263 2,089 -- -- 10,653,147 -- -- 10,655,236
Exercise of stock
options................ -- -- 483,766 484 100,962 -- -- 101,446
Repurchase of unvested
common stock........... -- -- (200,350) (200) (13,301) -- -- (13,501)
Unearned stock-based
compensation........... -- -- -- -- 3,335,575 (3,335,575) -- --
Amortization of
stock-based
compensation........... -- -- -- -- -- 991,533 -- 991,533
Issuance of common stock
warrants in exchange
for services........... -- -- -- -- 40,000 -- -- 40,000
Net loss................. -- -- -- -- -- -- (10,008,040) (10,008,040)
---------- ------ --------- ------ ----------- ----------- ------------ ------------
BALANCES, DECEMBER 31,
1998..................... 7,159,009 $7,159 3,471,316 $3,472 $25,921,704 $(2,344,042) $(18,232,489) $ 5,355,804
Exercise of stock
options................ 422,643 423 260,093 -- -- 260,516
Exercise of common stock
warrants............... 22,500 22 203 -- -- 225
Repurchase of unvested
common stock........... (358,588) (359) (121,862) -- -- (122,221)
Unearned stock-based
compensation........... -- -- -- -- 12,976,737 (12,976,737) -- --
Amortization of unearned
stock-based
compensation........... -- -- -- -- -- 5,756,395 -- 5,756,395
Issuance of common stock
in exchange for
services............... -- -- 15,000 15 149,985 -- -- 150,000
Issuance of common stock
warrants in exchange
for services........... -- -- -- -- 402,570 -- -- 402,570
Issuance of common stock
warrants in connection
with long-term notes
payable................ -- -- -- -- 7,500,000 -- -- 7,500,000
Beneficial conversion
charge related to
long-term notes
payable................ -- -- -- -- 5,000,000 -- -- 5,000,000
Net loss................. -- -- -- -- -- -- (16,614,817) (16,614,817)
---------- ------ --------- ------ ----------- ----------- ------------ ------------
BALANCES, DECEMBER 31,
1999..................... 7,159,009 $7,159 3,572,871 $3,573 $52,089,430 $(9,564,384) $(34,847,306) $ 7,688,472
========== ====== ========= ====== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 79
ELOQUENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $(6,369,298) $(10,008,040) $(16,614,817)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.................... 222,532 707,402 1,248,687
Amortization of long-term notes payable
discount....................................... -- -- 975,104
Issuance of warrants in exchange for services.... 6,215 40,000 --
Amortization of deferred charges................. -- -- 194,735
Amortization of stock-based compensation......... -- 991,533 5,756,395
Changes in operating assets and liabilities:
Accounts receivable............................ (1,180,820) (527,271) (1,457,096)
Deferred production costs...................... (176,607) (63,810) 226,374
Prepaid expenses............................... (66,605) (15,363) (268,183)
Other assets................................... (59,663) (19,736) (281,512)
Accounts payable and other liabilities......... 1,871,232 (156,003) 1,961,538
Deferred revenue............................... 267,548 290,644 80,744
----------- ------------ ------------
Net cash used in operating activities....... (5,485,466) (8,760,644) (8,178,031)
----------- ------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment............... (253,026) (146,315) (975,566)
Acquisition and maturity of short-term
investments...................................... 1,178,176 -- --
----------- ------------ ------------
Net cash provided by (used in) investing
activities................................ 925,150 (146,315) (975,566)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from borrowings under line of credit....... 1,400,000 3,300,000 4,000,000
Repayments of borrowings under line of credit....... (1,200,000) (2,000,000) (2,500,000)
Fees incurred in connection with the line of
credit........................................... -- -- (75,000)
Proceeds from issuance of convertible preferred
stock............................................ 7,457,708 10,655,236 --
Proceeds from issuance of subordinated notes, net... -- -- 18,652,080
Proceeds from issuance of common stock.............. 37,983 101,446 260,741
Repurchases of unvested common stock................ -- (13,501) (122,221)
Proceeds from capital lease financing............... -- -- 158,375
Payment of principal of capital lease obligations... (221,283) (491,386) (707,290)
----------- ------------ ------------
Net cash provided by financing activities... 7,474,408 11,551,795 19,666,685
----------- ------------ ------------
Net increase in cash and cash equivalents............. 2,914,092 2,644,836 10,513,088
Cash and cash equivalents, beginning of period........ 1,102,011 4,016,103 6,660,939
----------- ------------ ------------
Cash and cash equivalents, end of period.............. $ 4,016,103 $ 6,660,939 $ 17,174,027
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 80
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS
Eloquent, Inc. was incorporated in Delaware in March 1995. Eloquent produces
rich media solutions for business communications. These rich media solutions are
used to communicate to target audiences through the combination of video, audio,
graphics and text in a synchronized, searchable and navigable format. These rich
media presentations can be delivered via the Web, intranets, extranets and
CD-ROMs.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Eloquent considers all highly liquid investments, purchased with an original or
remaining maturity of three months or less, as of the date of purchase, to be
cash equivalents and those with an original or remaining maturity, as of the
date of purchase, of greater than three months to be short-term investments. At
December 31, 1998 and 1999, Eloquent did not hold any securities with an
original or remaining maturity, as of the date of purchase, of three months or
more.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of Eloquent's financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities
approximate fair value due to their short maturities. Based on borrowing rates
currently available to Eloquent for loans with similar terms, the carrying value
of the bank line of credit and capital lease obligations approximate fair value.
CERTAIN RISKS AND CONCENTRATIONS
Financial instruments which potentially subject Eloquent to concentrations of
credit risk consist principally of trade accounts receivable and cash and cash
equivalents.
Substantially all of Eloquent's cash and cash equivalents as of December 31,
1999 are on deposit with one major U.S. financial institution. Deposits at any
point in time may exceed the federally insured limits.
Eloquent supplies a variety of customers and generally does not require
collateral against orders. Although Eloquent maintains an allowance for
potential credit losses it believes to be adequate, a payment default on a
significant sale could materially and adversely affect its operating results and
financial condition. At December 31, 1998 and 1999, no customer accounted for
greater than 10% of accounts receivable. For fiscal year 1998, one customer
accounted for approximately 13% of revenues. For fiscal year 1999, no customer
accounted for greater than 10% of revenues.
Eloquent operates in a single business segment that is characterized by rapid
technological advances, changes in customer requirements and evolving industry
standards. Any failure by Eloquent to anticipate or respond to changes in demand
could have a material adverse effect on its business and operating results.
Eloquent relies on a number of third-party suppliers for various services. While
management believes Eloquent could obtain these services from other qualified
suppliers on similar terms and conditions, a
F-7
<PAGE> 81
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
disruption in the supply of these services by the current suppliers could have
an adverse impact on the business and operating results.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets.
<TABLE>
<S> <C>
Furniture and equipment..................................... 5 years
Computers and software...................................... 3 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over their
estimated useful life or their lease term, whichever is less. Assets acquired
under capital lease are amortized over the shorter of the estimated useful
economic life or the length of the lease. Repairs and maintenance costs are
expensed as incurred.
Eloquent periodically evaluates the carrying value of equipment and leasehold
improvements held when events and circumstances warrant such a review. When the
carrying value of equipment and leasehold improvements is considered impaired, a
loss is recognized based on the amount by which the carrying value exceeds the
fair value of the asset.
DEFERRED PRODUCTION COSTS
Costs that relate to uncompleted event production are included in the financial
statements as deferred production costs. The deferred production costs at
December 31, 1999 are expected to be entirely billed and collected in 2000.
REVENUE RECOGNITION
Eloquent adopted the provisions of Statement of Position 97-2, or SOP 97-2,
Software Revenue Recognition, as amended by Statement of Position 98-4, Deferral
of Effective Date of Certain Provisions of SOP 97-2, effective January 1, 1998.
SOP 97-2 supersedes Statement of Position 91-1, Software Revenue Recognition,
and delineates the accounting for software products, products including software
that is not incidental to the product and maintenance revenues. Under SOP 97-2,
Eloquent recognizes content production revenues upon shipment of the master copy
if evidence of an arrangement exists, the fee is fixed and determinable and
collection of resulting receivables is probable.
For contracts with multiple obligations, (e.g., undelivered content production
events, compact disc duplication, maintenance, desktop player and applications
server software licenses, content hosting and other services) revenues from
content production events are recognized when delivery has occurred, collection
of the receivable is probable, the fee is fixed or determinable and
vendor-specific objective evidence exists to allocate the total fee to all
delivered and undelivered elements of the arrangement. Eloquent recognizes
revenue allocated to undelivered content production events when the criteria for
content production revenue set forth above are met. Eloquent recognizes revenue
for compact disc duplication upon shipment of the duplicated compact discs.
Software licenses and maintenance include revenues in relation to desktop player
and applications server software licenses, software maintenance and content
hosting. The revenues for desktop player and applications server software
licenses are recognized upon shipment, or notification of shipment to the
customer, dependent on the delivery medium. Eloquent recognizes revenues for
maintenance and content hosting ratably over the period of the maintenance or
content hosting contract.
F-8
<PAGE> 82
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Prior to the adoption of SOP 97-2, effective January 1, 1998, Eloquent
recognized revenues from the sale of content production upon delivery of the
master copy if remaining obligations were insignificant and collection of the
resulting accounts receivable was probable. Revenues from the duplication of
compact disc was recognized upon shipment to the customer. Eloquent recognized
revenues from end user usage fees upon shipment, or notification of shipment, to
the customer. Revenues from content hosting and maintenance were deferred and
recognized ratably over the period of the contract.
Eloquent recognizes revenues for professional services, for which alterations to
the features and functionality of the software are made, in accordance with
Statement of Position 81-1, Contract Accounting. Professional services revenue
is recognized as the services are performed when collectibility is probable.
Amounts collected prior to satisfying the above revenue recognition criteria are
classified as deferred revenue.
ADVERTISING EXPENSE
Eloquent expenses advertising costs as they are incurred. Advertising expenses
for fiscal years 1997, 1998 and 1999 were not significant.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. To date, products have
generally reached technological feasibility and have been released for sale at
substantially the same time. Accordingly, no software development costs have
been capitalized as of December 31, 1999.
STOCK-BASED COMPENSATION
Eloquent accounts for stock-based compensation issued to employees in accordance
with the provisions of Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation. Under APB No. 25, expense is based on
the difference, if any, on the date of grant, between the fair value of common
stock and the exercise price. Stock issued to non-employees has been accounted
for in accordance with SFAS No. 123 and valued using the Black-Scholes option
pricing model.
INCOME TAXES
Eloquent accounts for income taxes using the liability method under which,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
NET LOSS PER SHARE
Eloquent computes net loss per share in accordance with SFAS No. 128 Earnings
Per Share. Under the provisions of SFAS No. 128 basic net loss per share is
computed by dividing the net loss for the period by the weighted average number
of vested common shares outstanding during the period. Diluted net loss per
share is computed by dividing the net loss for the period by the weighted
average number of common and common stock equivalent shares outstanding during
the period. Common equivalent shares are composed of common shares issuable upon
conversion of convertible preferred stock (using the if-converted method)
F-9
<PAGE> 83
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and shares issuable upon the exercise of stock options and warrants and are
included in the diluted net loss per share to the extent that they are dilutive.
The following table sets forth the computation of basic and diluted net loss per
share for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
NUMERATOR:
Net loss........................................ $(6,369,298) $(10,008,040) $(16,614,817)
----------- ------------ ------------
DENOMINATOR:
Weighted average common stock outstanding....... 3,052,759 3,431,042 3,494,708
Weighted average unvested common stock subject
to repurchase................................ (1,664,736) (1,320,060) (458,231)
----------- ------------ ------------
Denominator for basic and diluted calculation..... 1,388,023 2,110,982 3,036,477
----------- ------------ ------------
Basic and diluted net loss per share.............. $ (4.59) $ (4.74) $ (5.47)
----------- ------------ ------------
ANTIDILUTIVE SECURITIES:
Options to purchase common stock................ 1,010,061 1,318,712 3,327,342
Warrants........................................ 115,771 137,886 1,685,387
Convertible preferred stock..................... 5,069,746 7,159,009 7,159,009
----------- ------------ ------------
6,195,578 8,615,607 12,171,738
=========== ============ ============
</TABLE>
Pro forma net loss per share for the year ended December 31, 1999 is computed
using the weighted average number of common shares outstanding, including the
pro forma effects of the conversion of 7,159,009 shares of preferred stock into
common stock effective upon the closing of Eloquent's initial public offering on
an as-if converted basis. Pro forma diluted net loss per share is computed using
the pro forma weighted average number of common and common equivalent shares
outstanding. Common equivalent shares, composed of common shares issuable upon
the exercise of stock options and warrants, are not included in diluted net loss
per share as such shares are antidulutive.
Pro forma basic and diluted net loss per share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
(UNAUDITED)
<S> <C>
Net loss.................................................... $(16,614,817)
============
Shares used in computing basic and diluted net loss per
share..................................................... 3,036,477
Adjusted to reflect the effect of the assumed conversion of
all convertible preferred stock from the date of
issuance.................................................. 7,159,009
------------
Weighted average shares used in computing pro forma basic
and diluted net loss per share............................ 10,195,486
============
Pro forma basic and diluted net loss per share.............. $ (1.63)
============
</TABLE>
COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998 Eloquent adopted the provisions of SFAS No. 130,
Reporting of Comprehensive Income. This statement requires companies to classify
items of other comprehensive income by their components in the financial
statements and display the accumulated balance of other comprehensive
F-10
<PAGE> 84
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
income separately in the equity section of a statement of financial position. To
date, Eloquent has not had any transactions that are required to be reported as
other comprehensive income (loss).
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, AcSEC issued SOP 98-5, Reporting on the Costs of Start-Up
Activities. This SOP provides guidance on the financial reporting of start-up
costs. It requires the costs of start-up activities and organization costs to be
expensed as incurred. The SOP is effective for financial statements for fiscal
years beginning after December 15, 1998. The adoption of SOP 98-5 did not have a
material impact on the financial statements of Eloquent.
In June 1998, the FASB Issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133 an
amendment of FASB Statement No. 133. SFAS No. 137 defers the application of SFAS
No. 133 to be effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000; however, early application is encouraged. Eloquent will
adopt SFAS No. 133 for the 2001 fiscal year but does not expect such adoption to
materially affect the financial statement presentation.
In December 1998, AcSEC released Statement of Position 98-9, Modification of SOP
97-2, Software Revenue Recognition. SOP 98-9 amends SOP 97-2 to require that an
entity recognize revenue for multiple element arrangements by means of the
"residual method" when (1) there is no vendor-specific objective evidence
("VSOE") of the fair values of all the undelivered elements that are not
accounted for by means of long-term contract accounting, (2) VSOE of fair value
does not exist for one or more of the delivered elements, and (3) all revenue
recognition criteria of SOP 97-2 (other than the requirement for VSOE of the
fair value of each delivered element) are satisfied. The provisions of SOP 98-9
that extend the deferral of certain paragraphs of SOP 97-2 and SOP 98-9 became
effective December 15, 1998. These paragraphs of SOP 97-2 and SOP 98-9 are
effective for transactions entered into in fiscal years beginning after March
15, 1999. Retroactive application is prohibited. Eloquent is currently
evaluating the impact of the requirements of SOP 98-9 and the effects, if any,
on its current revenue recognition policies.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Computer equipment and software.................... $ 286,683 $ 287,438
Furniture and fixtures............................. 66,065 122,970
Computer equipment acquired under capital lease
obligations...................................... 2,330,354 3,085,578
Leasehold improvements under capital lease
obligations...................................... 496,000 546,157
---------- -----------
3,179,102 4,042,143
Less accumulated depreciation and amortization..... (991,287) (2,127,449)
---------- -----------
$2,187,815 $ 1,914,694
========== ===========
</TABLE>
Accumulated amortization on equipment acquired under capital lease obligations
was $777,622 and $1,572,412 as of December 31, 1998 and 1999, respectively.
F-11
<PAGE> 85
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCOUNTS PAYABLE AND OTHER LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Accounts payable.................................... $ 783,720 $1,817,552
Accrued compensation and related expenses........... 539,008 1,051,098
Accrued sales and property taxes.................... 414,768 244,204
Accrued liabilities................................. 217,879 804,059
---------- ----------
$1,955,375 $3,916,913
========== ==========
</TABLE>
5. DEFERRED CHARGES
In conjunction with the revolving line of credit (see Note 6, Line of Credit and
Capital Lease Obligations), Eloquent issued to the lender warrants to purchase
70,000 shares of common stock at $5.10 per share. The warrants expire July 2006.
Eloquent valued the warrants using the Black-Scholes option pricing model at
$402,570, and has recorded the value of the warrants as debt issue costs. The
debt issue costs are being amortized over the life of the revolving credit
facility, which is 18 months. The assumptions used in the Black-Scholes model
were: dividend yield of 0%; volatility of 55%; risk-free interest rate of 5.94%;
and the expected life of 7 years.
In connection with the issuance of $20.0 million of convertible notes (see Note
8, Convertible Notes and Warrants) Eloquent has incurred costs of $1,500,000.
These costs have been recorded as debt issue costs and are being amortized over
the life of the notes.
6. LINE OF CREDIT AND CAPITAL LEASE OBLIGATIONS
LINE OF CREDIT
On July 14, 1999, Eloquent entered into a revolving line of credit agreement
with a financial institution. The line of credit allows for borrowings up to the
lesser of $6,000,000 or 85% of the company's eligible receivables, as defined,
plus 75% of the unbilled receivables, as defined, plus $3,000,000 at any time
outstanding. This line of credit replaces a $2.5 million credit agreement that
expired as of July 19, 1999. The interest rate is the highest prime rate, as
defined, plus 2% per annum for formula loans and 3.5% per annum for non-formula
loans. The interest rate shall not exceed 9% per annum. At December 31, 1998 and
1999, the outstanding borrowings under the respective lines of credit totaled
$1,500,000 and $3,000,000, respectively.
CAPITAL LEASE OBLIGATIONS
On August 5, 1999, Eloquent entered into a lease line of credit agreement with a
financial intermediary. The line of credit allows for principal borrowings of up
to $1,500,000. The ability to finance principal expires on the earlier of
reaching the $1,500,000 limit or July 31, 2000. The agreement replaces
Eloquent's previous lease line of credit agreement that expired in the third
quarter of 1999. Leases bear interest at rates ranging from 9.95% to 10.54%, are
collateralized by the underlying equipment, and are payable over the equipment
lease term.
F-12
<PAGE> 86
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future annual minimum lease payments due under the capital lease agreements at
December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000................................................... $ 835,686
2001................................................... 589,655
2002................................................... 117,622
----------
Total minimum lease payments................. 1,542,963
Less interest.......................................... (148,104)
----------
Principal minimum lease payments....................... 1,394,859
Less current portion................................... (617,927)
----------
Long-term obligations under capital leases............. $ 776,932
==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE OBLIGATIONS
Eloquent leases certain office facilities under noncancelable operating lease
arrangements expiring between 2001 and 2002. As of December 31, 1999, future
minimum lease commitments under noncancelable operating leases are as follows:
<TABLE>
<S> <C>
2000................................................... $1,110,183
2001................................................... 1,107,254
2002................................................... 467,471
----------
$2,684,908
==========
</TABLE>
Rental expense for the years ended December 31, 1997, 1998 and 1999 was
$427,742, $1,127,125 and $1,187,792, respectively.
ROYALTIES
Eloquent has entered into various technology licensing agreements which allow it
to incorporate the licensed technology into its software products. Certain of
the agreements require royalty payments ranging from 1.5% to 2.5% of revenues
generated from products incorporating the licensed technology. The remaining
agreement requires payment of fees ranging from $2,125 to $12,750, depending on
the version of the technology that is incorporated in our product, per central
processing unit.
LITIGATION
From time to time Eloquent is subject to legal proceedings and claims in the
ordinary course of business. Eloquent is not currently aware of any legal
proceedings or claims which it believes will have, individually or in the
aggregate, a material adverse effect on its financial position or results of
operations.
8. CONVERTIBLE NOTES AND WARRANTS
On October 20, 1999, Eloquent sold convertible notes and detachable warrants to
purchase 1,500,000 shares of common stock for aggregate gross consideration of
$20,000,000. In conjunction with the sale of the notes Eloquent incurred
$1,500,000 in debt issue costs.
The notes mature on October 20, 2004 and bear interest at 12% per annum. The
notes are required to be automatically repaid when certain conditions are met,
including (i) a 50% change in ownership, (ii) sale
F-13
<PAGE> 87
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of all, or substantially all, of Eloquent's assets, (iii) merger or
consolidation of Eloquent with a third party, or (iv) the completion of an
initial public offering of common stock.
After December 31, 2000, the investors, at their option, may convert the notes
to Series E preferred stock, at an initial conversion rate of $8.00 per share,
subject to certain anti-dilutive provisions. This gives rise to a beneficial
conversion feature of $5,000,000 based on the fair value of common stock at the
date of the sale of the notes and detachable warrants.
In conjunction with the sale of the notes, Eloquent issued to the investors
detachable warrants to purchase 1,500,000 shares of common stock with an
exercise price of $0.01 per share. The warrants expire the earlier of 5 years
after the repayment of the notes or October 20, 2006.
The gross consideration received from the notes was allocated between the notes
and the warrants in accordance with Accounting Principles Board Opinion No. 14
"Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,"
as follows:
<TABLE>
<S> <C>
Long term notes payable..................................... $12,500,000
Warrants.................................................... 7,500,000
-----------
Gross consideration......................................... $20,000,000
===========
</TABLE>
The beneficial conversion feature valued at $5,000,000 was recorded as a further
discount on the sale of the notes.
The debt issuance costs and the discount resulting from the issuance of the
warrants are being amortized to interest expense over the life of the notes. The
beneficial conversion feature is being amortized over the one year period up to
the earliest conversion date.
9. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The convertible preferred stock as of December 31, 1999 comprises:
<TABLE>
<CAPTION>
NUMBER OF COMMON
NUMBER OF SHARES SHARES
SHARES ISSUED AND RESERVED FOR LIQUIDATION
AUTHORIZED OUTSTANDING CONVERSION VALUE
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Series A................................... 1,250,000 1,250,000 1,250,000 $ 1,000,000
Series B................................... 1,921,964 1,907,513 1,907,513 3,299,998
Series C................................... 1,912,233 1,912,233 1,912,233 7,457,709
Series D................................... 2,354,647 2,089,263 2,089,263 10,655,241
Series E................................... 2,500,000 -- 2,500,000 --
--------- --------- --------- -----------
9,938,844 7,159,009 9,659,009 $22,412,948
========= ========= ========= ===========
</TABLE>
The preferred stock authorized by Eloquent's Articles of Incorporation may be
issued in one or more series.
F-14
<PAGE> 88
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The rights, preferences and privileges of the Series A, Series B, Series C,
Series D and Series E preferred stockholders are as follows:
Conversion
Each share of the Series A, Series B, Series C, Series D and Series E
preferred stock shall be convertible at the option of the holder, at any
time after the date of issuance, into one fully paid and nonassessable
share of common stock.
Conversion of each share of the Series A, Series B, Series C and Series D
preferred stock is automatic upon the closing of a public offering of
Eloquent's common stock at a purchase price of not less than $5.10 per
share and total proceeds of at least $15,000,000 and conversion of each
share of the Series E preferred stock is automatic upon the closing of a
public offering of Eloquent's common stock at a purchase price of not less
than $12.00 per share and total proceeds of at least $30,000,000. Further,
conversion of the Series A, Series B, Series C, Series D and Series E
preferred stock is automatic at the election of two-thirds of the preferred
stockholders.
Dividends
Series A, Series B, Series C, Series D and Series E preferred stockholders
are entitled to noncumulative dividends at a rate of ten percent of the
original issue price per share per annum when and if declared by the Board
of Directors. The Series A, Series B, Series C, Series D and Series E
preferred stockholders are entitled to participate in all dividends paid to
common stockholders in equal amount per share, on an as-if-converted basis,
to the amount paid for each common share. As of December 31, 1999, no
dividends have been declared.
Voting Rights and Liquidation Preference
Series A, B, C D and E preferred stock have voting rights equal to the
number of shares of common stock into which the preferred stock will
convert.
The Series A, Series B, Series C, Series D and Series E preferred stock
have a liquidation preference of $0.80, $1.73, $3.90, $5.10 and $8.00,
respectively, subject to adjustment for splits and other recapitalizations,
plus all declared but unpaid dividends. If funds are insufficient for full
payment of these amounts, all assets and funds of Eloquent legally
available will be distributed ratably among the holders of preferred stock.
If funds are sufficient for full payment of these amounts, the remaining
funds will be distributed ratably to the holders of common stock and
preferred stock on an as if converted basis until the holders of each share
of Series A, B and C preferred stock have received, from legally available
funds, additional payment up to a maximum of $4.75 per share, including
liquidation proceeds already received, and the holders of each share of
Series E preferred stock have received, from legally available funds,
additional payment up to a maximum of $8.00 per share, not including
liquidation proceeds already received. Thereafter, should any funds be
available for distribution, these shall be distributed ratably amongst the
common stockholders.
CONVERTIBLE PREFERRED STOCK WARRANTS
In May 1997, in conjunction with a short-term financing arrangement, Eloquent
issued fully exercisable warrants to purchase 14,451 shares of Series B
convertible preferred stock at a price of $1.73 per share which expire May 12,
2002. The fair value of these warrants was estimated using the Black-Scholes
option pricing model and the following assumptions: dividend yield of 0%;
volatility of 55%, risk-free interest rate
F-15
<PAGE> 89
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of 6.57% and a term of 5 years. The fair value of these warrants was recorded as
an expense in the year ended December 31, 1997.
COMMON STOCK
Each share of common stock has the right to one vote. The holders of common
stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to the prior
rights of the holders of all classes of stock outstanding having priority rights
as to dividends.
At December 31, 1999, Eloquent had reserved shares of common stock for future
issuance as follows:
<TABLE>
<S> <C>
Convertible preferred stock.............................. 9,659,009
Warrants................................................. 1,685,387
Stock option plan and stock purchase plan................ 5,490,191
----------
16,834,587
==========
</TABLE>
FOUNDERS COMMON STOCK
Certain common stock was issued to the founders and is subject to repurchase at
the original issue price, at Eloquent's option, should the founders cease to be
employed for any reason. Shares vest ratably over a five year period. At
December 31, 1998 and 1999, approximately 509,600 and 72,800 shares,
respectively, were subject to repurchase at the original purchase price of
$0.01.
COMMON STOCK WARRANTS
In 1996, Eloquent issued fully exercisable warrants to purchase 14,450 shares of
common stock for $0.173 per share in connection with working capital obtained
from a related party. The warrants expire July 10, 2001 or upon an initial
public offering. The fair value of these warrants was estimated using the Black-
Scholes option pricing model and the following assumptions: dividend yield of
0%; volatility of 55%, risk-free interest rate of 6.18% and a term of 5 years.
The fair value of these warrants was recorded as an expense in the year ended
December 31, 1996.
In 1997, Eloquent issued fully exercisable warrants to purchase 34,683 and
15,000 shares of common stock for $1.73 and $3.60 per share, respectively, in
connection with capital lease arrangements. The warrants expire March 31, 2004.
The fair value of these warrants was estimated using the Black-Scholes option
pricing model and the following assumptions: dividend yield of 0%; volatility of
55%, risk-free interest rate of 6.66% and a term of 7 years. The fair value of
these warrants was recorded as an expense in the year ended December 31, 1997.
In 1998, Eloquent issued fully exercisable warrants to purchase 22,115 shares of
common stock for $3.90 per share in connection with a capital lease arrangement.
The warrants expire March 2005. The fair market value of these warrants was
estimated using the Black-Scholes option pricing model and the following
assumptions; dividend yield of 0%; volatility of 55%, risk-free interest rate of
5.61% and a term of 7 years. The fair value was recorded as an expense in the
year ended December 31, 1998.
In 1999, in conjunction with the revolving line of credit (see Note 6), Eloquent
provided the lender with warrants to purchase 70,000 shares of common stock at
$5.10 per share. The warrants expire July 2006. The fair value of these warrants
of $402,570 was estimated using the Black-Scholes option pricing model and the
following assumptions: dividend yield of 0%; volatility of 55%; risk free
interest rate of 5.94%; and a term of 7 years. The value will be amortized over
the term of the facility.
F-16
<PAGE> 90
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1999, warrants to purchase 1,500,000 shares were issued in conjunction with
the convertible notes at an exercise price of $0.01 per share. See note 8 for
further details.
Warrant activity is as follows:
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING
---------------------------
PRICE
DESCRIPTION SHARES PER SHARE
----------- --------- --------------
<S> <C> <C>
Balance, December 31, 1996.................................. 51,638 $0.173 - $0.80
Warrants granted............................................ 49,683 $1.73 - $3.90
--------- --------------
Balance, December 31, 1997.................................. 101,321 $0.173 - $3.90
Warrants granted............................................ 22,115 $ 3.90
--------- --------------
Balance, December 31, 1998.................................. 123,436 $0.173 - $3.90
Warrants granted............................................ 1,570,000 $0.01 - $5.10
Warrants exercised.......................................... (22,500) $ 0.01
--------- --------------
Balance, December 31, 1999.................................. 1,670,936 $0.01 - $5.10
========= ==============
</TABLE>
COMMON STOCK OPTION PLAN
Eloquent has two stock option plans (collectively, "the Plans") under which
6,004,500 shares of common stock have been authorized for issuance of stock
options to employees, directors, or consultants. Both Plans are constituted and
operated under similar terms and conditions. Under the terms of the Plans,
incentive options may be granted to employees, and nonstatutory options may be
granted to employees, directors and consultants, at prices no less than 100% and
85%, respectively, of the fair market value of Eloquent's common stock at the
date of grant, as determined by the Board of Directors. For 10% stockholders,
options may be granted at prices not less than 110% of the fair market value of
the common stock on the date of grant.
Options granted under the Plans prior to November 1998 generally become
exercisable immediately and vest at 20% upon completion of one year from the
vesting commencement date and ratably 1/60 each month thereafter. The options
expire ten years from the date of grant, and Eloquent holds the right to
repurchase unvested shares issued pursuant to their exercise at the original
exercise price. In November 1998, Eloquent adjusted the terms of prospective
option grants under the Plans. Grants after November 1998 generally vest at 25%
upon completion of one year from the vesting commencement date and ratably 1/48
each month thereafter and become exercisable immediately.
F-17
<PAGE> 91
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity under the Plans is summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------
SHARES AVAILABLE SHARES WEIGHTED AVERAGE
FOR GRANT UNDER OPTION EXERCISE PRICE
---------------- ------------ ----------------
<S> <C> <C> <C>
Balance, December 31, 1996.................. 513,000 482,000 $0.14
Additional shares reserved.................. 619,500
Options granted............................. (884,561) 884,561 $0.25
Options exercised........................... -- (232,900) $0.16
Options canceled............................ 123,600 (123,600) $0.13
---------- ----------
Balance, December 31, 1997.................. 371,539 1,010,061 $0.23
Additional shares reserved.................. 1,155,000
Options granted............................. (1,061,934) 1,061,934 $0.59
Options exercised........................... -- (483,766) $0.21
Options canceled............................ 269,517 (269,517) $0.23
---------- ----------
Balance, December 31, 1998.................. 734,122 1,318,712 $0.49
Additional shares reserved.................. 3,160,000
Options granted............................. (3,082,050) 3,082,050 $1.96
Options exercised........................... -- (422,643) $0.61
Options canceled............................ 650,777 (650,777) $0.68
---------- ----------
Balance, December 31, 1999.................. 1,462,849 3,327,342 $1.80
========== ==========
</TABLE>
The options outstanding and currently vested by exercise price at December 31,
1999 were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- -------------------------------------------------------------------
WEIGHTED AVERAGE VESTED OPTIONS
REMAINING --------------------------------------
RANGE OF SHARES CONTRACTUAL WEIGHTED AVERAGE EXERCISABLE AT WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING LIFE EXERCISE PRICE DECEMBER 31, 1999 EXERCISE PRICE
- -------------- ----------- ---------------- ---------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.08 - 0.39 333,296 7.44 $0.26 172,328 $0.25
1.00 - 2.00 2,560,296 9.19 1.16 466,710 1.05
5.00 103,300 9.73 5.00 5,222 5.00
7.50 - 8.00 330,450 9.83 7.54 7,242 7.50
--------- -------
3,327,342 651,502
========= =======
</TABLE>
FAIR VALUE DISCLOSURES
Eloquent calculated the minimum fair value of each option grant on the date of
grant using the minimum value option pricing model as prescribed by SFAS No. 123
using the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Risk-free interest rate................................ 6.21% 5.21% 5.68%
Expected life.......................................... 5 5 5
Dividend yield......................................... -- -- --
</TABLE>
F-18
<PAGE> 92
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. Eloquent's pro forma
information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
Net loss.......................... $(6,369,298) $(10,008,040) $(16,614,817)
=========== ============ ============
Net loss -- FAS 123 adjusted...... $(6,389,860) $(10,066,083) $(17,043,114)
=========== ============ ============
Net loss per share as reported
Basic and diluted................. $ (4.59) $ (4.74) $ (5.47)
=========== ============ ============
Net loss per share -- FAS 123
adjusted
Basic and diluted................. $ (4.60) $ (4.76) $ (5.61)
=========== ============ ============
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts. Additional rewards in future years are
anticipated.
STOCK-BASED COMPENSATION
In connection with certain stock option grants during the years ended December
31, 1998 and 1999, Eloquent recorded unearned stock-based compensation totaling
$16,312,312, which is being amortized utilizing the accelerated method
prescribed in Financial Accounting Standards Board Interpretation No. 28 over
the vesting periods of the related options which is generally four to five
years. Amortization of this stock-based compensation recognized during the years
ended December 31, 1998 and 1999 totaled $991,533 and $5,756,395, respectively.
No stock-based compensation was recorded in the fiscal year 1997.
If the stock-based compensation for year ended December 31, 1998 and 1999 had
been allocated across the relevant functional expense categories within
operating expenses, it would be allocated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1999
--------- -----------
<S> <C> <C>
Cost of revenues..................................... $149,555 $ 218,760
Sales and marketing.................................. 242,134 1,227,048
Research and development............................. 239,161 142,686
General and administrative........................... 360,683 4,167,901
-------- ----------
$991,533 $5,756,395
======== ==========
</TABLE>
EQUITY INCENTIVE PLAN
In October 1999, the Board approved Eloquent's 1999 Equity Incentive Plan. The
1999 Equity Incentive Plan will become effective on the effective date of the
initial public offering and will terminate in October 2009, unless terminated
earlier by the Board of Directors. The plan provides for the grant of incentive
stock options, nonstatutory stock options and other equity instruments. Upon the
effectiveness of the plan, shares available under existing incentive plans will
become authorized for issuance under the plan.
EMPLOYEE STOCK PURCHASE PLAN
In October 1999, the Board approved the Employee Stock Purchase Plan covering an
aggregate of 700,000 shares of common stock. The Employee Stock Purchase Plan
will become effective on the
F-19
<PAGE> 93
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
effective date of the initial public offering and is intended to qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended.
10. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1998 1999
----------- ---------- -----------
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid for interest............................... $ (99,809) $ (259,720) $(1,004,969)
=========== ========== ===========
Noncash investing and financing activities:
Assets acquired under capital leases............... $(1,698,954) $ (678,443) $ --
=========== ========== ===========
Stock-based compensation........................... $ -- $3,335,575 $12,976,737
=========== ========== ===========
Common stock and common stock warrants issued in
connection with long-term note payable and line
of credit....................................... $ -- $ -- $ 552,570
=========== ========== ===========
Issuance of common stock warrants in connection
with long-term notes payable.................... $ -- $ -- $ 7,500,000
=========== ========== ===========
Beneficial conversion charge related to long-term
notes payable................................... $ -- $ -- $ 5,000,000
=========== ========== ===========
</TABLE>
11. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of
deferred tax assets for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
----------- ------------
<S> <C> <C>
State taxes................................................. $ 1,663 $ 2,341
Depreciation and amortization............................... (44,244) (57,815)
Other....................................................... 529,739 1,241,751
Research and development credits............................ 102,663 302,629
Net operating losses........................................ 6,192,132 9,859,682
----------- ------------
Net deferred tax asset...................................... 6,781,953 11,348,588
Less valuation allowance.................................... (6,781,953) (11,348,588)
----------- ------------
$ -- $ --
=========== ============
</TABLE>
Eloquent has established a valuation allowance against its deferred tax assets
due to the uncertainty surrounding the realization of such assets. Management
evaluates on an annual basis the recoverability of the deferred tax assets and
the level of the valuation allowance. At such time as it is determined that it
is more likely than not that the deferred tax assets are realizable, the
valuation allowance will be reduced.
F-20
<PAGE> 94
ELOQUENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Eloquent's effective tax rate differs from the statutory federal income tax rate
as shown in the following schedule:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
---- ----
<S> <C> <C>
Statutory federal income tax rate........................... (34)% (34)%
Valuation allowance on deferred tax assets.................. 34 34
--- ---
Effective tax rate................................ --% --%
=== ===
</TABLE>
At December 31, 1999, Eloquent had federal and state net operating loss
carryforwards of approximately $25,400,973 and $16,155,687, respectively, and a
total of federal and state research and development tax credit carryforwards of
$302,629. Eloquent's net operating loss carryforwards, as well as credit
carryforwards, expire between the years 2004 and 2019, if not utilized.
The Tax Reform Act of 1986 limits the use of net operating loss and tax credit
carryforwards in certain situations where changes occur in the stock ownership
of a company. If Eloquent should have an ownership change, as defined,
utilization of the carryforwards would be restricted.
12. 401(k) SAVINGS PLAN
Eloquent has a savings plan (the "Savings Plan") that qualifies as a deferred
salary arrangement under Section 401(k) of the Internal Revenue Code, under
which, participating employees may defer a percentage (not to exceed 15%) of
their eligible pretax earnings up to the Internal Revenue Service's annual
contribution limit. All employees of Eloquent are eligible to participate in the
Savings Plan. Eloquent is not required to contribute to the Savings Plan and has
made no contributions since the inception of the Savings Plan.
F-21
<PAGE> 95
4,500,000 SHARES
ELOQUENT, INC.
COMMON STOCK
[ELOQUENT, INC. LOGO]
---------------------------
PROSPECTUS
---------------------------
Until , 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
U.S. BANCORP PIPER JAFFRAY
BANC OF AMERICA SECURITIES LLC
THOMAS WEISEL PARTNERS LLC
, 2000
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by Eloquent in
connection with the sale of the shares of common stock being registered hereby.
All amounts are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 17,199
NASD filing fee............................................. 6,710
Nasdaq National Market filing fee........................... 90,000
Accounting fees and expenses................................ 350,000
Legal fees and expenses..................................... 300,000
Printing and engraving expenses............................. 250,000
Blue sky fees and expenses.................................. 5,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous............................................... 476,091
----------
Total............................................. $1,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our amended and restated certificate of incorporation, which will become
effective upon the closing of this offering, contains provisions permitted under
Delaware law relating to the liability of directors. These provisions eliminate
a director's personal liability for monetary damages resulting from a breach of
fiduciary duty, except in circumstances involving wrongful acts, such as:
- any breach of the director's duty of loyalty;
- acts or omissions which involve a lack of good faith, intentional
misconduct or a knowing violation of the law;
- payment of dividends or approval of stock repurchases or redemptions
that are unlawful under Delaware law; or
- any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws.
Our bylaws, which will become effective upon the closing of this offering,
require us to indemnify our directors and executive officers to the fullest
extent not prohibited by the Delaware law. We may modify the extent of such
indemnification by individual contracts with our directors and executive
officers. Further, we may decline to indemnify any director or executive officer
in connection with any proceeding initiated by such person, unless such
indemnification is expressly required to be made by law or the proceeding was
authorized by our board of directors.
We have entered into indemnity agreements with each of our current directors and
executive officers to give such directors and officers additional contractual
assurances regarding the scope of the indemnification set forth in our
certificate of incorporation and bylaws and to provide additional procedural
protections. At present, there is no pending litigation or proceeding involving
any of our directors, officers or employees for which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.
II-1
<PAGE> 97
We have the power to indemnify our other officers, employees and other agents,
as permitted by Delaware law, but we are not required to do so.
We plan to obtain directors' and officers' liability insurance.
Reference is made to the following documents filed or incorporated by reference
as exhibits to this Registration Statement regarding relevant indemnification
provisions described above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT NUMBER
---------------- ------
<S> <C>
Form of Underwriting Agreement.............................. 1.01
Amended and Restated Certificate of Incorporation........... 3.03
Amended and Restated Bylaws................................. 3.04
Fourth Amended and Restated Investors' Rights Agreement
dated October 20, 1999.................................... 4.02
Form of Indemnity Agreement................................. 10.01
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by the
Registrant since its inception on March 29, 1995.
1. In March 1995, Eloquent issued and sold and aggregate of 3,300,000
shares of its common stock at $0.001 per share to three individual
accredited investors, 2,100,000 of which were sold to a 5% stockholder
of Eloquent and 2,700,000 of which were sold to two executive officers
and directors of Eloquent. The aggregate amount paid to Eloquent for
these securities was $3,300.
2. In October 1995, Eloquent issued and sold an aggregate of 1,250,000
shares of Series A Preferred Stock at $0.80 per share to an
institutional accredited investor that is both a 5% stockholder of
Eloquent and an entity affiliated with a director of Eloquent. The
aggregate amount paid to Eloquent for these securities was $1,000,000.
3. In November 1995, in connection with the establishment of a credit
facility, Eloquent issued a warrant to purchase up to 37,188 shares of
common stock at an exercise price of $0.80 per share to a secured lender
that is not a 5% stockholder of Eloquent or an executive officer or
director (or related entity) of Eloquent.
4. In July 1996, Eloquent issued and sold a warrant to purchase up to
14,450 shares of common stock at an exercise price of $0.173 per share
to an institutional accredited investor that is both a 5% stockholder of
Eloquent and an entity affiliated with a director of Eloquent. The
aggregate purchase price paid to Eloquent for this warrant was $144.50.
5. From August to September 1996, Eloquent issued and sold an aggregate of
1,907,513 shares of Series B Preferred Stock at $1.73 per share to four
accredited investors, 1,849,711 of which were sold to two institutional
5% stockholders, both of which are entities affiliated with a director
of Eloquent, and 57,802 of which were sold to two individual investors.
The aggregate amount paid to Eloquent for these securities was
$3,299,997.
6. In March 1997, in connection with the establishment of a credit
facility, Eloquent issued a warrant to purchase up to 34,683 shares of
common stock at an exercise price of $1.73 per share to a secured lender
that is not a 5% stockholder of Eloquent or an executive officer or
director (or related entity) of Eloquent.
7. In May 1997, in connection with the establishment of a credit facility,
Eloquent issued a warrant to purchase up to 14,451 shares of Series B
Preferred Stock at an exercise price of $1.73 per share to a secured
lender that is not a 5% stockholder of Eloquent or an executive officer
or director (or related entity) of Eloquent.
II-2
<PAGE> 98
8. From August 1997 to October 1997, Eloquent issued and sold an aggregate
of 1,912,233 shares of Series C Preferred Stock at $3.90 per share to
eight accredited investors, 1,860,950 of which were sold to three
institutional 5% stockholders, each of which is affiliated with a
director of Eloquent, and 51,283 of which were sold to five individual
investors. The aggregate amount paid to Eloquent for these securities
was $7,457,708.70.
9. In October 1997, in connection with the establishment of a credit
facility, Eloquent issued a warrant to purchase up to 15,000 shares of
common stock at an exercise price of $3.90 per share to a secured lender
that is not a 5% stockholder of Eloquent or an executive officer or
director (or related entity) of Eloquent.
10. In March 1998, in connection with the establishment of a credit
facility, Eloquent issued a warrant to purchase up to 22,115 shares of
common stock at an exercise price of $3.90 per share to a secured
lender that is not a 5% stockholder of Eloquent or an executive officer
or director (or related entity) of Eloquent.
11. In June 1998, Eloquent issued and sold an aggregate of 2,089,263 shares
of Series D Preferred Stock at $5.10 per share to four institutional
accredited investors, all of which were sold to entities that are both
5% stockholders and affiliated with directors of Eloquent. The
aggregate amount paid to Eloquent for these securities was
$10,655,241.00.
12. In July 1999, in connection with the establishment of a credit
facility, Eloquent issued a warrant to purchase up to 70,000 shares of
common stock at an exercise price of $5.10 per share to a secured
lender that is not a 5% stockholder of Eloquent or an executive officer
or director (or related entity) of Eloquent.
13. In October 1999, Eloquent issued $20.0 million in principal amount of
subordinated notes and warrants to purchase 1,500,000 shares of common
stock with an exercise price of $0.01 per share to 15 accredited
investors, 25% of which were sold to institutional 5% stockholders of
Eloquent. The aggregate amount paid to Eloquent for these securities
was $20,002,000. In addition, Eloquent issued 15,000 shares of common
stock to U.S. Bancorp Piper Jaffray in consideration for its services
as placement agent.
14. Since inception, Eloquent has granted stock options and stock bonuses
to its employees, consultants and directors under its Equity Incentive
Plan and 1997 Equity Incentive Plan, covering an aggregate of 4,724,651
shares of common stock, net of expirations and cancellations, which
options have exercise prices ranging from $0.08 to $9.00 per share.
15. Since inception, options to purchase an aggregate of 1,214,309 shares
of common stock under Eloquent's Equity Incentive Plan and 1997 Equity
Incentive Plan were exercised by employees and consultants of Eloquent
for an aggregate purchase price of $438,578 with a weighted average
exercise price of $0.36 per share.
All sales of common stock made pursuant to the exercise of stock options granted
under the Equity Incentive Plan and 1997 Equity Incentive Plan to Eloquent's
officers, directors, employees and consultants were made in reliance on Rule 701
under the Securities Act or on Section 4(2) of the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment and represented to Eloquent that the shares were being acquired for
investment.
II-3
<PAGE> 99
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.01 Form of Underwriting Agreement.
3.01+ Amended and Restated Certificate of Incorporation.
3.02+ Amended and Restated Bylaws.
3.03+ Form of Amended and Restated Certificate of Incorporation to
be filed upon completion of this offering.
3.04+ Form of Amended and Restated Bylaws to be effective upon
completion of this offering.
4.01+ Form of Specimen Stock Certificate.
4.02+ Fourth Amended and Restated Investors' Rights Agreement,
dated October 20, 1999, among Eloquent and certain investors
named therein.
4.03+ Securities Purchase Agreement, dated October 20, 1999, by
and among Eloquent and certain investors named therein.
5.01 Opinion of Cooley Godward LLP regarding legality of the
securities being registered.
10.01+ Form of Indemnity Agreement entered into by Eloquent with
each of its directors and executive officers.
10.02+ Equity Incentive Plan.
10.03+ Form of Stock Option Agreement under the Equity Incentive
Plan.
10.04+ 1997 Equity Incentive Plan.
10.05+ Form of Stock Option Agreement under the 1997 Equity
Incentive Plan.
10.06+ 1999 Equity Incentive Plan.
10.07+ Form of Stock Option Agreement under the 1999 Equity
Incentive Plan.
10.08+ Form of Nonstatutory Stock Option Agreement for Non-Employee
Director Grants under the 1999 Equity Incentive Plan.
10.09+ 1999 Employee Stock Purchase Plan.
10.10+ Form of 1999 Employee Stock Purchase Plan Offering.
10.11+ Employment Agreement, dated December 23, 1998, between
Eloquent and Abraham Kleinfeld.
10.12+ Office Lease, dated November 19, 1996, between Eloquent and
California Casualty Indemnity Exchange, as amended.
10.13+ OEM Agreement, dated May 30, 1997, between Eloquent and
Verity, Inc.
10.14+ Software License Agreement, dated June 30, 1997, between
Eloquent and Voxware, Inc.
10.15+ Co-location Service Agreement, dated March 30, 1998, between
Eloquent and Concentric Network Corporation.
10.16+ Sublease Agreement, dated June 1, 1999, between Eloquent and
California Casualty Indemnity Exchange.
10.17 ISV Software License Agreement, dated August 1, 1999,
between Eloquent and WebXpress, Inc.
10.18 Assignment of Sublease, dated November 24, 1999, between
Eloquent and California Casualty Management Company.
23.01 Consent of Cooley Godward LLP(included in Exhibit 5.01).
23.02 Consent of PricewaterhouseCoopers LLP.
24.01+ Power of Attorney. Reference is made to page II-7.
27.01 Financial Data Schedule.
</TABLE>
- ---------------------------------------------
+ Previously filed.
(b) Financial statement schedules.
II-4
<PAGE> 100
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Eloquent, Inc.
In connection with our audits of the financial statements of Eloquent, Inc. as
of December 31, 1998 and 1999, and for each of the three years in the period
ended December 31, 1999, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule listed in Item
16(b) herein. In our opinion, this financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
PricewaterhouseCoopers LLP
San Jose, California
January 18, 2000
II-5
<PAGE> 101
ELOQUENT, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING ADDITIONS BALANCE AT
OF YEAR (REDUCTIONS) WRITE-OFFS END OF YEAR
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1997............ $ -- $ 122,483 $ (7,408) $ 115,075
Year ended December 31, 1998............ 115,075 9,754 (19,879) 104,950
Year ended December 31, 1999............ 104,950 270,008 (40,953) 334,005
Valuation allowance for deferred tax
assets:
Year ended December 31, 1997............ 720,497 2,344,280 -- 3,064,777
Year ended December 31, 1998............ 3,064,777 3,717,176 -- 6,781,953
Year ended December 31, 1999............ 6,781,958 4,566,635 -- 11,348,588
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 14 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of San Mateo, State
of California, on the 21st day of January, 2000.
ELOQUENT, INC.
By: /s/ ABRAHAM KLEINFELD
------------------------------------
Abraham Kleinfeld
President and Chief Executive
Officer
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints Abraham
Kleinfeld and Clifford A. Reid, Ph.D., and each of them, his or her true and
lawful attorneys-in-fact and agents with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this Amendment
No. 2 to Registration Statement, and to sign any registration statement for the
same offering covered by the Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
his, her or their substitute or substitutes, may lawfully do or cause to be done
or by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
Chief Executive Officer, President January 21, 2000
/s/ ABRAHAM KLEINFELD and Director (Principal Executive
- ------------------------------------- Officer)
Abraham Kleinfeld
* Chairman of the Board January 21, 2000
- -------------------------------------
Clifford A. Reid, Ph.D.
* Chief Financial Officer, Secretary January 21, 2000
- ------------------------------------- and Treasurer (Principal Financial
R. John Curson and Accounting Officer)
* Director January 21, 2000
- -------------------------------------
Terry L. Opdendyk
* Director January 21, 2000
- -------------------------------------
Kathryn C. Gould
</TABLE>
II-7
<PAGE> 103
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
Director January 21, 2000
*
- -------------------------------------
Anthony P. Brenner
/s/ DAVID F. MILLET Director January 21, 2000
- -------------------------------------
David F. Millet
/s/ MARK C. THOMPSON Director January 21, 2000
- -------------------------------------
Mark C. Thompson
/s/ MICHAEL E. HERMAN Director January 21, 2000
- -------------------------------------
Michael E. Herman
*By /s/ ABRAHAM KLEINFELD
- -------------------------------------
Abraham Kleinfeld
Attorney-in-fact
</TABLE>
II-8
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.01 Form of Underwriting Agreement.
3.01+ Amended and Restated Certificate of Incorporation.
3.02+ Amended and Restated Bylaws.
3.03+ Form of Amended and Restated Certificate of Incorporation to
be filed upon completion of this offering.
3.04+ Form of Amended and Restated Bylaws to be effective upon
completion of this offering.
4.01+ Form of Specimen Stock Certificate.
4.02+ Fourth Amended and Restated Investors' Rights Agreement,
dated October 20, 1999, among Eloquent and certain investors
named therein.
4.03+ Securities Purchase Agreement, dated October 20, 1999, by
and among Eloquent and certain investors named therein.
5.01 Opinion of Cooley Godward LLP regarding legality of the
securities being registered.
10.01+ Form of Indemnity Agreement entered into by Eloquent with
each of its directors and executive officers.
10.02+ Equity Incentive Plan.
10.03+ Form of Stock Option Agreement under the Equity Incentive
Plan.
10.04+ 1997 Equity Incentive Plan.
10.05+ Form of Stock Option Agreement under the 1997 Equity
Incentive Plan.
10.06+ 1999 Equity Incentive Plan.
10.07+ Form of Stock Option Agreement under the 1999 Equity
Incentive Plan.
10.08+ Form of Nonstatutory Stock Option Agreement for Non-Employee
Director Grants under the 1999 Equity Incentive Plan.
10.09+ 1999 Employee Stock Purchase Plan.
10.10+ Form of 1999 Employee Stock Purchase Plan Offering.
10.11+ Employment Agreement, dated December 23, 1998, between
Eloquent and Abraham Kleinfeld.
10.12+ Office Lease, dated November 19, 1996, between Eloquent and
California Casualty Indemnity Exchange, as amended.
10.13+ OEM Agreement, dated May 30, 1997, between Eloquent and
Verity, Inc.
10.14+ Software License Agreement, dated June 30, 1997, between
Eloquent and Voxware, Inc.
10.15+ Co-location Service Agreement, dated March 30, 1998, between
Eloquent and Concentric Network Corporation.
10.16+ Sublease Agreement, dated June 1, 1999, between Eloquent and
California Casualty Indemnity Exchange.
10.17 ISV Software License Agreement, dated August 1, 1999,
between Eloquent and WebXpress, Inc.
10.18 Assignment of Sublease, dated November 24, 1999, between
Eloquent and California Casualty Management Company.
23.01 Consent of Cooley Godward LLP(included in Exhibit 5.01).
23.02 Consent of PricewaterhouseCoopers LLP.
24.01+ Power of Attorney. Reference is made to page II-7.
27.01 Financial Data Schedule.
</TABLE>
- ---------------------------------------------
+ Previously filed.
<PAGE> 1
EXHIBIT 1.01
__________ SHARES
ELOQUENT, INC.
COMMON STOCK
PURCHASE AGREEMENT
_____________________, 1999
U.S. BANCORP PIPER JAFFRAY
Banc of America Securities LLC
Thomas Weisel Partners LLC
As Representatives of the several
Underwriters named in Schedule II hereto
c/o U.S. Bancorp Piper Jaffray
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
Eloquent, Inc., a Delaware corporation (the "Company") proposes to sell
to the several Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of __________ shares (the "Firm Shares") of the Company's authorized
but unissued common stock, $0.001 par value per share (herein called "Common
Stock"). The Company has also granted to the several Underwriters an option to
purchase up to __________ additional shares of Common Stock on the terms and for
the purposes set forth in Section 3 hereof (the "Option Shares"). The Firm
Shares and any Option Shares purchased pursuant to this Purchase Agreement are
herein collectively called the "Securities."
The Company hereby confirms its agreement with respect to the sale of the
Securities to the several Underwriters, for whom you are acting as
Representatives (the "Representatives").
1. Registration Statement and Prospectus. A registration statement on
Form S-1 (File No. 333-89537) with respect to the Securities, including a
preliminary form of prospectus, has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations ("Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission; one or more amendments to such registration statement have also been
so prepared and have been, or will be, so filed; and, if the Company has elected
to rely upon Rule 462(b) of the Rules and Regulations to increase the size of
the offering registered under the Act, the Company will prepare and file with
the Commission a registration statement with respect to such increase pursuant
to Rule 462(b). Copies of such registration statement(s) and amendments and each
related preliminary prospectus have been delivered to you.
As part of the offering contemplated by this Agreement, U.S. Bancorp
Piper Jaffray (the "Designated Underwriter") has agreed to reserve out of the
Firm Shares purchased by it under this Agreement, up to ____________ shares, for
sale to the Company's directors, officers, employees and other parties
associated with the Company (collectively, "Participants"), as set forth in the
Prospectus (as defined herein) under the
<PAGE> 2
heading "Underwriters" (the "Directed Share Program"). The Firm Shares to be
sold by the Designated Underwriter pursuant to the Directed Share Program (the
"Directed Shares") will be sold by the Designated Underwriter pursuant to this
Agreement at the public offering price. Any Directed Shares not orally confirmed
for purchase by a Participant by the end of the business day on which this
Agreement is executed will be offered to the public by the Underwriters as set
forth in the Prospectus.
If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus (including a term sheet meeting
the requirements of Rule 434 of the Rules and Regulations). If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, it will prepare and
file a prospectus (or a term sheet meeting the requirements of Rule 434)
pursuant to Rule 424(b) that discloses the information previously omitted from
the prospectus in reliance upon Rule 430A. Such registration statement as
amended at the time it is or was declared effective by the Commission, and, in
the event of any amendment thereto after the effective date and prior to the
First Closing Date (as hereinafter defined), such registration statement as so
amended (but only from and after the effectiveness of such amendment), including
a registration statement (if any) filed pursuant to Rule 462(b) of the Rules and
Regulations increasing the size of the offering registered under the Act and
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rules 430A(b) and 434(d) of the Rules and
Regulations, is hereinafter called the "Registration Statement." The prospectus
included in the Registration Statement at the time it is or was declared
effective by the Commission is hereinafter called the "Prospectus," except that
if any prospectus (including any term sheet meeting the requirements of Rule 434
of the Rules and Regulations provided by the Company for use with a prospectus
subject to completion within the meaning of Rule 434 in order to meet the
requirements of Section 10(a) of the Rules and Regulations) filed by the Company
with the Commission pursuant to Rule 424(b) (and Rule 434, if applicable) of the
Rules and Regulations or any other such prospectus provided to the Underwriters
by the Company for use in connection with the offering of the Securities
(whether or not required to be filed by the Company with the Commission pursuant
to Rule 424(b) of the Rules and Regulations) differs from the prospectus on file
at the time the Registration Statement is or was declared effective by the
Commission, the term "Prospectus" shall refer to such differing prospectus
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations) from and after the time such prospectus is filed with the
Commission or transmitted to the Commission for filing pursuant to such Rule
424(b) (and Rule 434, if applicable) or from and after the time it is first
provided to the Underwriters by the Company for such use. The term "Preliminary
Prospectus" as used herein means any preliminary prospectus included in the
Registration Statement prior to the time it becomes or became effective under
the Act and any prospectus subject to completion as described in Rule 430A or
434 of the Rules and Regulations.
2. Representations and Warranties of the Company.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters as follows:
(i) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission and each Preliminary
Prospectus, at the time of filing thereof, did not contain 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, in the light of the
circumstances under which they were made, not misleading; except that the
foregoing shall not apply to statements in or omissions from any Preliminary
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by you, or by any Underwriter through you, specifically
for use in the preparation thereof.
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<PAGE> 3
(ii) As of the time the Registration Statement (or any
post-effective amendment thereto, including a registration statement (if any)
filed pursuant to Rule 462(b) of the Rules and Regulations increasing the size
of the offering registered under the Act) is or was declared effective by the
Commission, upon the filing or first delivery to the Underwriters of the
Prospectus (or any supplement to the Prospectus (including any term sheet
meeting the requirements of Rule 434 of the Rules and Regulations)) and at the
First Closing Date and Second Closing Date (as hereinafter defined), (A) the
Registration Statement and the Prospectus (in each case, as so amended and/or
supplemented) conformed or will conform in all material respects to the
requirements of the Act and the Rules and Regulations, (B) the Registration
Statement (as so amended) did not or will 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, and (C) the Prospectus
(as so supplemented) did not or will 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, in light of the circumstances in which
they are or were made, not misleading; except that the foregoing shall not apply
to statements in or omissions from any such document in reliance upon, and in
conformity with, written information furnished to the Company by you, or by any
Underwriter through you, specifically for use in the preparation thereof. If the
Registration Statement has been declared effective by the Commission, no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceeding for that purpose has been initiated or, to the
Company's knowledge, threatened by the Commission.
(iii) The financial statements of the Company, together
with the notes thereto, set forth in the Registration Statement and the
Prospectus comply in all material respects with the requirements of the Act and
fairly present the financial condition of the Company as of the dates shown and
the results of operations and changes in cash flows for the periods therein
specified in conformity with United States generally accepted accounting
principles consistently applied throughout the periods involved; and the
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein. No other financial statements or
schedules are required to be included in the Registration Statement or
Prospectus. PricewaterhouseCoopers LLP, which has expressed its opinion with
respect to the financial statements and schedules filed as a part of the
Registration Statement and included in the Registration Statement and the
Prospectus, are independent public accountants as required by the Act and the
Rules and Regulations. The summary financial and other data included in the
Registration Statement and the Prospectus present fairly the information shown
therein and have been compiled on a basis consistent with the financial
statements presented therein.
(iv) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation. The Company has full corporate power and authority to own its
properties and conduct its business as currently being carried on and as
described in the Registration Statement and the Prospectus, and is duly
qualified to do business as a foreign corporation in good standing in each
jurisdiction in which it owns or leases real property or in which the conduct of
its business makes such qualification necessary and in which the failure to so
qualify would have a material adverse effect on the assets or properties,
business, results of operations, or condition (financial or otherwise) of the
Company (a "Material Adverse Effect").
(v) Except as contemplated in the Registration Statement
and the Prospectus, subsequent to the date of the latest audited financial
statements included in the Prospectus, the Company has not incurred any material
liabilities or obligations, direct or contingent, or entered into any material
transactions, or declared or paid any dividends or made any distribution of any
kind with respect to its capital stock; and there has not been any change in the
capital stock (other than a change in the number of outstanding Common Stock due
to the issuance of shares upon the exercise of outstanding options or warrants
or conversion of preferred stock), or any material change in the short-term or
long-term debt, or any issuance of options, warrants, convertible securities or
other rights to purchase the capital stock (other than pursuant to
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<PAGE> 4
the Company's equity incentive plans, which change is not material), of the
Company or any change that had a Material Adverse Effect, or any development
involving a prospective Material Adverse Effect.
(vi) Except as set forth in the Registration Statement
and the Prospectus, there is not pending or, to the knowledge of the Company,
threatened or contemplated, any action, suit or proceeding to which the Company
is a party or to which any property or assets of the Company is subject before
or by any court or governmental agency, authority or body, or any arbitrator,
which could reasonably be expected to result in a Material Adverse Effect.
(vii) There are no contracts or documents of the Company
that are required to be described in the Prospectus or to be filed as exhibits
to the Registration Statement by the Act or by the Rules and Regulations that
have not been so described or filed.
(viii) This Agreement has been duly authorized, executed
and delivered by the Company, and constitutes a valid, legal and binding
obligation of the Company, enforceable in accordance with its terms, except as
rights to indemnity hereunder may be limited by federal or state securities laws
and except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the rights of creditors generally and
subject to general principles of equity. The execution, delivery and performance
of this Agreement and the consummation of the transactions herein contemplated
(including without limitation the issuance and sale of the Securities) will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any agreement or instrument to which
the Company is a party or by which it is bound or to which any of its property
is subject, the Company's charter or by-laws, or any order, rule, regulation or
decree of any court or governmental agency or body having jurisdiction over the
Company or any of its properties; no consent, approval, authorization or order
of, or filing with, any court or governmental agency or body is required for the
execution, delivery and performance of this Agreement or for the consummation of
the transactions contemplated hereby, including the issuance or sale of the
Securities by the Company, except such as may be required under the Act or state
securities or blue sky laws; and the Company has full power and authority to
enter into this Agreement and to authorize, issue and sell the Securities as
contemplated by this Agreement.
(ix) All of the issued and outstanding shares of capital
stock of the Company, including the outstanding Common Stock, are duly
authorized and validly issued, fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities that were not waived and the capital stock of the
Company, including the Common Stock, conforms to the description thereof in the
Registration Statement and Prospectus. Except as otherwise stated in the
Registration Statement and Prospectus, there are no preemptive rights or other
rights to subscribe for or to purchase, or any restriction upon the voting or
transfer of, any Common Stock pursuant to the Company's charter, bylaws or any
agreement or other instrument to which the Company is a party or by which the
Company is bound that does not expire upon the closing of the sale of the Firm
Shares. Except as described in the Registration Statement and the Prospectus,
there are no options, warrants, agreements, contracts or other rights in
existence to purchase or acquire from the Company or any subsidiary of the
Company any shares of the capital stock of the Company or any subsidiary of the
Company. The Company has an authorized and outstanding capitalization as of
December 31, 1999 as set forth in the Registration Statement and the Prospectus.
(x) The Securities have been duly authorized and, when
issued, delivered and paid for in accordance with the terms hereof, will have
been validly issued and will be fully paid and nonassessable, and the holders
thereof will not be subject to personal liability by reason of being such
holders, and conforms to the description thereof in the Registration Statement
and the Prospectus. No further approval
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<PAGE> 5
or authority of the stockholders of the Company or the Board of Directors of the
Company is required for the sale and issuance of the Securities hereunder.
(xi) Neither the filing of the Registration Statement nor
the offering or sale of the Securities as contemplated by this Agreement gives
rise to any rights for or relating to the registration of any Common Stock or
other securities of the Company and no person or entity holds a right to require
registration under the Securities Act of shares of capital stock of the Company
at any other time, except as disclosed in the Registration Statement and the
Prospectus.
(xii) The Company holds, and is operating in compliance
in all material respects with, all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates and orders of any governmental or
self-regulatory body required for the conduct of its business and all such
franchises, grants, authorizations, licenses, permits, easements, consents,
certifications and orders are valid and in full force and effect except where
failure to comply or hold any such franchise, grant, authorization, license,
permit, easement, consent, certificate or order would not have a Material
Adverse Effect; and the Company is in compliance in all material respects with
all applicable federal, state, local and foreign laws, regulations, orders and
decrees applicable to the Company.
(xiii) The Company has good and marketable title to all
property described in the Registration Statement and the Prospectus as being
owned by them, in each case free and clear of all liens, claims, security
interests or other encumbrances except such as are described in the Registration
Statement and the Prospectus; the property held under lease by the Company is
held by it under valid, subsisting and enforceable leases with only such
exceptions with respect to any particular lease as do not interfere in any
material respect with the conduct of the business of the Company.
(xiv) The Company owns or possesses all patents, patent
applications, trademarks, service marks, tradenames, trademark registrations,
service mark registrations, copyrights, licenses, inventions, trade secrets
know-how, proprietary techniques, processes and rights ("Intellectual Property")
necessary for the conduct of the business of the Company as currently carried on
(including products, services and technology contemplated by current research
and development projects) and as described in the Registration Statement and the
Prospectus. Except as stated in the Registration Statement and the Prospectus,
no name that the Company uses and no other aspect of the business of the Company
infringes, or requires the payment of license or similar fees for, any
Intellectual Property of others material to the business or prospects of the
Company and the Company has not received any notice alleging any such
infringement or fee. To the knowledge of the Company, its Intellectual Property
is not being infringed by any third parties which infringement could reasonably
be expected, whether singly or in the aggregate, to have a Material Adverse
Effect.
(xv) The Company is not (i) in violation of its charter
or bylaws (ii) in breach of or otherwise in default in the performance of any
obligation, agreement or condition contained in any bond, debenture, note,
indenture, loan agreement or any other contract, lease or other instrument to
which it is subject or by which it may be bound, or to which any of the property
or assets of the Company is subject, nor has any event occurred that with notice
and/or the passage of time would give rise to such a breach or default or (iii)
is in violation of any law, ordinance, government rule, regulation or court
order or decree to which it is subject or by which it may be bound or to which
any of the property or assets of the Company is subject, except in the case of
clauses (ii) and (iii) for such breaches, defaults or violations that
individually or in the aggregate would not have a Material Adverse Effect.
(xvi) The Company has filed all federal, state, local and
foreign income and franchise tax returns required to be filed and is not in
default in the payment of any taxes that were payable
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<PAGE> 6
pursuant to said returns or any assessments with respect thereto, other than any
that the Company is contesting in good faith.
(xvii) The Company has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Securities other than any Preliminary Prospectus or the
Prospectus or other materials permitted by the Act to be distributed by the
Company.
(xviii) The Securities have been duly authorized for
quotation on the Nasdaq National Market, subject to official notice of issuance,
and, on the date the Registration Statement became or becomes effective, the
Company's Registration Statement on Form 8-A or other applicable form under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), became or will
become effective.
(xix) The Company has no subsidiary or subsidiaries and
the Company owns no capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, limited liability company, joint
venture association, trust or other entity.
(xx) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxi) Other than as contemplated by this Agreement, the
Company has not incurred any liability for any finder's or broker's fee or
agent's commission in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby and except
as disclosed in the Prospectus and the Registration Statement there are no
contracts, agreements or understandings between the Company and any person that
would give rise to any such liability.
(xxii) Neither the Company nor any of its affiliates is
presently doing business with the government of Cuba or with any person or
affiliate located in Cuba.
(xxiii) No labor dispute with the employees of the
Company exists or, to the knowledge of the Company, is threatened that could
have a Material Adverse Effect. The Company has not violated any applicable
safety or similar law applicable to its business nor any federal or state law
relating to discrimination in the hiring, promotion or pay of employees, nor any
applicable federal or state wage and hours law, nor any provisions of the
Employee Retirement Income Security Act or the rules and regulations promulgated
thereunder, the violation of any of which could have a Material Adverse Effect.
The Company is not aware of any threatened or pending litigation between the
Company and any of its executive officers that, if adversely determined, could
have a Material Adverse Effect.
(xxiv) No transaction has occurred or relationship exists
between or among the Company and any of its officers or directors or any
affiliate or affiliates of any such officer or director that is required to be
described in and is not described in the Registration Statement and the
Prospectus.
(xxv) The Company is insured by insurers of recognized
financial responsibility against such losses and risks in such amounts as are
customary in the business in which it is engaged; and the Company has no reason
to believe that it will not be able to renew its existing insurance coverage as
and
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<PAGE> 7
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
(xxvi) To the Company's knowledge, there are no
affiliations with the National Association of Securities Dealers, Inc. (the
"NASD") among the Company's officers, directors or, to the best knowledge of the
Company, any five percent or greater stockholder of the Company, except as set
forth in the Registration Statement and the Prospectus or otherwise disclosed in
writing to the Representatives.
(xxvii) The Company is not and, after giving effect to
the sale and issuance of the Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder (the "Investment Company Act").
(xxviii) Neither the Company nor, to the knowledge of the
Company, any other person associated with or acting on behalf of the Company
including, without limitation, any director, officer, agent or employee of the
Company has, directly or indirectly, while acting on behalf of the Company or
any of its subsidiaries, (i) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any other unlawful
payment.
(xxix) The Company has reviewed its operations and any
third parties with which the Company has a material relationship to evaluate the
extent to which the business or operations of the Company or any of its
subsidiaries will be affected by the Year 2000 Problem (defined below). As a
result of such review, the Company has no reason to believe, and does not
believe, that the Year 2000 Problem will have a Material Adverse Effect. The
"Year 2000 Problem" as used herein means any significant risk that computer
hardware or software used in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization of data or
in the operation of mechanical or electrical systems of any kind will not, in
the case of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring prior to
January 1, 2000.
(xxx) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Securities.
(xxxi) No consent, approval, authorization, or order of,
or filing with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in connection
with the issuance and sale of the Securities by the Company, except such as have
been obtained and made under the Act and such as may be required under state
securities laws.
(xxxii) The Company (i) has notified each holder of a
currently outstanding option issued under the Company's Equity Incentive Plan
and 1997 Equity Incentive Plan and each person who has acquired securities
pursuant to the exercise of any option granted under such option plans that
pursuant to the terms of such option plans, none of such options or shares may
be sold or otherwise transferred or disposed of for a period of 180 days after
the date of the initial public offering of the Offered Securities (such
restriction being referred to herein as the "Option Agreement Lock-up" and (ii)
has imposed a stop-transfer instruction with the Company's transfer agent in
order to enforce the foregoing lock-up provision.
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<PAGE> 8
(xxxiii) Except as disclosed in the Prospectus, all
outstanding Securities, and all securities convertible into or exercisable or
exchangeable for Securities, are subject to valid and binding agreements
(collectively, "Lock-up Agreements") that restrict the holders thereof from
selling, making any short sale of, granting any option for the purchase of, or
otherwise transferring or disposing of, any of such Securities, or any such
securities convertible into or exercisable or exchangeable for Securities, for a
period of 180 days after the date of the Prospectus without the prior written
consent of U.S. Bancorp Piper Jaffray ("Piper Jaffray").
(xxxiv) The Company (i) has notified each stockholder who
is party to the Fourth Amended and Restated Investors' Rights Agreement dated
October 20, 1999 (the "Rights Agreement"), that pursuant to the terms of the
Rights Agreement, none of the shares of the Company's capital stock held by such
stockholder may be sold or otherwise transferred or disposed of for a period of
180 days after the date of the initial public offering of the Offered Securities
(such restriction being referred to herein as the "Rights Agreement Lock-up")
and (ii) has imposed a stop-transfer instruction with the Company's transfer
agent in order to enforce the foregoing lock-up provision imposed pursuant to
the Rights Agreement.
(xxxv) The Company has not offered, or caused the
Underwriters to offer, any Securities to any person pursuant to the Directed
Share Program with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or type of
business with the Company or (ii) a trade journalist or publication to write or
publish favorable information about the Company or its products.
(xxxvi) Furthermore, the Company represents and warrants
to the Underwriters that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or supplements thereto
will comply, with any applicable laws or regulations of foreign jurisdictions in
which the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share Program,
and that (ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the securities
law and regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.
(xxxvii) Under the provisions of Rule 152 promulgated
under the Act, the Company's issuance of subordinated convertible promissory
notes and detachable warrants to purchase common stock on October 20, 1999 is
not integrated with the offering contemplated hereby. Such issuance was exempt
from the registration requirements of Section 5 of the Act pursuant to Section
4(2) thereof.
(b) Any certificate signed by any officer of the Company and
delivered to you or to counsel pursuant to this Agreement shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
3. Purchase, Sale and Delivery of Securities.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to issue and sell __________ Firm Shares to the
several Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto. The purchase price for each Firm Share
shall be $_____ per share. The obligation of each Underwriter to the Company
shall be to purchase from the Company that number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto. In making this
Agreement, each Underwriter is contracting severally and not jointly; except as
provided in paragraph (c) of this Section 3 and in Section 8
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<PAGE> 9
hereof, the agreement of each Underwriter is to purchase only the respective
number of Firm Shares specified in Schedule I.
The Firm Shares will be delivered by the Company to you for the
accounts of the several Underwriters against payment of the purchase price
therefor by certified or official bank check or other next day funds payable to
the order of the Company, as appropriate, at the offices of U.S. Bancorp Piper
Jaffray, Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or
such other location as may be mutually acceptable, at 9:00 a.m. Central time on
the third (or if the Securities are priced, as contemplated by Rule 15c6-1(c)
under the Exchange Act, after 4:30 p.m. Eastern time, the fourth) full business
day following the date hereof, or at such other time and date as you and the
Company determine pursuant to Rule 15c6-1(a) under the Exchange Act, such time
and date of delivery being herein referred to as the "First Closing Date." If
the Representatives so elect, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives. Certificates representing the Firm Shares, in
definitive form and in such denominations and registered in such names as you
may request upon at least two business days' prior notice to the Company, will
be made available for checking and packaging not later than 10:30 a.m., Central
time, on the business day next preceding the First Closing Date at the offices
of U.S. Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually acceptable.
(b) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants to the several Underwriters an option to
purchase all or any portion of the Option Shares at the same purchase price as
the Firm Shares, for use solely in covering any over-allotments made by the
Underwriters in the sale and distribution of the Firm Shares. The option granted
hereunder may be exercised at any time (but not more than once) within 30 days
after the effective date of this Agreement upon notice (confirmed in writing) by
the Representatives to the Company setting forth the aggregate number of Option
Shares as to which the several Underwriters are exercising the option, the names
and denominations in which the certificates for the Option Shares are to be
registered and the date and time, as determined by you, when the Option Shares
are to be delivered, such time and date being herein referred to as the "Second
Closing" and "Second Closing Date", respectively; provided, however, that the
Second Closing Date shall not be earlier than the First Closing Date nor earlier
than the second business day after the date on which the option shall have been
exercised. The number of Option Shares to be purchased by each Underwriter shall
be the same percentage of the total number of Option Shares to be purchased by
the several Underwriters as the number of Firm Shares to be purchased by such
Underwriter is of the total number of Firm Shares to be purchased by the several
Underwriters, as adjusted by the Representatives in such manner as the
Representatives deem advisable to avoid fractional shares. No Option Shares
shall be sold and delivered unless the Firm Shares previously have been, or
simultaneously are, sold and delivered.
The Option Shares will be delivered by the Company to you for the
accounts of the several Underwriters against payment of the purchase price
therefor by certified or official bank check or wire transfer or other next day
funds payable to the order of the Company, as appropriate, at the offices of
U.S. Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually acceptable at
9:00 a.m., Central time, on the Second Closing Date. If the Representatives so
elect, delivery of the Option Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representatives. Certificates representing the Option Shares in definitive form
and in such denominations and registered in such names as you have set forth in
your notice of option exercise, will be made available for checking and
packaging not later than 10:30 a.m., Central time, on the business day next
preceding the Second Closing Date at the office of U.S. Bancorp Piper Jaffray,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such
other location as may be mutually acceptable.
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<PAGE> 10
(c) It is understood that you, individually and not as
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment to the Company, on behalf of any Underwriter for the Securities to
be purchased by such Underwriter. Any such payment by you shall not relieve any
such Underwriter of any of its obligations hereunder. Nothing herein contained
shall constitute any of the Underwriters an unincorporated association or
partner with the Company.
4. Covenants
(a) The Company covenants and agrees with the several
Underwriters as follows:
(i) If the Registration Statement has not already been
declared effective by the Commission, the Company will use its best efforts to
cause the Registration Statement and any post-effective amendments thereto to
become effective as promptly as possible; the Company will notify you promptly
of the time when the Registration Statement or any post-effective amendment to
the Registration Statement has become effective or any supplement to the
Prospectus (including any term sheet within the meaning of Rule 434 of the Rules
and Regulations) has been filed and of any request by the Commission for any
amendment or supplement to the Registration Statement or the Prospectus or
additional information; if the Company has elected to rely on Rule 430A of the
Rules and Regulations, the Company will prepare and file a Prospectus (or term
sheet within the meaning of Rule 434 of the Rules and Regulations) containing
the information omitted therefrom pursuant to Rule 430A of the Rules and
Regulations with the Commission within the time period required by, and
otherwise in accordance with the provisions of, Rules 424(b), 430A and 434, if
applicable, of the Rules and Regulations; if the Company has elected to rely
upon Rule 462(b) of the Rules and Regulations to increase the size of the
offering registered under the Act, the Company will prepare and file a
registration statement with respect to such increase with the Commission within
the time period required by, and otherwise in accordance with the provisions of,
Rule 462(b); the Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or the Prospectus (including any term sheet within the meaning of Rule 434 of
the Rules and Regulations) that, in your opinion, may be necessary or advisable
in connection with the distribution of the Securities by the Underwriters; and
the Company will not file any amendment or supplement to the Registration
Statement or Prospectus (including any term sheet within the meaning of Rule 434
of the Rules and Regulations) to which you shall reasonably object by notice to
the Company after having been furnished a copy a reasonable time prior to the
filing.
(ii) Within the time during which a prospectus (including
any term sheet within the meaning of Rule 434 of the Rules and Regulations)
relating to the Securities is required to be delivered under the Act, the
Company will comply as far as it is able with all requirements imposed upon it
by the Act, as now and hereafter amended, and by the Rules and Regulations, as
from time to time in force, so far as necessary to permit the continuance of
sales of or dealings in the Securities as contemplated by the provisions hereof
and the Prospectus. If during such period any event occurs as a result of which
in the opinion of counsel for the Company or of counsel for the Underwriters the
Prospectus would include an untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in the light of the
circumstances then existing, not misleading, or if during such period it is in
the opinion of counsel for the Company or of counsel for the Underwriters
necessary to amend the Registration Statement or supplement the Prospectus to
comply with the Act, the Company will promptly notify you and will forthwith
amend the Registration Statement or supplement the Prospectus (at the expense of
the Company) so as to correct such statement or omission or effect such
compliance.
(iii) The Company will use its best efforts to qualify
the Securities for sale under the securities laws of such jurisdictions as you
reasonably designate and to continue such qualifications in effect so long as
required for the distribution of the Securities, except that the Company shall
not be required
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<PAGE> 11
in connection therewith to qualify as a foreign corporation or to execute a
general consent to service of process in any state. The Company will, from time
to time, prepare and file such statements, reports, and other documents as are
or may be required to continue such qualifications in effect for so long a
period as you may reasonably request for distribution of the Securities.
(iv) The Company will furnish to the Underwriters copies
of the Registration Statement (five of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and all amendments and
supplements (including any term sheet within the meaning of Rule 434 of the
Rules and Regulations) to such documents, in each case as soon as available and
in such quantities as you may from time to time reasonably request. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York time, on the
business day following the later of the execution and delivery of this Agreement
or the effective date of the Registration Statement. All other documents shall
be so furnished promptly after they become available. Prior to the filing
thereof with the Commission, the Company will submit to you, for your
information, a copy of any post-effective amendment to the Registration
Statement and any supplement to the Prospectus or any amended prospectus
proposed to be filed. The Company will pay the expenses of printing and
distributing to the Underwriters all such documents.
(v) During a period of five years commencing with the
date hereof, the Company will furnish to the Representatives and, upon request,
to each of the other Underwriters, as soon as practicable after the end of each
fiscal year, a copy of its annual report to stockholders for such year; and the
Company will furnish to the Representatives (i) promptly after they become
available, a copy of each report and any definitive proxy statement of the
Company filed with the Commission under the Exchange Act or mailed to
stockholders, and (ii) from time to time, such other information concerning the
Company as U.S. Bancorp Piper Jaffray may reasonably request.
(vi) The Company will make generally available to its
security holders as soon as practicable, but in any event not later than 15
months after the end of the Company's current fiscal quarter, an earnings
statement (which need not be audited) covering a 12-month period beginning after
the effective date of the Registration Statement that shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations.
(vii) The Company, whether or not the transactions
contemplated hereunder are consummated or this Agreement is prevented from
becoming effective under the provisions of Section 9(a) hereof or is terminated,
will pay or cause to be paid (A) all expenses (including transfer taxes
allocated to the respective transferees) incurred in connection with the
delivery to the Underwriters of the Securities, (B) all expenses and fees
(including, without limitation, fees and expenses of the Company's accountants
and counsel but, except as otherwise provided below, not including fees of the
Underwriters' counsel) in connection with the preparation, printing, filing,
delivery, and shipping of the Registration Statement (including the financial
statements therein and all amendments, schedules, and exhibits thereto), the
Securities, each Preliminary Prospectus, the Prospectus, and any amendment
thereof or supplement thereto, and the printing, delivery, and shipping of this
Agreement and other underwriting documents, including Blue Sky Memoranda, (C)
all filing fees and fees and disbursements of the Underwriters' counsel incurred
in connection with the qualification of the Securities for offering and sale by
the Underwriters or by dealers under the securities or blue sky laws of the
states and other jurisdictions which you shall designate in accordance with
Section 4(d) hereof, (D) the fees and expenses of any transfer agent or
registrar, (E) the filing fees incident to any required review by the NASD of
the terms of the sale of the Securities, (F) listing fees, if any, and (G) all
other costs and expenses incident to the performance of its obligations
hereunder that are not otherwise specifically provided for herein. If the sale
of the Securities provided for herein is not consummated by reason of action by
the Company pursuant to Section 9(a) hereof which prevents this Agreement from
becoming effective, or by reason of any failure, refusal or inability on the
part of the
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<PAGE> 12
Company to perform any agreement on its or their part to be performed, or
because any other condition of the Underwriters' obligations hereunder required
to be fulfilled by the Company is not fulfilled, the Company will reimburse the
several Underwriters for all out-of-pocket disbursements (including fees and
disbursements of counsel) incurred by the Underwriters in connection with their
investigation, preparing to market and marketing the Securities or in
contemplation of performing their obligations hereunder. The Company shall not
in any event be liable to any of the Underwriters for loss of anticipated
profits from the transactions covered by this Agreement.
(viii) The Company will apply the net proceeds from the
sale of the Securities to be sold by it hereunder for the purposes set forth in
the Prospectus and will file such reports with the Commission with respect to
the sale of the Securities and the application of the proceeds therefrom as may
be required in accordance with Rule 463 of the Rules and Regulations.
(ix) The Company will not, without your prior written
consent, from the date of execution of this Agreement and continuing to and
including the date 180 days after the date of the Prospectus (the "Lock-Up
Period") (A) offer for sale, sell, contract to sell, pledge, grant any option
for the sale of or otherwise issue or dispose of, directly or indirectly (or
publicly disclose the intention to make any such offer, sale, pledge, grant,
issuance or disposition), any Common Stock or any securities convertible into or
exchangeable for, or any options or rights to purchase or acquire, Common Stock,
except to the Underwriters pursuant to this Agreement and except for the
issuance of options pursuant to the Company's 1999 Equity Incentive Plan
(provided that no such options shall vest and become exercisable prior to the
expiration of the Lock-Up Period) and the 1999 Employee Stock Purchase Plan and
pursuant to the exercise of stock options or warrants outstanding on the date
hereof or (B) file with the Commission a registration statement under the Act
relating to any securities or publicly disclose the intention to make any such
filing (other than registration statements on Form S-8 limited in scope to the
1999 Equity Incentive Plan and the 1999 Employee Stock Purchase Plan). The
Company agrees not to accelerate the vesting of any option or warrant or the
lapse of any repurchase right prior to the expiration of the Lock-Up Period.
(x) The Company either has caused to be delivered to you
or will cause to be delivered to you prior to the effective date of the
Registration Statement a letter (the "Lock-Up Agreement") from each of the
Company's directors, officers and other stockholders and each holder of
securities convertible into or exercisable for shares of the Company's capital
stock stating that such person agrees that, during the Lock-Up Period, he or she
will not publicly or privately announce any intention to, will not allow any
affiliate or subsidiary, if applicable, to, and will not itself, without the
prior written consent of U.S. Bancorp Piper Jaffray on behalf of the
Underwriters, (i) offer, pledge, sell, offer to sell, contract to sell, sell any
option or contract to purchase, purchase any option to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any Common Stock or any securities convertible into, or exercisable
or exchangeable for, Common Stock, or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
of ownership of any Common Stock or any securities convertible into, or
exercisable or exchangeable for, Common Stock (whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise), in each case,
beneficially owned (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) or otherwise controlled by the stockholder on
the date of the Lock-Up Agreement or thereafter acquired; provided, however,
that, if the stockholder is an individual, the stockholder may, without the
prior written consent of U.S. Bancorp Piper Jaffray on behalf of the
Underwriters, transfer Common Stock or any securities convertible into, or
exercisable or exchangeable for, Common Stock either during his or her lifetime
or, on death, by will or intestacy to members of the stockholder's immediate
family or to trusts exclusively for the benefit of members of the stockholder's
immediate family or in connection with bona fide gifts, provided that, prior to
any such transfer, such transferee executes an agreement, satisfactory to U.S.
Bancorp Piper Jaffray, pursuant to which such transferee agrees to receive and
hold such shares subject
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<PAGE> 13
to the provisions of the Lock-Up Agreement and that there shall be no further
transfer except in accordance with the provisions of the Lock-Up Agreement. For
purposes of this paragraph, "immediate family" shall mean the stockholder's
spouse, lineal descendant, father, mother, brother or sister.
(xi) The Company will (A) use its best efforts to enforce
the terms of each agreement between the Company, and each holder of the
Company's capital stock or securities convertible into or exercisable for shares
of the Company's capital stock which agreement contains restrictions on transfer
or disposition of such securities in substance similar to the Lock-Up Agreement
("Stock Restriction Agreements"); and (B) issue stop-transfer instructions to
the transfer agent for the Securities with respect to any transaction or
contemplated transaction that would constitute a breach of or default under a
Stock Restriction Agreement or Lock-Up Agreement. In addition, except with the
prior written consent of U.S. Bancorp Piper Jaffray, the Company agrees not to
amend or terminate, or waive any right under, any Lock-up Agreement or Stock
Restriction Agreement or take any other action that would directly or indirectly
have the same effect as an amendment or termination, or waiver of any right
under any Lock-up Agreement or Stock Restriction Agreement, prior to the
expiration of the Lock-Up Period.
(xii) The Company has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in, or which has constituted, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities, and has not effected any sales of Common Stock that
are required to be disclosed in response to Item 701 of Regulation S-K under the
Act that have not been so disclosed in the Registration Statement.
(xiii) The Company will not incur any liability for any
finder's or broker's fee or agent's commission in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, other than the selling commission paid to the Underwriters.
(xiv) The Company will inform the Florida Department of
Banking and Finance at any time prior to the consummation of the distribution of
the Securities by the Underwriters if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba. Such
information will be provided within 90 days after the commencement thereof or
after a change occurs with respect to previously reported information.
(xv) The Company is familiar with the Investment Company
Act and will conduct its affairs in such a manner to ensure that the Company is
not and will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act.
(xvi) The Company will use its best efforts to effect and
maintain the quotation of the Common Stock on the Nasdaq National Market.
(xvii) In connection with the Directed Share Program, the
Company will ensure that the Directed Shares will be restricted to the extent
required by the National Association of Securities Dealers, Inc. (the "NASD") or
the NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of the effectiveness of the
Registration Statement. The Designated Underwriter will notify the Company as to
which Participants will need to be so restricted. The Company will direct the
transfer agent to place stop transfer instructions upon such securities for such
period of time.
(xviii) The Company will pay all fees and disbursements
of counsel incurred by the Underwriters in connection with the Directed Shares
Program and stamp duties, similar taxes or duties or other taxes, if any,
incurred by the Underwriters in connection with the Directed Share Program.
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<PAGE> 14
(xix) Furthermore the Company covenants with the
Underwriters that the Company will comply with all applicable securities and
other applicable laws, rules and regulations in each foreign jurisdiction in
which the Directed Shares are offered in connection with the Directed Share
Program.
5. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters hereunder are subject to the accuracy, as of the date
hereof and at each of the First Closing Date and the Second Closing Date (as if
made at such Closing Date), of and compliance with all representations,
warranties and agreements of the Company contained herein, to the performance by
the Company of its obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 p.m., Central time, on the date of this Agreement, or such later
time and date as you, as Representatives of the several Underwriters, shall
approve and all filings required by Rules 424, 430A and 434 of the Rules and
Regulations shall have been timely made; no stop order suspending the
effectiveness of the Registration Statement or any amendment thereof shall have
been issued; no proceedings for the issuance of such an order shall have been
initiated or threatened; and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to your satisfaction.
(b) The legality and sufficiency of the sale of the Securities
hereunder and the validity and form of the certificates representing the Stock,
all corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Underwriters.
(c) No Underwriter shall have advised the Company that the
Registration Statement or the Prospectus, or any amendment thereof or supplement
thereto (including any term sheet within the meaning of Rule 434 of the Rules
and Regulations), contains an untrue statement of fact that, in your opinion, is
material, or omits to state a fact which, in your opinion, is material and is
required to be stated therein or necessary to make the statements therein not
misleading.
(d) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, neither the Company nor any of its subsidiaries shall have
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock; and there
shall not have been any change in the capital stock (other than a change in the
number of outstanding Common Stock due to the issuance of shares upon the
exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt of the Company, or any issuance of options,
warrants, convertible securities or other rights to purchase the capital stock
of the Company or any of its subsidiaries, or any material adverse change or any
development involving a prospective material adverse change (whether or not
arising in the ordinary course of business), in the general affairs, condition
(financial or otherwise), business, key personnel, property, prospects, net
worth or results of operations of the Company and its subsidiaries, taken as a
whole, that, in your judgment, makes it impractical or inadvisable to offer or
deliver the Securities on the terms and in the manner contemplated in the
Registration Statement or the Prospectus.
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<PAGE> 15
(e) On each Closing Date, there shall have been furnished to you,
as Representatives of the several Underwriters, the opinion of Cooley Godward
LLP, general counsel for the Company, dated such Closing Date and addressed to
you, covering the matters set forth in Schedule II hereto.
In rendering such opinion such counsel may rely (i) as to matters of law
other than California and federal law, upon the opinion or opinions of local
counsel provided that the extent of such reliance is specified in such opinion
and that such counsel shall state that such opinion or opinions of local counsel
are satisfactory to them and that they believe they and you are justified in
relying thereon and (ii) as to matters of fact, to the extent such counsel deems
reasonable upon certificates of officers of the Company and its subsidiaries
provided that the extent of such reliance is specified in such opinion.
(f) On each Closing Date, there shall have been furnished to you,
as Representatives of the several Underwriters, such opinion or opinions from
Wilson Sonsini Goodrich & Rosati, Professional Corporation, special counsel for
the several Underwriters, dated such Closing Date and addressed to you, with
respect to the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as you reasonably may request, and such
counsel shall have received such papers and information as they request to
enable them to pass upon such matters.
(g) On each Closing Date you, as Representatives of the several
Underwriters, shall have received a letter of PricewaterhouseCoopers LLP, dated
such Closing Date and addressed to you:
(i) confirming that they are independent public
accountants within the meaning of the Act and are in compliance with the
applicable requirements relating to the qualifications of accountants under Rule
2-01 of Regulation S-X of the Commission,
(ii) stating that, in their opinion, the audited
consolidated financial statements and schedules examined by them and included in
the Registration Statement and the Prospectus comply in form in all material
respects with the applicable accounting requirements of the Act and the Rules
and Regulations,
(iii) stating, as of the date of such letter (or, with
respect to matters involving changes or developments since the respective dates
as of which specified financial information is given in the Prospectus, as of a
date not more than five days prior to the date of such letter), the conclusions
and findings of said firm with respect to the financial information and other
matters covered by its letter delivered to you concurrently with the execution
of this Agreement, and the effect of the letter so to be delivered on such
Closing Date shall be to confirm the conclusions and findings set forth in such
prior letter,
(iv) stating that, at a specific date not more than five
business days prior to the date of such letter, there were any changes in the
capital stock or long-term debt of the Company or any decrease in net current
assets or stockholders' equity of the Company in each case compared with amounts
shown on the December 31, 1998 audited consolidated balance sheet included in
the Registration Statement and the Prospectus, or for the period from January 1,
1998 to such specified date there were any decreases, as compared with the
comparable period of the prior fiscal quarter, in total sales of services and
license fees, income before taxes or total or per share amounts of net income of
the Company, except in all instances for changes, decreases or increases set
forth in such letter,
(v) stating that they have carried out certain specified
procedures, not constituting an audit, with respect to certain amounts,
percentaged and financial information that are derived from the general
accounting records of the Company and are included in the Registration Statement
and the Prospectus, including the amounts, percentages and financial information
included under the captions
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<PAGE> 16
"Summary Consolidated Financial and Operating Data," "Capitalization," "Selected
Consolidated Financial and Operating Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and have compared
such amounts, percentages and financial information with such records of the
Company and with information derived from such records and have found them to be
in agreement, excluding any questions of legal interpretation.
(vi) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing Standards No. 71,
Interim Financial Information, on the unaudited financial statements included in
the Registration Statements;
(vii) on the basis of the review referred to in clause
(ii) above, a reading of the latest available interim financial statements of
the Company, inquiries of officials of the Company who have responsibility for
financial and accounting matters and other specified procedures, nothing came to
their attention that caused them to believe that:
(1) the unaudited financial statements included
in the Registration Statements do not comply as to form
in all material respects with the applicable accounting
requirements of the Act and the related published Rules
and Regulations or any material modifications should be
made to such unaudited financial statements for them to
be in conformity with generally accepted accounting
principles;
(2) at the date of the latest available balance
sheet read by such accountants, or at a subsequent
specified date not more than three business days prior to
the date of such letter, there was any change in the
capital stock or deferred revenue or any increase in
long-term debt, total or current liabilities or
stockholders' deficit, or any decrease in current assets
or total assets of the Company and its consolidated
subsidiaries, as compared with amounts shown on the
latest balance sheet included in the Prospectus; or
(3) for the period from the closing date of the
latest statement of operations included in the Prospectus
to a specified date not more than three business days
prior to the date of such letter, there were any
decreases, as compared with the corresponding period of
the previous year and with the period of corresponding
length in the previous quarter, in total revenues, or
increases in loss from operations, comprehensive loss or
the total amounts of the net loss;
(h) On each Closing Date, there shall have been furnished to you,
as Representatives of the Underwriters, a certificate, dated such Closing Date
and addressed to you, signed by the chief executive officer and by the chief
financial officer of the Company, to the effect that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, in all material respects, as if made at and
as of such Closing Date, 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 such Closing Date;
(ii) No stop order or other order suspending the
effectiveness of the Registration Statement or any amendment thereof or the
qualification of the Securities for offering or sale has been issued, and no
proceeding for that purpose has been instituted or, to the best of their
knowledge, is contemplated by the Commission or any state or regulatory body;
and
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<PAGE> 17
(iii) The signers of said certificate have carefully
examined the Registration Statement and the Prospectus, and any amendments
thereof or supplements thereto (including any term sheet within the meaning of
Rule 434 of the Rules and Regulations), and (A) such documents contain all
statements and information required to be included therein, the Registration
Statement, or any amendment thereof, does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and the Prospectus,
as amended or supplemented, does not include any untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, (B)
since the effective date of the Registration Statement, there has occurred no
event required to be set forth in an amended or supplemented prospectus which
has not been so set forth, (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, neither
the Company nor any of its subsidiaries has incurred any material liabilities or
obligations, direct or contingent, or entered into any material transactions,
not in the ordinary course of business, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock, and except
as disclosed in the Prospectus, there has not been any change in the capital
stock (other than a change in the number of outstanding shares of Common Stock
due to the issuance of shares upon the exercise of outstanding options or
warrants), or any material change in the short-term or long-term debt, or any
issuance of options, warrants, convertible securities or other rights to
purchase the capital stock, of the Company, or any of its subsidiaries, or any
Material Adverse Effect or any development involving a prospective Material
Adverse Effect, and (D) except as stated in the Registration Statement and the
Prospectus, there is not pending, or, to the knowledge of the Company,
threatened or contemplated, any action, suit or proceeding to which the Company
or any of its subsidiaries is a party before or by any court or governmental
agency, authority or body, or any arbitrator, which might result in any Material
Adverse Effect.
(i) Subsequent to the execution of this Agreement or, if earlier,
the dates as of which information is given in the Registration Statement
(exclusive of any amendment thereto) and the Prospectus (exclusive of any
supplement thereto), there shall not have been (i) any change or decrease
specified in the letter or letters referred to in subparagraph (h) of this
Section 5 or (ii) any change, or any development involving a prospective change
(including without limitation a change in management or control of the Company),
in or affecting the business or properties of the Company and its subsidiaries
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
Securities as contemplated in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto);
(j) At the execution of this Agreement, the Company shall have
furnished to the Representatives a letter from each director, executive officer,
stockholder and holder of securities convertible or exercisable for shares of
capital stock of the Company an executed copy of the Lock-Up Agreement addressed
to the Representatives; prior to the commencement of the offering of the
Securities, the Securities shall have been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance; and
(k) The Company shall have furnished to you and counsel for the
Underwriters such additional documents, certificates and evidence as you or they
may have reasonably requested.
All such opinions, certificates, letters and other documents will
be in compliance with the provisions hereof only if they are satisfactory in
form and substance to you and counsel for the Underwriters. The Company will
furnish you with such conformed copies of such opinions, certificates, letters
and other documents as you shall reasonably request.
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<PAGE> 18
6. Indemnification and Contribution.
(a)
(i) The Company agrees to indemnify and hold harmless
each Underwriter, its partners, directors and officers and each person, if any,
who controls such Underwriter within the meaning of Section 15 of the Act,
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise (including in
settlement of any litigation if such settlement is effected with the written
consent of the Company), 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, including the information deemed to be a part of the
Registration Statement at the time of effectiveness pursuant to Rules 430A and
434(d) of the Rules and Regulations, if applicable, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto (including any term sheet
within the meaning of Rule 434 of the Rules and Regulations), 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 will reimburse each Underwriter for any legal or other expenses
reasonably incurred by it in connection with investigating or defending against
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
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof.
(ii) The Company agrees to indemnify and hold harmless
the Designated Underwriter and each person, if any, who controls the Designated
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act (the "Designated Entities"), from and against all
and all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (A) caused by any untrue statement or
alleged untrue statement of a material fact contained in any material prepared
by the Company for distribution to Participants in connection with the Directed
Share Program or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (B) caused by the failure of any Participant to pay for
and accept delivery of Directed Shares that the Participant agreed to purchase,
or (C) related to, arising out of, or in connection with the Directed Share
Program, other than losses, claims, damages or liabilities (or expenses relating
thereto) that are finally judicially determined to have resulted from the bad
faith or gross negligence of the Designated Entities.
(iii) In addition to their other obligations under this
Section 6(a), the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding arising out of
or based upon any statement or omission, or any alleged statement or omission,
described in this Section 6(a), they will reimburse each Underwriter on a
monthly basis for all reasonable legal fees or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Underwriter that received such
payment shall promptly return it to the party or parties that made such payment,
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) announced from time to time by
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<PAGE> 19
____________________ (the "Prime Rate"). Any such interim reimbursement payments
which are not made to an Underwriter within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement shall be in addition to any liabilities which
the Company or the Selling Stockholders may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the
Company, its partners, directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), 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, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto (including
any term sheet within the meaning of Rule 434 of the Rules and Regulations), 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, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any such amendment or supplement, in reliance
upon and in conformity with written information furnished to the Company by you,
or by such Underwriter through you, specifically for use in the preparation
thereof, and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
against any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that it may have to any indemnified party. In case any such action shall be
brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that if, in the sole judgment of the Representatives, it is advisable for the
Underwriters to be represented as a group by separate counsel, the
Representatives shall have the right to employ a single counsel to represent the
Representatives and all Underwriters who may be subject to liability arising
from any claim in respect of which indemnity may be sought by the Underwriters
under subsection (a) of this Section 6, in which event the reasonable fees and
expenses of such separate counsel shall be borne by the indemnifying party or
parties and reimbursed to the Underwriters as incurred (in accordance with the
provisions of the second paragraph in subsection (a) above). An indemnifying
party shall not be obligated under any settlement agreement relating to any
action under this Section 6 to which it has not agreed in writing.
Notwithstanding anything contained herein to the contrary, if indemnity may be
sought pursuant to Section 6(a)(ii) hereof in respect of such action or
proceeding, then in addition to such separate firm for the indemnified parties,
the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one separate firm (in addition to any local counsel) for the
Designated Underwriter for the defense of any losses, claims, damages and
liabilities arising out of the Directed Share Program, and all persons, if any,
who control the Designated Underwriter within the meaning of the either Section
15 of the Act of Section 20 of the Exchange Act.
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<PAGE> 20
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above, (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Underwriters on
the other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault 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 Company or the Underwriters and the parties'
relevant intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (d) were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the first sentence of this subsection (d). The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending against any action or claim
which is the subject of this subsection (d). Notwithstanding the provisions of
this subsection (d), no Underwriter shall be required to contribute any amount
in excess of the amount by which the total price at which the Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. 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. The
Underwriters' obligations in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 6 shall be
in addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 6 shall be in addition to any liability that the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company (including any person who, with
his consent, is named in the Registration Statement as about to become a
director of the Company), to each officer of the Company who has signed the
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
7. Representations and Agreements to Survive Delivery. All
representations, warranties, and agreements of the Company herein or in
certificates delivered pursuant hereto, and the agreements of the several
Underwriters and the Company contained in Section 6 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof, or the
Company or any of its officers, directors, or controlling persons, and shall
survive delivery of, and payment for, the Securities to and by the Underwriters
hereunder.
8. Substitution of Underwriters.
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<PAGE> 21
(a) If any Underwriter or Underwriters shall fail to take up and
pay for the amount of Firm Shares agreed by such Underwriter or Underwriters to
be purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased does not aggregate
more than 10% of the total amount of Firm Shares set forth in Schedule II
hereto, the remaining Underwriters shall be obligated to take up and pay for (in
proportion to their respective underwriting obligations hereunder as set forth
in Schedule II hereto except as may otherwise be determined by you) the Firm
Shares that the withdrawing or defaulting Underwriters agreed but failed to
purchase.
(b) If any Underwriter or Underwriters shall fail to take up and
pay for the amount of Firm Shares agreed by such Underwriter or Underwriters to
be purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased aggregates more than
10% of the total amount of Firm Shares set forth in Schedule II hereto, and
arrangements satisfactory to you for the purchase of such Firm Shares by other
persons are not made within 36 hours thereafter, this Agreement shall terminate.
In the event of any such termination the Company shall not be under any
liability to any Underwriter (except to the extent provided in Section
4(a)(viii), Section 4(b)(ii) and Section 6 hereof) nor shall any Underwriter
(other than an Underwriter who shall have failed, otherwise than for some reason
permitted under this Agreement, to purchase the amount of Firm Shares agreed by
such Underwriter to be purchased hereunder) be under any liability to the
Company (except to the extent provided in Section 6 hereof).
If Firm Shares to which a default relates are to be purchased by
the non-defaulting Underwriters or by any other party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 8.
9. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at 10:00 a.m., Central
time, on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective time of the
Registration Statement as you in your discretion shall first release the
Securities for sale to the public; provided, that if the Registration Statement
is effective at the time this Agreement is executed, this Agreement shall become
effective at such time as you in your discretion shall first release the
Securities for sale to the public. For the purpose of this Section, the
Securities shall be deemed to have been released for sale to the public upon
release by you of the publication of a newspaper advertisement relating thereto
or upon release by you of telexes offering the Securities for sale to securities
dealers, whichever shall first occur. By giving notice as hereinafter specified
before the time this Agreement becomes effective, you, as Representatives of the
several Underwriters, or the Company may prevent this Agreement from becoming
effective without liability of any party to any other party, except that the
provisions of Section 4(a)(viii), Section 4(b)(ii) and Section 6 hereof shall at
all times be effective.
(b) You, as Representatives of the several Underwriters, shall
have the right to terminate this Agreement by giving notice as hereinafter
specified at any time at or prior to the First Closing Date, and the option
referred to in Section 3(b), if exercised, may be cancelled at any time prior to
the Second Closing Date, if (i) the Company shall have failed, refused or been
unable, at or prior to such Closing Date, to perform any agreement on its part
to be performed hereunder, (ii) any other condition of the Underwriters'
obligations hereunder is not fulfilled, (iii) trading on the New York Stock
Exchange or the American Stock Exchange shall have been wholly suspended, (iv)
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required, on the New York Stock
Exchange or the
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<PAGE> 22
American Stock Exchange, by such Exchange or by order of the Commission or any
other governmental authority having jurisdiction, (v) a banking moratorium shall
have been declared by Federal or New York authorities, or (vi) there has
occurred any material adverse change in the financial markets in the United
States or an outbreak of major hostilities (or an escalation thereof) in which
the United States is involved, a declaration of war by Congress, any other
substantial national or international calamity or any other event or occurrence
of a similar character shall have occurred since the execution of this Agreement
that, in your judgment, makes it impractical or inadvisable to proceed with the
completion of the sale of and payment for the Securities. Any such termination
shall be without liability of any party to any other party except that the
provisions of Section 4(a)(viii), Section 4(b)(ii) and Section 6 hereof shall at
all times be effective.
(c) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section, the
Company and an Attorney-in-Fact, on behalf of the Selling Stockholders, shall be
notified promptly by you by telephone or telegram, confirmed by letter. If the
Company elects to prevent this Agreement from becoming effective, you and an
Attorney-in-Fact, on behalf of the Selling Stockholders, shall be notified by
the Company by telephone or telegram, confirmed by letter.
10. Default by the Company. If the Company shall fail at the First
Closing Date to sell and deliver the number of Securities which it is obligated
to sell hereunder, then this Agreement shall terminate without any liability on
the part of any non-defaulting party.
No action taken pursuant to this Section shall relieve the Company so
defaulting from liability, if any, in respect of such default.
11. Information Furnished by Underwriters. The statements set forth in
the last paragraph of the cover page and under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the written information
furnished by or on behalf of the Underwriters referred to in Section 2 and
Section 6 hereof.
12. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to the Representatives c/o U.S. Bancorp
Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota 55402, except that notices given to an Underwriter pursuant to Section
6 hereof shall be sent to such Underwriter at the address stated in the
Underwriters' Questionnaire furnished by such Underwriter in connection with
this offering; if to the Company, shall be mailed, telegraphed or delivered to
it at 2000 Alameda de las Pulgas, Suite 100, San Mateo, California 94403
Attention: Chief Financial Officer; or in each case to such other address as the
person to be notified may have requested in writing. All notices given by
telegram shall be promptly confirmed by letter. Any party to this Agreement may
change such address for notices by sending to the parties to this Agreement
written notice of a new address for such purpose.
13. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns and the controlling persons, officers and directors
referred to in Section 6. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Securities from any of
the several Underwriters.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.
[Signature Page Follows]
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<PAGE> 23
Please sign and return to the Company the enclosed duplicates of this
letter whereupon this letter will become a binding agreement between the
Company, the Selling Stockholders and the several Underwriters in accordance
with its terms.
Very truly yours,
ELOQUENT, INC.
By
-------------------------------
Name:
----------------------------
Title:
---------------------------
Confirmed as of the date first above mentioned, on behalf of themselves and the
other several Underwriters named in Schedule II hereto.
U.S. BANCORP PIPER JAFFRAY
By
------------------------------------
Managing Director
BANC OF AMERICA SECURITIES LLC
By
------------------------------------
Managing Director
THOMAS WEISEL PARTNERS LLC
By
------------------------------------
Managing Director
<PAGE> 24
SCHEDULE I
<TABLE>
<CAPTION>
Underwriter Number of Firm Shares (1)
- ----------- -------------------------
<S> <C>
--------------------
Total .............................
====================
</TABLE>
(1) The Underwriters may purchase up to an additional __________ Option
Shares, to the extent the option described in Section 3(b) of the
Agreement is exercised, in the proportions and in the manner described in
the Agreement.
<PAGE> 25
SCHEDULE II
MATTERS TO BE COVERED IN THE OPINION OF
COOLEY GODWARD LLP
COUNSEL FOR THE COMPANY
Capitalized terms not defined in this Schedule shall have the meanings ascribed
to them in the Purchase Agreement.
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
The Company is duly qualified to transact business and is in good
standing as a foreign corporation in each state of the United States
where the character of their activities requires such qualification,
except where the failure to be so qualified would not have a Material
Adverse Effect. The Company has full corporate power and authority to
own its properties and conduct its business as currently being carried
on as described in the Registration Statement and the Prospectus.
(ii) All of the issued and outstanding shares of capital stock
of the Company are duly authorized, validly issued, fully paid and
nonassessable, and conform to the description thereof contained in the
Prospectus under the heading "Description of Capital Stock"; and the
stockholders of the Company have no preemptive rights with respect to
the Securities. Except as disclosed in the Registration Statement and
the Prospectus, to the best of such counsel's knowledge, as of December
31, 1999, there were no (a) outstanding securities of the Company
convertible into or evidencing the right to purchase or subscribe for
any shares of capital stock of the Company, (b) outstanding or
authorized options, warrants, rights or any other agreements of any
character obligating the Company to issue and shares of its capital
stock or (c) any securities convertible into or evidencing the right to
purchase or subscribe for any shares of such capital stock.
(iii) The Registration Statement has become effective under
the Securities Act; any required filing of the Prospectus, and any
supplements thereto, pursuant to Rule 424(b) has been made in the manner
and within the time period required by Rule 424(b), or if the Rule 434
Term Sheet was used, the required filing has been made in the manner and
within the time period required by Rule 434; and, to the best of such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the
Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or, to such counsel's knowledge, have been
threatened by the Commission.
(iv) The Registration Statement and the Prospectus (except as
to financial statements and schedules, related notes, other financial
data and statistical data derived therefrom included therein, as to
which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and with
the Rules and Regulations.
<PAGE> 26
(v) The registration of the Company's Common Stock under
Section 12(g) of the Exchange Act has become effective.
(vi) The Company is not, and after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act.
(vii) Neither the issue and sale by the Company of the
Securities as contemplated by this Agreement nor the execution of this
Agreement by the Company nor the consummation of any other transactions
contemplated by this Agreement will (with or without the passage of time
and/or notice) conflict with, or result in a breach or violation of or
constitute a default under (A) the Certificate of Incorporation or
bylaws of the Company, (B) any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument filed as an exhibit to the
Registration Statement, (C) any statute, law or regulation (other than
state securities and blue sky laws, as to which such counsel need not
express an opinion), or (D) so far as is known to such counsel, any
order, writ, injunction or decree, of any jurisdiction, court or
governmental instrumentality entered against the Company.
(viii) Such counsel does not know of any franchises,
contracts, leases or other documents which in the opinion of such
counsel are of a character required under the Act and the Rules to be
described or referred to in the Registration Statement or the Prospectus
or to be filed as exhibits to the Registration Statement, which are not
described, referred to and filed as required.
(ix) To such counsel's knowledge, there is no pending or
overtly threatened action, suit, investigation or proceeding before any
court or governmental agency, authority or body or any arbitrator
involving the Company or any of its property or assets of a character
required to be disclosed in the Registration Statement or the Prospectus
that is not disclosed in the Prospectus to the extent required under the
Act and the Rules, and the statements in the Prospectus under the
heading "Shares Eligible for Future Sale," to the extent they constitute
a description of legal matters or documents, are correct in all material
respects.
(x) No consent, approval, waiver, license, authorization,
order or other action by or filing with any United States federal or
state court or governmental agency, body or authority is required for
the execution and delivery by the Company of the this Agreement or for
the issue and sale of the Securities by the Company or the consummation
of any other transactions contemplated by this Agreement, except for
filings and other actions required pursuant to the Securities Act and/or
the Exchange Act, as amended, and the Rules and Regulations, required by
the NASD and such as may be required under state securities or blue sky
laws in connection with the purchase and distribution of the Securities
by the Underwriters.
(xi) To the best of such counsel's knowledge, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to
-2-
<PAGE> 27
any securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement, or, except as
described in the Registration Statement and the Prospectus, in any
securities being registered pursuant to any other registration statement
filed by the Company under the Securities Act.
(xii) This Agreement has been duly authorized, executed,
delivered by the Company and constitutes a valid, legal and binding
obligation of the Company enforceable in accordance with its terms
(except as rights to indemnity and contribution hereunder may be limited
by federal or state laws and except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws
affecting the rights of creditors generally and subject to general
principles of equity and limitations on the availability of equitable
remedies) and all corporate authorizations and consents necessary for
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been given.
(xiii) The statements under the headings "Use of Proceeds,"
"Business" and "Description of Capital Stock," insofar as such
statements refer to material contracts, indentures, mortgages, loan
agreements, notes, leases, employment agreements and other agreements or
instruments to which the Company is a party, are accurate and adequate
in all material respects, and summarize such agreements and instruments
to the extent required by the Act and the Rules.
(xiv) To the best knowledge of such counsel, there is no
litigation, action, suit or governmental proceeding or investigation
pending or threatened to which the Company is a party or to which any
property of the Company is subject or that seeks to restrain, enjoin or
prevent the execution and delivery of this Agreement, or the
consummation of the transactions contemplated thereby, or that questions
the legality or validity of any such transaction or that seeks to
recover damages or obtain other relief in connection with any such
transactions, or which would could be reasonably be expected to have a
Material Adverse Effect, if determined adversely to the Company.
(xv) The statements set forth in the Prospectuses describing
legal matters, documents or proceedings under the headings "Management"
and "Shares Eligible for Future Sale" have been reviewed by such counsel
and are insofar as they describe legal matters, documents, proceedings
or conclusions and insofar as they describe the contents of certain
provisions of the Company's Certificate of Incorporation or bylaws; and
the statements set forth under the heading "Description of Capital
Stock" in the Prospectus, insofar as such statements purport to
summarize certain provisions of the capital stock of the Company,
provide summaries of such provisions to the extent required by the Act
and the Rules.
(xvi) The description of the Option Plans and options that may
be granted thereunder and the options granted otherwise than under such
plans set forth in the Prospectus accurately presents the information
with respect to such plans and options and summarizes such information
to the extent required by the Act and the Rules.
-3-
<PAGE> 28
(xvii) The Securities have been duly approved for inclusion on
The Nasdaq National Market, subject to the consummation of the
transactions contemplated by this Agreement and to official notice of
issuance.
(xviii) The Common Stock conforms in all material respects to
the description thereof contained in the Prospectus under the heading
"Description of Capital Stock;" no further approval or authority of the
stockholders of the Board of Directors of the Company is required for
the issuance and sale of the Common Stock; and such Common Stock will
have been duly authorized and, when delivered and in accordance with the
terms of this Agreement, will be validly issued, fully paid and
non-assessable.
(xix) The Company has all requisite corporate power and
authority to issue, sell and deliver the Common Stock being issued and
sold by it in accordance with and upon the terms and conditions set
forth in this Agreement; all corporate action required to be taken by
the Company for the due and proper authorization, issuance, sale and
delivery of the Common Stock has been validly and sufficiently taken;
the filing of the Registration Statement and the Prospectus with the
Commission has been duly authorized by and on behalf of the Company and
the Registration Statement has been duly executed by the Company.
(xx) The certificates for the Securities, in the form filed as
an exhibit to the Registration are in due and proper form under Delaware
law.
In addition to the matters set forth above, counsel rendering the
foregoing opinion shall also include a statement to the effect that: (a) during
the course of the preparation of the Registration Statement, such counsel
participated in conferences with the Representatives, counsel to the
Representatives, officers and other representatives of the Company and the
Company's independent public accountants at which the contents of the
Registration Statement and Prospectus were discussed; (b) while such counsel has
not independently verified and is not passing upon the accuracy, completeness or
fairness of the statements made in the Registration Statement and Prospectus,
except as set forth in paragraphs ii, ix, xiii, xv and xviii above, on the basis
of the foregoing, no facts have come to such counsel's attention that have
caused it to believe that the Registration Statement, as of the time it became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as of its date or the
date hereof, contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that such counsel need express no comment with respect to the
financial statements and schedules, related notes, other financial data and
statistical data derived therefrom included in the Registration Statement and
Prospectus.
Counsel rendering the foregoing opinion may also rely as to questions of
law not involving the laws of the United Stated or of the State of California,
upon opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to relay upon the opinions of such local counsel.
-4-
<PAGE> 1
EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
January 21, 2000
Eloquent, Inc.
2000 Alameda de las Pulgas, Suite 100
San Mateo, CA 94403
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Eloquent, Inc. (the "Company") of a Registration Statement
on Form S-1 (the "Registration Statement") with the Securities and Exchange
Commission, including a related prospectus filed with the Registration
Statement (the "Prospectus"), covering an underwritten public offering of up to
5,175,000 shares of the Company's common stock, including 675,000 shares of
common stock that may be sold pursuant to the exercise of an over-allotment
option (the "Shares").
In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus, the Company's Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws, and the
originals or copies certified to our satisfaction of such records, documents,
certificates, memoranda and other instruments as in our judgment are necessary
or appropriate to enable us to render the opinion expressed below.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares to be sold by the Company, when sold and issued in accordance
with the Registration Statement, related Prospectus and resolutions to be
adopted by the Pricing Committee, will be validly issued, fully paid and
nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in
the Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
Cooley Godward LLP
By: /s/ Jodie M. Bourdet
-------------------------------
Jodie M. Bourdet
<PAGE> 1
EXHIBIT 10.17
ISV SOFTWARE LICENSE AGREEMENT
THIS ISV SOFTWARE LICENSE AGREEMENT is entered into this 1st day of
August, 1999 (the "Effective Date") by and between WEBXPRESS, INC., a BEA
Company and Delaware corporation with principal offices at 550 California
Street, 10th Floor, San Francisco, California 94104 ("WebXpress") and ELOQUENT,
a Delaware corporation with principal offices at 2000 Alameda de las Pulgas,
Suite 100, San Mateo, CA 94403 ("Licensee").
RECITALS
WHEREAS, WebXpress desires to great to Licensee, and Licensee desires to
receive from WebXpress, a worldwide, non-exclusive license to integrate
WebXpress's proprietary software in object code format into Integrated Products
(as hereinafter defined), and to distribute such WebXpress software as
integrated into Integrated Products, all in accordance with the terms of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree as follows:
AGREEMENT
1. DEFINITIONS.
For purposes of this Agreement the following terms shall have the meanings
set forth below.
1.1 "AFFILIATE" means an entity controlling, controlled by, or under
common control with Licensee. For purposes of this definition, "control" or any
correlative form thereof, means the ownership of more than fifty percent of the
voting stock of such entity, or if such entity is not a corporation, the ability
to control the day-to-day operations and business of such entity.
1.2 "DISTRIBUTOR" means an Affiliate, or third party distributor or
reseller, appointed by Licensee under the terms of this Agreement, who acquires
Integrated Products from Licensee solely for the purpose of distributing such
Integrated Products to End-Users, and not for such party's internal business
purposes. Any Distributor who seeks to make use of any Integrated Product for
its own internal business purposes must do so under the terms of an End-User
License Agreement.
1.3 "DISTRIBUTION AGREEMENT" means a written agreement between Licensee
and a Distributor, signed by both parties, covering the distribution by such
Distributor of any Integrated Product to End-Users, which agreement is
consistent with, and no less protective or WebXpress's proprietary and
intellectual property rights, than the terms of this Agreement.
1.4 "END-USER" means a person or entity who acquires Integrated Products
from Licensee or a Distributor for such person or entity's internal business
purposes, and not for sale, resale, lease or any other form of distribution to
third parties.
1.
<PAGE> 2
1.5 "END-USER LICENSE AGREEMENT" means a written agreement between either
Licensee or a Distributor, and an End-User, which agreement is either signed by
both parties or is in "shrinkwrap" or "click-on" form, covering the licensing of
an Integrated Product to such End-User. Such agreement must be consistent with,
and no less protective of WebXpress's proprietary and intellectual property
rights in the WebXpress Software, than the terms of this Agreement. Without
limitation, an End-User License Agreement must contain terms consistent with the
applicable provisions of Section 2.3 of this Agreement.
1.6 "INTEGRATED PRODUCT" means an application software product created by
Licensee through the integration of WebXpress Software with application software
programs proprietary to Licensee ("Licensee Applications'). All Integrated
Products are subject to the restrictions on development, use and distribution
set forth in Section 2 of this Agreement. The Integrated Products covered by
this Agreement are described in greater detail in Schedule B, attached hereto
and made a part hereof.
1.7 "WEBXPRESS SOFTWARE" means the machine-readable, compiled, object code
form or WebXpress's proprietary software and associated documentation. The
specific WebXpress Software covered by this Agreement is set forth on Schedule
A, attached hereto and made a part hereof. Provided that Licensee is not in
material breach of this Agreement and is current in its payment of annual
support fees, the WebXpress Software covered by this Agreement shall also
include the object code farm of any subsequent releases or successor products of
the WebXpress Software set forth an Schedule A, and any modifications (including
bug fixes, error corrections, enhancements and updates) to which Licensee may be
entitled pursuant to the terms Schedule E.
2. LICENSE; GRANT.
2.1 LICENSE TO REPRODUCE AND DISTRIBUTE. Subject to the terms and
conditions of this Agreement, WebXpress hereby grants to Licensee, under
WebXpress's intellectual property rights in and to the WebXpress Software, a
worldwide, non-exclusive, non-transferable license: (i) to integrate the
WebXpress Software into Integrated Products; (ii) to reproduce the WebXpress
Software as so integrated into integrated Products; and (iii) to distribute the
WebXpress Software as integrated into Integrated Products solely to End-Users
who are subject to an End-User License Agreement. Licensee shall make no use of
any copies of the WebXpress Software except as provided in this Section 2.1.
Licensee may sublicense the distribution rights granted under this Section 2.1
solely as described in Section 2.2. All rights not specifically granted herein
shall be retained by WebXpress.
2.2 SUBLICENSING. WebXpress grants to Licensee the right to appoint
Distributors to distribute the Integrated Products to End-Users, All
Distributors appointed by Licensee must execute a Distribution Agreement.
Licensee will use reasonable commercial efforts to ensure that such Distributors
comply with the terms of their respective Distribution Agreements and will
inform WebXpress promptly of any known violation, infringement or breach.
2.
<PAGE> 3
2.3 RESTRICTIONS. Licensee's rights under Section 2.1 are, without
limitation on any other restrictions set forth in this Agreement, subject to the
following limitations and restrictions:
(i) Each and every End-User Agreement and each and every Distributor
Agreement shall provide that the End-User or Distributor, as the case may be,
may not under any circumstances attempt, or knowingly encourage others to
attempt to decompile, decipher, disassemble, reverse engineer or otherwise
decrypt or discover the source code of all or any portion of the Integrated
Product, including the WebXpress Software embedded therein;
(ii) Each and every End-User Agreement shall provide that the
End-User may not under any circumstances use the WebXpress Software or any of
its API's in any manner except indirectly in connection with the use of The
Licensee Application portion of the Integrated Product, and that the End User
may not run any third party software applications directly on the WebXpress
Software or any of its API's, without first purchasing a license for such use
from WebXpress; Licensee may not, under any circumstances, distribute the
WebXpress Software or any of its API's as standalone products;
(iii) Licensee shall not integrate the WebXpress Software with any
products other than the integrated Products without first obtaining WebXpress's
prior written consent.
2.4 LICENSEE CERTIFICATION. Licensee represents and warrants to and for
the benefit of WebXpress that each Integrated Product contains a significant
enhancement of features and/or functionality to the WebXpress Software embedded
therein, and that each Integrated Product is substantially different from any of
WebXpress's products and does not compete with any WebXpress products.
2.5 PROPRIETARY NOTICES. Licensee shall not remove, efface or obscure any
copyright notices or other proprietary notices or legends from any WebXpress
Software or WebXpress material-provided hereunder, and shall reproduce all such
notices and legends when incorporating the WebXpress Software into the
Integrated Products.
2.6 BRANDING AND QUALITY CONTROL PROVISIONS.
2.6.1 "WEBXPRESS CHARGED" SEAL. Licensee shall insert and maintain
the "WebXpress Charged" seal (the "Seal" within the Integrated Product such that
users of the Integrated Product are exposed to the Seal during normal use of the
product. The Seal shall at least be featured within any Integrated Product's
startup splash screen, under any "About" menu item describing the Integrated
Product's release details. Licensee shall insert and maintain the Seal within
related marketing materials for the Integrated Product including but not limited
to printed and electronic datasheets, direct mail, user documentation, product
packaging, advertisements, and Licensee's website for such material printed or
created after execution of this Agreement. The Seal is available to the
Licensee from the WebXpress website at http://weblogic.beasys.com/index.htm.
2.6.2 QUALITY CONTROL PROVISIONS. The Licensee Application(s) shall
be of at least the same quality as Licensee's other products of a similar name,
or, if Licensee has no other products of a similar nature, the Licensee's
Applications shall be of at least the same quality as
3.
<PAGE> 4
the average quality of other products of a similar nature which are generally
available to the public.
2.6.3 Licensee agrees to include a referral to the WebXpress website
on the Licensee's website.
2.7 OWNERSHIP. The WebXpress Software is licensed, not sold to Licensee.
Except as specifically licensed to Licensee hereunder, WebXpress retains all
right, title and interest, including all intellectual property rights, in and to
the WebXpress Software.
2.8 EVIDENCE OF COMPLIANCE. Upon request of WebXpress, Licensee shall
promptly, and in any event within thirty (30) days, provide WebXpress with any
and all evidence reasonably necessary to confirm Licensee's compliance with the
provisions of Sections 2.1 through 2.6.
3. LICENSE AND SUPPORT FEES.
3.1 LICENSE AND SUPPORT FEES. Licensee shall owe to WebXpress license and
support fees, and WebXpress shall deliver to Licensee enabling code as set forth
on Schedule C. All license and support fees will be paid on a calendar quarterly
basis within 30 days after the end of the quarter. Included with the payment,
Licensee will provide WebXpress a report containing the information set forth on
Schedule C.
3.2 AUDIT. Licensee shall maintain complete and accurate accounting and
distribution records, in accordance with generally accepted accounting
practices, to support and document license fees payable in connection with this
Agreement. Such records shall be retained for a period of one (1) year after the
license fees which relate to such records have been accrued and paid. Licensee
shall, upon written request from WebXpress, provide access to such records to an
independent auditor chosen by WebXpress for the purposes of audit. If any such
audit discloses a shortfall in payment to WebXpress of more than ten percent
(10%) for any quarter, Licensee agrees to pay or reimburse WebXpress for the
expenses of such audit. If any such audit discloses a shortfall in payment to
WebXpress of more than fifteen (15%) for any quarter, WebXpress may terminate
this Agreement.
3.3 TAXES. Licensee shall complete the Resale Certificate attached in
Schedule D. Licensee agrees to provide WebXpress with further documentation, as
reasonably necessary, supporting such status. Licensee shall be responsible for
any sales or use or other taxes (other than taxes based on WebXpress's net
income) to the extent that any such taxes may arise in connection with this
Agreement.
4. WARRANTIES AND SUPPORT.
4.1 LIMITED WARRANTY. WebXpress warrants that for a period of ninety (90)
days following delivery to Licensee, the WebXpress Software will perform
substantially in accordance with the accompanying WebXpress Documentation.
WebXpress does not warrant that the WebXpress Software will be error-free or
will operate without interruption. Licensee's exclusive remedy for breach of the
warranty contained in this Section 4.1 shall be, at WebXpress's discretion, the
correction of any such failure to perform, or if adequate correction
4.
<PAGE> 5
has on been forthcoming within reasonable time, refund of the license fee paid
by Licensee with respect to such non-conforming WebXpress Software.
4.2 WEBXPRESS WARRANTY DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH IN
SECTION 4.1, WEBXPRESS HEREBY DISCLAIMS ALL OTHER WARRANTIES EXPRESS, IMPLIED,
OR STATUTORY, WITH RESPECT TO THE WEBXPRESS SOFTWARE, INCLUDING BUT NOT LIMITED
TO IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMENT.
4.3 SERVICE AND SUPPORT. Subject to a current annual support contract
being in place and payment of any applicable support fees by Licensee, WebXpress
agrees to provide support and software upgrades as described in Schedule E.
4.4 END-USER SUPPORT. Licensee shall, at its own expense, be solely
responsible for providing technical support (including without limitation
warranty service) and training to its Distributors and End-Users for the
Integrated Products. Licensee shall ensure that all questions from Distributors
or End-Users regarding the use or operation of the Integrated Products are
addressed to and answered by Licensee.
5. INDEMNIFICATION.
5.1 WEBXPRESS INDEMNITY. WebXpress shall indemnify, defend and hold
Licensee harmless from and against any claim that the WebXpress Software as used
within the scope of this Agreement infringes the copyright, trademark, trade
secret or United States patent issued as of the Effective Date of any third
party, provided that (i) Licensee notifies WebXpress promptly in writing of the
claim; (ii) WebXpress has sole control of the defense and all related settlement
negotiations except to the extent that such settlement imposes obligations on
Licensee in which case Licensee must approve prior to settlement; and (iii)
Licensee provides WebXpress with reasonably necessary assistance, information,
and authority to perform the above at WebXpress's expense.
5.2 EXCLUSIONS. WebXpress shall have no liability for any claim of
infringement based on (i) use of other than the latest commercially available
version of the WebXpress Software provided to Licensee, to the extent the
infringement would have been avoided by use of such version; (ii) modification
of the WebXpress Software by Licensee to the extent the infringement would have
been avoided without such modification; or (iii) the combination or use of the
WebXpress Software furnished hereunder with materials not furnished by WebXpress
to the extent such infringement would have been avoided by use of the WebXpress
materials alone.
5.3 ALTERNATIVES. In the event the WebXpress Software is held to, or
WebXpress believes is likely to be held to, infringe any third party copyright,
trademark, trade secret or United States patent issued as of the Effective Date,
WebXpress shall have the right at its sole option and expense to (i) substitute
or modify the WebXpress Software so that it is non-infringing, while retaining
equivalent features and functionality; or (ii) obtain for Licensee a license to
continue using the WebXpress Software under commercially reasonable terms; or
(iii) if (i) and (ii) are not reasonably practicable, terminate this Agreement
as to the infringing
5.
<PAGE> 6
WebXpress Software and return to Licensee any license fees paid by Licensee
hereunder with respect thereto during the two years immediately prior to the
infringement.
5.4 SOLE OBLIGATION. The foregoing states the sole obligation and
exclusive liability of WebXpress, and Licensee's sole recourse and remedy for
any infringements or claims of copyright and patent infringement by the
WebXpress Software.
5.5 LICENSEE INDEMNITY. Licensee agrees to indemnify, defend and hold
WebXpress harmless from and against any costs, losses, liabilities, claims or
expenses (including attorneys' fees) arising out of: (i) any claim that any
Integrated Product infringes upon the intellectual property or proprietary
rights of any third party, except to the extent such arises from infringement of
such rights by the WebXpress Software; (ii) the distribution of any Integrated
Product by Licensee or its Distributors; or (iii) the use of any Integrated
Product by any End-User, Distributor or third party.
6. TERM AND TERMINATION.
6.1 INITIAL TERM. This Agreement shall become effective on the Effective
Date and shall remain in effect for a period of three (3) years thereafter
unless the Agreement is terminated as provided below.
6.2 TERMINATION.
6.2.1 BREACH. If either party defaults in a payment or other
material obligation under this Agreement and, in the case of breaches capable of
cure, fails to completely cure such default for a period of thirty (30) days
after written notice of default from the non-breaching party, the non-breaching
party may terminate this Agreement, in accordance with the provisions of this
Section 6, upon written notice of termination given to the defaulting party.
6.2.2 INSOLVENCY. Notwithstanding anything contained herein to the
contrary, either party may terminate this Agreement immediately by notice to the
other if:
(i) the other ceases to carry on its business; or
(ii) a receiver or similar officer is appointed for the other
and is not discharged within thirty (30) days; or
(iii) the other becomes insolvent, admits in writing its
inability to pay debts as they mature, is adjudicated bankrupt, at makes an
assignment for the benefit of its creditors or another arrangement of similar
import; or
(iv) proceedings under bankruptcy or insolvency laws we
commenced by or against the other and me not dismissed within (30) days.
6.3 EFFECT OF TERMINATION. Upon termination of this Agreement, (i) the
rights and licenses granted to Licensee pursuant to this Agreement shall
automatically terminate, (ii) Licensee shall certify to WebXpress that all
WebXpress Software subject to this Agreement and in Licensee's possession has
been destroyed or removed from Licensee's equipment and
6.
<PAGE> 7
(iii) Licensee shall cease to use all intellectual property of WebXpress. Within
thirty (30) days of termination, Licensee shall provide to WebXpress a license
foe report and pay all license fees accruing as of the date of termination in
accordance with Section 3.1. All licenses granted to End-User pursuant to
appropriate End-User License Agreements shall survive termination, Sections 1,
2.7, 3, 4.2, 4.4, 5, 6.3, 7, 8 and 9 shall survive the expiration or earlier
termination of this Agreement.
7. CONFIDENTIALITY.
7.1 DEFINITION. For purposes of this Agreement, "Confidential Information"
of a party means information or materials disclosed or otherwise provided by
such party ("Disclosing Party") to the other party ("Receiving Party") that are
identified as confidential or proprietary. "Confidential Information" does not
include that which (i) was known to the Receiving Party, without restriction and
without duty of confidentiality, at the time of disclosure, as evidenced by the
written records of Receiving Party, (ii) is or becomes part of public knowledge
other than as a result of any action or inaction of the Receiving Party, (iii)
is obtained by die Receiving Party from an unrelated third party without a duty
of confidentiality, or (iv) is independently developed by the Receiving Party
without reliance upon or use of the Confidential Information of the Disclosing
Party. Without limiting the generality of the foregoing, and notwithstanding the
exclusions hereinbefore set forth. "Confidential Information" of WebXpress
includes any information relating to the development, design, manufacture and
specifications of WebXpress Software.
7.2 RESTRICTIONS ON USE AND DISCLOSURE. The Receiving Party shall not use
Confidential Information of the Disclosing Party for any purpose other than in
furtherance of this Agreement and the activities described herein. The Receiving
Party shall not disclose Confidential Information of the Disclosing Party to any
third parties except as otherwise permitted hereunder. The Receiving Party may
disclose Confidential Information of the Disclosing Party only to those
employees, consultants or sub-Licensees who have a need to know such
Confidential Information and who are bound to retain the confidentiality thereof
under provisions (including, without limitation, provisions relating to nonuse
and nondisclosure) no less restrictive than those required by the Receiving
Party for its own comparable Confidential Information. The Receiving Puny shall
maintain Confidential Information of the Disclosing Party with at least the same
degree of care it uses to protect its own proprietary information of a similar
nature or sensitivity, but no less than reasonable care under the circumstances.
Any copies of the Disclosing Party's Confidential Information shall be
identified as belonging to the Disclosing Party and prominently marked
"Confidential."
7.3 LEGAL OBLIGATION TO DISCLOSE. This Agreement will not prevent the
Receiving Party from disclosing Confidential Information of the Disclosing Party
to the extent required by a judicial order or other legal obligation, provided
that, in such event, the Receiving Party shall promptly notify the Disclosing
Parry to allow intervention, and shall cooperate with the Disclosing Party to
contest or minimize the scope of the disclosure (including application for a
protective order). Each party shall advise the other party in writing of any
misappropriation or misuse of Confidential Information of the other party of
which the notifying parry becomes aware.
7.
<PAGE> 8
7.4 INJUNCTIVE RELIEF. Licensee acknowledges that the Confidential
Information of WebXpress are valuable trade secrets of WebXpress and that any
unauthorized use or disclosure of such information would cause WebXpress
irreparable harm for which its remedies at law would be inadequate. Accordingly,
Licensee acknowledges and agrees that WebXpress shall be entitled, in addition
to any other remedies available to it at law or in equity, to seek the issuance
of injunctive or other equitable relief.
7.5 RETURN OF CONFIDENTIAL INFORMATION. Upon the expiration or earlier tem
of this Agreement, each party (as Receiving Party) shall immediately return to
the Disclosing Party all Confidential Information of the Disclosing Party
embodied in tangible form, or certify in writing to the Disclosing Party that
all such Confidential Information his been destroyed. The terms of this Section
7 shall survive the expiration or earlier termination of this Agreement for a
period of five (5) years.
7.6 SOURCE CODE PROTECTIONS. Licensee shall not under any circumstances
attempt or knowingly encourage any End-User, Distributor or third party to
decompile, decipher, disassemble, reverse engineer or otherwise decrypt or
discover the source code for the WebXpress Software, or fail to enforce
restrictions against any End-Users, Distributors or other third parties doing
the sme.
8. LIMITATION OF LIABILITY.
EXCEPT FOR BREACHES OF SECTION 2 OR SECTION 7. IN NO EVENT SHALL EITHER
PARTY HAVE ANY LIABILITY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES IN ANY WAY ARISING OUT OF THIS AGREEMENT AND HOWEVER CAUSED AND UNDER
ANY THEORY OF LIABILITY, INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS OR LOSS OF
DATA, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN
NO EVENT SHALL WEBXPRESS'S CUMULAT1VE LIABILITY ARISING OUT OF THIS AGREEMENT
EXCEED THE AMOUNTS ACTUALLY PAID BY LICENSEE TO WEBXPRESS PURSUANT TO THIS
AGREEMENT. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OF ANY REMEDY.
9. MISCELLANEOUS.
9.1 CONFIDENTIALITY OF AGREEMENT. Both WebXpress and Licensee agree that
the terms and conditions of this Agreement shall be treated as Confidential
Information and that no reference to the terms and conditions of this Agreement
can be made in any form without the prior written consent of the other party;
provided, however, that the existence of this Agreement shall not be treated as
Confidential Information and that either party may disclose the terms and
conditions of this Agreement:
(i) as required by any court or other governmental body;
(ii) as otherwise required by law;
(iii) to legal counsel of the parties;
8.
<PAGE> 9
(iv) in confidence, to accountants, banks, proposed investors, and
financing sources and their advisors;
(v) in confidence, in connection with the enforcement of this
Agreement or rights under this Agreement; or
(vi) in confidence, in connection with a merger or acquisition or
proposed merger or acquisition, or the like.
9.2 PRESS RELEASE. Upon mutual agreement, WebXpress and Licensee shall
issue a joint press release announcing the relationship contemplated by this
Agreement with mutual endorsements for Integrated Products and WebXpress
Software.
9.3 REFERENCE.
(i) CUSTOMER REFERENCE. The Licensee agrees that WebXpress may
disclose the name of the Licensee as a customer on the WebXpress web site and on
other promotional materials. Licensee further agrees to provide WebXpress with
the following customer reference information for possible use an WebXpress's web
site and on other promotional material in conjunction with the Licensee's name:
(i) a brief marketing summary of the Licensee's Integrated Products under this
Agreement, and (ii) a quotation on how WebXpress's products and/or services
contributed to the success of the Integrated Products under this Agreement.
Licensee agrees to discuss the WebXpress Software with the press, industry
analysts and prospective (noncompetitive) customers on a limited basis to be
mutually agreed upon by both parties.
(ii) WEBXPRESS REFERENCE. WebXpress agrees that the Licensee may
disclose the name of WebXpress as a Software Supplier or Partner on the web site
and on other promotional materials. WebXpress further agrees to provide Licensee
with the following reference jr1formatinn for possible use on Licensee to web
site and on other promotional material in conjunction with WebXpress name: (i) a
brief marketing summary of WebXpress Products under this Agreement, and (ii) a
joint press release subject to approval of both Parties on how Licensee's
products and/or services contributed to the success of the Integrated Products
under this Agreement WebXpress agrees to discuss the arrangement with the press,
industry analysts and prospective (non-competitive) customers on a limited basis
to be mutually agreed upon by both parties.
9.4 ASSIGNMENT. Licensee may not assign this Agreement or any rights or
obligations hereunder, by operation of law or otherwise without this prior
written consent of WebXpress, which shall not be unreasonably withheld.
9.5 NOTICES. All notices between the parties shall be in writing and shall
be deemed to have been given if personally delivered or sent by certified or
registered mail (return receipt) or telecopy to the addresses set forth as
follows, or such other address as is provided by notice as set forth herein:
9.
<PAGE> 10
If To WebXpress to: BEA WebXpress, Inc.
Attn: Legal Counsel
550 California Street 9th Floor
San Francisco, CA 94104
If to Licensee to: Eloquent, Inc.
2000 Alameda de las Pulgas
Suite 100
San Mateo, CA 94403
Attn: Kim Byers, Product Manager
With copy to: Legal Counsel at Eloquent
Notices shall be deemed effective upon receipt or, if delivery is not effected
by reason of some fault of the addressee, when tendered.
9.6 GOVERNING LAW; FORUM SELECTION. This Agreement shall be governed by
the laws of the State of California, as applied to agreements made, entered into
and performed entirely in California by California residents. All disputes
wising out of this Agreement shall be subject To the exclusive jurisdiction and
venue of the California state courts of San Francisco County, California (or, If
there is exclusive federal jurisdiction, the United Stated District Court for
the Northern District of California), and the parties consent to the personal
and exclusive jurisdiction of these courts. This Agreement shall not be governed
by the United Nations Convention on the International Sale of Goods.
9.7 SEVERABILITY. Any term or provision of this Agreement held to be
illegal or unenforceable shall, if possible, be interpreted so as to be
construed as valid, but in any event the validity or enforceability of the
remainder hereof shall not be affected.
9.8 LEGAL COMPLIANCE. Licensee may not download or otherwise export or
re-export the WebXpress Software or any underlying information or technology
except in full compliance with all United States and other applicable laws and
regulations. In particular, but without limitation, none of the Software or
underlying information or technology may be downloaded or otherwise exported or
re-exported (i) into (or to a national or resident of) Cuba, Iran, Iraq, Libya,
North Korea, Syria, or Sudan, or (ii) to anyone on the US Treasury Department's
list of Specially Designated Nationals or the US Commerce Department's Table of
Deny Orders. By licensing the Software, Licensee is agreeing to the foregoing
and Licensee are representing and warranting that Licensee is not located in,
under control of, or a national or resident of any such country or on any such
list.
9.9 WAIVER. The waiver of, or failure to enforce, any breach or default
hereunder shall not constitute the waiver of any other or subsequent breach or
default.
9.10 INDEPENDENT CONTRACTORS. The relationship of the parties hereunder
shall be that of independent contractors, and nothing herein shall create or be
deemed to create a joint venture, partnership, agency or employer/employee
relationship. In no event will either party be permitted to make any agreement,
or represent that it is authorized to make any agreement, on behalf of the other
party, without the prior written consent of such other party.
10.
<PAGE> 11
9.11 THIRD PARTY BENEFICIARY. The parties agree and acknowledge that RSA
Data Security, Inc. ("RSA") is and shall be a third party beneficiary of
WebXpress's rights and Licensee's obligations under this Agreement
9.12 ENTIRE AGREEMENT. This Agreement, along with the Schedules attached
hereto herein by reference, sets forth the entire Agreement between the parties
and all prior proposals, agreements, and representations between them, whether
written or oral. This Agreement may be changed only by mutual agreement of the
parties in writing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed officers or representatives as of the Effective Date.
WEBXPRESS, INC. LICENSEE
By: [Signature Illegible] By: [Signature Illegible]
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
11.
<PAGE> 12
SCHEDULE A
WEBXPRESS SOFTWARE
WebXpress Software covered by this Agreement:
WebLogic Xpress, or the equivalent product as it may be renamed.
WebLogic Server, base and clustering versions , or the equivalent products as
they may be renamed.
License Key: WebXpress will deliver enabling code to Licensee on the Effective
Date. Licensee will incorporate such code into the Integrated Products, which
will make the WebXpress Software nonfunctional without the presence or the
Integrated Products.
<PAGE> 13
SCHEDULE B
INTEGRATED PRODUCTS
Integrated Products covered by this Agreement:
Eloquent Communication Portal or the equivalent product as it may be renamed.
The following describes the function and purpose of each of the Integrated
Products covered by this Agreement:
Eloquent Communications Portal will provide:
- - content aggregation
- - personalization
- - ability to manage content and end-users
- - ability to deliver and manage rich media
<PAGE> 14
SCHEDULE C
LICENSE AND SUPPORT 1MES
C.1. LICENSE FEES:
LICENSE FEES OWED
No license fees will be owed for shipments of marketing, demonstration, training
and customer evaluation copies of the Integrated Product ("Promotional Copies").
License Fees will be owed for all shipments of the Integrated Product made
during the previous calendar quarter less any Promotional copies shipped during
the same quarter ("Units Sold"). Reports to substantiate license fees shall
include the city and state where each customer is located, WebXpress Software;
Units Sold; Unit License Fee; total license fees due. Unit License Fee each
calendar quarter reporting period shall be the List Price less the applicable
Discount for such reporting period.
US LIST PRICE LICENSE FEES AS OF EFFECTIVE DATE:
WebLogic Express $2,500.00 per CPU
WebLogic Server, base version $10,000 per CPU
WebLogic Server with Clustering option $15,000.00 per CPU
DISCOUNT LEVELS
Licensee will have the right to purchase the WebXpress Software licensed under
this Agreement at the following discounts from the then-current local list
price, "Cumulative License Fees" shall mean the cumulative amounts paid by
licensee during the term of this Agreement. In the event that Licensee meets the
following Cumulative License Fee ranges, it shall be entitled to the following
discount levels:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CUMULATIVE LICENSE FEES DISCOUNT LEVEL
- --------------------------------------------------------------------------------
<S> <C>
$0-75,000 15%
- --------------------------------------------------------------------------------
$75,001-$150,000 25%
- --------------------------------------------------------------------------------
$150,001-$300,000 30%
- --------------------------------------------------------------------------------
$300,001-$500,000 40%
- --------------------------------------------------------------------------------
$500,001-$1,000,000 60%
- --------------------------------------------------------------------------------
</TABLE>
WebXpress agrees that pricing payable by Licensee under this Agreement for the
Weblogic Express product will not increase for the Term, of this Agreement.
1.
<PAGE> 15
C.2. ANNUAL SUPPORT FEES.
Annual Support Fees for 5x12 support for the WebXpress Software component of the
Integrated Product are due on a quarterly basis. Annual Support Fees will be 20%
of the List Price for those Integrated Products for which a maintenance renewal
date or initial commencement date for maintenance occurs during the previous
calendar quarter. Reports to substantiate support fees shall include the city
and state whom each customer is located, WebXpress Software, Number of Eligible
Products, total support fees due.
C.3. LICENSE FEE FOR USE OF RSA'S SSL PRODUCT:
In addition to the License Fees described above, Licensee must pay $50 per
server and $7,500 per year for unlimited clients to WebXpress pursuant to
WebXpress's License Agreement with RSA; provided, however, Licensee shall not be
obligated to pay such fee to the extent the WebXpress Software licensed
hereunder does not incorporate RSA's SSL product.
2.
<PAGE> 16
SCHEDULE D
RESALE CERTMCATE
WE HEREBY CERTIFY that:
we hold a valid seller's permit NO. SR BHA 97028646
issued pursuant to laws and regulations governing Sales and Use Tax in the
state of: CALIFORNIA;
that we are engaged in the business of selling: SOFTWARE;
that the products described within this TSV Software License Agreement, which we
shall license from WEBXPRESS, will be resold by us {licensed to out customers},
in accordance with the terms of the Agreement. A Description of the products to
be licensed from WebXpress is contained in the relevant schedule of the
Agreement.
- ---------------------------------------------
(Signature of Purchaser or Authorized Agent)
- ---------------------------------------------
(Title)
<PAGE> 17
SCHEDULE E
SERVICE AND SUPPORT TERMS
WebXpress shall provide product support to Licensee to support its integration
of WebXpress Software into Licensee's applications, Support means that
WebXpress will provide: (a) software upgrades and product enhancements upon
their commercial release, and appropriate documentation with respect thereto,
and (b) technical assistance with respect to the WebXpress Software, including
(i) clarification of functions and features; (ii) clarification of
documentation; (iii) technical support and guidance in the operation of the
WebXpress Software; and (iv) WebXpress Software error analysis and correction.
Major product releases, defined as a new product or added features for which
there is a separate charge generally for all WebXpress customers, are not
covered by this Service and Support contract, and WebXpress retains the right to
determine in its sole discretion if a release constitutes an upgrade to an
existing product or a major product release. WebXpress will use commercially
reasonable efforts to provide error corrections or work-arounds for the most
severe errors as soon as possible and based upon WebXpress classification of the
severity of the error.
Support shall be provided in compliance with Severity definitions and Escalation
guidelines as defined in Sections IV and V of this Schedule.
I. ENGINEERING CONTACTS - Licensee will designate no more than 5 individuals
who will be responsible for communicating and escalating support issues
between the companies.
II. REPORTING ISSUES - Licensee will report support requests via email or
phone as convenient. Licensee agrees to provide WebXpress with all the
necessary information to resolve the reported issue. This may include:
issue classification, test cases for isolating and reproducing the issue
and other issue documentation.
III. PHONE COVERAGE - WebXpress's Support Center is staffed Monday through
Friday from 7:00 a.m. to 7:00 p.m. Pacific Time. For off-hour emergencies,
procedures can be customized to Licensee's specific needs upon mutual
agreement.
IV. ISSUE DEFINITION -
- SEVERITY 1 - Issue that impacts Licensee's application development
schedule, or an End-User's production capability. A high severity
issue is an error that causes a major feature of Licensee `s product
to be unusable or causes irreparable loss of data and no recovery or
work-arounds are available.
- SEVERITY 2 - Issue that results when a major feature is operational
but unstable or unreliable. Such error would not stop development.
- SEVERITY 3 -Enhancements or defects that am targeted for updates,
but do not result in the loss of functionality in a major feature.
1.
<PAGE> 18
V. ESCALATION GUIDELINES - WebXpress's assigned Engineers will adhere to the
following timeframes for internal escalation of Licensee's support
requests in order to ensure maximum service responsiveness.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SEVERITY SEVERITY 1 SEVERITY 2 SEVERITY 3 ESCALATION POINT
DEFINITION FOR SEV. 1 ISSUES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Initial Response 4 hours 8 hours 12 hours N/A
- --------------------------------------------------------------------------------
Level 1 - problem 24 hours 2 days 4 days Support Manager
determination
- --------------------------------------------------------------------------------
Level 2 - 2 days 1 week 2 weeks Support Manager
problem isolation
- --------------------------------------------------------------------------------
Level 3 - 7 days 3 weeks N/A Support Manager
Engineering
- --------------------------------------------------------------------------------
</TABLE>
VI. END-OF-LIFE PRODUCT SUPPORT - WebXpress agrees to provide product support
to Licensee for the previous two versions of WebXpress products, or 12
months' versions, whichever is less.
VII. Expanded support or technical assistance is available upon mutual
agreement of the parties at an additional charge in accordance with
WebXpress's then-current policy.
2.
<PAGE> 1
EXHIBIT 10.18
ASSIGNMENT OF SUBLEASE
This Assignment of Sublease ("Assignment") is entered into on November
24, 1999 between and among California Casualty Management Company, a California
corporation ("Sublessor"), True Genesis, Inc., a California corporation
("Assignor") and Eloquent, Inc., a Delaware corporation ("Assignee").
RECITALS
A. WHEREAS, Sublessor and Assignor (as Sublessee) entered into a written
Sublease Agreement dated June 1, 1999 (the "Sublease") by which Sublessor
sublet to Assignor and Assignor sublet from Sublessor Suite 161 in 2000 Alameda
de las Pulgas, San Mateo, California, consisting of approximately 2,621
rentable square feet.
B. WHEREAS, Sublessor is the Tenant under a written Office Lease dated as of
March 18, 1998 (the "Prime Lease") wherein OTR ("Prime Landlord") leased to
Sublessor certain real property located in 2000 Alameda de las Pulgas, City of
San Mateo, County of San Mateo, State of California, including Suite 161. Any
term in this Assignment with an initial capital letter, not specifically
defined herein, shall have the meaning given it in the Prime Lease or Sublease.
C. WHEREAS, Assignor desires to assign all its right, title, and interest in
the Sublease to Assignee in accordance with Section 8 of the Sublease.
AGREEMENT
1. Effective Date. The assignment made hereby shall take effect on
December 1, 1999, and Assignor shall give possession of the Sublet Premises to
Assignee on that date.
2. Assignment and Assumption. Assignor assigns and transfers to Assignee all
its right, title, and interest in the Sublease, and Assignee accepts the
assignment and assumes and agrees to perform, from the date this assignment
becomes effective, as a direct obligation to Sublessee, all the provisions of
the Sublease.
3. Sublessor's Consent. Subject to Prime Landlord granting its consent to
this Assignment, Sublessor consents to this Assignment in accordance with
Section 8 of the Sublease.
4. Prepaid Rent/Security Deposit. Concurrent with the execution of this
Assignment, Assignee shall provide Sublessor with a security deposit in an
amount equal to three month's Monthly Rent ($27,520), which shall be refunded
to Assignee upon full satisfaction of the terms and conditions of the Sublease.
In addition, Assignee shall provide the first month's Monthly Rent in the
amount of $9,173 to Sublessor upon execution of this Assignment. Sublessor
shall return a security deposit in an amount equal to three month's Monthly
Rent ($27,520) to Assignor upon execution of the Assignment.
<PAGE> 2
5. Notices. All notices, demands, requests, approvals, payments and other
communications between the parties (collectively "Notices") shall be in writing
at the addresses set forth below. Notices shall be sufficiently given if, and
shall be deemed not given unless, deposited in the United States mail postage
prepaid in certified or registered form, return receipt requested, properly
deposited with Federal Express, or another similar overnight carrier, or
personally served or delivered.
If to Sublessor:
California Casualty Management Company
Real Estate Department
1650 Telstar Drive
Colorado Springs, CO 80920-1004
Attn: Manager of Real Estate
If to Assignor:
True Genesis, Inc.
2000 Alameda de las Pulgas
San Mateo, CA 94403
If to Assignee:
Eloquent, Inc.
2000 Alameda de las Pulgas
San Mateo, CA 94403
If notices are personally delivered, copies shall also be mailed. Notices
shall be deemed given when personally served or delivered, two days after
deposit with Federal Express, or other similar overnight carrier, or five days
after deposit in the United States mail.
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Assignment effective as
of the date first set forth above.
SUBLESSOR: California Casualty Management Company
Date 12/1/99 By: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------------
Its: Asst VP & Real Estate Manager
ASSIGNOR: True Genesis, Inc.
Date 11-24-99 By: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------------
Its: Director of Operations
ASSIGNEE: Eloquent, Inc.
Date 11-24-99 By: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------------
Its: CFO
<PAGE> 4
CONSENT OF PRIME LANDLORD
1. OTR, an Ohio general partnership ("Prime Landlord"), landlord under
the Prime Lease, consents to the foregoing Assignment of Sublease for Suite 161
in 2000 Alameda de las Pulgas, between California Casualty Management Company,
True Genesis, Inc., and Eloquent, Inc.; provided, however, that except as
specifically provided herein, this Consent shall not: (1) constitute a waiver,
amendment or modification of any term or condition of the Prime Lease with
respect to either Sublessor or Sublessee; or (2) limit the obligations of
Sublessor or the rights of Prime Landlord under the Lease; or (3) make Prime
Landlord a party to the Sublease or the Assignment.
2. Prime Landlord represents that (i) it is not in default under the
Prime Lease; (ii) to the best of its knowledge, Sublessor is not in default
under the Prime Lease; (iii) Sublessor has not paid rent for more than one
month in advance; and (iv) Sublessor's last rental payment was made
____________, 19___ for the month of ________, 19____.
OTR, an Ohio general partnership
Date 12/20/99 By: /s/ [SIGNATURE ILLEGIBLE]
----------------------------
Its: Asset Management Officer
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 2 to the Registration
Statement on Form S-1 of our report dated January 18, 2000, relating to the
financial statements and financial statement schedules of Eloquent, Inc., which
appear in such Registration Statement. We also consent to the reference to us
under the headings "Selected Financial Data" and "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
San Jose, California
January 21, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> 0
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 17,174,027
<SECURITIES> 0
<RECEIVABLES> 3,772,928
<ALLOWANCES> 334,005
<INVENTORY> 0
<CURRENT-ASSETS> 21,027,542
<PP&E> 4,042,143
<DEPRECIATION> 2,127,449
<TOTAL-ASSETS> 25,264,514
<CURRENT-LIABILITIES> 8,322,006
<BONDS> 0
0
7,159
<COMMON> 3,573
<OTHER-SE> 7,677,740
<TOTAL-LIABILITY-AND-EQUITY> 25,264,514
<SALES> 10,307,868
<TOTAL-REVENUES> 12,492,339
<CGS> 5,469,288
<TOTAL-COSTS> 7,162,746
<OTHER-EXPENSES> 20,029,585
<LOSS-PROVISION> 40,953
<INTEREST-EXPENSE> 2,174,808
<INCOME-PRETAX> (16,614,817)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,614,817)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,614,817)
<EPS-BASIC> (5.47)
<EPS-DILUTED> (5.47)
</TABLE>
