<PAGE>
As filed with the Securities and Exchange Commission on January 21, 1999
Registration 333-68559
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ONYX SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
Washington 7372 91-1629814
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
310 - 120th Avenue N.E.
Bellevue, Washington 98005
(425) 451-8060
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Brent R. Frei
President, Chief Executive Officer and Chairman of the Board
ONYX Software Corporation
310 - 120th Avenue N.E.
Bellevue, Washington 98005
(425) 451-8060
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Gregory Gorder Mark A. Bertelsen
Alan C. Smith Jose F. Macias
S. Dawn Smith
Geoffrey R. Entress
Perkins Coie llp Wilson Sonsini Goodrich & Rosati
1201 Third Avenue, 40th Floor Professional Corporation
Seattle, Washington 98101-3099 650 Page Mill Road
(206) 583-8888 Palo Alto, California 94304-1050
(650) 493-9300
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
---------------
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 of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, 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 of 1933, 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. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Title of each class of Amount maximum maximum Amount of
securities to be to be offering price aggregate registration
registered registered(1) per unit offering price(2) fee(3)
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 3,565,000 shares $11.00 $39,215,000 $10,902
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</TABLE>
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(1) Includes 465,000 shares that may be purchased by the Underwriters to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(a) under the Securities Act.
(3) Of this registration fee, $9,911 has been previously paid.
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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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We +
+cannot sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and it 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, 1999
3,100,000 Shares
[ONYX LOGO]
Common Stock
--------
Prior to this offering, there has been no public market for the common stock.
The initial public offering price is expected to be between $9.00 and $11.00
per share. The common stock has been approved for listing on the Nasdaq
National Market under the symbol "ONXS," subject to official notice of
issuance.
We have granted the Underwriters a 30-day option to purchase a maximum of
465,000 additional shares to cover over-allotments of shares.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
STARTING ON PAGE 5.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds
Public Commissions to ONYX
-------- ------------- --------
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total........................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999,
against payment in immediately available funds.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
SG Cowen
Piper Jaffray Inc.
Prospectus dated , 1999
<PAGE>
[ARTWORK APPEARS HERE]
[THE COMPANY'S LOGO AND A GRAPHIC REPRESENTING THE ONYX ENTERPRISE
RELATIONSHIP MANAGEMENT SOLUTION ACCOMPANIED BY THE FOLLOWING TEXT:
"ONYX Software builds enterprise relationship management solutions for
organizations competing in today's business environment. Specifically the ONYX
solution:
. Integrates functional departments of an enterprise around common
relationships
. Deploys rapidly throughout the entire enterprise
. Yields lower total cost of ownership
. Employs latest generation technologies including the Windows NT and
Microsoft BackOffice platforms and Internet Technologies."]
[PICTURES OF A SCREEN FROM ONYX CUSTOMER CENTER ACCOMPANIED BY THE FOLLOWING
TEXT:
"Solutions for Progressive Organizations."
"ONYX enables communication and collaboration across the organization through
a consistent, easy-to-use interface that is accessible through the Internet,
corporate intranets and extranets."]
[GRAPHIC REPRESENTING THE IMPORTANCE OF BUSINESS INFORMATION ACCOMPANIED BY
THE FOLLOWING TEXT:
"GAIN PERSPECTIVE--AND UNDERSTANDING Having a single repository of marketing,
sales and service information allows the ONYX solution to provide a real-time
view of an organization's performance."]
[GRAPHICS DEPICTING THE CUSTOMIZABILITY OF SOFTWARE VERSUS SPEED OF
IMPLEMENTATION ACCOMPANIED BY THE FOLLOWING TEXT:
"THE RIGHT TECHNOLOGY MIX Enterprise relationship management technologies can
vary significantly. The ONYX enterprise relationship management solution
provides out-of-the-box functionality that lowers acquisition, implementation,
consulting and education costs, while allowing customers to tailor the
application to their business methodologies using pre-configured templates."
"WORKING SMARTER--FASTER We have designed the ONYX enterprise relationship
management solution to be rapidly deployable throughout the enterprise, thereby
helping to provide a higher return on investment. On average, customers have
completed initial deployments of ONYX applications in eight to ten weeks."]
<PAGE>
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Prospectus Summary.................................................... 3
Risk Factors.......................................................... 5
Use of Proceeds....................................................... 13
Dividend Policy....................................................... 13
Capitalization........................................................ 14
Dilution.............................................................. 15
Selected Consolidated Financial
Data................................................................. 16
Management's Discussion and
Analysis of Financial Condition
and Results of Operations............................................ 17
Business.............................................................. 30
Management............................................................ 44
Certain Transactions.................................................. 52
Principal Shareholders................................................ 54
Description of Capital Stock.......................................... 56
Shares Eligible for Future Sale....................................... 59
Underwriting.......................................................... 61
Notice to Canadian Residents.......................................... 62
Legal Matters......................................................... 63
Experts............................................................... 63
Additional Information................................................ 64
Index to Consolidated Financial Statements............................ F-1
</TABLE>
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You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Until , 1999 (25 days after the commencement of the offering), 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 dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information that we present more fully in the rest of
this prospectus. The summary is not complete and does not contain all the
information you should consider before buying shares in this offering. You
should read the entire prospectus carefully. Except where we state otherwise,
we present information in this prospectus assuming (1) the conversion of all
outstanding shares of redeemable convertible preferred stock into an aggregate
of 3,533,925 shares of common stock upon the closing of this offering and (2)
no exercise of the underwriters' over-allotment option.
ONYX SOFTWARE CORPORATION
ONYX is a leading provider of enterprise relationship management software
solutions. Enterprise relationship management software automates the key
functions that enable enterprises to more effectively acquire, manage and
retain customers, partners and other relationships. The ONYX solution is based
on the Microsoft Windows NT and Microsoft BackOffice platforms. It features a
common data model which creates a single repository of marketing, sales and
service information that is accessible to multiple audiences via the Internet.
We designed our solution from inception to be integrated, easy to use and
widely accessible through a variety of interfaces, including the Internet and
corporate intranets and extranets. The ONYX solution is rapidly deployable,
scalable, flexible and reliable, resulting in a low total cost of ownership and
rapid return on investment.
We believe that in today's challenging and rapidly developing business
environment there is a market opportunity for an enterprise relationship
management system that employs recent technology developments, including
Internet capabilities, to enable enterprises to more effectively acquire,
manage and retain customers, partners and other relationships. This solution
would provide a high return on investment by improving the effectiveness of
sales, marketing and support activities while maintaining a low total cost of
ownership.
Our integrated product family allows enterprises to automate the customer
lifecycle across the entire enterprise, instead of automating only individual
departments. We target mid- to large-sized organizations and divisions of
Fortune 500 companies, marketing and selling our software and services through
a direct sales force, as well as through distributors. We have direct sales
offices in the United States, the United Kingdom, Singapore and Australia and
distributors in Latin America, Asia and Europe. We have licensed our products
to over 350 customers in a variety of industries, including financial services,
high technology, health care, manufacturing and telecommunications. Our
customers include American Express Financial Advisors, Brooklyn Union Gas
Company, Cincinnati Bell Telephone, Datastream Systems Inc., GIGA Information
Group, NTL Internet and Sierra Health Services, Inc.
Our principal executive offices are located at 310 - 120th Avenue N.E.,
Bellevue, Washington 98005 and our telephone number is (425) 451-8060. We were
incorporated in Washington in 1994.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered................ 3,100,000 shares
Common stock to be outstanding after
this offering...................... 16,486,482 shares
Use of proceeds..................... For repayment of short-term indebtedness,
capital equipment purchases, working
capital and other general corporate
purposes
Proposed Nasdaq National Market
symbol............................. ONXS
</TABLE>
Common stock to be outstanding after this offering is based on shares
outstanding on December 31, 1998. It excludes (1) 3,218,330 shares of common
stock issuable upon exercise of options outstanding, of which 511,283 shares
are exercisable, under our Amended and Restated 1994 Combined Incentive and
Nonqualified Stock Option Plan at a weighted average exercise price of $1.68
per share, (2) 16,200 shares of common stock issuable upon exercise of options
outstanding, of which none are exercisable, under our 1998 Stock Incentive
Compensation Plan at an exercise price of $9.00 per share, (3) 1,646,246 shares
available for issuance under our 1998 option plan, and (4) 500,000 shares
available for issuance under our 1998 Employee Stock Purchase Plan.
3
<PAGE>
Summary Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period From Year Ended Nine Months Ended
February 23, 1994 December 31, September 30,
(Inception) to --------------------- ------------------
December 31, 1994 1995 1996 1997 1997 1998
----------------- ------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Total revenues......... $166 $2,198 $9,645 $19,437 $ 12,277 $ 24,004
Income (loss) from
operations............ (35) 801 2,065 (3,746) (2,572) (5,615)
Net income (loss)...... (15) 523 1,394 (2,544) (1,735) (5,713)
Pro forma basic and
diluted net loss per
share................. $ (0.23) $ (0.49)
Shares used in
computation of pro
forma net loss per
share................. 11,262 11,739
</TABLE>
The following table summarizes (1) actual consolidated balance sheet data,
(2) pro forma consolidated balance sheet data, giving effect to conversion of
all 3,433,925 outstanding shares of redeemable convertible preferred stock into
3,533,925 shares of common stock, and (3) pro forma consolidated balance sheet
data as adjusted to give effect to the sale by ONYX of 3,100,000 shares of
common stock offered through this prospectus at an assumed initial public
offering price of $10.00 per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses. See "Use of
Proceeds" and "Capitalization."
<TABLE>
<S> <C>
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
------------------------------
Pro Forma
Actual Pro Forma as Adjusted
------- --------- -----------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $ 177 $ 177 $ 28,257
Working capital................................. 1,629 1,629 29,709
Total assets.................................... 17,252 17,252 45,332
Redeemable convertible preferred stock.......... 12,981 -- --
Shareholders' equity (deficit).................. (6,419) 6,562 34,642
</TABLE>
4
<PAGE>
RISK FACTORS
Our future operating results are uncertain and likely to fluctuate.
Our operating results have varied widely in the past, and we expect that they
will continue to fluctuate in the future. In addition, our operating results
may not follow any past trends. It is particularly difficult to predict the
timing or amount of our license revenues because
. our sales cycles are lengthy and variable, typically ranging between two
to six months from our initial contact with a potential customer to the
signing of a license agreement, although occasionally sales require
substantially more time;
. the amount of unfulfilled orders for our products at the beginning of a
quarter is small because our products are typically shipped shortly
after orders are received; and
. we recognize a substantial portion of our license revenues in the last
month of a quarter, and often in the last weeks or days of a quarter.
Nevertheless, we base our decisions regarding our operating expenses on
anticipated revenue trends. Because many of our expenses are relatively fixed,
a delay in recognizing revenue from a limited number of license transactions
could cause our operating results to vary significantly from quarter to quarter
and could result in operating losses. To the extent these expenses are not
followed by increased revenues, our operating results will suffer. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Seasonality affects our revenues.
We continue to experience significant seasonality with respect to software
license revenues. In recent years, we have recognized more license revenues in
our fourth quarter than in each of the first three quarters of a fiscal year
and have experienced lower license revenues in our first quarter than in the
preceding fourth quarter. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results."
Our results fluctuate from quarter to quarter.
In the past, the software industry has experienced significant downturns,
particularly when general economic conditions decline and spending on
management information systems decreases. Our business, financial condition and
operating results may fluctuate substantially from quarter to quarter as a
consequence of general economic conditions in the software industry. In
addition, the fiscal or quarterly budget cycles of our customers can cause our
revenues to fluctuate from quarter to quarter. As a result of all of these
factors, we believe that period-to-period comparisons of our operating results
are not meaningful, and you should not rely on such comparisons to predict our
future performance. Fluctuations in our operating results, particularly
compared to the expectations of market analysts or investors, could cause
volatility in the price of our common stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
We have a limited operating history.
We commenced operations in February 1994 and commercially released version
1.0 of ONYX Customer Center in December 1994. Accordingly, we have a limited
operating history, and we face all of the risks and uncertainties encountered
by early-stage companies. Our limited operating history makes it difficult to
forecast our future operating results. The new and evolving nature of the
enterprise relationship management market increases these risks and
uncertainties. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
5
<PAGE>
We have incurred losses.
We incurred net losses in each quarter from ONYX's inception through the
third quarter of 1994 and from the first quarter of 1997 to the third quarter
of 1998. As of December 31, 1998, we had an accumulated deficit of $7.6
million. We expect to continue to devote substantial resources to our product
development and sales and customer support. As a result, we will need to
generate significant quarterly revenues to achieve and maintain profitability.
Our business strategies may not be successful, and we may not be profitable in
any future period. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Our market is highly competitive.
The market for enterprise relationship management software is intensely
competitive, fragmented and rapidly changing. We face competition in the
enterprise relationship management software market primarily from
. front-office software applications vendors;
. large enterprise software vendors; and
. our potential customers' internal information technology departments,
which may seek to develop proprietary enterprise relationship management
systems.
In addition, as we develop new products, particularly applications focused on
particular industries, we may begin competing with companies with whom we have
not previously competed. It is also possible that new competitors will enter
the market or that our competitors will form alliances that may enable them to
rapidly increase their market share. See "Business--Competition."
We depend on the performance and continued adoption of the Windows NT/Microsoft
BackOffice platforms.
We have designed our products to operate exclusively on the Windows NT and
Microsoft BackOffice platforms. As a result, we market our products exclusively
to customers who have developed their enterprise computing systems around these
platforms. Our future financial performance will depend on continued growth in
the number of enterprises that successfully adopt the Windows NT and Microsoft
BackOffice computing platforms. The market for enterprise operating systems is
highly competitive. The Windows NT and Microsoft BackOffice computing platforms
face increasing competition, particularly from open source platforms, such as
Unix and Linux. Acceptance of the Windows NT and Microsoft BackOffice platforms
may not continue to increase in the future. The adoption of new operating
systems and computing platforms, and the market for software applications that
run on those platforms, has in the past been significantly affected by the
timing of new product releases, competitive operating systems and enhancements
to computing platforms. If the Windows NT/Microsoft BackOffice market fails to
grow or grows more slowly than we currently expect, or the market is affected
by delays in the release of new or enhanced products, our business, financial
condition and operating results could be materially adversely affected. Also,
the performance of our products depends, to some extent, on the technical
capabilities of the Windows NT and Microsoft BackOffice platforms. If the
Windows NT and Microsoft BackOffice platforms do not meet the technical demands
of our products, the performance or scalability of the ONYX solution could be
limited and, as a result, our business, financial condition and operating
results could be materially adversely affected. See "Business--Industry
Background" and "--Products and Services."
The market for enterprise relationship management solutions is new and highly
uncertain.
The market for enterprise relationship management products is still emerging,
and continued growth in demand for and acceptance of enterprise relationship
management products remains uncertain. Even if the market for enterprise
relationship management software grows, businesses may purchase our
competitors' products or develop their own. We believe that many of our
potential customers are not fully aware of the benefits of enterprise
relationship management solutions and that these solutions may never achieve
market acceptance. We have spent, and will continue to spend, considerable
resources educating potential customers
6
<PAGE>
about our products and enterprise relationship management software solutions in
general. However, even with these educational efforts, market acceptance of our
products may not increase. If the market for our products does not grow or
grows more slowly than we currently anticipate, our business, financial
condition and operating results would be materially adversely affected. See
"Business--Sales and Marketing."
We rely on sales of only one product family.
ONYX Customer Center product license revenues accounted for approximately 55%
of our total revenues, or 87% of total license revenues, during the first nine
months of fiscal 1998. We expect product license revenues from the ONYX
Customer Center product family to continue to account for a substantial
majority of our future revenues. As a result, factors adversely affecting the
pricing of or demand for the ONYX Customer Center product family, such as
competition or technological change, could materially adversely affect our
business, financial condition and operating results. Our future financial
performance will substantially depend on successfully deploying current
versions of the ONYX Customer Center product family and developing, introducing
and establishing customer acceptance of new and enhanced versions of the ONYX
Customer Center product family. See "Business--Products and Services."
We may be unable to expand our sales and support infrastructure.
To date, we have sold our products primarily through our direct sales force
and have supported our customers with our consulting and customer support
staff. Our future revenue growth will depend in large part on recruiting and
training additional direct sales, consulting and customer support personnel and
expanding our indirect distribution channels. We have experienced and continue
to experience difficulty in recruiting qualified sales and support personnel
and in establishing third-party relationships. We may not be able to
successfully expand our direct sales force or other distribution channels and
any such expansion may not result in increased revenues. If we are unable to
hire highly trained consulting and customer support personnel, we may be unable
to meet customer demands. Our business, financial condition and operating
results will be materially adversely affected if we fail to expand our direct
sales force or other distribution channels or our technical and customer
support staff. See "Business--Sales and Marketing."
We depend on certain key employees.
Our future performance will also largely depend on the efforts and abilities
of our key technical, customer support, sales and managerial personnel and on
our ability to retain them. We have in the past experienced difficulty in
hiring qualified technical, customer support, sales and managerial personnel.
Our success will depend on our ability to attract and retain such personnel in
the future. In addition, the loss of any of our executive officers could
materially adversely affect our business, financial condition and operating
results. See "Management."
Our market is subject to rapid technological change.
The software market in which we compete is characterized by rapid
technological change. Existing products become obsolete and unmarketable when
products using new technologies are introduced and new industry standards
emerge. For example, we may need to modify our products when third parties
change software that we integrate into our products. As a result, the life
cycles of our products are difficult to estimate. To be successful, we must
continue to enhance our current product line and develop new products that
successfully respond to such developments. We have delayed enhancements or new
product release dates several times in the past and may not be able to
introduce enhancements or new products successfully or in a timely manner in
the future. Our business, financial condition and operating results would be
materially adversely affected if we delay release of our products and product
enhancements or if these products and product enhancements fail to achieve
market acceptance when released. In addition, customers may defer or forego
purchases of our products if we, our competitors or major hardware, systems or
software vendors introduce or announce new products or product enhancements.
Such events could materially adversely affect our business, financial condition
and operating results. See "Business--Products and Services."
7
<PAGE>
We face risks from expansion of our international operations.
We intend to substantially expand our international operations and enter new
international markets. This expansion will require significant management
attention and financial resources to successfully translate and localize our
software products to various languages and to develop direct and indirect
international sales and support channels. We may not be able to maintain or
increase international market demand for the ONYX Customer Center product
family. We, or our distributors or resellers, may not be able to sustain or
increase international revenues from licenses or from consulting and customer
support. Our foreign subsidiaries operate primarily in local currencies, and
their results are translated into U.S. dollars. We do not currently engage in
currency hedging activities, but we may do so in the future. Increases in the
value of the U.S. dollar relative to foreign currencies could materially
adversely affect our operating results. See "Business--Sales and Marketing."
We rely heavily on key partners and systems integrators.
We rely heavily on our relationships with a number of organizations that are
important to worldwide sales and marketing of our products. If we fail to
maintain our existing relationships, or to establish new relationships, or if
our partners do not perform to our expectations, our business, financial
condition and operating results could be materially adversely affected.
We also rely on a number of systems consulting and integration firms to
implement our software, provide customer support services and endorse our
products during the competitive evaluation stage of the sales cycle. Although
we seek to maintain relationships with these service providers, many of them
have similar, and often more established, relationships with our competitors.
These third parties, many of which have significantly greater resources than we
have, may in the future market software products that compete with ours or
reduce or discontinue their relationships with us or their support of our
products. In addition, our business, financial condition and operating results
could be materially adversely affected if
. we are unable to develop and retain effective, long-term relationships
with our systems integrators;
. we are unable to adequately train a sufficient number of systems
integrators;
. our systems integrators do not have or do not devote the resources
necessary to facilitate implementation of our products; or
. our systems integrators endorse a product or technology other than ours.
See "Business--Products and Services."
Our sales cycle is long.
We believe that an enterprise's decision to purchase an enterprise
relationship management system is discretionary, involves a significant
commitment of its resources and is influenced by its budget cycles. To
successfully sell our products, we generally must educate our potential
customers regarding the use and benefit of our products, which can require
significant time and resources. Consequently, the period between initial
contact and the purchase of our products is often long and subject to delays
associated with the lengthy budgeting, approval and competitive evaluation
processes that typically accompany significant capital expenditures. Our sales
cycles are lengthy and variable, typically ranging between two to six months
from our initial contact with a potential customer to the signing of a license
agreement, although occasionally sales require substantially more time. Sales
delays could cause our operating results to vary widely. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
We depend on service revenues.
Support and service revenues represented 24% of our total revenues for 1995,
30% for 1996, 32% for 1997 and 37% for the nine months ended September 30,
1998. We anticipate that service revenues will continue to represent a
significant percentage of total revenues.
. Because service revenues have lower gross margins than license revenues,
a continued increase in the percentage of total revenues represented by
service revenues or an unexpected decrease in license revenues could
have a detrimental impact on overall gross margins and our operating
results.
8
<PAGE>
. We subcontract certain consulting, customer support and training
services to third-party service providers. Third-party contract
revenues generally carry lower gross margins than our service business
overall; as a result, our service revenues and related margins may vary
from period to period, depending on the mix of these third-party
contract revenues.
. Service revenues depend in part on ongoing renewals of support contracts
by our customers, some of which may not renew their support contracts.
. In addition, consulting revenues as a percentage of total revenues could
decline if customers select third-party service providers to install and
service our products more frequently than they have in the past.
If service revenues are lower than anticipated, our business, financial
condition and operating results could be materially adversely affected. Our
ability to increase service revenues will depend in large part on our ability
to increase the scale of our services organization, including our ability to
successfully recruit and train a sufficient number of qualified services
personnel. We may not be able to do so. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
We rely on software licensed to us by third parties.
We incorporate into our products certain software that is licensed to us by
third-party software developers, currently Sybase, Inc. and Greyware Automation
Products. Although we believe there are other sources for this licensed
software, a significant interruption in the supply of any of this licensed
software could materially adversely affect our sales, unless and until we can
replace the functionality provided by this licensed software. Because our
products incorporate software developed and maintained by third parties, we
depend on such third parties' abilities to deliver and support reliable
products, enhance their current products, develop new products on a timely and
cost-effective basis, and respond to emerging industry standards and other
technological changes. The third-party software currently offered in
conjunction with our products may become obsolete or incompatible with future
versions of our products. See "Business--Products and Services."
We may be unable to adequately protect our proprietary rights.
Our success depends in part on our ability to protect our proprietary rights.
To protect our proprietary rights, we rely primarily on a combination of
copyright, trade secret and trademark laws, confidentiality agreements with
employees and third parties, and protective contractual provisions such as
those contained in license agreements with consultants, vendors and customers,
although we have not signed such agreements in every case. Despite our efforts
to protect our proprietary rights, unauthorized parties may copy aspects of our
products and obtain and use information that we regard as proprietary. Other
parties may breach confidentiality agreements and other protective contracts we
have entered into. We may not become aware of, or have adequate remedies in the
event of, such breach.
We may be unable to adequately protect our trademarks.
We pursue the registration of certain of our trademarks and service marks in
the United States and in certain other countries, but we have not secured
registration of all our marks. A significant portion of our marks include the
word "Onyx." ONYX Computers Incorporated has filed a lawsuit against us
alleging trademark infringement of the mark "ONYX" in Canada. We are
negotiating to settle the litigation. However, our negotiations may not be
successful. A negative outcome could materially adversely affect our financial
condition and operating results. Other companies use "Onyx" in their marks
alone or in combination with other words, and we cannot prevent all third-party
uses of the word "Onyx." We license certain trademark rights to third parties.
Such licensees may not abide by compliance and quality control guidelines with
respect to such trademark rights and may take actions that would adversely
affect our trademarks. See "Business-- Legal Proceedings."
Our products may suffer from defects or errors.
Software products as complex as ours frequently contain errors or defects,
especially when first introduced or when new versions are released. We have had
to delay commercial release of certain versions of our
9
<PAGE>
products until software problems were corrected, and in some cases have
provided product enhancements to correct errors in released products. Our new
products or releases may not be free from errors after commercial shipments
have begun. Any errors that are discovered after commercial release could
result in loss of revenues or delay in market acceptance, diversion of
development resources, damage to our reputation or increased service and
warranty costs, all of which could materially adversely affect our business,
financial condition and operating results.
The integration of EnCyc and any future acquisitions may be difficult and
disruptive.
In September 1998, we acquired EnCyc, Inc, a privately held marketing
encyclopedia software company. We are currently in the process of integrating
the EnCyc business with our business. This integration is subject to risks
commonly encountered in making acquisitions, including, among others, risk of
loss of key personnel, difficulties associated with assimilating technologies,
products, personnel and operations, potential disruption of our ongoing
business, and the ability of our sales force, consultants and development staff
to adapt to the new product line. We may not successfully overcome these risks
or any other problems encountered in connection with the acquisition of EnCyc.
As part of our business strategy, we expect to consider acquiring other
companies. We may not be able to successfully integrate any technologies,
products, personnel or operations of companies that we may acquire in the
future. If we fail to do so, our business, financial condition and operating
results could be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Certain existing shareholders own a large percentage of our voting stock.
Following the closing of this offering, our officers, directors and
affiliated entities together will beneficially own approximately 62% of the
outstanding shares of our common stock (61% if the Underwriters' over-allotment
option is exercised in full). As a result, these shareholders will be able to
control all matters requiring shareholder approval and, thereby, our management
and affairs. Matters that typically require shareholder approval include:
. election of directors;
. merger or consolidation; and
. sale of all or substantially all our assets.
This concentration of ownership may delay, deter or prevent acts that would
result in a change of control, which in turn could reduce the market price of
our common stock. See "Principal Shareholders."
Our articles of incorporation and bylaws and Washington law contain provisions
that could discourage a takeover.
Certain provisions of our articles of incorporation and our bylaws and
Washington law could make it more difficult for a third party to obtain control
of ONYX. See "Description of Capital Stock."
Future sales of our common stock may depress our stock price.
After this offering, we will have outstanding 16,486,482 shares of common
stock. Sales of a substantial number of shares of common stock in the public
market following this offering could materially adversely affect the market
price of our common stock. All the shares sold in this offering will be freely
tradable. The remaining shares of common stock outstanding after this offering
will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number
Date of Availability for Sale of Shares
----------------------------- ---------
<S> <C>
, 1999 (90 days after the date of this prospectus) 53,690
, 1999 (180 days after the date of this prospectus) 13,090,564
At various times thereafter upon the expiration of one-year
holding periods 242,228
----------
13,386,482
==========
</TABLE>
See "Shares Eligible for Future Sale" and "Underwriting."
10
<PAGE>
We face Year 2000 risks.
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January
1, 2000, computer systems and software used by many companies and organizations
in a wide variety of industries, including technology, transportation,
utilities, finance and telecommunications, will produce erroneous results or
fail unless they have been modified or upgraded to process date information
correctly. Year 2000 compliance efforts may involve significant time and
expense, and uncorrected problems could materially adversely affect our
business, financial condition and operating results. Although we believe the
current versions of our software products are Year 2000 compliant, we may face
claims based on Year 2000 issues arising from the integration of multiple
products within an overall system. We may also experience reduced sales of our
products as potential customers reduce their budgets for enterprise
relationship management software due to increased expenditures on their own
Year 2000 compliance efforts. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance."
We face risks related to the European monetary conversion.
We are aware of the issues associated with the forthcoming changes in Europe
aimed at forming a European economic and monetary union. One of the changes
resulting from this union required member countries to irrevocably fix their
respective currencies to a new currency, the Euro, on January 1, 1999, at which
date the Euro became a functional legal currency of these countries. During the
next three years, business in member countries will be conducted in both the
existing national currency, such as the French Franc or the Deutsche Mark, and
the Euro. As a result, companies operating in or conducting business in member
countries will need to ensure that their financial and other software systems
are capable of processing transactions and properly handling these currencies,
including the Euro.
We are still assessing the impact the conversion to the Euro will have on
both our internal systems and the products we sell. We will take appropriate
corrective actions based on the results of such assessment. We have not yet
determined the cost related to addressing this issue. This issue and its
related costs could materially adversely affect our business, financial
condition and operating results.
Changes in accounting standards could affect the calculation of our future
operating results.
We recognize revenues from software license agreements upon delivery of our
software products if
. persuasive evidence of an arrangement exists;
. collection is probable;
. the fee is fixed or determinable; and
. vendor-specific objective evidence exists to allocate the total fee to
all elements of the arrangement.
We recognize customer support (maintenance) revenues ratably over the
contract term--typically one year--and recognize revenues for consulting and
training services as such services are performed.
Statement of Position 97-2, "Software Revenue Recognition," was issued in
October 1997 by the American Institute of Certified Public Accountants and
amended by Statement of Position 98-4. We adopted Statement of Position 97-2
effective January 1, 1998. Based on our interpretation of Statement of Position
97-2 and Statement of Position 98-4, we believe our current revenue recognition
policies and practices are consistent with Statement of Position 97-2 and
Statement of Position 98-4. The American Institute of Certified Public
Accountants has also issued Statement of Position 98-9 which is effective for
us for transactions entered into beginning January 1, 2000. However, full
implementation guidelines for this standard have not yet been issued. Once
available, such implementation guidelines could lead to unanticipated changes
in our current revenue accounting practices, which changes could materially
adversely affect our business, financial condition and operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
11
<PAGE>
Additionally, the accounting standard setters, including the Securities and
Exchange Commission and the Financial Accounting Standards Board are reviewing
the accounting standards related to business combinations and stock-based
compensation. Any changes to either of these standards or any other accounting
standards could materially adversely affect our business, financial condition
and operating results.
You should not unduly rely on forward-looking statements.
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipate," "believes," "expects,"
"future" and "intends," and similar expressions, to identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks described above and elsewhere
in this prospectus.
12
<PAGE>
USE OF PROCEEDS
We expect to receive approximately $28.1 million in net proceeds from the
sale of the 3,100,000 shares of common stock in this offering, assuming an
initial public offering price of $10.00 per share (approximately $32.4 million
if the Underwriters' over-allotment option is exercised in full).
We intend to use the net proceeds of this offering primarily for additional
working capital, repayment of short-term indebtedness, capital equipment
purchases and other general corporate purposes, including increased domestic
and international sales and marketing expenditures, increased research and
development expenditures, and capital expenditures made in the ordinary course
of our business. Specifically, we plan to use a portion of the net proceeds to
repay the outstanding balance on our working capital revolving line of credit
with Silicon Valley Bank. As of December 31, 1998, we had borrowed $3.9 million
under this facility. The working capital revolving line of credit bears
interest at Silicon Valley Bank's prime rate, which was 7.75% as of
December 31, 1998. In addition, we plan to use approximately $2.3 million of
the net proceeds for capital equipment purchases associated with our planned
relocation of our principal administrative, sales, marketing, support and
research and development facilities in July 1999. We plan to use the remainder
of the net proceeds for working capital and general corporate purposes. We may
also use a portion of the net proceeds to acquire additional businesses,
products and technologies or to establish joint ventures that we believe will
complement our current or future business. However, we have no specific oral or
written plans, agreements or commitments to do so, and are not currently
negotiating any such acquisition or joint venture. The amounts that we actually
expend for working capital purposes will vary significantly depending on a
number of factors, including future revenue growth, if any, the amount of cash
we generate from operations and the progress of our product development
efforts. As a result, we will retain broad discretion in allocating the net
proceeds of this offering. Pending the uses described above, we will invest the
net proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend to
retain any future earnings to fund the development and growth of our business.
Therefore, we do not currently anticipate paying any cash dividends in the
foreseeable future. In addition, the terms of our current credit facility
prohibit us from paying dividends without our lender's consent.
13
<PAGE>
CAPITALIZATION
The following table sets forth (1) our actual capitalization as of September
30, 1998, (2) pro forma capitalization after giving effect to the conversion of
all 3,433,925 outstanding shares of redeemable convertible preferred stock into
3,533,925 shares of common stock, and (3) the pro forma capitalization as
adjusted to give effect to the sale of 3,100,000 shares of common stock at an
assumed initial public offering price of $10.00 per share (less estimated
underwriting discounts and commissions and estimated expenses we expect to pay
in connection with this offering). You should read this table in conjunction
with our Consolidated Financial Statements and the Notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 1998
-----------------------------------------------------
Pro Forma
Actual Pro Forma as Adjusted
--------------- ---------------- ------------------
(In thousands, except share and per share data)
<S> <C> <C> <C>
Long-term obligations,
net of current
portion................ $ 692 $ 692 $ 692
Redeemable convertible
preferred stock, $0.01
par value per share;
10,000,000 shares
authorized: 3,433,925
shares issued and
outstanding, actual; no
shares issued and
outstanding, pro forma
and pro forma as
adjusted............... 12,981 -- --
Shareholders' equity
(deficit):
Preferred stock, $0.01
par value per share;
10,000,000 shares
authorized; none pro
forma or pro forma as
adjusted............. -- -- --
Common stock, $0.01
par value per share;
40,000,000 shares
authorized; 9,823,709
shares issued and
outstanding, actual;
13,357,634 shares
issued and
outstanding, pro
forma; 16,457,634
shares issued and
outstanding, pro
forma as
adjusted(1).......... 2,205 15,186 43,266
Notes receivable from
officers for common
stock................ (212) (212) (212)
Deferred stock-based
compensation......... (2,072) (2,072) (2,072)
Accumulated other
comprehensive
income............... 15 15 15
Accumulated deficit... (6,355) (6,355) (6,355)
--------------- --------------- ---------------
Total shareholders'
equity (deficit)... (6,419) 6,562 34,642
--------------- --------------- ---------------
Total
capitalization..... $ 7,254 $ 7,254 $ 35,334
=============== =============== ===============
</TABLE>
- --------
(1) Excludes (1) 3,352,127 shares of common stock issuable upon exercise of
options outstanding (of which 380,683 shares are exercisable) under our
1994 option plan at a weighted average exercise price of $1.52 per share,
(2) 1,557,497 shares available for future issuance under our 1994 option
plan and our 1998 option plan adopted in October 1998, and (3) 500,000
shares available for issuance under our employee stock purchase plan,
which was approved by our board of directors and by our shareholders in
December 1998.
14
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. We calculate net tangible book value per
share by dividing the net tangible book value (total assets less intangible
assets and total liabilities) by the number of outstanding shares of common
stock.
The pro forma net tangible book value of ONYX at September 30, 1998, after
giving effect to the automatic conversion of all outstanding shares of
redeemable convertible preferred stock into 3,533,925 shares of common stock
upon the closing of this offering was $2,974,000, or $0.22 per share of common
stock. After giving effect to the sale of the 3,100,000 shares of common stock
at an assumed initial public offering price of $10.00 per share (less estimated
underwriting discounts and commissions and estimated expenses we expect to pay
in connection with this offering), the pro forma as adjusted net tangible book
value of ONYX at September 30, 1998 would be $31,054,000, or $1.89 per share.
This represents an immediate increase in the as adjusted pro forma net tangible
book value of $1.67 per share to existing shareholders and an immediate
dilution of $8.11 per share to new investors, or approximately 81.1% of the
assumed offering price of $10.00 per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $10.00
Pro forma net tangible book value per share at September 30,
1998......................................................... $0.22
Increase per share attributable to new investors.............. 1.67
-----
Pro forma as adjusted net tangible book value per share after
this offering................................................ 1.89
------
Dilution per share to new investors........................... $ 8.11
======
</TABLE>
The following table shows on a pro forma as adjusted basis at September 30,
1998, after giving effect to the automatic conversion of all outstanding shares
of preferred stock into an aggregate of 3,533,925 shares of common stock upon
the closing of this offering, the number of shares of common stock purchased
from us, the total consideration paid to us and the average price paid per
share by existing shareholders and by new investors purchasing common stock in
this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price Per
Number Percent Amount Percent Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 13,357,634 81.2% $12,507,000 28.7% $ 0.94
New investors............... 3,100,000 18.8 31,000,000 71.3 10.00
---------- ----- ----------- -----
Total..................... 16,457,634 100.0% $43,507,000 100.0%
========== ===== =========== =====
</TABLE>
The above computations do not reflect the issuance of 28,848 shares of common
stock upon exercise of stock options between September 30, 1998 and December
31, 1998. At December 31, 1998, we had outstanding options to purchase shares
of common stock as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
--------- --------
<S> <C> <C>
1994 option plan...................................... 3,218,330 $1.68
1998 option plan...................................... 16,200 $9.00
---------
Total................................................. 3,234,530 $1.72
=========
</TABLE>
Additionally, there were 1,646,246 options available for future grant under our
1998 option plan and 500,000 shares available for issuance under our 1998
Employee Stock Purchase Plan. To the extent the option holders exercise these
outstanding options, or any options we grant in the future, there will be
further dilution to new investors.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data and other operating
information are derived from our consolidated financial statements, which have
been audited by Ernst & Young LLP, independent auditors, except that the
statement of operations data for the nine months ended September 30, 1997 is
unaudited. When you read this selected consolidated financial data, it is
important that you also read the historical consolidated financial statements
and related notes included in this prospectus, as well as the section of this
prospectus related to "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Historical results are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
Period From Year Ended Nine Months Ended
February 23,1994 December 31, September 30,
(Inception) to --------------------- -------------------
December 31,1994 1995 1996 1997 1997 1998
---------------- ------ ------ ------- ----------- -------
(unaudited)
(In thousands, except per share data)
<S> <C> <C> <C>
Consolidated
Statement of
Operations Data:
Revenues:
License.......... $ 115 $1,665 $6,797 $13,191 $ 8,408 $15,153
Service.......... 51 533 2,848 6,246 3,869 8,851
----- ------ ------ ------- -------- -------
Total revenues.. 166 2,198 9,645 19,437 12,277 24,004
Cost of revenues:
License.......... 2 10 52 250 90 607
Service.......... 52 300 2,062 5,022 3,060 5,925
----- ------ ------ ------- -------- -------
Total cost of
revenues....... 54 310 2,114 5,272 3,150 6,532
----- ------ ------ ------- -------- -------
Gross margin..... 112 1,888 7,531 14,165 9,127 17,472
Operating
expenses:
Sales and
marketing....... 35 583 3,187 11,026 7,278 13,693
Research and
development..... 86 255 1,170 4,729 2,931 6,731
General and
administrative.. 26 249 1,109 2,156 1,490 2,663
----- ------ ------ ------- -------- -------
Total operating
expenses....... 147 1,087 5,466 17,911 11,699 23,087
----- ------ ------ ------- -------- -------
Income (loss)
from
operations...... (35) 801 2,065 (3,746) (2,572) (5,615)
Interest income,
net............. 2 10 118 314 231 95
----- ------ ------ ------- -------- -------
Income (loss)
before income
taxes........... (33) 811 2,183 (3,432) (2,341) (5,520)
Income tax
provision
(benefit)....... (18) 288 789 (888) (606) 193
----- ------ ------ ------- -------- -------
Net income
(loss).......... $ (15) $ 523 $1,394 $(2,544) $ (1,735) $(5,713)
===== ====== ====== ======= ======== =======
Pro forma basic
and diluted net
loss per
share(1)........ $ (0.23) $ (0.49)
Shares used in
computation of
pro forma basic
and diluted loss
per share(1).... 11,262 11,739
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30, 1998
-------------------------- ---------------------
1994 1995 1996 1997 Actual Pro Forma(2)
---- ------ ------ ------- ------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents........... $ 90 $ 377 $1,356 $ 3,512 $ 177 $ 177
Working capital........ 136 391 4,288 9,307 1,629 1,629
Total assets........... 221 1,200 8,004 15,952 17,252 17,252
Long-term obligations,
net of current
portion............... -- -- 356 155 692 692
Redeemable convertible
preferred stock....... -- -- 3,202 12,070 12,981 --
Shareholders' equity
(deficit)............. 185 708 1,878 (1,552) (6,419) 6,562
</TABLE>
- --------
(1) See Notes 1 and 8 of Notes to Consolidated Financial Statements for an
explanation of the method used to calculate pro forma basic and diluted
income (loss) per share.
(2) Adjusted to reflect the conversion of 3,433,925 outstanding shares of
redeemable convertible preferred stock into 3,533,925 shares of common
stock.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of this prospectus includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. We use words such as "anticipate," "believes,"
"expects," "future" and "intends," and similar expressions, to identify
forward-looking statements. You should not unduly rely on these forward-looking
statements, which apply only as of the date of this prospectus. These forward-
looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical results or our
predictions. For a description of these risks, see "Risk Factors."
Overview of ONYX's Financial Performance
ONYX's History of Operations
ONYX is a leading provider of enterprise relationship management software
solutions. Enterprise relationship management software solutions automate the
key functions that enable enterprises to more effectively acquire, manage and
retain customers, partners and other relationships. ONYX was founded in
February 1994. We commercially released version 1.0 of our flagship product,
ONYX Customer Center, in December 1994. In our first year of operation, we
focused primarily on research and development activities. From early 1995
through mid-1996, we began to recruit personnel, purchase operating assets,
market our products, build a direct sales force and expand our service
business. Our revenues totaled $2.2 million in 1995 and $9.6 million in 1996.
Of these total revenues, ONYX Customer Center product license revenues
represented 76% in 1995 and 65% in 1996. We generated net income of $523,000 in
1995 and $1.4 million in 1996.
In mid-1996, we substantially expanded our operations to capitalize on our
opportunity within the rapidly emerging enterprise relationship management
market. We decided, at the potential expense of profitability, to accelerate
our investments in research and development, marketing, domestic and
international sales channels, professional services and our general and
administrative infrastructure. Since June 30, 1996, we have
. added more than 200 employees;
. opened 13 domestic field sales offices;
. entered the European and Pacific markets by opening direct sales offices
in the United Kingdom, Australia and Singapore;
. released localized versions of ONYX Customer Center in German and
Spanish;
. established distributor relationships with 11 international resellers;
. released three major upgrades to our flagship product;
. released four Internet-based products; and
. acquired a leading marketing encyclopedia software developer, EnCyc, Inc.
We believe these investments have been critical to our growth. Our revenues
were $19.4 million in 1997, representing an increase of 102% from 1996. ONYX
Customer Center product license revenues accounted for approximately 61% of our
total revenues in 1997. During the first nine months of fiscal 1998, our
revenues were $24.0 million, representing an increase of 96% compared to the
same period of 1997. ONYX Customer Center product license revenues represented
55% of our total revenues during the first nine months of fiscal 1998, compared
to 61% of total revenues in the same period of 1997. Nevertheless, these
investments have also significantly increased our operating expenses,
contributing to the net losses that we incurred in each fiscal quarter since
the first quarter of 1997. As of December 31, 1998, we had an accumulated
deficit of $7.6 million. We anticipate that our operating expenses will
increase substantially in dollar amount for the foreseeable future as we expand
our product development, sales and marketing and professional services staff.
However, due to the significant investments made to date and management's focus
on returning to profitability, we expect the rate at which our expenses grow to
decline relative to our revenue growth. As a result, we expect to be operating
cash flow positive within the next two years.
17
<PAGE>
ONYX's Source of Revenues and Revenue Recognition Policy
We generate revenues from sales of software licenses and services. We receive
software license revenues from licensing our products directly to end-users and
indirectly through resellers. To a lesser extent, we receive software license
revenues from third-party products that we distribute. We receive service
revenues from sales of post-contract support, consulting and training services
that we perform for customers that license our products either directly from us
or indirectly through resellers.
We recognize revenues from software license agreements upon delivery of our
software products if
.there is persuasive evidence of an arrangement,
.collection is probable,
.the fee is fixed or determinable, and
. there is sufficient vendor-specific objective evidence to support
allocating the total fee to all elements of multiple-element
arrangements.
Multiple-element arrangements could consist of software products, upgrades,
enhancements, customer support services or consulting services. If an
acceptance period is required, we recognize revenues upon the earlier of
customer acceptance or the expiration of the acceptance period. We enter into
reseller arrangements that typically provide for sublicense fees payable to us
based on a percentage of our list price. We recognize sublicense fees as they
are reported by the reseller when it relicenses our products to end-users.
We recognize revenues from customer support services ratably over the term of
the contract, typically one year. We derive consulting revenues primarily from
implementation services performed on a time-and-materials basis under separate
service arrangements related to the installation of our software products. We
recognize revenues from consulting and training services as these services are
performed. If a transaction includes both license and service elements, we
recognize license fee revenue on shipment of the software, provided services do
not include significant customization or modification of the base product, and
the payment terms for licenses are not subject to acceptance criteria. In cases
where license fee payments are contingent on the acceptance of services, we
defer recognition of revenues from both the license and the service elements
until the acceptance criteria are met.
We believe that our current revenue recognition policies and practices are
materially consistent with the revenue recognition rules released by the
American Institute of Certified Public Accountants in October 1997 and in early
1998. However, full implementation guidelines for these rules have not yet been
issued.
ONYX's Recent Acquisition of EnCyc
In September 1998, we acquired EnCyc, a marketing encyclopedia software
developer founded in August 1995. In exchange for all of EnCyc's outstanding
shares, we issued 233,333 shares of our common stock, paid $500,000 to EnCyc
shareholders and liquidated $250,000 of EnCyc's existing long-term debt. In
addition, we issued options to EnCyc employees to purchase up to 75,000 shares
of our common stock at an exercise price of $5.00 per share. For accounting
purposes, these options have been treated as part of the purchase price,
resulting in a total purchase price of $2.4 million, including direct costs of
the acquisition. In determining the purchase price, we estimated the fair value
of our common stock and stock options issued in the transaction. We accounted
for the acquisition under the purchase method of accounting. We have included
EnCyc's results of operations and the fair value of the assets acquired and
liabilities assumed in our Consolidated Financial Statements beginning on the
acquisition date. We recorded capitalized technology and other intangible
assets of $2.3 million, which will be amortized on a straight-line basis over
the five-year period following the acquisition. This period represents the
expected life of the intangible assets that we acquired. Other net assets
acquired aggregated $103,000 and consisted primarily of accounts receivable.
ONYX's Results of Operations
We believe that period-to-period comparisons of our operating results are not
meaningful. You should not rely on them to predict our future performance. You
should consider our prospects in light of the risks, expenses and difficulties
frequently encountered by early stage companies, particularly companies in new
and
18
<PAGE>
rapidly evolving markets. However, we may not be able to successfully address
such risks and difficulties. In addition, although we have experienced
significant revenue growth recently, such revenue growth may not continue, and
we may not achieve or maintain profitability in the future. Our future
operating results will depend on many factors, including
. demand for our products and services;
. product and price competition;
. variability in the mix of our license and service revenues;
. variability in the mix of our direct versus indirect license revenues;
. variability in the mix of services that we perform versus those
performed by third-party service providers;
. success in expanding our direct sales force, indirect distribution
channels and consulting organization;
. our ability to develop and market new and enhanced products on a timely
basis;
. timing of our new product introductions and product enhancements or
those of our competitors;
. continued purchases by our existing customers, including additional
license and maintenance revenues;
. international sales and strategic acquisitions; and
. the loss of any key employees and timing of our new hires.
The following table presents certain financial data as a percentage of total
revenues:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------- -------------------
1995 1996 1997 1997 1998
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Opera-
tions Data:
Revenues:
License......................... 75.8% 70.5% 67.9% 68.5% 63.1%
Service......................... 24.2 29.5 32.1 31.5 36.9
----- ----- ----- -------- --------
Total revenues................. 100.0 100.0 100.0 100.0 100.0
----- ----- ----- -------- --------
Cost of revenues:
License......................... 0.5 0.5 1.3 0.7 2.5
Service......................... 13.6 21.4 25.8 24.9 24.7
----- ----- ----- -------- --------
Total cost of revenues......... 14.1 21.9 27.1 25.6 27.2
----- ----- ----- -------- --------
Gross margin..................... 85.9 78.1 72.9 74.4 72.8
Operating expenses:
Sales and marketing............. 26.5 33.0 56.7 59.3 57.0
Research and development........ 11.6 12.1 24.3 23.9 28.1
General and administrative...... 11.4 11.5 11.2 12.1 11.1
----- ----- ----- -------- --------
Total operating expenses....... 49.5 56.6 92.2 95.3 96.2
----- ----- ----- -------- --------
Income (loss) from operations.... 36.4 21.5 (19.3) (20.9) (23.4)
Interest income, net............. 0.5 1.2 1.6 1.9 0.4
----- ----- ----- -------- --------
Income (loss) before income
taxes........................... 36.9 22.7 (17.7) (19.0) (23.0)
Income tax provision (benefit)... 13.1 8.2 (4.6) (4.9) 0.8
----- ----- ----- -------- --------
Net income (loss)................ 23.8% 14.5% (13.1)% (14.1)% (23.8)%
===== ===== ===== ======== ========
</TABLE>
19
<PAGE>
Nine Months Ended September 30, 1997 and 1998
Revenues
Total revenues, which consist of software license and service revenues,
increased 96%, from $12.3 million for the nine months ended September 30, 1997
to $24.0 million for the nine months ended September 30, 1998. No single
customer accounted for more than 10% of our revenues for the nine months ended
September 30, 1997 or 1998.
Our license revenues increased 80%, from $8.4 million for the nine months
ended September 30, 1997 to $15.2 million for the nine months ended September
30, 1998. The increase in license revenues resulted primarily from an increase
in the volume of shipments of our software applications due to increased market
acceptance of our products, repeat business from our existing customer base and
expansion in international markets.
Our service revenues increased 129%, from $3.9 million for the nine months
ended September 30, 1997 to $8.9 million for the nine months ended September
30, 1998. Service revenues represented 32% of our total revenues for the nine
months ended September 30, 1997 and 37% for the nine months ended September 30,
1998. The increase in service revenues resulted primarily from an increase in
customer support revenues as our installed base continued to grow and, to a
lesser extent, increases in consulting and training services. We expect the
proportion of service revenues to total revenues to fluctuate in the future,
depending in part on our customers' direct use of third-party consulting and
implementation service providers and the ongoing renewals of customer support
contracts.
Revenues outside of North America totaled $699,000 for the nine months ended
September 30, 1997 and $4.2 million for the nine months ended September 30,
1998. Revenues from indirect sales channels totaled $73,000 for the nine months
ended September 30, 1997 and $1.2 million for the nine months ended
September 30, 1998. The increase in both our international and indirect
revenues resulted primarily from the increased volume of business generated by
our international resellers, the majority of which were added in mid-1997.
We do not believe that we can sustain the historical percentage growth rates
of license and service revenues as our revenue base increases.
Cost of Revenues
Cost of license revenues
Cost of license revenues consists of license fees for third-party software,
product media, product duplication and manuals. Cost of license revenues
increased 574%, from $90,000 for the nine months ended September 30, 1997 to
$607,000 for the nine months ended September 30, 1998. Cost of license revenues
as a percentage of related license revenues was 1% for the nine months ended
September 30, 1997 and 4% for the nine months ended September 30, 1998. The
increase in dollar amount in cost of license revenues resulted primarily from
an increase in third-party products we resold, as well as an increase in the
volume of shipments of our software applications. The increase in cost of
license revenues as a percentage of related license revenues resulted primarily
from the increase in third-party products we sold, which contribute
significantly lower margins.
Cost of service revenues
Cost of service revenues consists of personnel and third-party service
provider costs related to consulting services, customer support and training.
Cost of service revenues increased 94%, from $3.1 million for the nine months
ended September 30, 1997 to $5.9 million for the nine months ended September
30, 1998. The increase in dollar amount resulted primarily from hiring and
training consulting, support and training personnel to
20
<PAGE>
support our growing customer base. Cost of service revenues as a percentage of
related service revenues was 79% for the nine months ended September 30, 1997
and 67% for the nine months ended September 30, 1998. The cost of services as a
percentage of service revenues may vary between periods primarily for two
reasons: (1) the mix of services we provide (consulting, customer support,
training), which have different cost structures, and (2) the resources we use
to deliver these services (internal versus third parties). The decrease in cost
of service revenues as a percentage of the related service revenues resulted
from a lower percentage use of third-party service providers, which contribute
significantly lower margins than internal resources, and increased customer
support revenues, which contribute higher margins than the other services.
Costs and Expenses
Sales and marketing
Sales and marketing expenses consist primarily of salaries, commissions and
bonuses earned by sales and marketing personnel, lead referral fees, travel and
promotional expenses and facility and communication costs for direct sales
offices. Sales and marketing expenses increased 88%, from $7.3 million for the
nine months ended September 30, 1997 to $13.7 million for the nine months ended
September 30, 1998. The increase in dollar amount of our sales and marketing
expenses resulted primarily from our continued investment in sales and
marketing infrastructure, both domestically and internationally, which included
significant personnel-related expenses, recruiting fees, travel expenses, and
related facility and equipment costs, as well as increased marketing
activities, including trade shows, public relations, direct mail campaigns and
other promotional expenses. The increase in dollar amount of our sales and
marketing expenses also resulted from an increase in lead referral fees made
under our agreement with certain international partners. Sales and marketing
expenses represented 59% of our total revenues for the nine months ended
September 30, 1997 and 57% for the nine months ended September 30, 1998. The
decrease in sales and marketing expenses as a percentage of total revenues
reflects the more rapid growth in our revenues compared to the growth of sales
and marketing expenses due to maturing direct and indirect sales channels, as
well as increased service revenues as a percentage of total revenues. We
believe that we need to significantly increase our sales and marketing efforts
to expand our market position and further increase acceptance of our products.
Accordingly, we anticipate that sales and marketing expenses will increase in
future periods.
Research and development
Research and development expenses consist primarily of salaries, benefits and
equipment for software developers, quality assurance personnel, program
managers and technical writers and payments to outside contractors. Research
and development expenses increased 130%, from $2.9 million for the nine months
ended September 30, 1997 to $6.7 million for the nine months ended September
30, 1998. The increase in dollar amount resulted from an increase in the number
of software developers and quality assurance personnel and the use of outside
contractors to support our product development and testing activities. Research
and development costs represented 24% of our total revenues for the nine months
ended September 30, 1997 and 28% for the nine months ended September 30, 1998.
The increase in research and development expenses as a percentage of total
revenues primarily reflects the more rapid investment in our research and
development activities compared to the growth of our revenues in this period.
We believe that we need to significantly increase our research and development
investment to expand our market position and continue to expand our product
line. Accordingly, we anticipate that research and development expenses will
increase in future periods.
General and administrative
General and administrative expenses consist primarily of salaries, benefits
and related costs for our executive, finance, administrative and information
services personnel and professional services fees. General and administrative
expenses increased 79%, from $1.5 million for the nine months ended September
30, 1997 to $2.7 million for the nine months ended September 30, 1998. The
increase in dollar amount resulted primarily from the addition of finance,
executive and administrative personnel to support the growth of our business.
21
<PAGE>
General and administrative costs represented 12% of our total revenues for the
nine months ended September 30, 1997 and 11% for the nine months ended
September 30, 1998. We believe our general and administrative expenses will
continue to increase as we expand our administrative staff, domestically and
internationally, and incur expenses associated with becoming a public company,
including, but not limited to, annual and other public reporting costs,
directors' and officers' liability insurance, investor relations programs and
professional services fees.
Deferred compensation
We recorded deferred compensation of approximately $2.2 million for the nine
months ended September 30, 1998, representing the difference between the
exercise prices of options granted to acquire 1,148,660 shares of common stock
during the nine months ended September 30, 1998 and the deemed fair value for
financial reporting purposes of our common stock on the grant dates. We
amortized deferred compensation expense of $296,000 during the nine months
ended September 30, 1998. Total deferred compensation at September 30, 1998 of
$2.1 million will be amortized over the vesting periods of the options.
Amortization of the deferred stock-based compensation balance of $2.1 million
at September 30, 1998 will approximate $288,000 for the quarter ended December
31, 1998, and $882,000, $489,000, $270,000 and $143,000 for the fiscal years
ending December 31, 1999, 2000, 2001 and 2002, respectively.
Interest income, net
Interest income, net consists of earnings on our cash and cash equivalent and
short-term investment balances offset by interest expense associated with debt
obligations. Interest income, net was $231,000 for the nine months ended
September 30, 1997 and $95,000 for the nine months ended September 30, 1998.
The decrease in interest income, net resulted from a reduction in interest
income as a result of declining cash and cash equivalents and short-term
investment balances.
Income taxes
As a result of our net operating loss in 1997 and prior years' profitability,
we realized a tax benefit of $606,000 for the nine months ended September 30,
1997. We recorded an income tax provision of $193,000 for the nine months ended
September 30, 1998 in connection with our foreign operations. We made no
provision or benefit for federal or state income taxes for the nine months
ended September 30, 1998 due to the operating losses incurred in the period. As
of September 30, 1998, we had net operating loss carryforwards for tax
reporting purposes of approximately $6.1 million, which begin to expire in
2017. In addition, as of September 30, 1998, we had tax credit carryforwards of
approximately $453,000, which begin to expire in 2017. The Internal Revenue
Code limits the use in any future period of net operating loss and credit
carryforwards upon the occurrence of certain events, including a significant
change in ownership interests. We had net deferred tax assets, including net
operating loss carryforwards and tax credits, totaling approximately $2.7
million as of September 30, 1998. We have recorded a valuation allowance for
the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset balance. See Note 9 of Notes to Consolidated Financial
Statements.
Years Ended December 31, 1995, 1996 and 1997
Revenues
Total revenues increased 339%, from $2.2 million in 1995 to $9.6 million in
1996, and 102% to $19.4 million in 1997. During 1995, one customer accounted
for 15% of total revenues. No single customer accounted for more than 10% of
our revenues in 1996 or 1997.
Our license revenues increased 308%, from $1.7 million in 1995 to $6.8
million in 1996, and 94% to $13.2 million in 1997. The increase in license
revenues from 1995 to 1996 primarily resulted from an increase in the volume of
shipments of our software applications due to increased market acceptance of
our core application, ONYX Customer Center, introduction of products
complimentary to our core product, including ONYX Web Wizards and ONYX Customer
Center-Unplugged and, to a lesser extent, repeat business from our
22
<PAGE>
existing customer base. The increase in revenues from 1996 to 1997 resulted
from the continued effect of those same factors, as well as our expansion in
international markets, primarily Europe and the South Pacific.
Our service revenues increased 434%, from $533,000 in 1995 to $2.8 million in
1996, and 119% to $6.2 million in 1997. Of our total revenues, service revenues
represented 24% in 1995, 30% in 1996 and 32% in 1997. The increases in service
revenues from 1995 to 1997 resulted primarily from the increase in consulting,
customer support and training services associated with increased sales of our
software applications and overall growth of our installed base of customers
during these periods.
Revenues outside of North America totaled $1,000 in 1995, $348,000 in 1996
and $1.2 million in 1997. The increases in international revenues from 1995 to
1997 resulted from our investment in direct and indirect sales channels,
primarily in Europe, Australia and Singapore, over the period. During these
periods, revenues from indirect sales channels were insignificant.
Cost of Revenues
Cost of license revenues
Cost of license revenues increased 420%, from $10,000 in 1995 to $52,000 in
1996, and 381% to $250,000 in 1997. Cost of license revenues as a percentage of
related license revenues were 1% in 1995 and 1996 and 2% in 1997. The increases
in dollar amount of cost of license revenues from 1995 to 1997 resulted
primarily from an increase in the volume of shipments of our software
applications and product royalties for third-party technology shipped with our
Web Wizards and ONYX Customer Center-Unplugged products.
Cost of service revenues
Cost of service revenues increased 587%, from $300,000 in 1995 to $2.1
million in 1996, and 144% to $5.0 million in 1997. The increases in dollar
amount from 1995 to 1997 resulted from hiring and training consulting, support
and training personnel to support our growing customer base and increased use
of third-party service providers. Cost of service revenues as a percentage of
related service revenues were 56% in 1995, 72% in 1996 and 80% in 1997. The
increase in cost of service revenues as a percentage of related service
revenues from 1995 to 1997 reflected primarily a higher concentration of third-
party service providers, which results in significantly lower margins.
Costs and Expenses
Sales and marketing
Sales and marketing expenses increased 447%, from $583,000 in 1995 to $3.2
million in 1996, and 246% to $11.0 million in 1997. The increases in sales and
marketing expenses from 1995 to 1997 resulted primarily from investing in our
sales and marketing infrastructure, both domestically and internationally,
which included significant personnel-related expenses, recruiting fees, travel
expenses, and related facility and equipment costs, as well as increased
marketing activities, including trade shows, public relations, direct mail
campaigns and other promotional expenses. Sales and marketing expenses
represented 27% of our total revenues in 1995, 33% in 1996 and 57% in 1997. The
increases in sales and marketing expenses as a percentage of total revenues
from 1995 to 1997 reflected primarily the more rapid investment in our sales
and marketing infrastructure compared to the growth of our revenues in this
period.
Research and development
Research and development expenses increased 359%, from $255,000 in 1995 to
$1.2 million in 1996, and 304% to $4.7 million in 1997. The increases in
research and development expenses from 1995 to 1997 related primarily to the
increase in the number of software developers and quality assurance personnel
and outside contractors hired to support our product development and testing
activities. Research and development costs
23
<PAGE>
represented 12% of our total revenues in 1995, 12% in 1996 and 24% in 1997. The
increases in research and development expenses as a percentage of total
revenues from 1995 to 1997 reflected primarily the more rapid investment in our
research and development activities compared to the growth of our revenues in
this period.
General and administrative
General and administrative expenses increased 345%, from $249,000 in 1995 to
$1.1 million in 1996, and 94% to $2.2 million in 1997. The increases from 1995
to 1997 resulted primarily from the addition of finance, executive and
administrative personnel to support the growth of our business during these
periods. General and administrative costs represented 11% of our total revenues
in 1995, 1996 and 1997.
Deferred compensation
We recorded deferred compensation of approximately $215,000 in 1997,
representing the difference between the exercise prices of options granted to
acquire 358,450 shares of common stock during 1997 and the deemed fair value
for financial reporting purposes of our common stock on the grant date. The
deferred compensation will be amortized to operating expense over the vesting
periods of the options.
Interest income, net
Interest income, net was $10,000 in 1995, $118,000 in 1996 and $314,000 in
1997. The increases from 1995 to 1997 resulted primarily from increases in
interest income resulting from higher average cash and cash equivalent and
short-term investment balances over the period.
Income taxes
Our provision for federal, state and foreign income taxes was $288,000 for
1995 and $789,000 for 1996, yielding an effective rate of 36% in 1995 and 1996.
As a result of our net operating loss in 1997 and prior years' profitability,
we realized a tax benefit of $888,000 in 1997. See Note 9 of Notes to
Consolidated Financial Statements.
24
<PAGE>
Quarterly Results of Operations
The following table presents our unaudited quarterly results of operations
for 1997 and the nine months ended September 30, 1998. You should read the
following table in conjunction with our Consolidated Financial Statements and
related Notes thereto included elsewhere in this prospectus. We have prepared
this unaudited information on the same basis as the audited Consolidated
Financial Statements. This table includes all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair
presentation of our financial position and operating results for the quarters
presented. You should not draw any conclusions about our future results from
the results of operations for any quarter.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30,
1997 1997 1997 1997 1998 1998 1998
--------- -------- ------------- ------------ --------- --------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
License............... $ 2,160 $ 3,096 $ 3,152 $ 4,783 $ 4,116 $ 5,076 $ 5,961
Service............... 1,029 1,173 1,667 2,377 2,839 2,929 3,083
--------- -------- ----------- ----------- --------- --------- -----------
Total revenues....... 3,189 4,269 4,819 7,160 6,955 8,005 9,044
--------- -------- ----------- ----------- --------- --------- -----------
Cost of revenues:
License............... 24 24 42 160 93 240 274
Service............... 700 1,049 1,311 1,962 1,972 1,918 2,035
--------- -------- ----------- ----------- --------- --------- -----------
Total cost of
revenues............ 724 1,073 1,353 2,122 2,065 2,158 2,309
--------- -------- ----------- ----------- --------- --------- -----------
Gross margin.......... 2,465 3,196 3,466 5,038 4,890 5,847 6,735
Operating expenses:
Sales and marketing... 1,614 2,573 3,091 3,748 3,821 4,381 5,491
Research and
development.......... 659 790 1,482 1,798 2,070 2,387 2,274
General and
administrative....... 381 515 593 667 781 869 1,013
--------- -------- ----------- ----------- --------- --------- -----------
Total operating
expenses............ 2,654 3,878 5,166 6,213 6,672 7,637 8,778
--------- -------- ----------- ----------- --------- --------- -----------
Loss from operations.. (189) (682) (1,700) (1,175) (1,782) (1,790) (2,043)
Interest income, net.. 33 103 94 84 40 22 33
--------- -------- ----------- ----------- --------- --------- -----------
Loss before income
taxes................ (156) (579) (1,606) (1,091) (1,742) (1,768) (2,010)
Income tax provision
(benefit)............ (40) (150) (416) (282) 62 62 69
--------- -------- ----------- ----------- --------- --------- -----------
Net loss.............. $ (116) $ (429) $ (1,190) $ (809) $ (1,804) $ (1,830) $ (2,079)
========= ======== =========== =========== ========= ========= ===========
</TABLE>
25
<PAGE>
The following table sets forth unaudited quarterly results of operations as a
percentage of revenues for 1997 and 1998.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30,
1997 1997 1997 1997 1998 1998 1998
--------- -------- ------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
License................ 67.7 % 72.5 % 65.4 % 66.8 % 59.2 % 63.4 % 65.9 %
Service................ 32.3 27.5 34.6 33.2 40.8 36.6 34.1
----- ----- ----- ----- ----- ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- -----
Cost of revenues:
License................ 0.8 0.6 0.9 2.2 1.4 3.0 3.0
Service................ 22.0 24.6 27.2 27.4 28.3 24.0 22.5
----- ----- ----- ----- ----- ----- -----
Total cost of
revenues............. 22.8 25.2 28.1 29.6 29.7 27.0 25.5
----- ----- ----- ----- ----- ----- -----
Gross margin........... 77.2 74.8 71.9 70.4 70.3 73.0 74.5
Operating expenses:
Sales and marketing.... 50.6 60.3 64.1 52.4 54.9 54.7 60.7
Research and
development........... 20.6 18.5 30.8 25.1 29.8 29.8 25.2
General and
administrative........ 11.9 12.0 12.3 9.3 11.2 10.9 11.2
----- ----- ----- ----- ----- ----- -----
Total operating
expenses............. 83.1 90.8 107.2 86.8 95.9 95.4 97.1
----- ----- ----- ----- ----- ----- -----
Loss from operations... (5.9) (16.0) (35.3) (16.4) (25.6) (22.4) (22.6)
Interest income, net... 1.0 2.4 2.0 1.2 0.6 0.3 0.4
----- ----- ----- ----- ----- ----- -----
Loss before income
taxes................. (4.9) (13.6) (33.3) (15.2) (25.0) (22.1) (22.2)
Income tax provision
(benefit)............. (1.3) (3.6) (8.6) (3.9) 0.9 0.8 0.8
----- ----- ----- ----- ----- ----- -----
Net loss............... (3.6)% (10.0)% (24.7)% (11.3)% (25.9)% (22.9)% (23.0)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
The trends discussed in the annual comparisons of operating results from 1995
through 1997, and from the nine months ended September 30, 1997 to the nine
months ended September 30, 1998, generally apply to the comparison of results
of operations for the seven quarters in the 21-month period ended September 30,
1998, adjusted for the seasonality we have experienced as referred to below.
Cost of service revenues remained relatively flat in dollar amount during the
first three quarters of 1998 due to the declining use of third-party service
providers offset by the hiring of our own service personnel. Research and
development expenses declined in the three months ended September 30, 1998 due
to reduced use of independent contractors and other outside services used to
develop our products. The significant increase in sales and marketing expenses
during the three months ended September 30, 1998 resulted primarily from
increased lead referral fees made under our agreement with certain
international partners. Our quarterly operating results have varied widely in
the past, and we expect that they will continue to fluctuate in the future as a
result of a number of factors, many of which are outside our control.
ONYX has experienced, and expects to continue to experience, significant
seasonality with respect to software license revenues. In recent years, there
has been a greater demand for our products in our fourth quarter than in each
of the first three quarters of our fiscal year. For example, in 1997, 37% of
total revenues were recognized in the fourth quarter, including 36% of license
revenues and 38% of service revenues. We also have experienced lower revenues
in our first quarter than in the preceding fourth quarter. For example, license
revenues in the first quarter of 1998 decreased 14% from the fourth quarter of
1997. We believe that these fluctuations are caused by customer buying patterns
(often influenced by year-end budgetary pressures) and the efforts of our
direct sales force to meet or exceed year-end sales quotas. We expect that
seasonal trends will continue for the foreseeable future.
26
<PAGE>
Recent Operating Results
The following table presents certain unaudited consolidated financial data
for the three months ended December 31, 1998. We believe this unaudited
information reflects all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the information for the
period presented. These results may not be indicative of our future
performance.
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1998
----------------------
(in thousands,
except per share data)
<S> <C>
Total revenues.................................... $11,106
Loss from operations.............................. $(1,085)
Net loss.......................................... $(1,266)
Pro forma basic and diluted net loss per share.... $ (0.10)
Shares used in computation of pro forma basic and
diluted net loss per share....................... 12,063
</TABLE>
Liquidity and Capital Resources
Since our inception, we have primarily financed our operations through
private placements of our common and preferred stock. Through September 30,
1998, gross proceeds from private placements of common and preferred stock
totaled $11.3 million. To a lesser extent, we have financed our operations
through equipment financing and traditional financing arrangements.
As of September 30, 1998, we had cash and cash equivalents of $177,000, a
decrease of $3.3 million from cash and cash equivalents held as of December 31,
1997. In October 1998, we received a federal income tax refund of $963,000. Our
working capital at September 30, 1998 was $1.6 million, compared to $9.3
million at December 31, 1997.
We have an $8.0 million working capital revolving line of credit with Silicon
Valley Bank that is secured by our accounts receivable and bears interest at
the bank's prime rate or LIBOR plus 2.0%, which was 7.75% as of December 31,
1998. This facility allows us to borrow up to the lesser of 80% of our eligible
accounts receivable or $8.0 million. The facility expires in June 2000. The
agreement under which the line of credit was established contains certain
covenants, including a provision requiring us to maintain specified financial
ratios. As of September 30, 1998, there were no borrowings outstanding under
this credit facility. As of December 31, 1998, we had cash and cash equivalents
of $1.9 million and had borrowed $3.9 million under the working capital
facility. We also have a $3.0 million term loan facility with Silicon Valley
Bank for the purpose of financing new capital equipment purchases. This
facility operates as a revolver through August 1999, bearing interest at a rate
equal to the bank's prime rate plus 0.25%, which equaled 8% as of December 31,
1998, after which time any balances must be paid over a 36-month term. This
facility also requires us to maintain certain financial covenants, including a
requirement that we maintain certain financial ratios. As of September 30,
1998, there were no borrowings outstanding under this credit facility. As of
December 31, 1998, we had borrowed $63,000 under this line of credit. We were
in compliance with all financial covenants of the credit facility at
December 31, 1998.
Our operating activities resulted in net cash inflows of $584,000 in 1995 and
$323,000 in 1996, and net cash outflows of $5.0 million in 1997 and $3.4
million for the nine months ended September 30, 1998. The sources of cash in
1995 and 1996 were primarily income from operations, increases in accounts
payable and accrued liabilities and increases in deferred revenues, partially
offset by increases in accounts receivable, and other current assets. The
operating cash outflows in 1997 and the nine months ended September 30, 1998
resulted from significant investments in sales, marketing and product
development, which led to operating losses. The cash outflows from operating
losses, increases in accounts receivable, prepaid expenses and other current
assets were partially offset by increases in accounts payable and accrued
liabilities and deferred
27
<PAGE>
revenues. As a percentage of total current assets, accounts receivable has
increased from 47% in 1996, to 52% in 1997, and to 80% as of September 30,
1998. This trend is the result of increasing accounts receivable driven by
significant growth in both recognized and deferred revenues, coupled with a
decrease in cash and other current assets. Cash decreased due to operating
losses, which used the majority of the cash generated by our operations in
earlier periods, as well as the cash infusion provided in two preferred equity
financing transactions. We do not believe this trend will continue in the long
term as we strive to return to profitability and become operating cash flow
positive. Further, we are working to improve our receivable turnover rates. In
the near term, however, we do not believe this trend will have a negative
impact on our operations.
Investing activities used cash of $302,000 in 1995, $2.2 million in 1996 and
$354,000 in 1997, primarily for the purchase of capital equipment and short-
term securities. Investing activities provided cash of $642,000 for the nine
months ended September 30, 1998, due primarily to proceeds from the maturity of
securities offset by cash used to acquire EnCyc and the purchase of capital
equipment.
Financing activities provided cash of $5,000 in 1995, $2.8 million in 1996
and $7.5 million in 1997, primarily through the issuance of preferred stock and
proceeds from the exercise of stock options, partially offset by payments on
capital equipment lease obligations. Financing activities used cash of $560,000
in the nine months ended September 30, 1998, primarily for payments on long-
term obligations.
We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future as we
. enter new markets for our products and services,
. increase research and development spending,
. increase sales and marketing activities,
. develop new distribution channels,
. improve our operational and financial systems and
. broaden our professional service capabilities.
Such operating expenses will consume a material amount of our cash resources,
including a portion of the net proceeds of this offering. We believe that the
net proceeds of this offering, together with our existing cash and cash
equivalents, tax refund and available bank borrowings, will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures
for at least the next twelve months. Thereafter, we may require additional
funds to support our working capital requirements or for other purposes and may
seek to raise such additional funds through public or private equity financing
or from other sources. We may not be able to obtain adequate or favorable
financing at that time. Any financing we obtain may dilute your ownership
interest in ONYX.
Year 2000 Compliance
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January
1, 2000, computer systems and software used by many companies and organizations
in a wide variety of industries (including technology, transportation,
utilities, finance and telecommunications) will produce erroneous results or
fail unless they have been modified or upgraded to process date information
correctly. Significant uncertainty exists in the software industry and other
industries concerning the scope and magnitude of problems associated with the
century change. We recognize the need to ensure our operations will not be
adversely affected by Year 2000 software failures. We are assessing the
potential overall impact of the impending century change on our business,
financial condition and operating results.
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Based on our assessment to date, we believe the current versions of our
software products are Year 2000 compliant--that is, they are capable of
adequately distinguishing 21st century dates from 20th century dates. However,
our products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products that may not be Year 2000
compliant. We may face claims based on Year 2000 problems in other companies'
products, or issues arising from the integration of multiple products within an
overall system. Although we have not been a party to any litigation or
arbitration proceeding involving our products or services related to Year 2000
compliance issues, we may in the future be required to defend our products or
services in such proceedings, or to negotiate resolutions of claims based on
Year 2000 issues. The costs of defending and resolving Year 2000-related
disputes, regardless of the merits of such disputes, and any liability we have
for Year 2000-related damages, including consequential damages, could
materially adversely affect our business, financial condition and operating
results. In addition, we believe that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or upgrade their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products such as those we offer. To the extent Year 2000
issues cause a significant delay in, or cancellation of, decisions to purchase
our products or services, our business, financial condition and operating
results would be materially adversely affected.
We periodically review our internal management information and other systems
to identify any products, services or systems that are not Year 2000 compliant
and to take corrective action. To date, we have not encountered any material
Year 2000 problems with our computer systems or any other equipment that might
be subject to such problems. We also verify compliance by external vendors that
supply us with any material software and information systems and communicate
with significant suppliers to determine their Year 2000 readiness. As part of
our assessment, we periodically evaluate the level of validation we require of
third parties to ensure their Year 2000 readiness. To date, we have not
encountered any material Year 2000 problems with software and information
systems provided to us by third parties.
We will be relocating our principal offices in July 1999 to a new office
location currently under construction. Before the relocation, we will complete
our evaluation of whether the infrastructure and building systems associated
with our new facility, such as security and sprinkler systems, and all
information technology systems, such as telephony and computer network systems,
are Year 2000 compliant.
We do not expect the total cost of these Year 2000 compliance activities to
be material to our business, financial condition and operating results. These
costs and the timing with which we plan to complete our Year 2000 modifications
and testing processes are based on our management's estimates. However, we may
not identify and correct all significant Year 2000 problems on a timely basis.
Year 2000 compliance efforts may involve significant time and expense and
unremediated problems could materially adversely affect our business, financial
condition and operating results.
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<PAGE>
BUSINESS
ONYX SOFTWARE CORPORATION
ONYX is a leading provider of enterprise relationship management software
solutions. Enterprise relationship management software automates the key
functions that enable enterprises to more effectively acquire, manage and
retain customers, partners and other relationships. The ONYX solution is based
on the Microsoft Windows NT and Microsoft BackOffice platforms. It features a
common data model that creates a single repository of marketing, sales and
service information that is accessible to multiple audiences via the Internet.
We designed our solution from inception to be integrated, easy to use and
widely accessible through a variety of interfaces, including the Internet and
corporate intranets and extranets. The ONYX solution is rapidly deployable,
scaleable, flexible and reliable, resulting in a low total cost of ownership
and rapid return on investment.
Our integrated product family allows enterprises to automate the customer
lifecycle across the entire enterprise, instead of automating only individual
departments. We target mid- to large-sized organizations and divisions of
Fortune 500 companies, marketing and selling our software and services through
a direct sales force, as well as through distributors. The ONYX solution can be
easily implemented and flexibly configured to address an enterprise's specific
business needs. We believe that our solution provides broad functionality that
enables our customers to compete more effectively in today's intensely
competitive and dynamic business environment.
INDUSTRY BACKGROUND
In recent years, many enterprises have sought to use technology to improve
interactions with their customers. Many of these enterprises have implemented
customer interaction software systems to automate separate departments, such as
sales, marketing and customer service and support. For example, sales force
automation software, a class of customer interaction software, automates an
enterprise's sales process. Sales force automation software has improved the
way sales departments manage customer contacts and sales opportunities.
International Data Corporation estimates that the aggregate customer
relationship management market was $955 million in 1997 and will grow to $6.7
billion by 2002.
As the competitive and operational pressures in today's business environment
have increased, many enterprises have adopted customer interaction software
applications to help address these challenges. Traditionally, organizations
utilizing UNIX- and mainframe-based customer interaction software applications
to manage enterprise relationships have been hindered by long development
cycles and significant costs of ownership. Recently, improvements in the
affordability and flexibility of client-server technologies have enabled
enterprises of all sizes to adopt advanced technologies that were previously
available only to large enterprises with significant information technology
resources. These technology developments include:
. improvements in the scalability and performance of powerful, low-cost
"Wintel" servers and PCs, which are replacing traditional UNIX client-
server systems;
. adoption of the Internet and corporate intranets and extranets as
channels of internal and external corporate interaction; and
. use of object-oriented programming languages, which have significantly
improved the functionality and accessibility of enterprise software
applications.
These technology developments have also significantly contributed to the
rapid penetration of the Windows NT and Microsoft BackOffice platforms within
corporate enterprises. International Data Corporation projects that the
installed base of Windows NT-based servers will increase from 1.6 million in
1997 to 5.9 million in 2002.
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<PAGE>
[GRAPH REPRESENTING PROJECTED WORLDWIDE MICROSOFT
WINDOWS NT INSTALLED BASE, 1997-2002
SOURCE: INTERNATIONAL DATA CORP. APPEARS HERE]
As these technology developments have made advanced software applications
more widely available, organizations have begun to adopt a new approach to
managing their enterprise relationships, called enterprise relationship
management. This relationship-centric approach automates the customer lifecycle
by creating a single repository of marketing, sales and service information
that is accessible to multiple audiences via the Internet. In an attempt to
provide a comparable solution, traditional customer interaction software
application vendors have bundled departmental applications into product suites
to provide more comprehensive relationship management capabilities. These
solutions, however, remain limited in their ability to distribute and share
information. In addition, many of these applications require significant
customization and ongoing support.
We believe that in today's challenging and dynamic business environment there
is a market opportunity for an enterprise relationship management system that
employs recent technological developments, including Internet capabilities, to
enable enterprises to more effectively acquire, manage and retain customers,
partners and other relationships. This solution would provide a high return on
investment by improving the effectiveness of sales, marketing and support
activities while maintaining a low total cost of ownership.
Advantages of the ONYX Solution
We provide an integrated enterprise relationship management solution for the
Windows NT and Microsoft BackOffice platforms that is easy to use and widely
accessible through a variety of interfaces, including the Internet. We designed
the ONYX solution specifically to be rapidly deployable, scaleable, flexible
and reliable, resulting in a low total cost of ownership and rapid return on
investment. Our integrated product family allows enterprises to automate the
customer lifecycle across the entire enterprise, instead of automating only
individual departments, by creating a single repository of marketing, sales and
service information. We target mid- to large-sized organizations and divisions
of Fortune 500 companies. The ONYX solution can be easily implemented and
flexibly configured to address an enterprise's specific business needs. We
believe that our solution provides broad functionality that enables our
customers to compete more effectively in today's intensely competitive and
dynamic business environment.
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<PAGE>
Our solution provides the following key advantages:
<TABLE>
<S> <C>
</TABLE>
Offers an Integrated The ONYX solution integrates functional departments of
Approach to an enterprise around common relationships. This
Enterprise integrated solution provides an enterprise with a
Relationship relationship-centric approach to automating all its
Management business-critical relationships, instead of automating
individual functional departments. We use a
distributed, common data model which, unlike
traditional customer interaction software such as sales
force automation software or other point solutions,
creates a single repository of marketing, service and
sales information that is accessible throughout the
enterprise. Each employee can access a unified view of
an enterprise's interactions with a customer, thereby
improving the enterprise's ability to satisfy the
customer's needs.
Facilitates Extended Our solution has been designed to extend front-office
Interaction Via the information across the enterprise and to those
Internet individuals who have relationships with the enterprise,
including customers, vendors and partners, through the
use of the Internet, as well as corporate intranets and
extranets.
Enables Rapid We have designed the ONYX solution to be rapidly
Deployment deployable throughout the enterprise, thereby enabling
customers to generate a higher return on investment. On
average, customers have completed initial deployments
of ONYX applications in eight to ten weeks.
Easy to Use The ONYX solution enables communication and
collaboration across the organization through a
consistent, easy-to-use "dashboard" interface. This
common interface enables access to relationship
information from both client-server and Web-based
applications.
Yields Lower Total We have specifically designed our solution to be a
Cost of Ownership flexible application that is well suited for rapidly
growing enterprises demanding highly functional
solutions without the high cost of ownership associated
with traditional client/server implementations. The
ONYX solution provides out-of-the-box functionality
that lowers acquisition, implementation, consulting and
education costs, while allowing customers to tailor the
application to their business methodologies using
preconfigured templates.
Provides Scalability We designed the ONYX solution to support the growth of
our customers as they add new users and process an
increased volume of transactions. Independent studies
run on our product and some of our competitors'
products in Microsoft scalability labs showed our
product's ability to scale to 5,000 concurrent users in
a simulated production environment.
Designed for the We designed our products to operate exclusively on the
Windows NT and Windows NT and Microsoft BackOffice platforms. We
Microsoft BackOffice believe that we are the market leader in providing
Platforms enterprise relationship management systems for these
platforms.
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<PAGE>
STRATEGY
Our strategy for establishing a market leadership position in the enterprise
relationship management market includes the following key elements:
Exploit Growing We designed the ONYX solution to be quickly and
Demand for Rapidly efficiently adopted, installed and deployed in mid- to
Deployable, Low- large-sized enterprises, including divisions of Fortune
Cost Solutions 500 companies. The length and high cost of deployment
of traditional high-end customized enterprise
relationship management products are unacceptable to
growing numbers of enterprises. Competitive pressures
encourage enterprises of all sizes to adopt information
technology solutions that can be deployed quickly,
offer extensive capabilities that meet business-
critical needs and provide interfaces that minimize
user training and facilitate incremental upgrade,
extension and scalability paths. We plan to continue to
design our products to maintain low total cost of
ownership.
Use Internet We are developing new products and enhancing our
Technology current products to provide greater Internet
connectivity and deploy Web-based technologies. The
Internet enables enterprise relationship management
information to be available to sales and service
professionals, prospects, partners and customers.
Build on Market For the foreseeable future, we plan to focus
Leadership Position exclusively on the Windows NT platform and build on our
in Windows NT market leadership position in Windows NT-based
enterprise relationship management solutions. The
Windows NT platform is rapidly gaining share in the
enterprise computing market. A recent International
Data Corporation study stated that Windows NT-based
solutions are the most popular corporate choice for new
customer relationship management solutions. We believe
our products have a competitive advantage in leveraging
the Windows NT platform, because they were conceived,
designed and implemented to optimize Microsoft
technology.
Expand We plan to expand our global operations by investing in
Internationally our sales channels in major international markets and
building new localized products. Our products are
currently available in Spanish and German and are
installed and operational in 22 countries worldwide.
Maintain Industry- We plan to maintain industry-leading customer
Leading Customer satisfaction through high-quality products, superior
Satisfaction implementation and responsive customer service and
support. A recent study by CustomerSat.com, sponsored
by us and some of our competitors, concluded that we
exceeded the average customer satisfaction index
achieved by our competition on all analyzed customer
satisfaction attributes. We strive to maintain this
position because we believe it is a critical
differentiator and gives us a significant competitive
advantage.
Expand Strategic We are actively adding both channel and technology
Partnerships partners. We believe that expanding our channel
partnerships will provide us with increasing access to
various geographic markets and potential customers. In
addition, we are forming strategic relationships that
enhance the integration with our partners' technology
to expand our product functionality.
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<PAGE>
Products and Services
The ONYX solution enables an enterprise to manage its relationships,
primarily its customers, partners and employees. Users of the ONYX solution,
including employees in sales, marketing, service and support, as well as
customers and partners, can access the system through a variety of software
interfaces and hardware devices.
Products
ONYX's products provide four primary types of functionality, which automate
the key processes involved in managing enterprise relationships, including
sales, marketing and customer service and support.
Opportunity and Process Management is the foundation of our product line.
This functionality enables users to automate their relationship management
processes across the entire enterprise. These processes include prospect
management, forecasting, task management, campaign management, campaign
tracking, lead assignment and management, work notes, key word search, customer
and prospect segmentation tools, literature fulfillment, bug tracking, product
and pricing configuration, reporting, administrative controls, contact
management, surveys, calendar functions and activity tracking. Our products
also provide connectivity to email, fax and telephony software applications.
Vertical Solutions offer industry-specific methodologies and functionality
tailored to the business processes of enterprises in particular industries.
ONYX offers preconfigured templates tailored for the financial services,
health-care and high-technology industries.
Distributed Interface Technologies enable ONYX Customer Center users,
including customers, partners, members, vendors and employees, to communicate
with the ONYX Customer Center application through a variety of distributed
interfaces, including the Internet and corporate intranets and extranets. ONYX
offers several forms of interface functionality that facilitate the interaction
between the user and the application for sales, service and distribution
relationships.
Knowledge Management functionality enables users to easily search for and
share customer, market, competitive, technology, product and other information
located on corporate networks to improve the efficiency and effectiveness of
sales, marketing and support activities. This functionality also enables
enterprises to exchange information among customers, partners and remote
employees via the Web.
Integration functionality facilities the linkage of the ONYX solution to
other business information and legacy systems, such as accounting and
telephony. ONYX also provides software development kits that enable the
development of integration interfaces between ONYX products and other business
applications.
[GRAPH REPRESENTING ONYX ENTERPRISE RELATIONSHIP
MANAGEMENT SOLUTION APPEARS HERE]
34
<PAGE>
The ONYX enterprise relationship management solution includes the following
products:
<TABLE>
<S> <C> <C>
Product Description Benefit
------------------------ ------------------------------- -------------------------------
Opportunity and Process Management Products
ONYX Customer Center . Provides an integrated and . Improves productivity,
comprehensive system for increases collaboration and
managing sales, marketing and facilitates development of
customer service and support strong relationships with key
relationships external people
. Enables employees to interact . Improves management
with each other, customers visibility of the dynamic
and partners changes in the business
. Automates the processes of
sales, marketing, service and
support
ONYX Customer Center- . Provides the core . Improves productivity of
Unplugged functionality of ONYX field users by providing
Customer Center for remote or access to current
mobile users relationship information
. Provides synchronization
capabilities for remote or
mobile users to update
customer data
Trilogy SC Config . Enables users to dynamically . Improves product
(resold product) configure and manage the configuration and pricing
pricing of their product or accuracy in the sales cycle
system
Vertical Solutions
Products
ONYX Industry Solutions . Provides preconfigured ONYX . Brings industry-specific
Customer Center templates methodologies to an
tailored for a particular implementation, allowing
industry customers to deploy the
solution effectively and
efficiently
--ONYX Asset Management
--ONYX Managed Care
--ONYX High Tech
Distributed Interface Products
ONYX Web Wizards for . Captures, qualifies and . Prepopulates the database
Sales distributes prospect automatically and distributes
information via the Web sales leads to the
appropriate users according
to enterprise-required
business rules
. Qualifies customers in the
sales cycle
ONYX Web Wizards for . Enables support professionals . Improves and simplifies
Service to answer support questions interactions with customers
and interact with customers to increase customer
via the Web satisfaction
ONYX Channel Connect . Distributes sales leads to . Extends the capabilities of
channel and distribution sales organizations by
partners via the Web enhancing communication with
partners while capturing
valuable customer information
from partners
Knowledge Management Products
ONYX Insight . Allows employees, partners . Empowers employees to find
and customers to search and reuse information faster
secure portions of an and more efficiently
enterprise's intranet from
their browser via the Web
. Facilitates convenient access
to information for customers
and partners without
intervention from the
enterprise
ONYX EnCyc Marketing . Provides users with access to . Builds presentations, quotes
Encyclopedia a repository of critical and proposals easily and
sales and marketing automatically
information
. Sends information to . Customizes information
prospects, customers and directly to a client's or
other users prospect's needs
Integration Functionality Products
ONYX RapidLink for Great . Integrates the Sales Order . Enables ONYX Customer Center
Plains Processing module of Great users to more efficiently
Plains Dynamics C/S+ version link to accounting and
4.0 with ONYX Customer Center financial information
ONYX Computer Telephony . Provides customers and . Enables users to access
Integration Software independent software vendors computer telephony
Development Kit with the ability to create functionality through ONYX
bi-directional integration Customer Center
between telephony
applications and ONYX
Customer Center
. Enables ONYX Customer Center
to be interfaced with a
variety of telephony
applications
</TABLE>
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<PAGE>
We price our core application, ONYX Customer Center, as well as ONYX Customer
Center-Unplugged and ONYX Channel Connect, on a per user basis plus an
additional database server fee that varies depending on the number of users
licensed to use the database server. We sell ONYX EnCyc both as part of the
ONYX Customer Center product family and as a stand-alone product at a base
price plus an additional fee based on the number of users. We resell Trilogy SC
Config on a per user basis. All the other products in the ONYX Customer Center
product family provide functionality that enhances and extends the capabilities
of ONYX Customer Center. With the exception of ONYX EnCyc, we sell these
products as add-ons to ONYX Customer Center, based on a per server price.
We currently incorporate third-party software from Sybase Incorporated and
Greyware Automation Products into our ONYX Customer Center-Unplugged and Web
Wizards products. This software is licensed to us pursuant to original
equipment manufacturer agreements that provide for payment of a fee for each
copy of their software we sublicense. The original equipment manufacturer
agreements have multi-year terms, are automatically renewable for one-year
periods and generally are not terminable by the licensor unless we default in
our payment obligations. We also resell certain products, such as the Trilogy
SC Config product that we license from Trilogy Software, and may in the future
incorporate Trilogy or other software into our products.
Professional Services
In addition to the products described above, ONYX also provides consulting,
support and training services as follows:
Consulting We offer our customers high-quality consulting,
including business process reengineering, change
management, systems integration, configuration,
installation and project management. We work closely
with our customers to identify their unique business
needs and we tailor our solution to these needs in an
efficient, cost-effective manner. We provide ongoing
business consulting to help our customers optimize the
use of our system over time.
We have implemented a comprehensive customer support
Customer Support program to assist customers to use our products and to
identify, analyze and solve any problems that may
result from such use. The support program includes
email support, on-line support via the Web and
telephone support from our three worldwide support
centers. In addition, we offer a premium support
program that allows our customers to contact our
support centers around the world seven days a week, 24
hours a day.
We offer a number of educational classes in conjunction
Training with our products, including end-user training and in-
depth technical training regarding the implementation
and administration of our solution.
We price our consulting and training services based on the time spent and
resources used. We price our basic support program based on a percentage of the
software license fee plus additional amounts for premium support services. We
price training services on a per-class basis.
We have established a number of strong relationships for both the
implementation of our solution and the training of our customer base. For
example, we have relationships internationally with KPMG Peat Marwick LLP in
Singapore and Arthur Andersen LLP in Australia. Domestically, we have
relationships with regional and local systems integrators such as Norstan
Consulting, TechnologyWorks, Inc., Breakaway Solutions Inc., Eggrock Partners,
LLC and Aquarius Technology Corporation. We frequently participate in joint
sales and marketing efforts with our systems integrators.
We use an industry-leading third-party training organization, Tech Resource
Group, Inc., to broaden our customer training offerings. Tech Resource Group
offers a wide range of training courses in the configuration,
36
<PAGE>
administration and use of our products. Such training is available either at
the customer's place of business or at the facilities maintained by Tech
Resource Group.
ONYX Technology
ONYX's products are based on a 32-bit client/server architecture and use
industry-standard, low cost modular components. This combination of robust
technology and flexible design enables us to offer an attractive combination of
reliability, performance, scalability, integration and low total cost of
ownership. Following are the key technologies that enable ONYX to provide a
robust enterprise relationship management solution:
Optimized for Windows NT and SQL Server. ONYX software is optimized for
Windows NT and SQL Server in both local area network and wide area network
environments in the following ways:
.uses precompiled stored procedures;
.uses Microsoft vendor-specific extensions to the ANSI 92 SQL standard;
.uses Microsoft vendor-specific object interface (COM); and
.optimizes data model architecture for the SQL Server query engine and data
storage engine.
n-tiered Architecture. ONYX software consists of a relationship-centric,
integrated data model surrounded by a set of configurable business objects.
This architecture utilizes multiple tiers to deliver a balance between
configurability, performance and administration. The logical tiers are: user
services (presentation layer), business services (business rules) and data
services (data access and data store). All tiers can be customized, and
customizations can be preserved during system upgrades.
Configuration. To adapt to rapidly changing business needs, the ONYX solution
provides the following technologies:
. Enterprise Configurable Procedures. The ONYX architecture allows
customization of standard business rules and procedures through
accessible and configurable software programming code. These enterprise
configurable procedures are implemented as SQL-stored procedures and are
written in Transact-SQL, a vendor-specific implementation of ANSI 92
SQL. This enables more robust customization than traditional
configuration methods that are based on a graphical user interface and
enables these customized business rules to be preserved during system
upgrades. Using Transact-SQL as the scripting language also enables the
same business rules to be used online and offline.
. External Data Connectivity. External data connectivity enables
integration with other business applications and legacy systems, as well
as customization of the core product. Standard external data
connectivity is a data-driven architecture coupled with a graphical
administration tool that allows administrators to integrate data
residing outside the ONYX Customer Center solution with the ONYX
enterprise client. Standard external data connectivity is particularly
focused on integration with Windows NT/Microsoft BackOffice-based
solutions. Common object model external data connectivity utilizes
industry-standard interfaces to enable broader integration, specifically
with any ODBC-compliant database and custom forms.
. Software Development Kits. To increase the breadth and depth of
solutions available for the ONYX enterprise relationship management
solution, we have developed products that include integration platforms
consisting of common object model presentation objects and business
objects allowing bi-directional integration between ONYX products and
other business applications.
Real-time synchronization architecture. Real-time synchronization
architecture ensures that, upon completion of synchronization between the
mobile client and enterprise database, the mobile user's data snapshot is a
replica of the enterprise database. In addition, our architecture provides
robust error detection and recovery by automatically restarting the data
synchronization process at the point of failure should a connectivity link
fail. Our synchronization system also provides robust, configurable data
conflict resolution algorithms and enables synchronization to be performed
without user intervention or attention.
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<PAGE>
Integrated data model. The ONYX solution includes a relationship-centric,
integrated data model--every task, form, campaign, opportunity management form,
forecasting tool and any other feature can be interrelated at any time within
the application. This fundamental part of the architecture allows any
relationship information to be shared with any other part of the organization
and ensures that every user within an organization has access to the same data.
This data model also provides flexibility to make additions and changes to the
application as the needs of the enterprise change over time.
Multiple interface support. Due to the architectural design enabling
integration in front of the business rules, the ONYX software platform supports
multiple interfaces, including Windows desktop applications, Web applications
and personal digital assistants.
Standards-based tools and components. Our products employ an n-tiered
client/server architecture built on the Windows NT, Microsoft BackOffice,
Microsoft Office and Microsoft Windows 95 and Windows 98 operating systems.
ONYX utilizes advanced object-oriented development tools and technologies in
the development of its products, including Microsoft Visual C++, Microsoft
Visual Basic, Microsoft OLE2/COM/ActiveX, Sybase SQL Anywhere, PLATINUM ERwin
relational database modeling tool, Rational Rose object modeling tool and
Rational SQA Manager test automation tool.
Customers and Markets
We target mid- to large-sized businesses and divisions of Fortune 500
companies. We believe that these enterprises have a strong need to move quickly
and develop collaborative teams, and that they are deploying new technologies
as a competitive advantage. For this reason, we target these enterprises as
prospective customers. We have licensed our products to over 350 such customers
through December 31, 1998. The following is a representative list of our
current customers who have purchased more than $200,000 in software licenses
from January 1, 1997 to December 31, 1998.
<TABLE>
<S> <C>
HIGH TECHNOLOGY HEALTH CARE
Active Voice Corporation AEA International Pte Ltd.
Advent Software, Inc. Momentum Employee Benefits
BindView Development Penn State Geisinger Health Plan
Clarus Corporation Sierra Health Services, Inc.
Data Dimensions Inc. Neighborhood Health Plan
Datastream Systems Inc.
Hummingbird Communications Ltd.
JetForm Corporation MANUFACTURING
Lam Research Corp. Data Broadcasting Corporation
Orcom Solutions, Inc. Direct Focus, Inc.
PC DOCS/Fulcrum MicroTouch Systems, Inc.
Restrac, Inc. Optiva Corporation
FINANCIAL SERVICES TELECOMMUNICATIONS
Aames Funding Corporation Cincinnati Bell Telephone
American Express Financial Advisors e.spire Communications, Inc.
American Express Retirement Services NTL Group Ltd. (Business Telecoms and
ASB Bank Ltd. Internet divisions)
Dreyfus Service Corporation Singapore Cable Vision, Ltd.
Evergreen Investment Services, Inc.
First American Trust Company
Piper Jaffray Inc. OTHER
AMR
Brooklyn Union Gas Company
Coastal Video Communications Corporation
GIGA Information Group
Reed Exhibition Companies
Trail Blazers, Inc.
Weider Publications, Inc.
</TABLE>
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<PAGE>
Selected Customer Applications
<TABLE>
<CAPTION>
Customer Application
<C> <S>
American Express American Express Financial Advisors is one of the leading
Financial Advisors financial services companies in the United States and has
approximately $188.8 billion under management. Three
divisions of American Express Financial Advisors use the
ONYX solution. One division, Retirement Services, uses the
ONYX solution in Sales, Marketing, and Client Services,
which has allowed them to be more customer focused and has
improved their ability to manage client information from
the initial point of contact. It also allows for improved
visibility into the other business relationships that other
Amex divisions have with their clients, including card,
travel and other services.
NTL Internet NTL Internet, a U.K.-based Internet service provider,
purchased ONYX Customer Center to manage its inbound sales
and support queries. The system was installed and
operational in four weeks, including integration with
existing billing systems and customization to address NTL
Internet's particular requirements, together with complete
end-user training. NTL Internet's call center handles up to
6,000 calls per day, seven days per week, from customers
regarding new sales inquiries, connection requests and
operational queries. In 1998, NTL Internet was awarded the
UK Call Centre of the Year award by UK Computing Magazine.
In addition to supporting large and varied call volumes,
ONYX Customer Center is also directly integrated with NTL
Internet's sales and marketing Web site, where NTL Internet
receives over 500 sales leads daily. NTL Internet utilizes
ONYX Web Wizards for Sales to automatically populate its
customer database with this lead information and uses ONYX
Web Wizards for Sales to then distribute this lead
information to the appropriate follow-up personnel. Using
the ONYX enterprise relationship management solution, NTL
Internet has converted a significant number of these Web-
based leads into sales.
Sierra Health Sierra Health Services, Inc., a diversified health care
Services, Inc. services company, selected ONYX as its enterprise
relationship management solution provider for managing
marketing, sales and service activities for direct
relationships with individual Medicare customers,
commercial accounts and brokers. In the Medicare segment,
Sierra utilizes the ONYX solution to manage its direct
marketing, sales and service activities. The ONYX solution
enables Sierra to generate lists of Medicare prospects
based on a variety of segmentation criteria, which can then
be used to automatically send direct marketing materials to
Medicare prospects. Telesales representatives use the ONYX
solution to schedule prospect appointments. This integrated
process enables Sierra to carefully track rates of
conversion from competitive plans and measure the
effectiveness of each marketing campaign. Sierra also
utilizes the ONYX solution to manage its commercial account
relationships. A majority of Sierra's commercial accounts
are acquired from brokers who sell its plans directly to
employer groups. Sales opportunity tracking, forecasting
and quote/contract generation is managed with the ONYX
solution, enabling Sierra to better forecast revenues and
identify top producing brokers with which to align itself.
With the ONYX solution, Sierra is able to quickly provide
its brokers and prospective group members with updated
benefit/plan information, thereby allowing Sierra to
improve quote generation times, reduce the contracting
cycle and improve overall customer response and
satisfaction.
</TABLE>
39
<PAGE>
Sales and Marketing
We market and sell our software and services through a direct sales force, as
well as through distributors. We have direct sales offices in the United
States, the United Kingdom, Singapore and Australia and distributors in Latin
America, Asia and Europe. As of December 31, 1998, we employed 114 people in
sales and marketing. We support our field sales force with telemarketing
representatives and sales engineers. The direct sales effort is complemented by
indirect channel partners in many of our international markets.
Our marketing programs are focused on creating awareness, preference and lead
generation for the ONYX enterprise relationship management solution. These
programs are targeted at key executives such as chief executive officers and
chief information officers, as well as vice presidents of sales, service and
marketing.
To support our international direct and indirect sales channels, we have
sponsored a series of joint seminars with key customers and partners, such as
Microsoft. Our marketing personnel engage in a variety of marketing activities,
including managing and maintaining the ONYX Web site, making direct mailings,
placing advertisements, conducting public relations programs and establishing
and maintaining relationships with recognized industry analysts.
We also have initiated a branding and marketing communications strategy to
solidify our position as a leading provider of enterprise relationship
management software. This effort includes new messaging, target positioning, a
new "look and feel" and an increased effort to broaden market awareness of
ONYX. We have also initiated marketing strategies targeted at industry-specific
vertical markets, including high technology, financial services, health care,
telecommunications and manufacturing.
Our sales process consists of several phases: lead generation, initial
contact, lead qualification, needs assessment, enterprise overview, product
demonstration, proposal generation and contract negotiation. In a number of
instances, we believe that our relationships with strategic partners, including
systems integrators, has substantially shortened our sales cycle. Partners have
generated and qualified sales leads, made initial customer contacts and
assessed needs prior to our introduction. Additionally, systems integration
partners have assisted us in the creation of customized presentations and
demonstrations, which we believe enhance our competitive position. While the
sales cycle varies substantially from customer to customer, the initial sales
cycle typically ranges from two to six months, although in the past certain
sales cycles have lasted substantially longer.
We have distribution partners located in Europe, Asia, Latin America and the
South Pacific who market, promote and sell our software products. Our
distributors also typically provide both the implementation and customer
support services to our end-users, drawing on our expertise as necessary to
assist them in these efforts. We collaborate with our distributors in a variety
of areas, including seminars, trade shows and conferences. Our distributors
also create market- and language-specific collateral and product demonstrations
and assist in the localization of our products and related documentation.
We typically enter into buy-sell contracts with our distribution partners,
pursuant to which they purchase our products with a right to relicense them to
end-users, provided the relicense terms are materially consistent with those
used by ONYX. The distribution partners typically have no right to return the
product, regardless of their ability to relicense the product to an end-user.
In addition, our revenue from the sale of our product to a distribution partner
is independent of the distribution partner's ability to collect payment from an
end-user. We typically do not grant exclusive sales territories to our
distribution partners, but may do so in the future if a proposed distribution
transaction merits such an arrangement.
Research and Development
As of December 31, 1998, we employed 65 people in our research and
development organization. This team is responsible for the design, development
and release of ONYX products. The group is organized into four disciplines:
development, quality assurance, documentation and program management. Members
from each of these disciplines, along with a product manager from our marketing
department, form separate product teams
40
<PAGE>
that work closely with sales, marketing, professional services, customers and
prospects to better understand market needs and requirements. When required, we
also utilize third-party development firms to expand the capacity and technical
expertise of our internal research and development team. Additionally, we
sometimes license third-party technology that is incorporated into our
products. We believe this approach significantly shortens our time to market
without compromising our competitive position or product quality. Therefore, we
expect to continue to draw on third-party resources in the foreseeable future.
We have a well-defined software development methodology that we believe
allows us to deliver products that satisfy real business needs for the global
market and meet commercial quality expectations. This methodology is based on
the following key components:
. specification and review of business requirements, functional
requirements, prototypes, technical designs, test plans and
documentation plans;
. iterative, scheduled quality assurance of code and documentation;
. frequent stabilization of product;
. test automation definition, instrumentation and execution;
. test functions, components, systems, integration, performance, stress
and international and Year 2000 compliance;
. full product regression testing before beta or general availability
releases;
. trial deployments in an internal production environment prior to
release;
. external beta releases; and
. general availability release.
We emphasize quality assurance throughout the software development life
cycle. We believe that strong emphasis placed on analysis and design early in
the project life cycle reduces the number and costs of defects that may be
found in later stages. Our development methodology focuses on delivery of
product to a global market, enabling localization into multiple languages from
a single code base.
Intellectual Property and Other Proprietary Rights
To protect our proprietary rights, we rely primarily on a combination of
copyright, trade secret and trademark laws, confidentiality agreements with
employees and third parties, and protective contractual provisions such as
those contained in license agreements with consultants, vendors and customers,
although we have not signed such agreements in every case. Despite our efforts
to protect our proprietary rights, unauthorized parties may copy aspects of our
products, and obtain and use information that we regard as proprietary. Other
parties may breach confidentiality agreements and other protective contracts we
have entered into, and we may not become aware of, or have adequate remedies in
the event of, such breach.
"ONYX," "ONYX Web Wizards" and "Total Customer Management" are registered
trademarks of ONYX Software Corporation. We have applied for federal
registration of the marks "Customer Center," "Customer Center-Unplugged,"
"RapidLink" and "ChannelConnect." All other trademarks or service marks
appearing in this prospectus are trademarks or service marks of the respective
companies that use them.
We pursue the registration of certain of our trademarks and service marks in
the United States and in certain other countries, but we have not secured
registration of all our marks. In addition, the laws of some foreign countries
do not protect our proprietary rights to the same extent as do the laws of the
United States, and effective copyright, trademark and trade secret protection
may not be available in other jurisdictions. A significant portion of our marks
include the word "Onyx." ONYX Computers Incorporated has filed a lawsuit
against us alleging trademark infringement of the mark ONYX in Canada. This
claim, even if not meritorious, could require the expenditure of significant
financial and managerial resources. A negative outcome could materially
adversely affect our business, financial condition and operating results. Other
companies use
41
<PAGE>
"Onyx" in their marks alone or in combination with other words, and we cannot
prevent all third-party uses of the word "Onyx." We license certain trademark
rights to third parties. Such licensees may not abide by compliance and quality
control guidelines with respect to such trademark rights and may take actions
that would materially adversely affect our business, financial condition and
operating results.
Competition
The market for enterprise relationship management software is intensely
competitive, fragmented and rapidly changing. To our knowledge, we are the only
provider of enterprise relationship management software solutions that focuses
exclusively on the Windows NT platform. We believe that we compete effectively
as a result of our integrated, relationship-centric, rapidly deployable,
Internet-enabled solution that is optimized for the Windows NT platform,
coupled with our commitment to providing high-quality solutions that yield a
rapid return on investment and a low total cost of ownership.
We face competition in the enterprise relationship management software market
primarily from (1) customer interaction software applications vendors, such as
Clarify, Inc., Pivotal Corp., SalesLogix Corporation, Siebel Systems, Inc., and
The Vantive Corporation, (2) large enterprise software vendors, such as Baan
Company N.V., J. D. Edwards & Co., Oracle Corporation, PeopleSoft Corporation
and SAP AG, and (3) our potential customers' information technology
departments, which may seek to develop proprietary enterprise relationship
management systems.
Many of our competitors have already established supplier relationships with
divisions of our current or potential customers. These competitors may be able
to leverage their existing relationships to discourage these customers from
purchasing additional ONYX products or persuade them to replace our products
with their products. Many of our competitors have longer operating histories,
significantly greater resources and name recognition and a larger installed
base of customers than we have. As a result, these competitors may have greater
credibility with our existing and potential customers. They also may be able to
devote greater resources to the development, promotion and sale of their
products than we can to ours, which would allow them to respond more quickly
than we can to new or emerging technologies and changes in customer
requirements.
We expect that competition will increase as other established and emerging
companies enter the enterprise relationship management market, as new products
and technologies are introduced and as new competitors enter the market.
Increased competition may result in price reductions, lower gross margins and
loss of our market share, any of which could materially adversely affect our
business, financial condition and operating results.
Employees
As of December 31, 1998, we had a total of 271 employees, excluding
independent contractors and other temporary employees, including 65 people in
research and development, 114 people in sales and marketing, 61 people in
consulting, customer support and training and 31 people in general and
administrative services. Our future performance depends in significant part on
the continued service of our key technical, sales and senior management
personnel. The loss of the services of one or more of our key employees could
have a material adverse effect on our business, financial condition and
operating results. Our future success also depends on our continuing ability to
attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense. We cannot provide any
assurance that we can retain our key technical, sales and managerial personnel
in the future. None of our employees is represented by a labor union, and we
consider our employee relations to be good.
Facilities
Our principal administrative, sales, marketing, support and research and
development facilities are located in approximately 38,500 square feet of space
in Bellevue, Washington. Our principal lease, covering 33,000
42
<PAGE>
square feet of this office space, expires on June 30, 1999. The remaining
leases expire between June 1999 and January 2002. In July 1999, we plan to
relocate our principal administrative, sales, marketing, support and research
and development facilities to a new location in Bellevue, Washington with
approximately 90,000 square feet, pursuant to a lease that expires in 2006. We
currently lease other domestic sales and support offices in California,
Colorado, Georgia, Illinois, Maryland, Massachusetts, Minnesota, New Jersey,
Oregon and Texas. We maintain international offices in Australia, Singapore and
the United Kingdom.
Legal Proceedings
In the computer software market there is frequent and substantial
intellectual property litigation, which is often complex and expensive, and
involves a significant diversion of resources and uncertainty of outcome. We
have been subject to claims and expect to be subject to legal proceedings and
claims from time to time in the ordinary course of our business, including
claims of alleged infringement of trademarks and other intellectual property
rights of third parties. On September 25, 1998, ONYX Computers Incorporated
filed a lawsuit against us in the Federal Court of Canada--Trial Division in
Toronto. ONYX Computers Incorporated alleges trademark infringement of the mark
"ONYX" in Canada and seeks
. a permanent injunction preventing us from using the mark "ONYX," the
trade name "ONYX Software Corporation" or any other similar marks or
trade names in Canada;
. an order requiring us to deliver or destroy all materials in our
possession or under our control bearing the mark "ONYX"; and
. other damages, interest and court costs.
This claim, even if not meritorious, could require the expenditure of
significant financial and managerial resources. A negative outcome could
materially adversely affect our business, financial condition and operating
results. Other than the trademark infringement matter described above, as of
the date of this prospectus, we are not a party to any litigation that, if
adversely determined, would have a material adverse effect on our business,
financial condition and operating results.
43
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of ONYX as of January 15, 1999 are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- ----------------------------------------------------------------
<S> <C> <C>
Brent R. Frei........... 32 President, Chief Executive Officer and Chairman of the Board
Sarwat H. Ramadan....... 55 Vice President, Chief Financial Officer, Secretary and Treasurer
Keith D. Brown.......... 40 Vice President of Marketing
Eben W. Frankenberg..... 32 Vice President of Sales
Howard K. Hawk.......... 35 Vice President of International Operations
Michael D. Racine....... 41 Vice President of Professional Services
Mary A. Reeder.......... 40 Vice President of Product Development
H. Raymond Bingham...... 53 Director
William B. Elmore(1).... 45 Director
Jay C. Hoag(2).......... 40 Director
Paul G. Koontz(1)(2).... 38 Director
Daniel R. Santell....... 40 Director
Todd A. Stevenson....... 30 Director
</TABLE>
- --------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Brent R. Frei, a cofounder of ONYX, has been a director of ONYX since its
inception in 1994, served as Secretary and Treasurer from September 1995 to
October 1998, and has served as President since September 1995 and Chief
Executive Officer and Chairman of the Board since October 1998. From 1991 to
February 1994, Mr. Frei was a Programmer Analyst with Microsoft's Information
Technology Group, in which position he was involved with creating international
customer information systems. From 1989 to 1990, he was a mechanical engineer
with Motorola Corporation. Mr. Frei received his B.S. in Engineering from the
Thayer School of Engineering at Dartmouth College.
Sarwat H. Ramadan has been Chief Financial Officer of ONYX since June 1998
and Vice President, Secretary and Treasurer since October 1998. From 1993 to
June 1998, Mr. Ramadan was the Chief Financial Officer, Secretary and Treasurer
of Integrated Measurement Systems, Inc., an engineering test stations and
software company. From 1987 to 1993, Mr. Ramadan was Chief Accounting Officer
and Finance Director of Mentor Graphics Corporation, an electronic design
automation software company. Mr. Ramadan held various executive positions from
1985 to 1987 with CAD/CAM Resources, Inc. and from 1979 to 1985 with
Computervision Corporation. Mr. Ramadan received his B.S. from Ain Shams
University, his M.B.A. from the University of New Haven and his C.S.S. from
Harvard University.
Keith D. Brown has been Vice President of Marketing of ONYX since October
1997. From 1987 to October 1997, Mr. Brown held several positions, including
Strategic Alliances Manager, Product Marketing Manager and Worldwide Marketing
Manager, in Hewlett-Packard Corporation's LaserJet Printer Solutions Group. Mr.
Brown received his B.S. in electrical engineering from the DeVry Institute of
Technology and his M.B.A. from the University of Montana.
Eben W. Frankenberg joined ONYX in January 1995 and has been Vice President
of Sales since August 1995. From 1990 to December 1994, Mr. Frankenberg was a
petroleum geophysicist for Amoco Production Company, a developer of crude oil
and natural gas, and Amoco Netherlands Petroleum Co., a producer of petroleum.
Mr. Frankenberg received his B.A. from Dartmouth College and his M.S. from
Stanford University.
Howard K. Hawk has been Vice President of International Operations of ONYX
since August 1996. From 1989 to August 1996, Mr. Hawk was Director of
International Information Technology of Microsoft. From
44
<PAGE>
1985 to 1987, he was a Senior Consultant with Andersen Consulting LLP. Mr. Hawk
received his B.S. in business administration with a concentration in
Information Systems from the University of Washington.
Michael D. Racine has been Vice President of Professional Services of ONYX
since July 1994. From 1991 to July 1994, Mr. Racine held various positions with
Microsoft's Information Technology Group, including Project Manager in the
development and deployment of a revenue consolidation and reporting system.
From 1987 to 1991, he was a Senior Consultant with Andersen Consulting LLP. Mr.
Racine received his B.A. from Utah State University and his M.B.A. from the
University of Oregon.
Mary A. Reeder has been Vice President of Product Development of ONYX since
June 1996. From 1989 to May 1996, Ms. Reeder worked for Microsoft, where she
was involved in product development, process management and emerging
technology. From 1987 to 1989, she was an independent consultant, developing
custom software. From 1985 to 1987, she was a Senior Programmer Analyst of Data
I/O Corporation, a manufacturer of engineering programming systems. Ms. Reeder
received her B.S. in computer science and her B.F.A. in graphic design from the
University of Washington.
H. Raymond Bingham became a director of ONYX in January 1999. Since 1993, Mr.
Bingham has been Chief Financial Officer and Executive Vice President of
Cadence Design Systems, Inc. From 1988 to 1993, Mr. Bingham was Executive Vice
President and Chief Financial Officer of Red Lion Hotels and Inns. From 1984 to
1988, he was Managing Director of Agrico Overseas Investment Company, a
subsidiary of The Williams Companies, Inc. Mr. Bingham serves on the boards of
directors of Integrated Measurement Systems, Inc., Legato Systems, Inc. and
Sunstone Hotel Investors, Inc. Mr. Bingham received his B.S. in economics from
Weber State College and his M.B.A. from the Harvard Business School.
William B. Elmore has been a director of ONYX since March 1996. Since 1995,
Mr. Elmore has been a member of Foundation Capital Management, L.L.C., the
general partner of Foundation Capital, L.P., a venture capital firm focused on
early-stage information technology companies. From 1987 to 1995, he was a
general partner of Inman & Bowman, a venture capital firm. Mr. Elmore serves on
the boards of directors of Wind River Systems, Inc. and Pilot Network Services,
Inc., as well as several privately held companies. Mr. Elmore received his B.S.
and M.S. in electrical engineering from Purdue University and his M.B.A. from
Stanford University.
Jay C. Hoag has been a director of ONYX since October 1998. Since June 1995,
Mr. Hoag has been a Managing Member of Technology Crossover Management II,
L.L.C. From 1982 to 1994, he was with Chancellor Capital Management, Inc. Mr.
Hoag serves on the boards of directors of several privately held companies. Mr.
Hoag received his B.A. in economics and political science from Northwestern
University and his M.B.A. from the University of Michigan.
Paul G. Koontz has been a director of ONYX since April 1997. Since 1996, Mr.
Koontz has been a member of Foundation Capital Management, L.L.C., the general
partner of Foundation Capital, L.P. From 1995 to 1996, he was with Sutter Hill
Ventures and, in 1994, he was the initial Vice President of Marketing of
Netscape Communications Corporation. From 1987 to 1994, Mr. Koontz was with
Silicon Graphics, Inc., where he held a number of positions, including Director
of Marketing. From 1983 to 1987, he held various marketing and management
positions with Hewlett-Packard Corporation in the United States and Europe.
Mr. Koontz serves on the boards of directors of several privately held
companies. Mr. Koontz received his B.S. in mechanical engineering from
Princeton University and his Masters in engineering management from Stanford
University.
Daniel R. Santell has been a director of ONYX since November 1994. Since
1996, Mr. Santell has been the Vice President of Worldwide Services for
InterWorld Corporation. From 1995 to 1996, he was Director of the North
American Client Services Division for SSA Corporation, from 1992 to 1996, he
was Vice President of Product Development at Platinum Software and from 1983 to
1992, he was a Manager at Andersen Consulting LLP. Mr. Santell received his
B.S.E. from Purdue University and his M.B.A. from the University of Washington.
45
<PAGE>
Todd A. Stevenson, a cofounder of ONYX, has been a director of ONYX since its
inception in 1994 and served as Chairman of the Board until October 1998. Mr.
Stevenson has been a manager of the Developer Support Service Group since July
1998. He previously served as Chief Technology Officer from June 1996 to July
1998 and Vice President of Development from ONYX's inception to June 1996. From
1993 to 1994, Mr. Stevenson was a programmer involved in creating international
customer information systems at Microsoft and from 1991 to 1993, he was a
support analyst for Microsoft Pty (Australia) developer products. Mr. Stevenson
received his B.S. in computer science from Oregon State University.
Committees of the Board of Directors
The compensation committee of our board of directors currently consists of
Messrs. Elmore and Koontz. The compensation committee
. reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans; and
. makes recommendations to the board of directors regarding such matters.
The audit committee consists of Messrs. Hoag and Koontz. The audit committee
. makes recommendations to the board of directors regarding the selection
of independent auditors;
. reviews the results and scope of the audit and other services provided
by our independent auditors; and
. reviews and evaluates our audit and control functions.
Director Compensation
All nonemployee directors of the Company will be paid $1,000 for each board
of directors meeting attended in person, $500 for each board meeting attended
telephonically, $500 for each committee meeting attended in person and $250 for
each committee meeting attended telephonically. We also reimburse them for
reasonable expenses they incur in attending meetings of the board of directors
and its committees. In November 1994, we granted Mr. Santell, an ONYX director,
a nonqualified stock option to purchase 50,000 shares of common stock at an
exercise price of $0.12 per share. In January 1999, we granted Mr. Bingham, an
ONYX director, a nonqualified stock option to purchase 50,000 shares of common
stock at an exercise price of $9.00 per share, plus an annual grant over the
next five years, commencing in 2000, of an additional 5,000 shares at an
exercise price equal to the fair market value on the date of grant. We
currently intend to make comparable option grants to future nonemployee
directors. Directors of ONYX are eligible to participate in our 1998 option
plan.
Director and Officer Indemnification and Liability
Our articles of incorporation limit the liability of directors to the fullest
extent permitted by the Washington Business Corporation Act as it currently
exists or as it may be amended in the future. Consequently, subject to the
Washington Business Corporation Act, no director shall be personally liable to
ONYX or its shareholders for monetary damages resulting from his or her conduct
as a director of ONYX, except liability for (1) acts or omissions involving
intentional misconduct or knowing violations of law, (2) unlawful
distributions, or (3) transactions from which the director personally receives
a benefit in money, property or services to which the director is not legally
entitled. Our articles of incorporation also provide that we shall indemnify
any individual made a party to a proceeding because that individual is or was a
director of ONYX and shall advance or reimburse reasonable expenses incurred by
such individual in advance of the final disposition of the proceeding to the
full extent permitted by applicable law. Any repeal of or modification to our
articles of incorporation may not adversely affect any right of a director of
ONYX who is or was a director at the time of such repeal or modification. To
the extent the provisions of our articles of incorporation provide for
indemnification of directors for liabilities arising under the Securities Act
of 1933, those provisions are, in the opinion of the Securities and Exchange
Commission, against public policy as expressed in the Securities Act and they
are therefore unenforceable.
46
<PAGE>
Our bylaws provide that we shall indemnify our directors and officers and may
indemnify our employees and agents to the full extent permitted by law. In
addition, we have entered into separate indemnification agreements with our
directors and executive officers that could require us, among other things, to
indemnify them against certain liabilities that arise because of their status
or service as directors or executive officers and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified. Finally, we intend to purchase and maintain a liability insurance
policy, pursuant to which our directors and officers may be indemnified against
liability they may incur for serving in their capacities as directors and
officers of ONYX.
We believe that the limitation of liability provision in our articles of
incorporation, the indemnification provisions in our bylaws, the
indemnification agreements and the liability insurance policy will facilitate
our ability to continue to attract and retain qualified individuals to serve as
directors and officers of ONYX.
Compensation Committee Interlocks and Insider Participation
Our board of director's compensation committee currently consists of Messrs.
Elmore and Koontz. No member of our board of directors or of its compensation
committee serves as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving as
members of our board of directors or its compensation committee.
Messrs. Elmore and Koontz are Members of Foundation Capital Management,
L.L.C., which is the General Partner of Foundation Capital, L.P. and a Member
of Foundation Capital Entrepreneurs Fund, L.L.C. In addition, Foundation
Capital Management, L.L.C. holds a 7.86% interest in TCV II Strategic Partners,
L.P., another holder of ONYX Series B Preferred Stock.
The entities affiliated with Foundation Capital Management, L.L.C. are
parties to an Amended and Restated Investors' Rights Agreement dated as of
March 31, 1997. Pursuant to the terms of the Investors' Rights Agreement, the
holders of the Series B Preferred Stock have a right of first offer to purchase
in the initial public offering their pro rata share of an aggregate number of
shares equal to the greater of (1) the number of shares having an aggregate
offering price of $3,000,000 and (2) 10% of the shares offered in the initial
public offering; provided, however, that the purchase amount shall not exceed
the number of shares having an aggregate offering price of $4,000,000. Each
holder of Series B Preferred Stock is also entitled to purchase its pro rata
share of any shares not purchased by the other holders of Series B Preferred
Stock. The Investors' Rights Agreement also grants certain registration rights
that obligate ONYX, under certain circumstances, to effect a registration under
the Securities Act of shares of common stock. See "Description of Capital
Stock--Registration Rights."
The entities affiliated with Foundation Capital Management, L.L.C. have
expressed a current intent to exercise their right to purchase shares in this
offering, including any shares subject to the right of first offer but not
purchased by the other holders of the Series B Preferred Stock. Despite their
expressions of intent, the entities affiliated with Foundation Capital
Management, L.L.C. are under no obligation to purchase any shares in this
offering until the earlier to occur of (1) delivery to them of the prospectus
filed with the Securities and Exchange Commission with respect to this offering
and (2) two hours after the later to occur of (a) effectiveness of the
Registration Statement of which this prospectus forms a part and (b)
determination of the initial public offering price. Prior to that time, the
entities affiliated with Foundation Capital Management, L.L.C. can elect not to
purchase shares in this offering for any reason, including as a result of
access to information about ONYX or this offering not known to ONYX or other
potential investors. Accordingly, ONYX can make no assurance that the entities
affiliated with Foundation Capital Management, L.L.C. will purchase shares in
this offering and, if any of them do not purchase such shares, the pricing or
consummation of this offering could be adversely affected.
In April 1998, entities affiliated with Foundation Capital Management, L.L.C.
entered into a transaction with Leon and Barbara Stevenson, the parents of Todd
Stevenson, who is a cofounder and director of ONYX,
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<PAGE>
pursuant to which Mr. and Mrs. Stevenson (1) executed promissory notes to
borrow $425,000 from such entities, (2) pledged 283,331 shares of common stock
to secure such indebtedness, and (3) granted to the entities affiliated with
Foundation Capital Management, L.L.C. call options to purchase 100,000 shares
of common stock of ONYX at a per share purchase price of $4.25. The promissory
notes are interest free and no payments are due until April 30, 2003. In
connection with these transactions, we agreed to hold in escrow the shares of
ONYX common stock subject to the Stevensons' call options and pledges. The call
options have been exercised, subject to the closing of this offering. The
exercise price for the call options will be paid by cancellation of the
promissory notes.
In connection with this offering, our board of directors and shareholders
approved amendments to our articles of incorporation that, among other things,
increase by an aggregate of 25,000 the number of shares of common stock
issuable on conversion of the Series B Preferred Stock held by the entities
affiliated with Foundation Capital Management, L.L.C. and eliminate the minimum
per share price threshold for automatic conversion of our preferred stock upon
completion of this offering.
We have entered into separate indemnification agreements with each of Messrs.
Elmore and Koontz.
Executive Compensation
The following table sets forth information concerning the compensation
received for services rendered to ONYX in all capacities during the year ended
December 31, 1998 by ONYX's Chief Executive Officer and the other executive
officer of ONYX who earned compensation in excess of $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-----------------------
Other Annual All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Compensation($)
- -------------------------------------- ---- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Brent R. Frei, Chief Executive Officer
and President........................ 1998 $ 85,000 $ 1,500 $ -0- $ -0-
1997 75,334 1,500 -0- -0-
Keith D. Brown, Vice President of
Marketing(1)......................... 1998 114,083 1,250 -0- -0-
</TABLE>
- --------
(1) Mr. Brown joined ONYX in October 1997. The compensation he earned in fiscal
1997 did not exceed $100,000.
Option Grants in Last Fiscal Year
We did not grant Mr. Frei any stock options during fiscal 1998. The following
table sets forth certain information regarding stock options we granted Mr.
Brown during fiscal 1998.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Number of Percent of Price
Securities Total Options Appreciation for
Underlying Granted to Option Term(2)
Options Employees in Exercise Expiration -----------------
Name Granted(#) Fiscal Year(1) Price($/Sh) Date 5%($) 10%($)
---- ---------- -------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Keith D. Brown.......... 40,000(3) 2.7% $2.50 6/1/08 $551,558 $937,497
</TABLE>
- --------
(1) Based on a total of 1,456,660 option shares granted to employees during
fiscal 1998.
(2) The assumed rates of appreciation are prescribed by the Securities and
Exchange Commission for illustrative purposes only and are not intended to
forecast or predict future stock prices.
(3) One-fourth of Mr. Brown's options vest and become exercisable 18 months
after the date of grant and an additional one-eighth of his options vest
and become exercisable at the end of each six-month period thereafter.
48
<PAGE>
Fiscal 1998 Year-End Option Values
Mr. Brown did not exercise any options during fiscal 1998. The following
table sets forth certain information regarding unexercised stock options held
by Mr. Brown as of December 31, 1998. Mr. Frei does not currently hold options
to purchase capital stock of ONYX.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Fiscal Year-End(#) Fiscal Year-End ($)(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Keith D. Brown.............. -- 120,000 $ 0 $1,044,000
</TABLE>
- --------
(1) Calculated on the basis of an assumed initial public offering price of
$10.00 per share.
Employment Agreement With Mr. Brown
Pursuant to an employment agreement, dated September 14, 1997, we agreed to
provide Mr. Brown with an annual salary of $110,000; participation in ONYX's
bonus program, insurance and other employee benefits; options to purchase
80,000 shares of common stock, which vest over a period of four and one-half
years; and a relocation allowance to cover relocation expenses to the Seattle
area.
In addition, if ONYX is purchased within 18 months of Mr. Brown's hire date,
resulting in the elimination of his role as Vice President of Marketing through
no fault of Mr. Brown, and another comparable position is not offered, Mr.
Brown is entitled to receive a payment equal to six months' base salary. In
this event, we would also accelerate the vesting of 25% of his initial 80,000
share option grant.
Employee Benefit Plans
1998 Stock Incentive Compensation Plan
Our board of directors and shareholders have adopted our 1998 option plan.
The purpose of our 1998 option plan is to enhance long-term shareholder value
by offering opportunities to employees, directors, officers, consultants,
agents, advisors and independent contractors of ONYX and its subsidiaries to
participate in ONYX's growth and success, and to encourage them to remain in
the service of ONYX and its subsidiaries and to own ONYX stock. Our 1998 option
plan provides for awards of stock options and restricted stock. Our board has
reserved a total of 1,500,000 shares of common stock, plus (1) any shares
reserved but not granted under our 1994 option plan or returned to the 1994
option plan upon termination of options or repurchase of shares by ONYX and (2)
an automatic annual increase, to be added on the first day of our fiscal year
beginning in 2000, equal to the lesser of (a) 1,675,763 shares and (b) 5% of
the average common shares outstanding as used to calculate fully diluted
earnings per share as reported in ONYX's Annual Report for the preceding year.
As of December 31, 1998, options to purchase 16,200 shares of common stock were
outstanding under our 1998 option plan with exercise prices of $9.00 per share,
options to purchase 1,646,246 shares were available for future grant and no
options had been exercised.
Stock Option Grants. The compensation committee of our board of directors
serves as the plan administrator of our 1998 option plan. The plan
administrator has the authority to select individuals to receive options under
our 1998 option plan and to specify the terms and conditions of each option
granted (incentive or nonqualified), the exercise price (which, for incentive
stock options, must be at least equal to the fair market value of the common
stock on the date of grant), the vesting provisions and the option term. For
purposes of our 1998 option plan, fair market value means the average of the
high and low per share sales price as reported
49
<PAGE>
on the Nasdaq National Market on the date of grant. Unless otherwise provided
by the plan administrator, and to the extent required for incentive stock
options by the Internal Revenue Code, an option granted under our 1998 option
plan will expire ten years from the date of grant or, if earlier, three months
after the optionee's termination of service (other than termination for cause)
or one year after the optionee's death or disability.
Stock Awards. The plan administrator is authorized under our 1998 option plan
to issue shares of common stock to eligible participants with terms, conditions
and restrictions established by the plan administrator in its sole discretion.
Restrictions may be based on continuous service with ONYX or its subsidiaries
or the achievement of performance goals. Holders of restricted stock are
shareholders of ONYX and have, subject to certain restrictions, all the rights
of shareholders with respect to such shares.
Adjustments. The plan administrator will make proportional adjustments to the
aggregate number of shares issuable under our 1998 option plan and to
outstanding awards in the event of stock splits or other capital adjustments.
Corporate Transactions. In the event of certain corporate transactions, such
as a merger or sale of ONYX, each outstanding option and restricted stock award
will automatically accelerate and become 100% vested immediately before the
corporate transaction, unless the option or restricted stock award is, in
connection with the corporate transaction, assumed by ONYX's successor
corporation or parent thereof. Any option or restricted stock award granted to
an "executive officer," as defined for purposes of Section 16 of the Securities
Exchange Act of 1934, as amended, that is assumed or replaced in the corporate
transaction will automatically accelerate in the event the executive officer
terminates his or her employment for certain specified good reasons, or the
successor corporation terminates the executive officer's employment or services
without cause within two years following the corporate transaction.
1998 Employee Stock Purchase Plan
Our board of directors and shareholders have adopted our employee stock
purchase plan. We will implement the stock purchase plan upon the effectiveness
of this offering. We intend for this plan to qualify under Section 423 of the
Internal Revenue Code. This plan permits eligible employees of ONYX and its
subsidiaries to purchase common stock through payroll deductions of up to 10%
of their compensation. Under this plan, no employee may purchase common stock
worth more than $25,000 in any calendar year, valued as of the first day of
each offering period. In addition, owners of 5% or more of ONYX's or a
subsidiary's common stock may not participate in this plan. We authorized the
issuance under this plan of a total of 500,000 shares of common stock, plus an
automatic annual increase, to be added on the first day of our fiscal year
beginning in 2000, equal to the lesser of (1) 200,000 shares and (2) 1.2% of
the average common shares outstanding as used to calculate fully diluted
earnings per share as reported in ONYX's Annual Report for the preceding year,
or a lesser amount determined by our board of directors. Any shares from
increases in previous years that are not actually issued shall be added to the
aggregate number of shares available for issuance under this plan.
We will implement the stock purchase plan with six-month offering periods.
The first offering period will commence on the effectiveness of this offering.
Subsequent offering periods will begin on each January 1 and July 1. The price
of the common stock purchased under this plan will be the lesser of 85% of the
fair market value on the first day of an offering period and 85% of the fair
market value on the last day of an offering period, except that the purchase
price for the first offering period will be equal to the lesser of 100% of the
initial public offering price of the common stock and 85% of the fair market
value on June 30, 1999. This plan terminates ten years after the date of
adoption by our board of directors, but the board may terminate it at any
earlier time. We have not yet issued any shares of common stock under this
plan.
50
<PAGE>
In the event of a merger, consolidation or acquisition by another corporation
of all or substantially all of our assets, each outstanding option to purchase
shares under the stock purchase plan shall be assumed or an equivalent option
substituted by the successor corporation. If the successor corporation refuses
to assume or substitute for the option, the offering period during which a
participant may purchase stock will be shortened to a specified date before the
proposed merger or sale. Similarly, in the event of a proposed liquidation or
dissolution of ONYX, the offering period during which a participant may
purchase stock will be shortened to a specified date before the date of the
proposed liquidation or dissolution.
1994 Combined Incentive and Nonqualified Stock Option Plan
In April 1994, our board of directors and shareholders adopted our 1994
option plan and reserved an aggregate of 5,000,000 shares of common stock for
grants of stock options under the plan. Our 1994 option plan provides for the
grant of options for common stock to employees, directors, consultants or
independent contractors of ONYX or its subsidiaries. As of December 31, 1998,
options to purchase 3,218,330 shares of common stock were outstanding under our
1994 option plan with exercise prices ranging from $0.10 to $9.00 per share and
options for 1,619,224 shares had been exercised. Simultaneous with the adoption
of the 1998 option plan, our board of directors suspended our 1994 option plan
and determined that no further grants shall be made pursuant to it. Any future
cancellations of options from our 1994 option plan will become available for
future grant under our 1998 option plan.
Our 1994 option plan is administered by our board of directors. Options
granted under our 1994 option plan must be exercised within three months of the
optionee's termination of service (as defined in our 1994 option plan) to or
employment by ONYX, or within one year after the optionee's termination by
death or disability, but in no event later than the expiration of the option
term. Options granted under our 1994 option plan are not transferable by the
optionee, except by will or the laws of descent and distribution, and generally
are exercisable during the optionee's lifetime only by the optionee.
In the event of a merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation of ONYX, as a result of which the
shareholders receive cash, stock or other property in exchange for their shares
of common stock, the board of directors will determine whether provision will
be made in connection with any such transaction for assumption of the options
under our 1994 option plan or substitution of appropriate new options covering
the stock of the successor corporation or an affiliate of the successor
corporation. If the board of directors determines that no such assumption or
substitution will be made, each outstanding option under our 1994 option plan
will automatically accelerate and become 100% vested and exercisable
immediately before the transaction. Acceleration will not occur, however, if,
in the opinion of our accountants, it would render unavailable "pooling of
interest" accounting for the transaction.
401(k) Plan
We maintain a 401(k) plan that covers all our employees who satisfy certain
eligibility requirements relating to minimum age, length of service and hours
worked. We may make an annual contribution for the benefit of eligible
employees in an amount determined by our board of directors. We have not made
any such contribution to date and have no current plans to do so. Eligible
employees may make pretax elective contributions of up to 15% of their
compensation, subject to maximum limits on contributions prescribed by law.
51
<PAGE>
CERTAIN TRANSACTIONS
Since our inception in February 1994, we have issued shares of preferred
stock in private placement transactions as summarized in the following table:
<TABLE>
<CAPTION>
Shares of Preferred Stock
----------------------------------------------------------
Entities affiliated
Entities with Technology
affiliated with Crossover
Class of Issuance Price Per Foundation Capital Management II, Hillman/Dover
Preferred Stock Date Share Management, L.L.C. L.L.C. Limited Partnership
- --------------- ---------- --------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Series A March 1996 $1.38 2,174,082 -- --
Series B March 1997 $6.35 314,961 629,922 314,960
</TABLE>
William B. Elmore and Paul G. Koontz, directors of ONYX, are members of
Foundation Capital Management, L.L.C., which is the general partner of
Foundation Capital, L.P. and a member of Foundation Capital Entrepreneurs Fund,
L.L.C. Jay C. Hoag, a director of ONYX, is a managing member of Technology
Crossover Management II, L.L.C., the general partner of Technology Crossover
Ventures II, L.P., TCV II (Q), L.P., Technology Crossover Ventures II, C.V.,
TCV II Strategic Partners, L.P. and TCV II V.O.F. In addition, Foundation
Capital Management, L.L.C. holds a 7.86% interest in TCV II Strategic Partners,
L.P. All outstanding shares of preferred stock will convert into an aggregate
of 3,533,925 shares of common stock upon the closing of this offering.
In connection with the issuances of preferred stock described above, we
entered into the Investors' Rights Agreement with the holders of our preferred
stock and certain principal shareholders of our common stock, including:
. Brent R. Frei, President, Chief Executive Officer and Chairman of the
Board of ONYX, his parents, Ronald and Glenda Frei, his sister, Colleen
Chmelik, and his brother-in-law, James Chmelik;
. Brian J. Janssen, a former director and a principal shareholder of ONYX;
. Todd A. Stevenson, a director of ONYX, and his parents, Leon and Barbara
Stevenson; and
. Michael and Mary Racine, principal shareholders of ONYX.
Pursuant to the terms of this Investors' Rights Agreement, the holders of the
Series B Preferred Stock are entitled to purchase shares in the initial public
offering. The Investors' Rights Agreement also grants certain registration
rights that obligate ONYX, under certain circumstances, to effect a
registration under the Securities Act of shares of common stock. See
"Description of Capital Stock--Registration Rights."
The entities affiliated with Foundation Capital Management, L.L.C. and
Technology Crossover Management II, L.L.C. have expressed a current intent to
exercise their right to purchase shares in this offering, while Hillman/Dover
Limited Partnership has elected to waive its right. The entities affiliated
with Foundation Capital Management, L.L.C. and Technology Crossover Management
II, L.L.C. also have expressed a current intent to purchase in this offering
the shares that Hillman/Dover Limited Partnership has elected not to purchase.
Despite their expressions of intent, the entities affiliated with Foundation
Capital Management, L.L.C. and Technology Crossover Management II, L.L.C. are
under no obligation to purchase any shares in this offering until the earlier
to occur of (1) delivery to them of the prospectus filed with the Securities
and Exchange Commission with respect to this offering and (2) two hours after
the later to occur of (a) effectiveness of the Registration Statement, of which
this prospectus is a part, and (b) determination of the initial public offering
price. Prior to that time, the entities affiliated with Foundation Capital
Management, L.L.C. and Technology Crossover Management II, L.L.C. can elect not
to purchase shares in this offering for any reason, including as a result of
access to information about ONYX or this offering not known to ONYX or other
potential investors.
52
<PAGE>
Accordingly, ONYX can make no assurance that the entities affiliated with
Foundation Capital Management, L.L.C. and Technology Crossover Management II,
L.L.C. will purchase shares in this offering, and, if any of them do not
purchase shares, the pricing or consummation of this offering could be
adversely affected.
In May 1998, the entities affiliated with Technology Crossover Management II,
L.L.C. entered into a transaction with Ronald and Glenda Frei, the parents of
Brent Frei, who is our chief executive officer, pursuant to which Mr. and Mrs.
Frei (1) executed promissory notes to borrow $85,000 from entities affiliated
with Technology Crossover Management II, L.L.C.; (2) pledged to the entities
affiliated with Technology Crossover Management II, L.L.C. 56,666 shares of
common stock of ONYX to secure such indebtedness; and (3) granted to the
entities affiliated with Technology Crossover Management II, L.L.C. call
options to purchase 20,000 shares of common stock at a per share price of
$4.25. The promissory notes are interest free and no payments are due until May
1, 2003. In connection with this transaction, we agreed to hold in escrow the
shares of ONYX common stock subject to the Freis' call options and pledges. The
call options have been exercised, subject to the closing of this offering. The
exercise price for the call options will be paid by cancellation of the
promissory notes.
In July 1998, Eben W. Frankenberg, an ONYX officer, exercised an option to
purchase 800,000 shares of common stock and paid the exercise price by issuing
a full recourse promissory note to us in the amount of $160,000. The note is
secured by 750,000 shares of the common stock issued upon exercise. The note
accrues interest at the rate of 5.39% per annum and is due in July 2001. To
date, no payments have been made on the note.
In connection with this offering, our board of directors and shareholders
approved amendments to our articles of incorporation that, among other things,
increase by an aggregate of 100,000 the number of shares of common stock
issuable on conversion of our Series B Preferred Stock and eliminate the
minimum per share price threshold for automatic conversion of our preferred
stock upon completion of this offering.
We have entered into separate indemnification agreements with each of our
directors and executive officers.
53
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table summarizes certain information regarding the beneficial
ownership of our outstanding common stock as of December 31, 1998 for (1) each
person or group that we know owns more than 5% of the common stock, (2) each of
our directors, (3) our chief executive officer, (4) the officer whose
compensation exceeded $100,000 in 1998, and (5) all of our directors and
executive officers as a group. Beneficial ownership is determined in accordance
with rules of the Securities and Exchange Commission and includes shares over
which the indicated beneficial owner exercises voting and/or investment power.
Shares of common stock subject to options currently exercisable or exercisable
within 60 days are deemed outstanding for computing the percentage ownership of
the person holding the options but are not deemed outstanding for computing the
percentage ownership of any other person. Except as otherwise indicated, we
believe the beneficial owners of the common stock listed below, based on
information furnished by them, have sole voting and investment power with
respect to the number of shares listed opposite their names. Unless otherwise
indicated, the following officers, directors and shareholders can be reached at
the principal offices of ONYX.
<TABLE>
<CAPTION>
Percentage of Shares
Outstanding
------------------------
Number of Shares Before After
Name and Address Beneficially Owned Offering Offering
---------------- ------------------ ---------- ----------
<S> <C> <C> <C>
Entities Affiliated with
Foundation Capital
Management, L.L.C.(1).......... 2,679,281 19.86% 16.15%
75 Willow Road
Menlo Park, CA 94025
Brian J. Janssen(2)............. 2,308,895 17.25 14.00
Todd A. Stevenson(3)............ 2,500,000 18.68 15.16
Brent R. Frei(4)................ 2,500,000 18.68 15.16
Michael D. Racine(5)............ 991,105 7.40 6.01
Eben W. Frankenberg(6).......... 800,000 5.98 4.85
Glenda and Ronald Frei(7)....... 708,000 5.29 4.29
Entities Affiliated with
Technology Crossover
Management II, L.L.C.(8)....... 906,589 6.67 5.43
56 Main Street, Suite 210
Millburn, NJ 07041
Ray Bingham..................... -- -- --
William B. Elmore(9)............ 2,679,281 19.86 16.15
Jay C. Hoag(10)................. 906,589 6.67 5.43
Paul G. Koontz(11).............. 2,679,281 19.86 16.15
Daniel R. Santell(12)........... 40,000 * *
Keith D. Brown.................. -- -- --
All directors and executive
officers as a group (13
persons)(13)................... 10,567,550 76.14 62.24
</TABLE>
- --------
* Less than 1%.
(1) Includes 2,514,043 shares issuable upon conversion of the preferred stock
held by entities affiliated with Foundation Capital Management, L.L.C.
Also includes 61,905 shares over which entities affiliated with
Foundation Capital Management, L.L.C. hold call options, which options
have been exercised effective immediately prior to the closing of this
offering. Also includes up to 103,333 shares issuable on exercise of
certain contractual rights of first offer pursuant to the Investors'
Rights Agreement, which rights the entities affiliated with Foundation
Capital Management, L.L.C. have expressed a current interest to exercise.
Foundation Capital Management, L.L.C. is the general partner of
Foundation Capital, L.P. and the manager of Foundation Capital
Entrepreneurs Fund, L.L.C., and thus is deemed to beneficially own such
shares. Messrs. Elmore and Koontz, directors of ONYX, Kathryn Gould,
James Andersen and Michael Schuh are members of Foundation Capital
Management, L.L.C.
(2) Includes 300,000 shares for which Mr. Janssen has sole voting power
pursuant to irrevocable proxies granted to him by various persons and
entities to whom he previously transferred shares of ONYX common stock,
which proxies will terminate upon the closing of this offering. Mr.
Janssen disclaims beneficial ownership of such shares upon termination of
such proxies. Mr. Janssen is a former director of ONYX.
54
<PAGE>
(3) Includes 578,750 shares for which Mr. Stevenson has sole voting power
pursuant to irrevocable proxies granted to him by various persons to whom
he previously transferred shares of ONYX common stock, which proxies will
terminate upon the closing of this offering. Mr. Stevenson disclaims
beneficial ownership of such shares upon termination of such proxies.
(4) Includes 904,900 shares for which Mr. Frei has sole voting power pursuant
to irrevocable proxies granted to him by various persons to whom he
previously transferred shares of ONYX common stock, which proxies will
terminate upon the closing of this offering. Mr. Frei disclaims
beneficial ownership of such shares upon termination of such proxies.
(5) Includes 350,505 shares held jointly with Mr. Racine's spouse. Also
includes 70,300 shares held by the Michael Racine Generation-Skipping
Trust of 1998 and 70,300 shares held by the Mary Racine Generation-
Skipping Trust of 1998, trusts for the benefit of Mr. Racine's children,
for which Mr. Racine has sole voting power pursuant to irrevocable
proxies granted to him, which proxies will terminate upon the closing of
this offering. Mr. Racine disclaims beneficial ownership of the shares
held by such trusts upon termination of such proxies.
(6) Includes 25,000 shares held by the Eben Whitfied Frankenberg Generation-
Skipping Trust of 1998 and 25,000 shares held by the Sarah Shaw
Frankenberg Generation-Skipping Trust of 1998, trusts for the benefit of
Mr. Frankenberg's children, for which Mr. Frankenberg has sole voting
power pursuant to irrevocable proxies granted to him, which proxies will
terminate upon the closing of this offering. Mr. Frankenberg disclaims
beneficial ownership of such shares upon termination of such proxies.
(7) Represents 657,500 shares held by Glenda and Ronald Frei, including
20,000 shares subject to call options held by entities affiliated with
Technology Crossover Management II, L.L.C., which options have been
exercised effective immediately prior to the closing of this offering,
36,500 shares held by their daughter, Kim Frei, a minor, and 14,000
shares held by their son, Mark Frei, a minor. Brent R. Frei currently
exercises sole voting power with respect to these shares pursuant to
irrevocable proxies that will expire upon the closing of this offering.
Glenda and Ronald Frei disclaim beneficial ownership of the shares held
by their minor children.
(8) Includes 679,922 shares issuable upon conversion of the preferred stock
held by entities affiliated with Technology Crossover Management II,
L.L.C. Also includes 20,000 shares over which entities affiliated with
Technology Crossover Management II, L.L.C. hold call options, which
options have been exercised effective immediately prior to the closing of
this offering. Also includes up to 206,667 shares issuable on exercise of
certain contractual rights of first offer pursuant to the Investors'
Rights Agreement, which rights the entities affiliated with Technology
Crossover Management II, L.L.C. have expressed a current intent to
exercise. Technology Crossover Management II, L.L.C. is the general
partner of each of the entities affiliated with Technology Crossover
Management II, L.L.C. and thus is deemed to beneficially own such shares.
Mr. Hoag, a director of ONYX, and Richard H. Kimball are the only
managing members of Technology Crossover Management II, L.L.C.
(9) Includes 2,514,043 shares issuable upon conversion of the preferred stock
held by entities affiliated with Foundation Capital Management, L.L.C.
Also includes 61,905 shares over which entities affiliated with Foundation
Capital Management, L.L.C. hold call options, which options have been
exercised effective immediately prior to the closing of this offering.
Also includes up to 103,333 shares issuable on exercise of certain
contractual rights of first offer pursuant to the Investors' Rights
Agreement, which rights the entities affiliated with Foundation Capital
Management, L.L.C. have expressed a current intent to exercise. Mr. Elmore
is a member of Foundation Capital Management, L.L.C., the general partner
and a manager of the entities affiliated with Foundation Capital
Management, L.L.C. Mr. Elmore disclaims beneficial ownership of the shares
held by the entities affiliated with Foundation Capital Management,
L.L.C., except to the extent of his pecuniary interest arising from his
interest in Foundation Capital Management II, L.L.C.
(10) Includes 679,922 shares issuable upon conversion of the preferred stock
held by entities affiliated with Technology Crossover Management II,
L.L.C. Also includes 20,000 shares over which entities affiliated with
Technology Crossover Management II, L.L.C. hold call options, which
options have been exercised effective immediately prior to the closing of
this offering. Also includes up to 206,667 shares issuable on exercise of
certain contractual rights of first offer pursuant to the Investors'
Rights Agreement, which rights the entities affiliated with Technology
Crossover Management II, L.L.C. have expressed a current intent to
exercise. Mr. Hoag is a managing member of Technology Crossover
Management II, L.L.C., the general partner of each of the entities
affiliated with Technology Crossover Management II, L.L.C. Mr. Hoag
disclaims beneficial ownership of the shares held by entities affiliated
with Technology Crossover Management II, L.L.C., except to the extent of
his pecuniary interest therein arising from his interest in Technology
Crossover Management II, L.L.C.
(11) Includes 2,514,043 shares issuable upon conversion of the preferred stock
held by entities affiliated with Foundation Capital Management, L.L.C.
Also includes 61,905 shares over which entities affiliated with
Foundation Capital Management, L.L.C. hold call options, which options
have been exercised effective immediately prior to the closing of this
offering. Also includes up to 103,333 shares issuable on exercise of
certain contractual rights of first offer pursuant to the Investors'
Rights Agreement, which rights the entities affiliated with Foundation
Capital Management, L.L.C. have expressed a current intent to exercise.
Mr. Koontz is a member of Foundation Capital Management, L.L.C., the
general partner and a manager of the entities affiliated with Foundation
Capital Management, L.L.C. Mr. Koontz disclaims beneficial ownership of
the shares held by the entities affiliated with Foundation Capital
Management, L.L.C., except to the extent of his pecuniary interest
arising from his interest in Foundation Capital Management II, L.L.C.
(12) Represents shares subject to an option exercisable within 60 days of
December 31, 1998.
(13) Includes 181,875 shares subject to options exercisable within 60 days of
December 31, 1998. Also includes 81,905 shares over which entities
affiliated with Foundation Capital Management, L.L.C. and entities
affiliated with Technology Crossover Management II, L.L.C. hold call
options, which options have been exercised immediately prior to the
closing of this offering. Also includes up to 310,000 shares issuable on
exercise of certain contractual rights of first offer pursuant to the
Investors' Rights Agreement, which rights the entities affiliated with
Foundation Capital Management, L.L.C. and the entities affiliated with
Technology Crossover Management II, L.L.C. have expressed a current
intent to exercise.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue up to 40,000,000 shares of common stock, $0.01 par
value per share, and 10,000,000 shares of preferred stock, $0.01 par value per
share. The following summary of certain provisions of the common stock and
preferred stock is not complete and may not contain all the information you
should consider before investing in the common stock. You should read carefully
our articles of incorporation, which are included as an exhibit to the
Registration Statement, of which this prospectus is a part.
Common Stock
As of December 31, 1998, assuming conversion of all outstanding shares of
preferred stock, there were 13,386,482 shares of common stock outstanding held
of record by 81 shareholders. Following this offering, there will be 16,486,482
shares of common stock outstanding (assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options). The holders of
common stock are entitled to one vote per share on all matters to be voted on
by the shareholders. Subject to preferences of any outstanding shares of
preferred stock, the holders of common stock are entitled to receive ratably
any dividends the board of directors declares out of funds legally available
for the payment of dividends. If ONYX is liquidated, dissolved or wound up, the
holders of common stock are entitled to share pro rata all assets remaining
after payment of liabilities and liquidation preferences of any outstanding
shares of preferred stock. Holders of common stock have no preemptive rights or
rights to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued following this offering will be fully paid
and nonassessable.
Preferred Stock
Upon the closing of this offering, all outstanding shares of preferred stock
will be converted into 3,533,925 shares of common stock. Thereafter, pursuant
to our articles of incorporation, the board of directors will have the
authority, without further action by the shareholders, to issue up to
10,000,000 shares of preferred stock in one or more series. The board also has
the authority to fix the designations, powers, preferences, privileges and
relative, participating, optional or special rights and the qualifications,
limitations or restrictions of any preferred stock issues, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
stock. The board of directors, without shareholder approval, can issue
preferred stock with voting, conversion or other rights that could adversely
affect the voting power and other rights of the holders of common stock.
Preferred stock could thus be issued quickly with terms that could delay or
prevent a change in control of ONYX or make removal of management more
difficult. Additionally, the issuance of preferred stock may decrease the
market price of the common stock and may adversely affect the voting and other
rights of the holders of common stock. We have no plans to issue any preferred
stock.
Registration Rights
After this offering, the holders of 11,453,358 shares of common stock will be
entitled to certain rights with respect to the registration of such shares
under the Securities Act, pursuant to the Investors' Right Agreement. Under the
terms of the Investors' Rights Agreement, if we propose to register any of our
securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, such holders
are entitled to notice of the registration and to include shares of common
stock in the registration at our expense. Additionally, such holders are
entitled to certain demand registration rights pursuant to which they may
require us to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock. Further, such holders may
require us to file additional registration statements on Form S-3 at our
expense. All of these registration rights are subject to certain conditions and
56
<PAGE>
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in such registration and our right to decline to
effect such a registration before the earlier of March 31, 2000 and six months
after the closing of the initial public offering.
Antitakeover Effects of Certain Provisions of Articles of Incorporation, Bylaws
and Washington Law
As noted above, our board of directors, without shareholder approval, has the
authority under our articles of incorporation to issue preferred stock with
rights superior to the rights of the holders of common stock. As a result,
preferred stock could be issued quickly and easily, could adversely affect the
rights of holders of common stock and could be issued with terms calculated to
delay or prevent a change in control of ONYX or make removal of management more
difficult.
Election and Removal of Directors. Effective with the first annual meeting of
shareholders following this offering, our articles of incorporation provide for
the division of our board of directors into three classes, as nearly as equal
in number as possible, with the directors in each class serving for a three-
year term, and one class being elected each year by our shareholders. Directors
may be removed only for cause. Because this system of electing and removing
directors generally makes it more difficult for shareholders to replace a
majority of the board of directors, it may tend to discourage a third party
from making a tender offer or otherwise attempting to gain control of ONYX and
may maintain the incumbency of the board of directors.
Approval for Certain Business Combinations. Our articles of incorporation
require that certain business combinations (including a merger, share exchange
and the sale, lease, exchange, mortgage, pledge, transfer or other disposition
or encumbrance of a substantial part of our assets other than in the usual and
regular course of business) be approved by the holders of not less than two-
thirds of the outstanding shares, unless such business combination has been
approved by a majority of the board of directors, in which case the affirmative
vote required shall be a majority of the outstanding shares.
Shareholder Meetings. Under our articles of incorporation and bylaws, our
shareholders may call a special meeting only upon the request of holders of at
least 25% of the outstanding shares. Additionally, the board of directors, the
chairman of the board and the president may call special meetings of
shareholders.
Requirements for Advance Notification of Shareholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
shareholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee thereof.
Washington law imposes restrictions on certain transactions between a
corporation and certain significant shareholders. Chapter 23B.19 of the
Washington Business Corporation Act prohibits a "target corporation," with
certain exceptions, from engaging in certain significant business transactions
with an "acquiring person," which is defined as a person or group of persons
that beneficially owns 10% or more of the voting securities of the target
corporation, for a period of five years after such acquisition, unless the
transaction or acquisition of shares is approved by a majority of the members
of the target corporation's board of directors prior to the time of
acquisition. Such prohibited transactions include, among other things,
. a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person;
. termination of 5% or more of the employees of the target corporation as
a result of the acquiring person's acquisition of 10% or more of the
shares; or
. allowing the acquiring person to receive any disproportionate benefit as
a shareholder.
After the five-year period, a "significant business transaction" may occur,
as long as it complies with certain "fair price" provisions of the statute. A
corporation may not "opt out" of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of ONYX.
57
<PAGE>
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C., Ridgefield Park, New Jersey.
Nasdaq National Market Listing
The common stock has been approved for listing on the Nasdaq National Market
under the symbol "ONXS," subject to official notice of issuance.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common stock.
We cannot provide any assurance that a significant public market for the common
stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for the
common stock or our future ability to raise capital through an offering of
equity securities.
After this offering, we will have outstanding 16,486,482 shares of common
stock (16,951,482 shares if the underwriters' over-allotment option is
exercised in full). Of these shares, the 3,100,000 shares that we expect to
sell in this offering (3,565,000 shares if the underwriters' over-allotment
option is exercised in full) will be freely tradable in the public market
without restriction under the Securities Act, unless such shares are held by
"affiliates" of ONYX, as that term is defined in Rule 144 under the Securities
Act.
The remaining 13,386,482 shares of common stock that will be outstanding
after this offering will be restricted shares. We issued and sold the
restricted shares in private transactions in reliance on exemptions from
registration under the Securities Act. Restricted shares may be sold in the
public market only if they are registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 under the Securities Act, as
summarized below.
Pursuant to certain "lock-up" agreements, all the executive officers,
directors and certain shareholders of ONYX, who collectively hold an aggregate
of 13,332,792 restricted shares, have agreed not to offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any such shares for
a period of 180 days from the date of this prospectus. We also have entered
into an agreement with the underwriters that we will not offer, sell or
otherwise dispose of common stock for a period of 180 days from the date of
this prospectus.
Ninety days after the date of this prospectus, 53,690 shares that are not
subject to lock-up agreements will be eligible for sale in the public market in
accordance with Rules 144 and 701. On the date of the expiration of the lock-up
agreements, an additional 13,090,564 restricted shares will be eligible for
immediate sale (of which 8,387,170 shares will be subject to certain volume,
manner of sale and other limitations under Rule 144). The remaining 242,228
restricted shares will be eligible for sale pursuant to Rule 144 on the
expiration of various one-year holding periods over the six months following
the expiration of the lock-up period.
Following the expiration of such lock-up periods, certain shares issued upon
exercise of options we granted prior to the date of this prospectus will also
be available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of such shares in reliance upon Rule
144 under the Securities Act but without compliance with certain restrictions,
including the holding-period requirement, imposed under Rule 144. Under Rule
144, beginning 90 days after the date of this prospectus, a person who has
beneficially owned restricted shares for at least one year would be entitled to
sell in any three-month period up to the greater of
. 1% of the then-outstanding shares of common stock (approximately 164,865
shares immediately after this offering) and
. 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.
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about ONYX.
Under Rule 144(k), a person who has not been an affiliate of ONYX during the
preceding 90 days and who has beneficially owned the restricted shares for at
least two years is entitled to sell them without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
59
<PAGE>
We intend to file, after the effective date of this offering, a Registration
Statement on Form S-8 to register up to approximately 9,132,302 shares of
common stock reserved for issuance under our 1994 option plan, our 1998 option
plan and our employee stock purchase plan. The Registration Statement will
become effective automatically upon filing. Shares issued under the foregoing
plans, after the filing of a Registration Statement on Form S-8, may be sold in
the open market, subject, in the case of certain holders, to the Rule 144
limitations applicable to affiliates, the above-referenced lock-up agreements
and vesting restrictions imposed by us.
In addition, following this offering, the holders of 11,453,358 shares of
outstanding common stock will, under certain circumstances, have rights to
require us to register their shares for future sale.
60
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, the underwriters named below, for whom Credit
Suisse First Boston Corporation, SG Cowen Securities Corporation and Piper
Jaffray Inc. are acting as representatives, have severally but not jointly
agreed to purchase from ONYX the following respective numbers of shares of
common stock:
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
Credit Suisse First Boston Corporation......................
SG Cowen Securities Corporation.............................
Piper Jaffray Inc...........................................
---------
Total..................................................... 3,100,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will be
obligated to purchase all the shares of common stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased. The underwriting agreement provides that, in the event of a default
by an underwriter, in certain circumstances the purchase commitments of
nondefaulting underwriters may be increased or the underwriting agreement may
be terminated.
ONYX has granted to the underwriters a 30-day option to purchase up to
465,000 additional shares at the initial public offering price less the
underwriting discounts and commissions. Such option may be exercised only to
cover over-allotments in the sale of shares of common stock.
ONYX has been advised by the underwriters that they propose to offer the
shares to the public initially at the public offering price set forth on the
cover page of this prospectus and to certain dealers at such price less a
concession of $ per share. The underwriters and such dealers may allow a
discount of $ per share on sales to certain other dealers. After the initial
public offering, the public offering price and concession and discount to
dealers may be changed by the representatives.
The following table summarizes the compensation to be paid to the
underwriters by ONYX, and the expenses payable by ONYX.
<TABLE>
<CAPTION>
Total
------------------------
Per Without Over- With Over-
Share allotment allotment
----- ------------- ----------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
ONYX.......................................... $ $ $
Expenses payable by ONYX....................... $ $ $
</TABLE>
The underwriters have informed ONYX that they do not expect discretionary
sales by the underwriters to exceed 5% of the shares being offered hereby.
ONYX, its officers and directors and certain other shareholders have agreed
that they will not offer, sell, contract to sell, announce their intention to
sell, pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the
Securities Act relating to, any additional shares of common stock or securities
convertible into or exchangeable or exercisable for any shares of ONYX without
the prior written consent of Credit Suisse First Boston Corporation for a
period of 180 days
61
<PAGE>
after the date of this prospectus, except in the case of ONYX issuances
pursuant to the exercise of employee stock options outstanding on the date
hereof.
Of the 3,100,000 shares of common stock to be sold in this offering, the
underwriters have reserved for sale, at the price to public set forth on the
cover page of this prospectus, up to 573,500 shares as follows: (1) at the
Company's request, up to 263,500 shares for the Company's directors, officers,
employees and business associates and (2) up to an additional 310,000 shares
for the holders of our preferred stock in connection with a preexisting
contractual right between the Company and those holders. As a result, the
number of shares of common stock available for sale to the general public will
be reduced to the extent such persons purchase the reserved shares. The
underwriters will offer to the general public (on the same basis as the other
shares to be sold in this offering) any reserved shares that are not so
purchased.
ONYX has agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments which the underwriters may be required to make in respect thereof.
The common stock has been approved for listing on the Nasdaq National Market,
subject to official notice of issuance.
Prior to this offering, there has been no public market for the common stock.
The initial public offering price will be determined by negotiation between
ONYX and the representatives of the underwriters. The principal factors to be
considered in determining the public offering price include: the information
set forth in this prospectus and otherwise available to the representatives;
the history and the prospects for the industry in which ONYX will compete; the
ability of ONYX's management; the prospects for future earnings of ONYX; the
present state of ONYX's development and its current financial condition; the
general condition of the securities markets at the time of this offering; and
the recent market prices of, and the demand for, publicly traded common stock
of generally comparable companies.
The representatives, on behalf of the underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act.
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of the
securities in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
representatives of the underwriters to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the securities to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that ONYX prepare and file
a prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
62
<PAGE>
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase confirmation
will be deemed to represent to ONYX and the dealer from whom such purchase
confirmation is received that (1) such purchaser is entitled under applicable
provincial securities laws to purchase such common stock without the benefit of
a prospectus qualified under such securities laws, (2) where required by law,
such purchaser is purchasing as principal and not as agent, and (3) such
purchaser has reviewed the text above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers, as well as the experts named
herein, may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from ONYX. Only one such
report must be filed in respect of common stock acquired on the same date and
under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
Certain legal matters will be passed on for ONYX by Perkins Coie llp,
Seattle, Washington. Certain legal matters will be passed on for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in this prospectus and Registration
Statement for the years ended December 31, 1995, 1996 and 1997 and the nine
months in the period ended September 30, 1998, as set forth in their reports,
which are included in this prospectus and Registration Statement. Our
consolidated financial statements are included herein in reliance on their
reports, given on their authority as experts in accounting and auditing.
63
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1. This prospectus, which forms a part of the Registration
Statement, does not contain all the information included in the Registration
Statement. Certain information is omitted and you should refer to the
Registration Statement and its exhibits. With respect to references made in
this prospectus to any contract or other document of ONYX, such references are
not necessarily complete and you should refer to the exhibits attached to the
Registration Statement for copies of the actual contract or document. You may
review a copy of the Registration Statement, including exhibits and schedule
filed therewith, at the Securities and Exchange Commission's public reference
facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Securities and Exchange
Commission located at 7 World Trade Center, Suite 1300, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You may also obtain copies of such materials from the Public
Reference Section of the Securities and Exchange Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, such as ONYX, that file
electronically with the Securities and Exchange Commission.
64
<PAGE>
ONYX SOFTWARE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Shareholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
ONYX Software Corporation
We have audited the accompanying consolidated balance sheets of ONYX Software
Corporation as of December 31, 1996 and 1997 and September 30, 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997 and the
nine months ended September 30, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ONYX Software
Corporation at December 31, 1996 and 1997 and September 30, 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 and the nine months ended
September 30, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Seattle, Washington
November 16, 1998, except for Note 12 as
to which the date is December 29, 1998
F-2
<PAGE>
ONYX SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
Shareholders'
December 31, Equity at
--------------- September 30, September 30,
1996 1997 1998 1998
------ ------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $1,356 $ 3,512 $ 177
Securities available-for-sale.... 2,024 2,064 --
Accounts receivable, less
allowances of $317, $553, and
$402 in 1996, 1997, and 1998,
respectively.................... 3,207 7,650 9,355
Income tax receivable............ -- 963 963
Deferred tax asset............... 54 -- --
Prepaid expense and other........ 215 397 1,132
------ ------- -------
Total current assets.............. 6,856 14,586 11,627
Property and equipment, net....... 1,104 1,264 1,613
Purchased technology.............. -- -- 2,920
Goodwill.......................... -- -- 668
Other assets...................... 44 102 424
------ ------- -------
Total assets...................... $8,004 $15,952 $17,252
====== ======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable................. $ 315 $ 574 $ 893
Salary and benefits payable...... 242 476 608
Accrued liabilities.............. 140 902 1,911
Income taxes payable............. 535 65 205
Current portion of capital lease
obligations..................... 322 475 295
Current portion of long-term
debt............................ -- -- 625
Deferred revenue................. 1,014 2,787 5,461
------ ------- -------
Total current liabilities......... 2,568 5,279 9,998
Capital lease obligations, less
current portion.................. 356 155 223
Long-term debt, net of current
portion.......................... -- -- 469
Redeemable convertible preferred
stock, issued and outstanding
shares -- 2,174,082 in 1996 and
3,433,925 in 1997 and 1998,
respectively;
Liquidation value of $11,000
(Note 6)........................ 3,202 12,070 12,981
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, $1.00 par
value:
Authorized shares -- 10,000,000
Designated shares -- 3,433,925
in 1998 (none pro forma)...... -- -- -- $ --
Common stock, $0.01 par value:
Authorized shares -- 40,000,000
Issued and outstanding
shares -- 8,010,000,
8,137,876, and 9,823,709 in
1996, 1997 and 1998,
respectively (13,357,634 pro
forma)........................ (24) (694) 2,205 15,186
Notes receivable from officers
for common stock................ -- -- (212) (212)
Deferred stock-based
compensation.................... -- (215) (2,072) (2,072)
Retained earnings (accumulated
deficit)........................ 1,902 (642) (6,355) (6,355)
Accumulated other comprehensive
income (loss)................... -- (1) 15 15
------ ------- ------- -------
Total shareholders' equity
(deficit)........................ 1,878 (1,552) (6,419) $ 6,562
------ ------- ------- =======
Total liabilities and
shareholders' equity............. $8,004 $15,952 $17,252
====== ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
ONYX SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- -------- ----------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License.................... $ 1,665 $ 6,797 $ 13,191 $ 8,408 $15,153
Support and service........ 533 2,848 6,246 3,869 8,851
------- ------- -------- ------- -------
2,198 9,645 19,437 12,277 24,004
Cost of revenues:
License.................... 10 52 250 90 607
Support and service........ 300 2,062 5,022 3,060 5,925
------- ------- -------- ------- -------
310 2,114 5,272 3,150 6,532
------- ------- -------- ------- -------
Gross margin................. 1,888 7,531 14,165 9,127 17,472
Operating expenses:
Sales and marketing........ 583 3,187 11,026 7,278 13,693
Research and development... 255 1,170 4,729 2,931 6,731
General and
administrative............ 249 1,109 2,156 1,490 2,663
------- ------- -------- ------- -------
Total operating expenses..... 1,087 5,466 17,911 11,699 23,087
------- ------- -------- ------- -------
Income (loss) from
operations.................. 801 2,065 (3,746) (2,572) (5,615)
Interest income.............. 11 136 370 272 146
Interest expense............. (1) (18) (56) (41) (51)
------- ------- -------- ------- -------
10 118 314 231 95
------- ------- -------- ------- -------
Income (loss) before income
taxes....................... 811 2,183 (3,432) (2,341) (5,520)
Income tax provision
(benefit)................... 288 789 (888) (606) 193
------- ------- -------- ------- -------
Net income (loss)............ 523 1,394 (2,544) (1,735) (5,713)
Preferred stock accretion.... -- (225) (923) (642) (911)
------- ------- -------- ------- -------
Income (loss) available to
common shareholders......... $ 523 $ 1,169 $ (3,467) $(2,377) $(6,624)
======= ======= ======== ======= =======
Earnings (loss) per share:
Basic...................... $ 0.07 $ 0.15 $ (0.43) $ (0.30) $ (0.81)
Diluted.................... $ 0.06 $ 0.14 $ (0.43) $ (0.30) $ (0.81)
Pro forma basic and
diluted................... $ (0.23) $ (0.49)
Shares used in calculation of
earnings (loss) per share:
Basic...................... 8,000 8,008 8,068 8,045 8,205
Diluted.................... 8,322 8,390 8,068 8,045 8,205
Pro forma basic and
diluted................... 11,262 11,739
</TABLE>
See accompanying notes.
F-4
<PAGE>
ONYX SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
FROM RETAINED ACCUMULATED TOTAL
COMMON STOCK OFFICERS FOR DEFERRED EARNINGS OTHER SHAREHOLDERS'
---------------- COMMON STOCK-BASED (ACCUMULATED COMPREHENSIVE EQUITY
SHARES AMOUNT STOCK COMPENSATION DEFICIT) INCOME (LOSS) (DEFICIT)
--------- ------ ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 8,000,000 $ 200 $ -- $ -- $ (15) $-- $ 185
Net income............. -- -- -- -- 523 -- 523
--------- ------ ----- ------- ------- ---- -------
Balance at December 31,
1995................... 8,000,000 200 -- -- 508 -- 708
Exercise of stock
options............... 10,000 1 -- -- -- -- 1
Preferred stock
accretion............. -- (225) -- -- -- -- (225)
Net income............. -- -- -- -- 1,394 -- 1,394
--------- ------ ----- ------- ------- ---- -------
Balance at December 31,
1996................... 8,010,000 (24) -- -- 1,902 -- 1,878
Exercise of stock
options............... 127,876 24 -- -- -- -- 24
Stock options exchanged
for services.......... -- 14 -- -- -- -- 14
Deferred stock
compensation.......... -- 215 -- (215) -- -- --
Cumulative translation
adjustment............ -- -- -- -- -- (1) (1)
Preferred stock
accretion............. -- (923) -- -- -- -- (923)
Net loss............... -- -- -- -- (2,544) -- (2,544)
--------- ------ ----- ------- ------- ---- -------
Balance at December 31,
1997................... 8,137,876 (694) -- (215) (642) (1) (1,552)
Exercise of stock
options, net of
shareholder loans..... 1,452,500 237 (212) -- -- -- 25
Stock options exchanged
for services.......... -- 9 -- -- -- -- 9
Deferred stock
compensation.......... -- 2,153 -- (2,153) -- -- --
Amortization of
deferred stock
compensation.......... -- -- -- 296 -- -- 296
Issuance of common
stock and options in
connection with
acquisition (Note 2).. 233,333 1,411 -- -- -- -- 1,411
Cumulative translation
adjustment............ -- -- -- -- -- 16 16
Preferred stock
accretion............. -- (911) -- -- -- -- (911)
Net loss............... -- -- -- -- (5,713) -- (5,713)
--------- ------ ----- ------- ------- ---- -------
Balance at September 30,
1998................... 9,823,709 $2,205 $(212) $(2,072) $(6,355) $ 15 $(6,419)
========= ====== ===== ======= ======= ==== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
ONYX SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
-------------------------- -------------------
1995 1996 1997 1997 1998
------- -------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) available
to common shareholders...... $ 523 $ 1,169 $ (3,467) $(2,377) $(6,624)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Preferred stock accretion.. -- 225 923 642 911
Depreciation and
amortization.............. 38 213 689 505 691
Accretion of discounts on
investments............... -- (28) (95) (44) (9)
Deferred income taxes...... 18 (54) 54 -- --
Noncash stock-based
compensation expense...... -- -- 14 -- 305
Changes in operating assets
and liabilities:
Accounts receivable...... (416) (2,728) (4,443) (2,431) (1,509)
Other assets............. (30) (229) (188) (335) (1,059)
Accounts payable and
accrued liabilities..... 144 526 1,255 992 1,158
Deferred revenue......... 188 813 1,773 1,052 2,576
Income taxes............. 119 416 (1,487) (1,222) 139
------ -------- -------- ------- -------
Net cash provided by (used
in) operating activities.... 584 323 (4,972) (3,218) (3,421)
INVESTING ACTIVITIES
Purchases of securities...... -- (1,996) (4,989) (4,989) --
Proceeds from maturity of
securities.................. -- -- 5,045 2,045 2,073
Acquisition of EnCyc......... -- -- -- -- (750)
Purchases of property and
equipment................... (302) (196) (410) (261) (681)
------ -------- -------- ------- -------
Net cash provided by (used
in) investing activities.... (302) (2,192) (354) (3,205) 642
FINANCING ACTIVITIES
Proceeds from exercise of
stock options............... -- 1 24 24 25
Proceeds from issuance of
short-term notes............ 5 -- -- -- --
Payments on capital lease
obligations................. -- (130) (486) (357) (429)
Payments on long-term debt... -- -- -- -- (156)
Net proceeds from issuance of
Series A preferred stock.... -- 2,977 -- -- --
Net proceeds from issuance of
Series B preferred stock.... -- -- 7,945 7,945 --
------ -------- -------- ------- -------
Net cash provided by (used
in) financing activities.... 5 2,848 7,483 7,612 (560)
Effect of exchange rate
changes on cash............. -- -- (1) -- 4
------ -------- -------- ------- -------
Net increase (decrease) in
cash and cash equivalents... 287 979 2,156 1,189 (3,335)
Cash and cash equivalents at
beginning of period......... 90 377 1,356 1,356 3,512
------ -------- -------- ------- -------
Cash and cash equivalents at
end of period............... $ 377 $ 1,356 $ 3,512 $ 2,545 $ 177
====== ======== ======== ======= =======
SUPPLEMENTAL CASH FLOW
DISCLOSURE
Interest paid................ $ 1 $ 18 $ 62 $ 41 $ 42
Income taxes paid............ 151 426 565 565 53
Fixed assets financed through
capital lease obligations... -- 808 439 320 317
Technology purchased through
long-term debt.............. -- -- -- -- 1,250
Acquisition purchased with
common stock and stock
options..................... -- -- -- -- 1,411
</TABLE>
See accompanying notes.
F-6
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended September 30, 1997 is unaudited)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
ONYX Software Corporation and subsidiaries (Company) is a leading provider of
enterprise relationship management solutions. The ONYX enterprise relationship
management solution automates the key functions that enable enterprises to more
effectively acquire, manage and retain customers, partners and other
relationships. The majority of the Company's revenues are from the ONYX
Customer Center product family. The Company was incorporated in the State of
Washington on February 13, 1994 and maintains its headquarters in Bellevue,
Washington.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its foreign subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the financial statements. Changes in these
estimates and assumptions may have a material impact on the financial
statements. The Company has used estimates in determining certain provisions,
including uncollectible trade accounts receivable, useful lives for fixed
assets and intangibles, and tax liabilities.
Unaudited Interim Financial Information
The financial information for the nine months ended September 30, 1997 is
unaudited but includes all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of
its financial position at such date and its operating results and cash flows
for that period.
Revenue Recognition
Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), was
issued in October 1997 by the American Institute of Certified Public
Accountants and was amended by Statement of Position 98-4 (SOP 98-4). The
Company adopted SOP 97-2 effective January 1, 1998. Based upon their
interpretation of SOP 97-2 and SOP 98-4, the Company believes its current
revenue recognition policies and practices are consistent with SOP 97-2 and SOP
98-4. However, full implementation guidelines for this standard have not yet
been issued. Once available, such implementation guidance could lead to
unanticipated changes in current revenue accounting practices, and such changes
could materially adversely affect the timing of the Company's future revenues
and earnings. Additionally, the AICPA recently issued SOP 98-9, which provides
certain amendments to SOP 97-2, which is effective for transactions entered
into beginning January 1, 2000. This pronouncement is not expected to
materially impact the Company's revenue recognition practices.
The Company generates revenues through two sources: (1) software license
revenues and (2) service revenues. Software license revenues are generated from
licensing the rights to use the Company's products directly to end-users and
indirectly through sublicense fees from resellers and, to a lesser extent,
through third-party products the Company distributes. Service revenues are
generated from sales of customer support services, consulting and training
services performed for customers that license the Company's products.
F-7
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
Revenues from software license agreements are recognized upon delivery of
software if persuasive evidence of an arrangement exists, collection is
probable, the fee is fixed or determinable, and vendor-specific objective
evidence exists to allocate the total fee to elements of the arrangement.
Vendor-specific objective evidence is typically based on the price charged when
an element is sold separately, or, in the case of an element not yet sold
separately, the price established by authorized management, if it is probable
that the price, once established, will not change before market introduction.
Elements included in multiple element arrangements could consist of software
products, upgrades, enhancements, customer support services, or consulting
services. If an acceptance period is required, revenues are recognized upon the
earlier of customer acceptance or the expiration of the acceptance period. The
Company enters into reseller arrangements that typically provide for sublicense
fees based on a percentage of list price. Sublicense fees are generally
recognized when reported by the reseller upon relicensing of the Company's
products to end-users. The Company's agreements with its customers and
resellers do not contain product return rights.
Revenues from customer support services are recognized ratably over the term
of the contract, typically one year. Consulting revenues are primarily related
to implementation services performed on a time-and-materials basis under
separate service arrangements related to the installation of the Company's
software products. Revenues from consulting and training services are
recognized as services are performed. If a transaction includes both license
and service elements, license fee revenues are recognized on shipment of the
software, provided services do not include significant customization or
modification of the base product, and the payment terms for licenses are not
subject to acceptance criteria. In cases where license fee payments are
contingent on the acceptance of services, the Company defers recognition of
revenues from both the license and the service elements until the acceptance
criteria are met.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents. The Company's
cash equivalents consist of banker's acceptances with a maturity of three
months or less and money market funds.
Fair Values of Financial Instruments
At September 30, 1998, the Company has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities, capital lease obligations and long-term debt. The carrying value
of cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximates their fair value based on the liquidity of these
financial instruments or based on their short-term nature. The carrying value
of capital lease obligations approximates fair value based on the market
interest rates available to the Company for debt of similar risk and
maturities. The carrying value of long-term debt is $1.1 million; the estimated
fair value of these obligations is $1.0 million based on the market interest
rates available to the Company for debt of similar risk and maturities.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation and amortization is provided using the straight-line method over
the estimated useful lives of the related assets (or over the lease term if it
is shorter for leasehold improvements), which range from two to seven years.
Leasehold improvements are amortized over the shorter of the lease term or
estimated useful life.
F-8
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
Purchased Technology and Goodwill
Purchased technology represents software source code and software licenses
acquired from third parties. Amortization of purchased technology is provided
on a product-by-product basis over the estimated economic life of the software,
generally three to five years, using the straight-line method. Unamortized
capitalized costs determined to be in excess of the net realizable value of a
product are expensed at the date of such determination.
Goodwill represents the excess of the purchase price over the fair value of
identifiable tangible and intangible assets acquired and is amortized using the
straight-line method over its estimated life of five years. The carrying value
of goodwill is reviewed periodically. In the event that the sum of expected
undiscounted future cash flows is less than the recorded book value, the
carrying value will be reduced to its fair value.
Research and Development
Research and development costs, which consist primarily of software
development costs, are expensed as incurred. Financial accounting standards
provide for the capitalization of certain software development costs after
technological feasibility of the software is established. Under the Company's
current practice of developing new products and enhancements, the technological
feasibility of the underlying software is not established until substantially
all product development is complete, including the development of a working
model. No such costs have been capitalized because the impact of capitalizing
such costs would not be material.
Concentration of Credit Risk and Major Customers
Financial instruments that potentially subject the Company to a concentration
of credit risk consist principally of accounts receivable. The Company's
customer base is dispersed across many different geographic areas throughout
North America, Europe, Asia Pacific and Latin America and consists of companies
in a variety of industries. During 1995, one customer accounted for 15% of
total revenues. During 1996, 1997 and for the nine months ended September 30,
1997 and 1998, no single customer accounted for 10% or more of total revenues.
The Company does not require collateral or other security to support credit
sales, but provides an allowance for bad debts based on historical experience
and specifically identified risks.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency in the country in which the subsidiary is located. Assets and
liabilities denominated in foreign currencies are translated to U.S. dollars at
the exchange rate in effect on the balance sheet date. Revenues and expenses
are translated at the average rates of exchange prevailing during the year. The
translation adjustment resulting from this process is shown within accumulated
other comprehensive income (loss) as a component of shareholders' equity. Gains
and losses on foreign currency transactions are included in the consolidated
statement of operations as incurred. To date, gains and losses on foreign
currency transactions have not been significant.
Income Taxes
The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amounts
expected to be realized.
F-9
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB No. 25), and related
interpretations, in accounting for its employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). APB
No. 25 provides that the compensation expense relative to the Company's
employee stock options is measured based on the intrinsic value of the stock
option. SFAS No. 123 requires companies that continue to follow APB No. 25 to
provide a pro forma disclosure of the impact of applying the fair value method
of SFAS No. 123 (refer to Note 7).
Advertising
Advertising costs are expensed as incurred. Advertising expense was $170,000,
$704,000, and $1.6 million during the years ended December 31, 1995, 1996,
1997, respectively, and $1.0 million and $1.2 million for the nine months ended
September 30, 1997 and 1998, respectively.
Earnings Per Share and Pro Forma Earnings Per Share
Basic earnings per share is computed by dividing net income (loss) available
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities by including other common stock equivalents, including
stock options and convertible preferred stock, in the weighted average number
of common shares outstanding for a period, if dilutive.
Pro forma earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding and the weighted average
redeemable convertible preferred stock outstanding as if such shares were
converted into common stock at the time of issuance.
Other Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and display of comprehensive income
and its components in the financial statements. The only item of other
comprehensive income (loss) which the Company currently reports is foreign
currency translation adjustments. There was no significant difference between
net income (loss) as reported versus other comprehensive income (loss).
Business Segments
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which establishes standards for reporting
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Information related to segment
disclosures is contained in Note 11.
Derivatives
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities, which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. Because the Company has never used nor currently intends to use
derivatives, management does not anticipate that the adoption of this new
standard will have a significant effect on earnings or the financial position
of the Company.
F-10
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
2. ACQUISITION
In September 1998, the Company acquired EnCyc, Inc. (EnCyc), a privately-held
marketing encyclopedia software developer. In exchange for all the outstanding
shares of EnCyc, the Company issued 233,333 shares of its common stock, paid
$500,000 to EnCyc shareholders, and liquidated $250,000 of EnCyc's existing
long-term debt. In addition, in connection with the acquisition, the Company
issued options to EnCyc employees to purchase up to 75,000 shares of common
stock at an exercise price of $5.00 per share. These options have been treated
as part of the purchase price, resulting in a total purchase price of $2.4
million, including direct costs of the acquisition. The acquisition was
accounted for using the purchase method of accounting, and, accordingly, the
results of EnCyc's operations are included in the Company's condensed
consolidated financial statements from the date of acquisition.
A summary of the purchase price for the acquisition is as follows (in
thousands):
<TABLE>
<S> <C>
Common stock and stock options....................................... $1,411
Cash paid to shareholders............................................ 500
Cash paid to liquidate notes payable................................. 250
Accrued direct acquisition costs..................................... 280
------
$2,441
======
</TABLE>
The purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired...................................................... $ 248
Liabilities assumed.................................................. (145)
Purchased technology................................................. 1,670
Goodwill............................................................. 668
------
$2,441
======
</TABLE>
To determine the value of the developed technology, the expected future cash
flows of the existing technology products were discounted, taking into account
risks related to the characteristics and applications of each product, existing
and future markets, and assessments of the life cycle stage of each product.
Based on this analysis, the existing technology that had reached technological
feasibility was capitalized. Amounts attributable to purchased technology and
goodwill will be amortized over their estimated useful life of five years on a
straight-line basis.
The unaudited pro forma combined historical results of operations, as if
EnCyc had been acquired on January 1, 1997, are as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1997 September 30, 1998
-------------------- --------------------
Actual Pro Forma Actual Pro Forma
------- ----------- ------- -----------
(Unaudited) (Unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues......................... $19,437 $19,776 $24,004 $24,381
Net loss available to common
shareholders.................... (3,467) (3,946) (6,624) (7,009)
Net loss per share (basic and
diluted)........................ $ (0.43) $ (0.48) $ (0.81) $ (0.83)
</TABLE>
The pro forma information does not purport to be indicative of the results
that would have been attained had these events occurred at the beginning of the
period presented and is not necessarily indicative of future results.
F-11
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1996 1997 1998
------ ------ -------------
(In thousands)
<S> <C> <C> <C>
Computer and office equipment................ $1,167 $1,755 $ 2,362
Purchased software........................... 77 170 434
Furniture and fixtures....................... 55 129 246
Leasehold improvements....................... 69 163 215
------ ------ -------
1,368 2,217 3,257
Less accumulated depreciation and
amortization................................ (264) (953) (1,644)
------ ------ -------
$1,104 $1,264 $ 1,613
====== ====== =======
</TABLE>
Included in property and equipment are assets acquired under capital lease
obligations with an original cost of approximately $788,000, $1.2 million, and
$1.5 million as of December 31, 1996, and 1997, and September 30, 1998,
respectively. Accumulated amortization on the leased assets was approximately
$124,000, $635,000, and $1.1 million as of December 31, 1996 and 1997, and
September 30, 1998, respectively.
4. LINE OF CREDIT
Accounts Receivable Line of Credit
In August 1998, the Company entered into a revolving credit agreement with
Silicon Valley Bank. The agreement allows the Company to borrow up to $8.0
million, with maximum borrowings not to exceed 80% of eligible receivables as
defined by the agreement. Interest on borrowings is, at the Company's
discretion, at the lender's prime rate or LIBOR plus 2.0%. Among other
provisions, the Company is required to maintain certain financial covenants,
and the agreement restricts the payment of dividends. The line of credit
agreement expires in June 2000. At September 30, 1998, there were no borrowings
outstanding under this credit facility.
Equipment Term Loan Facility
In August 1998, the Company entered into an agreement with Silicon Valley
Bank providing a $3.0 million term loan facility, with maximum borrowings not
to exceed invoice amounts for equipment purchased after June 1, 1998, for the
purpose of financing new capital equipment purchases. Interest on borrowings is
at the lender's prime rate plus 0.25%. The facility provides for a twelve-month
advance period with monthly payments of interest only, followed by 36 monthly
payments of principal plus interest. Among other provisions, the Company is
required to maintain certain financial covenants, and the agreement restricts
the payment of dividends. The equipment term loan facility expires in August
2002. At September 30, 1998, there were no borrowings outstanding under this
credit facility.
Both credit facilities are cross-collateralized by liens against accounts
receivable and specific assets financed by the lender, with a negative pledge
on other assets. The Company was in compliance with all financial covenants of
the credit facility at September 30, 1998.
F-12
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
5. LONG-TERM DEBT, COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities under noncancelable operating lease
agreements that expire on various dates through June 2006. The Company leases
certain equipment under noncancelable capital and operating leases that expire
on various dates through July 2001.
Minimum future lease payments under noncancelable capital and operating
leases for the periods ended December 31 pursuant to leases outstanding as of
September 30, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(In thousands)
<S> <C> <C>
Three months ending December 31, 1998...................... $ 122 $ 665
Year ending December 31:
1999..................................................... 234 2,999
2000..................................................... 156 2,746
2001..................................................... 61 2,353
2002..................................................... -- 2,109
2003..................................................... -- 2,095
Thereafter............................................... -- 4,921
----- -------
573 $17,888
=======
Less amount representing interest.......................... (55)
-----
Present value of minimum capital lease obligations......... 518
Less current portion....................................... (295)
-----
Capital lease obligations, less current portion............ $ 223
=====
</TABLE>
Rental expense was approximately $46,000, $232,000, and $1.1 million in 1995,
1996, and 1997 and $701,000 and $1.7 million for the nine months ended
September 30, 1997 and 1998, respectively.
In June 1998, the Company signed a seven-year lease for a new corporate
headquarters in Bellevue, Washington, which is expected to commence July 1999.
The minimum lease payments associated with this lease are included in the
commitments above. The Company has the option to extend the lease for two
additional three-year terms. The Company must provide a $750,000 letter of
credit as security for the lease. If certain working capital requirements are
not met on the commencement date, the Company must provide an additional
$250,000 letter of credit. The letter of credit may be reduced annually by
specified amounts in the lease agreement upon the Company's achieving certain
economic goals. At September 30, 1998, there were no letters of credit
outstanding.
Purchased Technology Obligation
In June 1998, the Company entered into a noncancelable agreement with a
third-party software developer to license certain technology which will be
embedded in a future release of the Company's core product. The agreement calls
for eight quarterly payments of $156,000 totaling $1.25 million through January
2000. The initial cost of this technology of $1.25 million has been recorded as
purchased technology and as long-term debt ($625,000 as a current liability) in
the accompanying consolidated balance sheet. In addition to the
F-13
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
installment payments, the agreement calls for per user royalty payments. There
are no minimum per user royalty commitments in connection with this agreement.
Upon release of the product embedded with the third-party technology, the
intangible will be expensed on the higher of a per user basis over the
projected product life or straight-line amortization of two years from date of
release.
Other Third-Party License Agreements
The Company has entered into various agreements that allow the Company to
incorporate licensed technology into its products or that allow the Company the
right to sell separately the licensed technology. The Company incurs royalty
fees under these agreements that are based on a predetermined fee per license
sold. Royalty costs incurred under these agreements are recognized as products
are licensed and are included in cost of license revenues. These amounts
totaled $0, $5,000, and $156,000 in 1995, 1996 and 1997 and $64,000 and
$470,000 for the nine months ended September 30, 1997 and 1998. As of September
30, 1998, future commitments under these arrangements were not significant.
Contingencies
The Company is subject to legal proceedings and claims in the ordinary course
of business. ONYX Computers, Inc. has filed a lawsuit against the Company
alleging trademark infringement in Canada. The Company is attempting to
negotiate a settlement, but any amount of loss is not estimable and no accrual
has been recorded in the financial statements. An adverse outcome could have a
material adverse effect on the Company's financial position, liquidity, and
results of operations.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The redeemable convertible preferred stock outstanding at December 31, 1996
and 1997 and September 30, 1998 is as follows:
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1996 1997 1998
------ ------- -------------
(In thousands)
<S> <C> <C> <C>
Series A, par value $0.01 per share, issued
and outstanding 2,174,082 shares; net of
$23,000 in offering costs, plus accretion
to redemption value........................ $3,202 $ 3,525 $ 3,791
Series B, par value $0.01 per share, issued
and outstanding 1,259,843 shares; net of
$55,000 in offering costs, plus accretion
to redemption value........................ -- 8,545 9,190
------ ------- -------
$3,202 $12,070 $12,981
====== ======= =======
</TABLE>
Series A Redeemable Convertible Preferred Stock
In March 1996, the Company completed a $3.0 million private placement of
2,174,082 shares of Series A Convertible and Redeemable Preferred Stock (Series
A) at $1.38 per share. Net proceeds from the financing amounted to $2,977,000.
Each share of Series A is convertible into common stock at any time at the
option of the holder using the formula provided in the Articles of
Incorporation (currently at a ratio of one-to-one) or automatically upon the
closing of an initial public offering of the Company's common stock from which
the aggregate proceeds are not less than $20 million and at a price not less
than $4.14 per share.
F-14
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
Holders of Series A have preferential rights over common shareholders to
dividends of $0.138 (10%) per share per annum, when and if declared, and are
entitled to the number of votes equal to the number of shares of common stock
into which their stock could be converted. The Company is not allowed to carry
out certain events, as specified in the Articles of Incorporation, without the
advance consent of the majority of the preferred shareholders, as specified in
the Articles of Incorporation. In the event of liquidation, the holders of
Series A have preferential rights over common shareholders to liquidation
payments at the original purchase price, plus declared but unpaid dividends.
The Company has not declared any Series A dividends to date. Holders of Series
A have redemption rights on or after February 1, 2000 that may require the
Company to redeem their stock at the original purchase price, plus declared but
unpaid dividends, plus simple interest at 10% per annum from the date of
original issuance of such shares.
Series B Redeemable Convertible Preferred Stock
In March 1997, the Company completed an $8.0 million private placement of
1,259,843 shares of Series B Convertible and Redeemable Preferred Stock (Series
B) at $6.35 per share. Net proceeds from the financing amounted to $7,945,000.
In conjunction with the sales of Series B, the Company entered into amended
Investors' Rights, Voting, and Co-Sale, and Right of First Offer Agreements.
Each share of Series B is convertible into common stock at any time at the
option of the holder, using the formula provided in the Articles of
Incorporation (currently at a ratio of 1.079-to-one), or automatically upon the
closing of an initial public offering (see Note 12).
Under the terms of the agreement, Series B shareholders have rights in
preference to, but otherwise similar to those of, Series A shareholders,
including dividends of $0.635 (10%) per share per annum, when and if declared.
Series B shareholders also have redemption rights on or after February 1, 2000
that may require the Company to redeem their stock at the original purchase
price, plus declared but unpaid dividends, plus simple interest at 10% per
annum from the date of original issuance of such shares. The Company has not
declared any Series B dividends to date.
7. SHAREHOLDERS' EQUITY
Notes Receivable from Officers
In July 1998, certain officers exercised options to purchase 1,300,000 shares
of common stock and paid the exercise price by issuing promissory notes to the
Company totaling $210,000. These notes, which have been offset against common
stock for financial statement presentation, are due in July 2001 and bear
interest at 5.39%, payable annually. These notes and the interest thereon are
full recourse.
1994 Combined Incentive and Nonqualified Stock Option Plan
Under the terms of the 1994 Combined Incentive and Nonqualified Stock Option
Plan (the 1994 option plan), the Board of Directors may grant incentive and
nonqualified stock options to employees, officers, directors, agents,
consultants, and independent contractors of the Company. There were 5,000,000
shares of common stock reserved under the 1994 option plan. Generally, the
Company grants stock options with exercise prices equal to the fair market
value of the common stock on the date of grant, as determined by the Company's
Board of Directors. Options generally vest over a four and one-half year
period; 25% are exercisable after 18 months, with 12.5% exercisable every six
months thereafter. In December 1997, the Board of Directors made a special
grant of 141,600 options to certain key employees that vest 1.67% after 18
months, and an additional 1.67% at the end of each month thereafter, with the
result that 100% of the options are vested six and one-half years from the date
of grant. Options generally expire ten years from the date of grant. In
F-15
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
October 1998, the Board of Directors suspended the 1994 option plan and
determined that no further grants shall be made pursuant to the 1994 option
plan (see Note 12).
Under APB No. 25, because the exercise price of the Company's employee stock
options generally equals the fair value of the underlying stock on the date of
grant, no compensation expense is recognized. Deferred compensation expense of
$215,000 and $2,153,000 was recorded during 1997 and 1998, respectively, for
those situations where the exercise price of an option was lower than the
deemed fair value for financial reporting purposes of the underlying common
stock. The deferred compensation is being amortized over the vesting period of
the underlying options. Amortization of the deferred stock-based compensation
balance of $2.1 million at September 30, 1998 will approximate $288,000 for the
quarter ended December 31, 1998, and, $882,000, $489,000, $270,000 and $143,000
the fiscal years ending December 31, 1999, 2000, 2001 and 2002, respectively.
Had the stock compensation expense for the Company's stock option plan been
determined based on the minimum value model, the Company's net income (loss)
would have been adjusted to these pro forma amounts:
<TABLE>
<CAPTION>
December 31, Nine Months Ended
-------------------- September 30,
1995 1996 1997 1998
----- ------ ------- -----------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net income (loss) available to
common shareholders:
As reported..................... $ 523 $1,169 $(3,467) $(6,624)
SFAS No. 123 pro forma.......... $ 513 $1,136 $(3,526) $(6,703)
Diluted earnings (loss) per share:
As reported--diluted............ $0.06 $ 0.14 $ (0.43) $ (0.81)
SFAS No. 123 pro forma.......... $0.06 $ 0.14 $ (0.44) $ (0.82)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1995 1996 1997 1998
------- ------- ------- -------------
<S> <C> <C> <C> <C>
Expected dividend yield............. 0.0% 0.0% 0.0% 0.0%
Risk-free interest rate............. 6.5% 6.5% 5.3% 5.0%
Expected life....................... 7 years 7 years 5 years 5 years
</TABLE>
For purposes of the pro forma disclosures, the estimated weighted average
fair value of the options granted, estimated to be $0.07, $0.05, $0.15 and
$0.69 at December 31, 1995, 1996, and 1997 and September 30, 1998,
respectively, is amortized to expense over the options' vesting period.
Compensation expense recognized in providing pro forma disclosures may not be
representative of the effects on pro forma earnings for future years because
the amounts above include only the amortization for the fair value of 1995,
1996, 1997 and the nine months ended September 30, 1998 grants.
F-16
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Outstanding Options
--------------------
Shares Weighted
Available Number Average
for of Exercise
Grant Shares Prices
---------- ---------- --------
<S> <C> <C> <C>
Balance at January 1, 1995................ 4,175,000 825,000 $0.10
Options granted......................... (638,000) 638,000 $0.20
---------- ----------
Balance at December 31, 1995
(exercisable--165,000)................... 3,537,000 1,463,000 $0.14
Options granted......................... (1,730,800) 1,730,800 $0.20
Options canceled........................ 75,000 (75,000) $0.16
Options exercised....................... -- (10,000) $0.12
---------- ----------
Balance at December 31, 1996
(exercisable--656,267)................... 1,881,200 3,108,800 $0.18
Options granted......................... (1,091,400) 1,091,400 $0.65
Options canceled........................ 241,248 (241,248) $0.26
Options exercised....................... -- (127,876) $0.19
---------- ----------
Balance at December 31, 1997
(exercisable--1,163,672)................. 1,031,048 3,831,076 $0.31
Options granted......................... (1,373,760) 1,373,760 $3.20
Options canceled........................ 400,209 (400,209) $0.60
Options exercised....................... -- (1,452,500) $0.16
---------- ----------
Outstanding at September 30, 1998
(exercisable--380,683)................... 57,497 3,352,127 $1.52
========== ==========
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options at September 30, 1998:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------- ------------------
Weighted
Average Weighted
Range of Remaining Average
Exercise Number of Contractual Number of Exercise
Prices Options Life (Years) Options Price
-------- --------- ------------ --------- --------
<S> <C> <C> <C> <C>
$0.10--$0.12 188,500 5.83 36,000 $0.12
$0.20--$0.40 1,066,817 7.78 280,432 0.21
$0.70 767,500 8.31 22,376 0.70
$1.20--$1.50 168,400 9.46 -- --
$2.50--$3.50 686,910 9.69 -- --
$5.00 474,000 9.98 41,875 5.00
--------- -------
$0.10--$5.00 3,352,127 8.58 380,683 $0.76
========= =======
</TABLE>
Common Shares Reserved for Future Issuance
The Company has reserved shares of common stock as of September 30, 1998 as
follows:
<TABLE>
<S> <C>
Stock options...................................................... 3,409,624
Conversion of redeemable convertible preferred stock:
Series A......................................................... 2,174,082
Series B......................................................... 1,259,843
---------
6,843,549
=========
</TABLE>
F-17
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
8. EARNINGS PER SHARE
The following represents the calculations for earnings per share:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net income (loss) (A)............................... $ 523 $ 1,394 $ (2,544) $ (1,735) $ (5,713)
Preferred stock accretion........................... -- (225) (923) (642) (911)
------- ------- -------- -------- --------
Income (loss) available to common shareholders (B).. $ 523 $ 1,169 $ (3,467) $ (2,377) $ (6,624)
======= ======= ======== ======== ========
Weighted average number of common shares (1)(C)..... 8,000 8,008 8,068 8,045 8,205
Effect of dilutive securities:
Stock options...................................... 322 382 ** ** **
Convertible preferred stock........................ -- ** ** ** **
------- ------- -------- -------- --------
Adjusted weighted average shares and assumed
conversions (D).................................... 8,322 8,390 8,068 8,045 8,205
======= ======= ========
Pro forma adjustment for convertible preferred
stock.............................................. 3,194 3,534
-------- --------
Pro forma weighted average shares (E)............... 11,262 11,739
======== ========
Earnings (loss) per share:
Basic (B)/(C)...................................... $ 0.07 $ 0.15 $ (0.43) $ (0.30) $ (0.81)
Diluted (B)/(D).................................... $ 0.06 $ 0.14 $ (0.43) $ (0.30) $ (0.81)
Pro forma basic and diluted (A)/(E)................ $ (0.23) $ (0.49)
</TABLE>
- --------
(1) For purposes of determining the weighted average number of common shares
outstanding, 1,300,000 shares of common stock acquired through the July
1998 exercise of stock options in exchange for promissory notes to the
Company are only considered in the calculation of diluted earnings per
share.
** Excluded from the computation of diluted earnings per share given the
effects are antidilutive. Outstanding stock options to purchase 799,764 and
3,831,076 shares of common stock at December 31, 1996 and 1997,
respectively, and 3,198,402 and 4,652,127 shares of common stock at
September 30, 1997 and 1998, respectively, were excluded from the
computation of diluted earnings per share because their effect was
antidilutive (see Note 7 for additional stock option information).
F-18
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
9. INCOME TAXES
Income (loss) before taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------- -------------------
1995 1996 1997 1997 1998
---- ------ ------- ----------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Current:
U.S. ............................ $811 $2,159 $(3,601) $(2,456) $(5,965)
Foreign.......................... -- 24 169 115 445
---- ------ ------- ------- -------
$811 $2,183 $(3,432) $(2,341) $(5,520)
==== ====== ======= ======= =======
</TABLE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------ ----------------------
1995 1996 1997 1997 1998
-------------- --------- ------------ --------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Current:
Federal................. $255 $800 $(1,007) $(708) $ --
State and local......... 15 37 5 3 --
Foreign................. -- 6 60 45 193
------ ------ --------- --------- --------
Total current income
taxes.................... 270 843 (942) (660) 193
Deferred--federal......... 18 (54) 54 54 --
------ ------ --------- --------- --------
Income tax provision (ben-
efit).................... $ 288 $789 $ (888) $(606) $ 193
====== ====== ========= ========= ========
</TABLE>
The effective rate differs from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- --------- ----------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Income tax expense
(benefit) at statutory
rate of 34%.............. $276 $742 $ (1,167) $(796) $(1,877)
State taxes, net of fed-
eral benefit............. 10 24 3 1 --
Losses producing no cur-
rent tax benefit......... -- -- 276 189 2,070
Research and development
tax credit............... (13) (22) -- -- --
Other items, net.......... 15 44 -- -- --
------ ------ --------- ----- -------
Income tax provision (ben-
efit).................... $288 $788 $ (888) $(606) $ 193
====== ====== ========= ===== =======
</TABLE>
At September 30, 1998, the Company had a domestic net operating loss and
research and development carryforwards of $6.1 million and $453,000,
respectively, which begin to expire in 2017. Utilization of these carryforwards
depends on the recognition of future taxable income. The Company's ability to
utilize net operating loss carryforwards may be limited in the event that a
change in ownership, as defined in the Internal Revenue Code, occurs in the
future. To the extent that any single-year loss is not utilized to the full
amount of the limitation, such unused loss is carried forward to subsequent
years until the earlier of its utilization or the expiration of the relevant
carryforward period.
F-19
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
Deferred tax assets reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
------------- September 30,
1996 1997 1998
------ ------ -------------
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Book accruals in excess of tax.............. $ 144 $ 246 $ 209
Research and development credit
carryforward............................... -- 100 453
Net operating loss carryforward............. -- 170 2,084
----- ------ -------
Total gross deferred tax assets............... 144 516 2,746
Less valuation allowance...................... -- (315) (2,587)
----- ------ -------
144 201 159
Deferred tax liability--deductible basis in
fixed assets................................. (90) (201) (159)
----- ------ -------
Net deferred tax assets....................... $ 54 $ -- $ --
===== ====== =======
</TABLE>
Since the Company's utilization of these deferred tax assets is dependent on
future profits, which are not assured, a valuation allowance equal to the net
deferred tax assets has been provided. The valuation allowance for deferred tax
assets increased $315,000 and $2.3 million during the year ended December 31,
1997 and the nine months ended September 30, 1998, respectively.
10. EMPLOYEE BENEFIT PLAN
The Company maintains a profit-sharing retirement plan for eligible employees
under the provisions of Internal Revenue Code Section 401(k). Participants may
defer up to 15% of their annual compensation on a pretax basis, subject to
maximum limits on contributions prescribed by law. Contributions by the Company
are at the discretion of the Board of Directors. No discretionary contributions
have been made by the Company to date.
11. INTERNATIONAL OPERATIONS
The Company licenses and markets its products through direct and indirect
channels throughout the world. Information regarding revenues in different
geographic regions is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------ -------------------
1995 1996 1997 1997 1998
------- ------- -------- ----------- -------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
North America................... $ 2,197 $ 9,297 $ 18,272 $11,578 $19,850
Rest of World................... 1 348 1,165 699 4,154
------- ------- -------- ------- -------
Total Revenues.................. $ 2,198 $ 9,645 $ 19,437 $12,277 $24,004
======= ======= ======== ======= =======
</TABLE>
F-20
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
The Company reports operating results based on geographic areas. A summary of
key financial data by segment is as follows:
<TABLE>
<CAPTION>
North Rest of
America World Total
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Nine months ended
September 30, 1998:
Revenues................ $19,850 $ 4,154 $24,004
Operating income
(loss)................. (3,640) (1,975) (5,615)
Interest, net........... 95 -- 95
Depreciation and
amortization........... 666 25 691
Purchases of property
and equipment.......... 562 119 681
Long-lived assets....... 5,186 439 5,625
Total assets............ 16,304 948 17,252
Nine months ended
September 30, 1997
(unaudited):
Revenues................ $11,578 $ 699 $12,277
Operating income
(loss)................. (1,892) (680) (2,572)
Interest, net........... 231 -- 231
Depreciation and
amortization........... 495 10 505
Purchases of property
and equipment.......... 215 46 261
Long-lived assets....... 1,225 63 1,288
Total assets............ 14,828 196 15,024
</TABLE>
12. SUBSEQUENT EVENTS
Initial Public Offering
On December 4, 1998, the Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit
the Company to offer its common stock to the public. On December 4, 1998, the
Board also approved, subject to shareholder approval (which was received on
December 29, 1998), the amendment of the Company's Articles and Bylaws, which
included, among other things, an increase in the capitalization of the Company
to 40,000,000 shares of common stock and 10,000,000 shares of preferred stock,
each with a par value of $0.01 per share, effective upon the filing with the
Secretary of State of Washington, and a 100,000 increase in the number of
shares of common stock issuable upon conversion of the Series B Redeemable
Convertible Preferred Stock. The 100,000 increase in the number of shares of
common stock issuable upon a conversion of the Series B Redeemable Convertible
Preferred Stock will be accounted for as a deemed dividend based on the price
of stock issued in the initial public offering, and be reflected within
preferred stock accretion in the statement of operations. The accompanying
financial statements reflect the increase in the capitalization of the Company.
If the offering is consummated under terms presently anticipated, each
outstanding share of redeemable convertible preferred stock will convert into
3,533,925 shares of common stock. Unaudited pro forma shareholders' equity
reflects the assumed conversion of the redeemable convertible preferred stock
outstanding at September 30, 1998 into common stock.
1998 Stock Incentive Compensation Plan
In October 1998, the Board adopted the 1998 Stock Incentive Compensation Plan
(the 1998 option plan), which was approved by the Company's shareholders in
November 1998. The 1998 option plan provides for both stock options and
restricted stock awards to employees, officers, directors, agents, advisors,
consultants and independent contractors of the Company. There were 1,500,000
shares of common stock reserved under the
F-21
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information for the nine months ended September 30, 1997 is unaudited)
1998 option plan and the plan provides that any options cancelled and returned
to the 1994 option plan shall become available for future grant under the 1998
option plan. The 1998 option plan provides for an annual increase to be added
on the first day of each fiscal year beginning in 2000 equal to the lesser of
(a) 1,675,763 shares, or (b) 5% of the average common shares outstanding used
to calculate fully diluted earnings per share, as reported for the preceding
year. Options granted under the 1998 option plan generally vest and become
exercisable 25% 18 months after the date of grant, and additional 12.5% shall
vest at the end of each six-month period thereafter, with the result that 100%
of the options are vested four and one-half years from the initiation date.
1998 Employee Stock Purchase Plan
In December 1998, the Board approved the 1998 Employee Stock Purchase Plan
(the ESPP). The Company will implement it upon the effectiveness of the initial
public offering. The ESPP permits eligible employees of the Company and its
subsidiaries to purchase common stock through payroll deductions of up to 10%
of their compensation. Under the ESPP, no employee may purchase common stock
worth more than $25,000 in any calendar year, valued as of the first day of
each offering period. In addition, owners of 5% or more of the Company's or a
subsidiary's common stock may not participate in the ESPP. The Company
authorized the issuance under the ESPP of a total of 500,000 shares of common
stock, plus an automatic annual increase, to be added on the first day of the
fiscal year beginning in 2000, equal to the lesser of (a) 200,000 shares,
(b) 1.2% of the average common shares outstanding as used to calculate fully
diluted earnings per share as reported in the Annual Report for the preceding
year, or (c) a lesser amount determined by the Board of Directors. Any shares
from increases in previous years that are not actually issued shall be added to
the aggregate number of shares available for issuance under the ESPP.
The Company will implement the ESPP with six-month offering periods. The
first offering period will commence on the effectiveness of the initial public
offering. Subsequent offering periods will begin on each January 1 and July 1.
The price of the common stock purchased under the ESPP will be the lesser of
85% of the fair market value on the first day of an offering period and 85% of
the fair market value on the last day of an offering period, except that the
purchase price for the first offering period will be equal to the lesser of
100% of the initial public offering price of the common stock and 85% of the
fair market value on June 30, 1999. The ESPP does not have a fixed expiration
date, but the Company's Board of Directors may terminate it at any time. The
Company has not yet issued any shares of common stock under the ESPP.
F-22
<PAGE>
[INSIDE BACK COVER]
[ARTWORK APPEARS HERE]
[GRAPHIC DEPICTING THE CUSTOMER LIFECYCLE ACROSS BUSINESS DEPARTMENTS
ACCOMPANIED BY THE FOLLOWING TEXT:
"ONYX Enterprise Relationship Management Today's business increasingly face
competitive and operational challenges such as: . Intense competition .
Constantly changing technologies . Rapid growth . High costs of customer
acquisition and retention. ONYX enterprise relationship management solutions
enable businesses to address these issues by: . Improving the effectiveness of
marketing, sales and support efforts . Organizing data around relationships--
not functional departments . Enabling customer interaction through the
Internet . Front-Office solutions for the real world"]
<PAGE>
[COMPANY LOGO APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown
are estimates, except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 10,902
NASD filing fee.................................................. 4,065
Nasdaq National Market listing fee............................... 95,000
Blue Sky fees and expenses....................................... 10,000
Printing and engraving expenses.................................. 150,000
Legal fees and expenses.......................................... 200,000
Accounting fees and expenses..................................... 175,000
Transfer Agent and Registrar fees................................ 10,000
Miscellaneous expenses........................................... 95,033
--------
Total.......................................................... $750,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Sections 23B.08.500 through 23B.08.600 of the Washington Business Corporation
Act (the "WBCA") authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 10 of the registrant's Amended and Restated Bylaws
(Exhibit 3.2 hereto) provides for indemnification of the registrant's
directors, officers, employees and agents to the maximum extent permitted by
Washington law. The directors and officers of the registrant also may be
indemnified against liability they may incur for serving in that capacity
pursuant to a liability insurance policy maintained by the registrant for such
purpose.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a director's
liability to the corporation or its shareholders for monetary damages for acts
or omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. Section 5.2 of the registrant's Third Amended and Restated Articles
of Incorporation, as amended by Articles of Amendment (Exhibit 3.1 hereto),
contains provisions implementing, to the fullest extent permitted by Washington
law, such limitations on a director's liability to the registrant and its
shareholders.
The registrant has entered into certain indemnification agreements with its
officers and directors, the form of which is attached as Exhibit 10.12 to this
Registration Statement and incorporated herein by reference. The
indemnification agreements provide the registrant's officers and directors with
indemnification to the maximum extent permitted by the WBCA.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the Underwriters, for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in this
Registration Statement.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
Since its inception in February 1994, the registrant has issued and sold
unregistered securities as follows:
1. In March 1996, the registrant issued 2,174,082 shares of Series A
Preferred Stock, which are convertible into 2,174,082 shares of common
stock, to two investors, Foundation Capital, L.P. and Foundation Capital
Entrepreneurs Fund, L.L.C., for a consideration of $1.38 per share of
Series A Preferred Stock, or an aggregate of $3,000,000. The foregoing
purchases and sales were exempt from registration under the Securities Act
pursuant to Section 4(2) thereof on the basis that the transactions did not
involve a public offering.
2. In March 1997, the registrant issued 1,259,843 shares of Series B
Preferred Stock, which are convertible into 1,359,843 shares of common
stock, to eight investors, Foundation Capital, L.P., Foundation Capital
Entrepreneurs Fund, L.L.C., TCV II, V.O.F., Technology Crossover Ventures
II, L.P., TCV II (Q), L.P., TCV II Strategic Partners, L.P., Technology
Crossover Ventures II, C.V. and Hillman/Dover Limited Partnership, for a
consideration of $6.35 per share of Series B Preferred Stock, or an
aggregate of $8,000,000. The foregoing purchases and sales were exempt from
registration under the Securities Act pursuant to Section 4(2) thereof on
the basis that the transactions did not involve a public offering.
3. From December 31, 1995 through December 31, 1998, the registrant
granted stock options to purchase 4,278,860 shares of common stock, with
exercise prices ranging from $.20 to $9.00 per share, to employees,
consultants and directors pursuant to its Amended and Restated 1994
Combined Incentive and Nonqualified Stock Option Plan and 1998 Stock
Incentive Compensation Plan. Of these options, options for 888,106 shares
have been canceled without being exercised, options for 1,619,224 shares
have been exercised and options for 3,234,530 shares remain outstanding and
1,646,246 were available for future grant.
4. In September 1998, pursuant to an Agreement and Plan of Merger by and
among the registrant, EnCyc Acquisition, Inc., EnCyc, Inc. and the
shareholders of EnCyc, the registrant issued 233,333 shares of common stock
in connection with the registrant's acquisition of all the issued and
outstanding shares of EnCyc. The recipients of the common stock were the
former shareholders of EnCyc. The issuance of these securities was exempt
from registration under the Securities Act pursuant to Section 4(2) thereof
on the basis that the transaction did not involve a public offering.
The sales and issuances of these securities were exempt from registration
under the Securities Act pursuant to Rule 701 promulgated thereunder on the
basis that these options were offered and sold either pursuant to a written
compensatory benefit plan or pursuant to written contracts relating to
consideration, as provided by Rule 701.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Third Amended and Restated Articles of Incorporation of the
registrant, as further amended by Articles of Amendment.
3.2 Amended and Restated Bylaws of the registrant.
5.1* Opinion of Perkins Coie LLP as to the legality of the shares.
10.1 Amended and Restated Investors' Rights Agreement, dated as of
December 14, 1998, by and among the registrant, Foundation Capital,
L.P., Foundation Capital Entrepreneurs Fund, L.L.C., TCV II,
V.O.F., Technology Crossover Ventures II, L.P., TCV II (Q), L.P.,
TCV II Strategic Partners, L.P., Technology Crossover Ventures II,
C.V., Hillman/Dover Limited Partnership, Brent Frei, Brian Janssen,
Todd Stevenson, Mary Forler, Ronald Frei, Glenda Frei, Barbara
Stevenson, Leon Stevenson, Michael Racine, Mary Winifred Racine,
Bettie Ruzicka, Larry L. Ruzicka, Colleen Chmelik, James Chmelik,
J. Michael Ellis and Barbara S. Ellis.
10.2+ Lease Agreement, dated as of June 26, 1998, by and between WRC
Sunset North LLC and the registrant.
10.3+ Sublease Agreement, as amended, dated as of March 6, 1996, by and
between WWC Holding Co., Inc. and the registrant.
10.4+ Lease, as amended, dated as of February 4, 1997, by and between WRC
Properties, Inc. and the registrant.
10.5+ Lease, dated as of February 19, 1998, by and between Teachers
Insurance & Annuity Association of America, Inc. and the
registrant.
10.6+ Loan and Security Agreement, dated as of September 3, 1998, between
Silicon Valley Bank and the registrant.
10.7+ Amended and Restated 1994 Combined Incentive and Nonqualified Stock
Option Plan.
10.8+ 1998 Stock Incentive Compensation Plan.
10.9+ 1998 Employee Stock Purchase Plan.
10.10 [Reserved]
10.11 Offer of Employment, dated as of September 14, 1997, from the
registrant to Keith Brown.
10.12 Form of Indemnification Agreement between the registrant and each
of Ray Bingham, Keith Brown, William Elmore, Eben Frankenberg,
Brent Frei, Howard Hawk, Jay Hoag, Paul Koontz, Sarwat Ramadan,
Michael Racine, Mary Reeder, Daniel Santell and Todd Stevenson.
21.1+ Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Perkins Coie LLP (contained in the opinion filed as
Exhibit 5.1 hereto).
24.1+ Power of Attorney.
24.2 Power of Attorney of Ray Bingham.
27.1+ Financial Data Schedule.
99.1 Report of Ernst & Young LLP, Independent Auditors, on Financial
Statement Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.
(b) Financial Statement Schedules
The following financial statement schedule is filed herewith:
Section II--Valuation and Qualifying Accounts
II-3
<PAGE>
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, 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 of
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 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.
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Bellevue, State of Washington, on the 20th day of January, 1999.
ONYX SOFTWARE CORPORATION
/s/ Brent R. Frei
By: _________________________________
Brent R. Frei,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities indicated below on the 20th day of January, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Brent R. Frei President, Chief Executive Officer and
______________________________________ Chairman of the Board (Principal Executive
Brent R. Frei Officer)
/s/ Sarwat H. Ramadan Vice President, Chief Financial Officer,
______________________________________ Secretary and Treasurer (Principal
Sarwat H. Ramadan Financial and Accounting Officer)
* Todd A. Stevenson Director
______________________________________
Todd A. Stevenson
* Ray Bingham Director
______________________________________
Ray Bingham
* William B. Elmore Director
______________________________________
William B. Elmore
* Jay C. Hoag Director
______________________________________
Jay C. Hoag
* Paul G. Koontz Director
______________________________________
Paul G. Koontz
* Daniel R. Santell Director
______________________________________
Daniel R. Santell
</TABLE>
<TABLE>
<C> <C> <S>
*By: /s/ Sarwat H. Ramadan
__________________________________
Sarwat H. Ramadan
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ONYX SOFTWARE CORPORATION
September 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
----------------------
Charged to
Balance of Charged to Other
Beginning Costs and Accounts -- Deduction -- Balance at
Description of Period Expenses Describe Describe(1) End of Period
----------- ---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995 Deducted from
asset accounts:
Allowance for doubtful
accounts............. $ -- $ 30 $ -- $ -- $ 30
Year ended December 31,
1996
Deducted from asset
accounts:
Allowance for doubtful
accounts............. 30 314 -- (27) 317
Year ended December 31,
1997
Deducted from asset
accounts:
Allowance for doubtful
accounts............. 317 525 -- (289) 553
Nine months ended
September 30, 1998
Deducted from asset
accounts:
Allowance for doubtful
accounts............. 553 400 -- (551) 402
</TABLE>
- --------
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibits
------- --------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Third Amended and Restated Articles of Incorporation of the
registrant, as further amended by Articles of Amendment.
3.2 Amended and Restated Bylaws of the registrant.
5.1* Opinion of Perkins Coie LLP as to the legality of the shares.
10.1 Amended and Restated Investors' Rights Agreement, dated as of December
14, 1998, by and among the registrant, Foundation Capital, L.P.,
Foundation Capital Entrepreneurs Fund, L.L.C., TCV II, V.O.F.,
Technology Crossover Ventures II, L.P., TCV II (Q), L.P., TCV II
Strategic Partners, L.P., Technology Crossover Ventures II, C.V.,
Hillman/Dover Limited Partnership, Brent Frei, Brian Janssen, Todd
Stevenson, Mary Forler, Ronald Frei, Glenda Frei, Barbara Stevenson,
Leon Stevenson, Michael Racine, Mary Winifred Racine, Bettie Ruzicka,
Larry L. Ruzicka, Colleen Chmelik, James Chmelik, J. Michael Ellis and
Barbara S. Ellis.
10.2+ Lease Agreement, dated as of June 26, 1998, by and between WRC Sunset
North LLC and the registrant.
10.3+ Sublease Agreement, as amended, dated as of March 6, 1996, by and
between WWC Holding Co., Inc. and the registrant.
10.4+ Lease, as amended, dated as of February 4, 1997, by and between WRC
Properties, Inc. and the registrant.
10.5+ Lease, dated as of February 19, 1998, by and between Teachers
Insurance & Annuity Association of America, Inc. and the registrant.
10.6+ Loan and Security Agreement, dated as of September 3, 1998, between
Silicon Valley Bank and the registrant.
10.7+ Amended and Restated 1994 Combined Incentive and Nonqualified Stock
Option Plan.
10.8+ 1998 Stock Incentive Compensation Plan.
10.9+ 1998 Employee Stock Purchase Plan.
10.10 [Reserved]
10.11 Offer of Employment, dated as of September 14, 1997, from the
registrant to Keith Brown.
10.12 Form of Indemnification Agreement between the registrant and each of
Ray Bingham, Keith Brown, William Elmore, Eben Frankenberg, Brent
Frei, Howard Hawk, Jay Hoag, Paul Koontz, Sarwat Ramadan, Michael
Racine, Mary Reeder, Daniel Santell and Todd Stevenson.
21.1+ Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Perkins Coie LLP (contained in the opinion filed as Exhibit
5.1 hereto).
24.1+ Power of Attorney (contained on signature page).
24.2 Power of Attorney of Ray Bingham.
27.1+ Financial Data Schedule.
99.1 Report of Ernst & Young LLP, Independent Auditors, on Financial
Statement Schedule.
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.
<PAGE>
EXHIBIT 3.1
THIRD AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ONYX SOFTWARE CORPORATION
Pursuant to the provisions of RCW 23B.10.070 of the Washington Business
Corporation Act, Onyx Software Corporation, a Washington corporation, hereby
restates its Articles of Incorporation as now and heretofore amended:
1. Name
The name of the Company is Onyx Software Corporation (the "Company").
2. Shares
2.1. Authorized Capital
The Company is authorized to issue 40,000,000 shares, consisting of
30,000,000 shares designated as common stock ("Common Stock") and 10,000,000
shares designated as preferred stock ("Preferred Stock"), the par value of each
of which is $0.01. Common Stock is subject to the rights and preferences of
Preferred Stock as hereinafter set forth. Except to the extent such rights are
granted to Preferred Stock or one or more series thereof, holders of shares of
Common Stock shall have unlimited voting rights and are entitled to receive the
net assets of the Company upon dissolution.
2.2. Issuance of Preferred Stock in Series
The Company's Board of Directors (the "Board") may designate one or more
series of Preferred Stock, and the designation and number of shares within each
series, and shall determine the preferences, limitations, and relative rights of
any shares of Preferred Stock, or of any series of Preferred Stock, before
issuance of any shares of that class or series. Preferred Stock, or any series
thereof, may have rights which are identical to those of Common Stock. Subject
to compliance with the provisions of any series of Preferred Stock, the Board is
also authorized to increase or decrease the number of shares of any series of
Preferred Stock prior or subsequent to the issue of that series, but not below
the number of shares of such series then outstanding. In case the number of
shares of any series shall be so decreased, the shares constituting
-1-
<PAGE>
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
2.3. Dividends
The holders of shares of Preferred Stock shall be entitled to receive
dividends, out of the funds of the Company legally available therefor, at the
rate and at the time or times, whether cumulative or noncumulative, as may be
provided by the Board in designating a particular series of Preferred Stock. If
such dividends on the Preferred Stock shall be cumulative, then if dividends
shall not have been paid, the deficiency shall be fully paid or the dividends
declared and set apart for payment at such rate, but without interest on
cumulative dividends, before any dividends on the Common Stock shall be paid or
declared and set apart for payment. Shares of one class or series may be issued
as a share dividend in respect to shares of another class or series.
2.4. Redemption
Preferred Stock may be redeemable at such price, in such amount, and at
such time or times as may be provided by the Board in designating a particular
series of Preferred Stock. In any event, such Preferred Stock may be
repurchased by the Company to the extent legally permissible.
2.5. Liquidation
In the event of any liquidation, dissolution, or winding up of the affairs
of the Company, whether voluntary or involuntary, then, before any distribution
shall be made to the holders of the Common Stock, the holders of the Preferred
Stock at the time outstanding shall be entitled to be paid the preferential
amount or amounts per share as may be provided by the Board in designating a
particular series of Preferred Stock and dividends accrued thereon to the date
of such payment. The holders of the Preferred Stock shall not be entitled to
receive any distributive amounts upon the liquidation, dissolution, or winding
up of the affairs of the Company other than the distributive amounts referred to
in this section, unless otherwise provided by the Board in designating a
particular series of Preferred Stock.
2.6. Conversion
Shares of Preferred Stock may be convertible into Common Stock of the
Company upon such terms and conditions, at such rate and subject to such
adjustments as may be provided by the Board in designating a particular series
of Preferred Stock.
-2-
<PAGE>
2.7. Voting Rights
Holders of Preferred Stock shall have such voting rights as may be provided
by the Board in designating a particular series of Preferred Stock.
2.8. Preferred Stock Designations
The Preferred Stock shall be divided into series, and 2,174,082 shares of
Preferred Stock are designated Series A Convertible Preferred Stock (the "Series
A Stock") and 1,259,843 shares of Preferred Stock are designated Series B
Convertible Preferred Stock (the "Series B Stock"). The rights, preferences,
restrictions and other matters relating to the Series A Stock and the Series B
Stock are set forth below.
2.8.1. Dividend Preference
2.8.1.1. Dividend Rate
Subject to the rights and preferences of any series of
Preferred Stock that may rank senior to the Series A Stock and Series B Stock as
to dividends and may from time to time come into existence, holders of shares of
Series A Stock and holders of shares of Series B Stock, respectively, shall be
entitled to receive dividends, payable when, if and as declared by the Board out
of funds that are legally available therefor a noncumulative cash dividend per
annum of $.138 per share (as adjusted for any stock dividends, combinations or
splits with respect to such shares) and of $.635 per share (as adjusted for any
stock dividends, combinations or splits with respect to such shares),
respectively, if and when declared by the Board in its discretion. Such
dividend, if and so declared, shall be paid at such time or times as shall be
determined by the Board. No right shall accrue to holders of Series A Stock or
Series B Stock by reason of the fact that dividends on Series A Stock or Series
B Stock are not declared in any prior period. No dividend may be paid on any
shares of Series A Stock or Series B Stock unless a pro rata dividend is paid on
the Series B Stock or Series A Stock, respectively.
2.8.1.2. Limitation on Other Dividends
So long as any shares of Series A Stock or shares of Series B
Stock shall remain outstanding, no dividend, whether in cash or property, shall
be paid or declared, nor shall any other distribution be made, on shares of
Common Stock or any shares of Preferred Stock having a preferential right to
dividends ranking junior to the rights of the Series A Stock, the Series B Stock
or any other series of Preferred Stock having a right to dividends ranking equal
to that of the Series A Stock and Series B Stock ("Junior Dividend Stock")
during any fiscal year of the corporation
-3-
<PAGE>
until dividends in the total amount payable at the rates of $.138 per share and
$.635 per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) on the Series A Stock and Series B Stock,
respectively, shall have been paid or set apart during that fiscal year and all
declared and unpaid dividends on the Series A Stock, Series B Stock and such
parity Preferred Stock shall have been paid.
2.8.1.3. Dividend Participation
No cash dividends shall be declared on the Junior Dividend
Stock unless or until a cash dividend in an amount equal to or greater than the
dividend declared on the Junior Dividend Stock shall have been paid to, or
declared and a sum sufficient for the payment thereof set apart for the Series A
Stock, Series B Stock and any other series of Preferred Stock having a right to
dividends ranking equal to that of the Series A Stock and the Series B Stock.
For purposes of this provision, dividends shall be compared on an as-converted-
to-Common-Stock basis.
2.8.2. Liquidation Preference
Upon the voluntary or involuntary dissolution, liquidation or winding
up of the Company, the assets of the Company available for distribution to its
shareholders shall be distributed in the following order and amounts:
2.8.2.1. Senior Liquidation Payments
First, the holders, if any, of any outstanding shares of
Preferred Stock of the Company having a preferential right to liquidation
payments ranking senior to the rights of holders of Series A Stock or Series B
Stock shall be entitled to receive the full preferential amount per share held
by them (the "Senior Liquidation Amount"). If the assets of the Company
available for such distribution shall be insufficient to permit the payment of
the full Senior Liquidation Amount, then the assets of the Company available for
distribution shall be distributed ratably among the holders of the shares of
such senior preferred stock in the same proportions as the full Senior
Liquidation Amount each such holder would otherwise be entitled to receive bears
to the total of the full Senior Liquidation Amount that would otherwise be
payable to all holders of such senior preferred stock.
2.8.2.2. Parity Liquidation Payments
If, upon completion of the distribution required by the prior
paragraph, assets available for distribution to shareholders remain in the
Company, the holders, if any, of any outstanding shares of preferred stock of
the Company having a preferential right to liquidation payments ranking equal to
the rights of the
-4-
<PAGE>
holders of Series A Stock or Series B Stock (the "Parity Shares") shall be
entitled to receive the liquidation payment specified for such shares held by
them (the "Parity Liquidation Amount"), the holders of shares of Series A Stock
shall be entitled to receive the amount of $1.38 per share, plus any declared
and unpaid dividends, for each share of Series A Stock (the "Series A
Liquidation Amount") and the holders of shares of Series B Stock shall be
entitled to receive the amount of $6.35 per share, plus any declared and unpaid
dividends, for each share of Series B Stock (the "Series B Liquidation Amount").
The Parity Liquidation Amount, the Series A Liquidation Amount and the Series B
Liquidation Amount shall be adjusted for any Extraordinary Common Stock Event
(as defined below). If the assets of the Company available for such distribution
shall be insufficient to permit the payment in full of the Parity Liquidation
Amount, the Series A Liquidation Amount and the Series B Liquidation Amount,
then the assets of the Company available for distribution shall be distributed
ratably among the holders of Parity Shares, the holders of Series A Stock and
the holders of Series B Stock in the same proportions as the aggregate of the
Parity Liquidation Amount, Series A Liquidation Amount and Series B Liquidation
Amount that each such holder would otherwise be entitled to receive bears to the
total Parity Liquidation Amount, Series A Liquidation Amount and Series B
Liquidation Amount that would otherwise be payable to all such holders.
2.8.2.3. Junior and Participating Liquidation Payments
Upon the completion of the distribution contemplated pursuant to
the foregoing two paragraphs, if assets remain in the Company, such remaining
assets shall be distributed ratably (on an as-converted-to-Common-Stock basis)
to the holders of Common Stock, the holders of Series A Stock, the holders of
Series B Stock and the holders of any other series of Preferred Stock that is
entitled to a ratable share in the residual assets of the Company.
Notwithstanding the foregoing sentence, at such point as a holder of Series A
Stock or Series B Stock has received an aggregate amount pursuant to this
Section 2.8 equal to two and one-half times the respective Series A Liquidation
Amount or Series B Liquidation Amount, then such holder's participation in any
distribution of assets in respect of such Series A Stock or Series B Stock shall
cease and any remaining assets shall be distributed ratably to the holders of
Common Stock and the holders, if any, of any other series of Preferred Stock
that is entitled to share in the residual assets of the Company.
-5-
<PAGE>
2.8.2.4. Treatment of Consolidations, Mergers and Sales of
Assets
The sale of all or substantially all of the assets of the
Company, or the acquisition of the Company by another entity by means of merger,
consolidation, share exchange, reorganization or otherwise pursuant to which
shares of capital stock of the Company are converted into cash, securities or
other property of the acquiring entity or any of its affiliates shall be
regarded as a liquidation within the meaning of this Section 2.8.2; provided,
however, that each holder of Series A Stock, Series B Stock or other shares of
convertible Preferred Stock of the Company shall have the right to elect the
benefits of any applicable conversion provisions in lieu of receiving payment in
the event of the liquidation, dissolution or winding up of the Company pursuant
to this Section 2.8.2; provided, further, that this provision shall not apply if
the holders of voting capital stock of the Company immediately prior to such
merger, consolidation, share exchange, reorganization or sale of assets
beneficially own, directly or indirectly, a majority of the combined voting
power of the capital stock of the surviving entity resulting from such merger,
consolidation, share exchange or reorganization or the successor corporation in
any such sale of assets.
In the event the requirements of this Section 2.8.2.4 are not
complied with, the Company shall forthwith either:
(a) Cause the date of distribution to be postponed until such
time as the requirements of this Section 2.8.2.4 have been complied with; or
(b) Cancel such transaction, in which event the rights,
preferences and privileges of the holders of Series A Stock and Series B Stock
shall revert to those as existed immediately prior to the liquidation event.
2.8.2.5. Distributions Other Than Cash
Whenever the distribution provided for in this Section 2.8.2
shall be payable in property other than cash, then the following provisions
shall apply:
2.8.2.5.1. Securities Distributions
(a) Securities not subject to investment letter or other
similar restrictions on free marketability shall be valued as follows:
(i) If traded on a securities exchange or the Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the 30-day period ending three
business days prior to the date of distribution;
-6-
<PAGE>
(ii) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid prices over the 30-day period
ending three days prior to the date of distribution; and
(iii) If there is no active public market, the value
shall be the fair market value thereof, as determined by the Board.
(b) Securities subject to investment letter or other
restrictions on free marketability (other than restrictions arising solely by
virtue of a shareholder's status as an affiliate or former affiliate) shall be
valued as described above less an appropriate discount from market value, as
determined by the Board, to reflect the transfer restrictions.
2.8.2.5.2. Other Noncash Distributions
In the event of any other noncash distribution, the Board shall
promptly engage independent appraisers to determine the value of the assets to
be distributed. The Company shall, upon receipt of such appraiser's valuation,
give prompt written notice to each holder of Preferred Stock of the appraiser's
valuation.
2.8.2.6. Notice of Liquidation Transaction
The Company shall give each record holder of Series A Stock or
Series B Stock written notice (the "Liquidation Notice") of an impending
liquidation transaction subject to this Section 2.8.2 not later than 20 days
before any meeting of the Company's shareholders called to approve the
liquidation transaction or 20 days before the closing of the liquidation
transaction, whichever is earlier, and shall also notify such holders in writing
of the final approval of such transaction. The first of such notices shall
describe the material terms and conditions of the impending liquidation
transaction and the provisions of this Section 2.8.2.6, and the Company shall
thereafter give such holders prompt notice of any material changes. The
liquidation transaction shall in no event take place sooner than 20 days after
the Company has given the first notice provided for herein or sooner than 10
days after the Company has given notice of any material changes provided for
herein; provided, however, that such periods may be shortened upon the written
consent of the holders of Preferred Stock that are entitled to such notice
rights or similar notice rights and that represent at least a majority of the
voting power of all then outstanding shares of each series of Preferred Stock.
-7-
<PAGE>
2.8.2.7. No Derogation of Protective Provisions
The provisions of Section 2.8.2 are in addition to the protective
provisions of Section 2.8.6.
2.8.3. Redemption
2.8.3.1. Redemption Option
The Company shall, upon receipt at any time on or after February
1, 2000 of the written request, respectively, of holders of not less than 60% of
the then outstanding Series A Stock or of holders of a majority of the then
outstanding Series B Stock, redeem any then unconverted shares of such series of
Preferred Stock.
2.8.3.2. Notice of Redemption Request
Upon receipt of a request for redemption under this Section
2.8.3, the Company shall promptly mail a written notice that such request has
been made (a "Redemption Request Notice"), postage prepaid, to each holder of
record of Preferred Stock at the address last shown on the records of the
Company, with a copy of the Redemption Request Notice to each such holder sent
by facsimile transmission, by tested or otherwise authenticated telex or by any
similar electronic communication. Within twenty days of the date of a Redemption
Request Notice, holders of the requisite percentage of any series of Preferred
Stock with redemption rights that are not subordinate to the redemption rights
of the series of Preferred Stock that requested redemption ("Parity Redemption
Stock") may join in the redemption request. For purposes of this Section 2.8.3,
Series A Stock and Series B Stock are, with respect to each other, Parity
Redemption Stock. In the event that the applicable percentage of all series of
Parity Redemption Stock join in the original redemption request, the Company may
forgo issuance of a Redemption Request Notice.
2.8.3.3. Notice of Redemption Dates
After the earlier of the twenty-day period described in Section
2.8.3.2 or, if all series of Parity Redemption Stock joined in the initial
redemption request, receipt by the Company of such initial redemption request
(the "Request Initiation Date"), the Company shall promptly mail a written
notice (a "Redemption Notice") to each holder of record (at the close of
business on the business day next preceding the day on which the Redemption
Notice is given) of shares of Parity Redemption Stock specifying the date in
each of three successive years following the Request Initiation Date (each a
"Redemption Date") as the dates
-8-
<PAGE>
on which one third of the shares of the then outstanding Parity Redemption Stock
as to which redemption has been requested will be redeemed. The first Redemption
Date shall be a business day that is at least 20 and not more than 90 days from
the Request Initiation Date and the second and third Redemption Dates shall be
the day that is one year and two years, respectively, from the first Redemption
Date; provided, however, if any such day is not a business day, the next
business day thereafter shall be the Redemption Date. The Redemption Notice
shall also specify the applicable redemption price for each series of Parity
Redemption Stock to be redeemed, the number of shares of each series of Parity
Redemption Stock anticipated by the Company to be redeemed from such holder on
each Redemption Date (assuming no conversion of any shares of Parity Redemption
Stock) and the place where redemption shall be made. The Company shall deliver
the Redemption Notice, postage prepaid, to each holder of record of Parity
Redemption Stock at the address last shown on the records of the Company, with a
copy of the Redemption Notice to each such holder sent by facsimile
transmission, by tested or otherwise authenticated telex or by any similar
electronic communication. No defect in the Redemption Notice or in the mailing
or publication thereof shall affect the validity of the redemption proceeding
with respect to the Company or any holder of Parity Redemption Stock except as
to any holder that has not received actual notice of the redemption.
2.8.3.4. Redemption Price
The redemption price per share of Series A Stock (the "Series A
Redemption Price ") shall be $1.38, plus any declared but unpaid dividends
thereon, plus simple interest at 10% per annum from the date of original
issuance of such share of Series A Stock until such share is redeemed, all as
adjusted for any combinations, consolidations, stock distributions or stock
dividends with respect to any such shares. The redemption price per share of
Series B Stock (the "Series B Redemption Price ") shall be $6.35, plus any
declared but unpaid dividends thereon, plus simple interest at 10% per annum
from the date of original issuance of such share of Series B Stock, all as
adjusted for any combinations, consolidations, stock distributions or stock
dividends with respect to any such shares. The Series A Redemption Price and
the Series B Redemption Price, together with the redemption price of any other
shares of Parity Redemption Stock, are collectively referred to in this Section
2.8.3.4 as the "Redemption Price."
2.8.3.5. Redemption Obligation
Subject to limitations imposed by law, the Company shall redeem on each
Redemption Date the number of shares of Parity Redemption Stock held by each
holder thereof determined by dividing (a) the aggregate number of shares of
Parity Redemption Stock held by such holder by (b) the number of remaining
Redemption
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Dates (including the Redemption Date to which such calculation applies) (such
obligation to redeem shares of Parity Redemption Stock being referred to herein
as a "Redemption Obligation"). If the funds of the Company legally available for
redemption of shares of Parity Redemption Stock on a Redemption Date are
insufficient to fulfill a Redemption Obligation and redeem the total number of
shares of Parity Redemption Stock to be redeemed on such Redemption Date, the
holders of such shares shall share ratably in any funds legally available for
redemption of such shares according to the respective amounts which would be
payable to them if the full number of shares to be redeemed on such Redemption
Date were actually redeemed, computed pro rata based on the aggregate Redemption
Price for the shares of Parity Redemption Stock held by such holder compared to
the aggregate Redemption Price for all the shares of Parity Redemption Stock to
be redeemed by the Company on the Redemption Date if the full number of shares
to be redeemed on such Redemption Date were actually redeemed (and the number of
shares of each series of Parity Redemption Stock to be redeemed from each holder
shall be computed pro rata based on the aggregate Redemption Price for the
shares of such series held by such holder compared to the aggregate Redemption
Price for all the shares of Parity Redemption Stock held by such holder).
2.8.3.6. Surrender of Stock
On or after each Redemption Date, each holder of shares of Parity
Redemption Stock shall surrender the certificate or certificates evidencing
shares of Parity Redemption Stock to be redeemed to the Company at any place
designated for such surrender in the Redemption Notice and shall then be
entitled to receive payment in cash, by wire transfer or by bank-certified check
of the Redemption Price for each share of Parity Redemption Stock to be
redeemed. If less than all of the shares represented by a share certificate are
to be redeemed, the Company shall issue a new certificate representing the
shares not redeemed.
2.8.3.7. Failure to Redeem
If and so long as any Redemption Obligation shall not fully be
satisfied, (a) each holder of shares of Parity Redemption Stock as to which a
Redemption Obligation has not been satisfied shall be entitled to convert such
shares into shares of Common Stock pursuant to the terms set forth elsewhere
herein, (b) the Company shall not, directly or indirectly, declare or pay any
dividend or make any distribution on, or purchase, redeem or satisfy any
mandatory redemption, sinking fund or other similar obligation in respect of,
any securities ranking junior to the Parity Redemption Stock with respect to
liquidation preference or warrants, rights or options exercisable for any such
junior securities, and (c) the Company shall not, directly or indirectly,
declare or pay any dividend or make any distribution on, or
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purchase, redeem, or satisfy any mandatory redemption, sinking fund or other
similar obligation in respect of, any Parity Redemption Stock, unless such
dividends or distributions on each share of Parity Redemption Stock are declared
and paid on a pro rata basis, or, in the event any mandatory redemption, sinking
fund or other similar obligation is then undischarged with respect to such
Parity Redemption Stock, unless the shares of Parity Redemption Stock are
redeemed on a pro rata basis. For purposes of this Section 2.8.3.7, "pro rata
basis" shall refer to the proportion that the distribution payable to holders of
each series of Parity Redemption Stock, respectively, bears to the aggregate
distribution payable to all holders of Parity Redemption Stock. The shares of
Parity Redemption Stock required to be redeemed but not so redeemed shall remain
outstanding and entitled to all rights and preferences provided herein. At any
time thereafter when additional funds of the Company are legally available for
the redemption of such shares, such funds will be used, at the end of the next
succeeding fiscal quarter, to redeem the balance of such shares, or such portion
thereof for which funds are then legally available, on the basis set forth
above.
2.8.3.8. Status of Redeemed Shares
From and after each Redemption Date, unless default shall be made
by the Company in paying the Redemption Price at the time and place specified in
the Redemption Notice, no dividends on shares of Parity Redemption Stock to be
redeemed on such Redemption Date shall be declared or accrue and all rights of
holders of such shares shall cease, except the right of holders of such shares
to receive the applicable Redemption Price, against delivery of certificates
representing such shares and such shares shall cease to be outstanding.
2.8.4. Conversion Rights
The holders of Series A Stock and Series B Stock shall have the
following rights with respect to the conversion of such shares into shares of
Common Stock (the "Conversion Rights"):
2.8.4.1. Right to Convert
2.8.4.1.1. Voluntary Conversion
Each share of Series A Stock and Series B Stock may, at the
option of the holder, be converted at any time, including after the delivery of
a Liquidation Notice, into such number of fully paid and nonassessable shares of
Common Stock as is equal to the product obtained by multiplying the applicable
Series A Conversion Rate or Series B Conversion Rate (determined under
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Section 2.8.4.2) by the number of shares of Series A Stock or Series B Stock
being converted.
2.8.4.1.2. Mandatory Conversion
Each outstanding share of Series A Stock and Series B Stock
shall be converted automatically, without any action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent, into the number of shares of
Common Stock into which such Series A Stock or Series B Stock is convertible
pursuant to Section 2.8.4.1.1 upon the earliest of (a) the moment immediately
prior to the closing of a firmly underwritten, public offering of shares of
Common Stock, registered under the Securities Act of 1933, as amended, in which
the aggregate gross offering proceeds (before deduction of underwriters'
discounts and commissions and expenses of the offering) are in excess of
$20,000,000 and (i) with respect to the automatic conversion of shares of Series
A Stock, the per share price at which such shares of Common Stock are offered to
the public is at least equal to $4.14 (adjusted to reflect the occurrence of any
Extraordinary Common Stock Event (as defined below)), (ii) with respect to the
automatic conversion of shares of Series B Stock, (A) if the closing of such
offering is on or before September 30, 1998, the per share price at which such
shares of Common Stock are offered to the public is at least equal to $12.70
(adjusted to reflect the occurrence of any Extraordinary Common Stock Event), or
(B) thereafter, the per share price at which such shares of Common Stock are
offered to the public is at least equal to $19.05 (adjusted to reflect the
occurrence of any Extraordinary Common Stock Event) or (b) the effectiveness of
any consent to or vote in favor of such conversion by holders of a majority of
the then outstanding shares of such series.
2.8.4.2. Conversion Rates
The conversion rate for Series A Stock in effect at any time (the
"Series A Conversion Rate") shall equal $1.38 divided by the Series A Conversion
Price, calculated as provided in Section 2.8.4.3. The conversion rate for Series
B Stock in effect at any time (the "Series B Conversion Rate") shall equal $6.35
divided by the Series B Conversion Price, calculated as provided in Section
2.8.4.3.
2.8.4.3. Conversion Prices
The conversion price for Series A Stock in effect from time to
time shall initially be $1.38, subject to adjustment, in accordance with Section
2.8.4.4 (the "Series A Conversion Price"). The conversion price for Series B
Stock in effect from
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time to time shall initially be $6.35, subject to adjustment, in accordance with
Section 2.8.4.4 (the "Series B Conversion Price").
2.8.4.4. Adjustments to Applicable Conversion Price
2.8.4.4.1. Extraordinary Common Stock Event
Upon the happening of an Extraordinary Common Stock Event
(as defined below) after the date of the initial issuance of any shares of
Series A Stock or Series B Stock, the Series A Conversion Price and Series B
Conversion Price, as applicable, shall, simultaneously with the happening of
such Extraordinary Common Stock Event, be adjusted by multiplying the then
effective Series A Conversion Price or Series B Conversion Price, as applicable,
by a fraction, the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such Extraordinary Common Stock Event and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such Extraordinary Common Stock Event, and the
product so obtained shall thereafter be the Series A Conversion Price and Series
B Conversion Price, respectively. The Series A Conversion Price and Series B
Conversion Price, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (a) the issuance of additional
shares of Common Stock as a dividend or other distribution on outstanding Common
Stock of the Company, (b) a subdivision of outstanding shares of Common Stock
into a greater number of shares of Common Stock, or (c) a combination of
outstanding shares of Common Stock into a smaller number of shares of Common
Stock.
2.8.4.4.2. Sale of Shares Below Applicable Conversion Price
(a) If, at any time after March 31, 1997, the Company shall
issue any Additional Stock (as defined in Section 2.8.4.5) without consideration
or for a consideration per share less than the Series A Conversion Price or
Series B Conversion Price, as applicable, in effect immediately before the
issuance of such Additional Stock, the respective Series A Conversion Price and
Series B Conversion Price in effect upon issuance (except as otherwise provided
in this Section 2.8.4.4.2) shall be adjusted to a price equal to the quotient
obtained by dividing the total computed under clause (x) below by the total
computed under clause (y) below as follows:
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(x) an amount equal to the sum of (i) the result obtained
by multiplying the number of shares of Common Stock deemed outstanding
immediately prior to such issuance (which shall include the actual number of
shares outstanding plus all shares issuable upon the conversion or exercise of
all outstanding convertible securities, warrants and options) by the Series A
Conversion Price or Series B Conversion Price, as applicable, then in effect,
and (ii) the aggregate consideration, if any, received by the Company upon the
issuance of such Additional Stock;
(y) the number of shares of Common Stock of the Company
outstanding immediately after each issuance (including the shares deemed
outstanding as provided above).
(b) No adjustment of the Series A Conversion Price or Series
B Conversion Price shall be made in an amount less than $.01 per share; provided
that any adjustments that are not required to be made by reason of this sentence
shall be carried forward and shall be taken into account in any subsequent
adjustment made to the respective Series A Conversion Price or Series B
Conversion Price. Except as provided in Subsections 2.8.4.4.1 and
2.8.4.4.2(e)(iii) and (iv), no adjustment of the Series A Conversion Price or
Series B Conversion Price pursuant to this Section 2.8.4.4.2 shall have the
effect of increasing the respective Series A Conversion Price or Series B
Conversion Price above the respective Series A Conversion Price or Series B
Conversion Price in effect immediately before such adjustment.
(c) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any discounts, commissions or other expenses allowed, paid or incurred
by the Company for any underwriting or otherwise in connection with the issuance
and sale thereof.
(d) In the case of the issuance of Common Stock for
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined by the Board
irrespective of any accounting treatment.
(e) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible into
or exchangeable for Common Stock, or options to purchase or rights to subscribe
for such convertible or exchangeable securities (which options, rights, or
convertible or exchangeable securities are not excluded from the definition of
Additional Stock), the following provisions shall apply:
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(i) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued for a consideration equal to the consideration
(determined in the manner provided in Subsections 2.8.4.4.2(c) and (d)) received
by the Company upon the issuance of such options or rights, plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby, but no further adjustment to the Series A Conversion Price or Series B
Conversion Price shall be made for the actual issuance of Common Stock upon the
exercise of such options or rights in accordance with their terms;
(ii) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued for a
consideration equal to the consideration received by the Company for any such
securities and related options or rights, plus the additional consideration, if
any, to be received by the Company upon the conversion or exchange of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in Subsections 2.8.4.4.2(c)
and (d)), but no further adjustments to the Series A Conversion Price or Series
B Conversion Price shall be made for the actual issuance of Common Stock upon
the conversion or exchange of such securities in accordance with their terms;
(iii) if such options, rights, or convertible or
exchangeable securities by their terms provide, with the passage of time or
otherwise, for any increase in the consideration payable to the Company, or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the respective Series A Conversion Price or
Series B Conversion Price computed upon the original issue thereof, and any
subsequent adjustments based thereon, shall, upon such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease with
respect to such options, rights and securities not already exercised, converted
or exchanged before such increase or decrease became effective, but no further
adjustment to the Series A Conversion Price or Series B Conversion Price shall
be made for the actual issuance of Common Stock upon the exercise of any such
options or rights or the conversion or exchange of such securities in accordance
with their terms;
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(iv) upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange, or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Series A Conversion Price and Series B Conversion Price, as applicable,
shall forthwith be readjusted to such Series A Conversion Price and Series B
Conversion Price as would have been obtained had the adjustment that was made
upon the issuance of such options, rights, or securities or options or rights
related to such securities been made upon the basis of the issuance of only the
number of shares of Common Stock actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities; and
(v) if any such options or rights shall be issued in
connection with the issuance and sale of other securities of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to such options or rights by the parties thereto, such options or
rights shall be deemed to have been issued for such consideration as determined
in good faith by the Board.
2.8.4.5. Additional Stock
"Additional Stock" shall mean any shares of Common Stock or
securities convertible into or exchangeable or exercisable for shares of Common
Stock issued (or deemed to have been issued pursuant to Subsection 2.8.4.4.2(e))
by the Company after March 31, 1997 other than:
(a) Common Stock issued pursuant to a transaction for which
the Series A Conversion Price or Series B Conversion Price, as applicable, is
adjusted under Section 2.8.4.4.1;
(b) Common Stock issued or issuable (whether directly or
pursuant to stock options or warrants) to employees, consultants, directors or
independent contractors (if in transactions with primarily nonfinancing
purposes) of the Company so long as (i) the issuance of such shares or the grant
of such options or warrants is approved or ratified by a majority of the Board,
including at least two members of the Board elected or designated by, or
representatives of, holders of Preferred Stock, (ii) the plan pursuant to which
any such issuance or grant is made is approved or ratified, by a majority of the
Board, including at least two members of the Board elected or designated by, or
representatives of, holders of Preferred Stock, or (iii) the issuance of such
shares or the grant of such options or warrants is approved or ratified by a
majority of the members of a committee of the Board that has been duly
authorized by the Board to act on behalf of the Board in respect of compensation
matters, provided that such majority of such committee includes at least two
members
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of the Board elected or designated by, or representatives of, holders of
Preferred Stock;
(c) Common Stock issued or issuable upon conversion of
Series A Stock or Series B Stock;
(d) Up to 100,000 shares of Common Stock issued or issuable
to licensors, lessors or vendors pursuant to lease financing arrangements
unanimously approved by the members of the Board elected at the direction of
holders of Preferred Stock pursuant to that certain Amended and Restated Voting
Agreement among the Company and certain holders of its shares of Common Stock
and Preferred Stock dated as of March 31, 1997;
(e) Common Stock issued or issuable upon conversion or
exercise of any securities convertible into or exchangeable or exercisable for
shares of Common Stock, provided that such securities are designated as excluded
from the definition of Additional Stock by the written consent of holders of a
majority of each of the Series A Stock and the Series B Stock, voting as two
separate classes; or
(f) Common Stock issued or issuable as a dividend or
distribution on Series A Stock or on Series B Stock or on any securities
convertible into or exchangeable or exercisable for shares of Common Stock,
provided that such securities are designated as excluded from the definition of
Additional Stock by the written consent of holders of a majority of each of the
Series A Stock and the Series B Stock, voting as two separate classes.
2.8.4.6. Mechanics of Conversion
Conversion shall be deemed to have been effected immediately
prior to the close of business on the Conversion Date (as defined below for
voluntary conversions and for mandatory conversions), and at such time, whether
or not certificates representing the shares being converted shall have been
received by the Company or its transfer agent in the case of a mandatory
conversion, the rights of the holder as holder of the converted shares of Series
A Stock or Series B Stock, as applicable, shall cease and the person or persons
in whose name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Common Stock represented thereby.
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2.8.4.6.1. Voluntary Conversion
Before any holder of shares of Series A Stock or Series B
Stock shall be entitled to voluntarily convert such shares to Common Stock
pursuant to Section 2.8.4.1.1, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Company or of any
transfer agent for such shares and, if appropriate, shall give written notice by
mail, postage prepaid, addressed to the same location at which the certificate
or certificates were or will be surrendered, of the election to convert such
shares and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. With respect to a
voluntary conversion pursuant to Section 2.8.4.1.1, the date when written notice
of the holder's election to convert is received by the Company or a transfer
agent for the shares to be converted, together with the certificate or
certificates representing the shares to be converted, shall be the "Conversion
Date."
2.8.4.6.2. Mandatory Conversion
Holders of shares of Series A Stock or Series B Stock
converted pursuant to the mandatory conversion provisions of Section 2.8.4.1.2
shall promptly surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or of any transfer agent for such shares
and, if other than the record holder of the converted shares, shall state the
name or names in which the certificate or certificates for shares of Common
Stock are to be issued. Whether or not such certificate or certificates have
been so surrendered, with respect to mandatory conversions pursuant to Section
2.8.4.1.2, the applicable date specified in Section 2.8.4.1.2 for automatic
conversion shall be the "Conversion Date."
2.8.4.6.3. Partial Conversion
In the event some but not all of the shares of Series A
Stock or Series B Stock represented by a certificate or certificates surrendered
by a holder are converted, the Company shall execute and deliver to or on the
order of the holder, at the expense of the Company, a new certificate
representing the shares of Series A Stock or Series B Stock, respectively, that
were not converted.
2.8.4.7. Capital Reorganization or Reclassification
If any capital reorganization or reclassification of the capital
stock of the Company shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, as a condition of such reorganization or
reclassification, lawful and adequate provisions shall be made whereby each
holder of a share or shares of
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Series A Stock and Series B Stock shall thereupon have the right to receive,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the
conversion of such share or shares of Series A Stock or Series B Stock, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such Common Stock immediately theretofore receivable
upon such conversion had such reorganization or reclassification not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the applicable
Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of the Conversion Rights.
2.8.4.8. Other Notices
In case at any time:
(a) The Company shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(b) The Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(c) There shall be any capital reorganization or
reclassification of the capital stock of the Company, or a consolidation or
merger of the Company with or into another entity or entities, or a sale, lease,
abandonment, transfer or other disposition of all or substantially all its
assets; or
(d) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give, by delivery in
person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Series A Stock or Series B
Stock at the address of such holder as shown on the books of the Company, (i) at
least 20 days' prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution
or subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up and (ii) in the case of any such
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reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up, at least 20 days' prior written notice
of the date when the same shall take place. Such notice in accordance with the
foregoing clause (i) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which holders of Common Stock
shall be entitled thereto and such notice in accordance with the foregoing
clause (ii) shall also specify the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding up, as the case may be.
2.8.4.9. Accountant's Certificate as to Adjustments; Notice by
the Company.
In each case of an adjustment or readjustment of the Series A
Conversion Rate or Series B Conversion Rate, respectively, as soon as
practicable following the adjustment event, the Company at its expense will
furnish each holder of Series A Stock or Series B Stock, as applicable, with a
certificate, prepared by the Chief Financial Officer of the Company, showing
such adjustment or readjustment and stating in detail the facts upon which such
adjustment or readjustment is based.
2.8.4.10. Reservation of Common Stock
The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Stock and Series B Stock,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series A
Stock and Series B Stock and, if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series A Stock and Series B Stock, the
Company shall immediately take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
2.8.5. Voting Power
2.8.5.1. General
Each holder of Series A Stock or Series B Stock shall be entitled
to vote on all matters submitted to a vote of shareholders and shall be entitled
to that number of votes equal to the largest number of whole shares of Common
Stock into which such holder's shares of Series A Stock and Series B Stock,
respectively, could
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be converted hereunder, at the record date for the determination of shareholders
entitled to vote on such matter, or, if no such record date is established, at
the date on which notice of the meeting of shareholders at which the vote is to
be taken is mailed, or the date any written consent of shareholders is solicited
if the vote is not to be taken at a meeting. Except as otherwise expressly
provided herein or by the Washington Business Corporation Act, as amended, the
holders of shares of the Series A Stock, Series B Stock and Common Stock shall
vote together as a single class on all matters submitted to a vote of
shareholders.
2.8.5.2. Preferred Stock Voting
So long as any shares of Preferred Stock remain outstanding, and
subject to the rights of any series of Preferred Stock that may from time to
time be authorized and outstanding, without the affirmative consent of the
holders of shares representing at least two-thirds (unless a greater number is
otherwise required by law) of the voting power of the Preferred Stock then
outstanding, acting together as a single class, given by written consent or by
vote at a meeting called for such purpose for which notice shall have been given
to the holders of Preferred Stock, the Company shall not:
(a) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Common Stock or Preferred
Stock or any series of Preferred Stock;
(b) amend or waive any provision of the Company's Articles
of Incorporation that has an adverse effect upon the rights of the Preferred
Stock;
(c) increase the size of the Board to more than six members;
(d) declare or pay any cash dividend or distribution on
shares of Common Stock;
(e) redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any of the Company's capital
stock unless such shares are:
(i) redeemed pursuant to the redemption provisions
hereof;
(ii) purchased or acquired from employees, officers,
directors, consultants or other persons performing services for the Company
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upon termination of the employment, consulting or other relationship between the
Company and such person pursuant to an employment or similar vesting agreement
or other stock repurchase agreement where the redemption or repurchase price
does not exceed the fair market value of such shares (as determined by the
Board, whose determination shall be conclusive) or, in the case of unvested
shares, the cost of such shares to the holder thereof; provided, however, that
the Company may repurchase shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Company or
any subsidiary regardless of whether such repurchase is pursuant to an
employment or similar vesting or other stock repurchase agreement so long as the
total amount of such repurchases does not exceed $25,000 during any 12-month
period; or
(iii) purchased pursuant to the exercise of the
Company's right of first offer pursuant to the Amended and Restated Co-Sale and
Right of First Offer Agreement among the Company and certain holders of its
Common Stock and Preferred Stock dated as of March 31, 1997 or the Company's
right of first offer pursuant to the Amended and Restated Investors' Rights
Agreement among the Company and certain holders of its Common Stock and
Preferred Stock dated as of March 31, 1997 upon a proposed transfer of such
capital stock;
(f) permit any subsidiary to issue or sell, or obligate
itself to issue or sell, except to the Company or any wholly owned subsidiary,
any capital stock of such subsidiary;
2.8.5.3. Series A Stock Voting
So long as no fewer than 1,449,388 shares of Series A Stock
remain outstanding, and subject to the rights of any series of Preferred Stock
that may from time to time be authorized and outstanding, without the
affirmative consent of the holders of shares representing a majority (unless a
greater number is otherwise required by law) of the voting power of the Series A
Stock then outstanding, acting separately as a class, given by written consent
or by vote at a meeting called for such purpose for which notice shall have been
given to the holders of Series A Stock, the Company shall not:
(a) amend or waive any provision of the Company's
Articles of Incorporation in any manner that has an adverse effect upon the
preferences, privileges, restrictions or other rights of Series A Stock compared
to any other series of Preferred Stock;
(b) amend or waive any provision of the Company's Bylaws
in any manner that has a material adverse effect upon the preferences,
-22-
<PAGE>
privileges, restrictions or other rights of the Series A Stock compared to any
other series of Preferred Stock;
(c) authorize or issue, or obligate itself to issue, any
new class or series of equity security or any security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, the Series A Stock with respect to redemption, voting, dividends or
distributions upon liquidation;
(d) approve or effect any liquidation or dissolution of
the Company;
(e) effect any sale, lease, assignment, transfer or
other conveyance of all or substantially all of the assets of the Company to any
person other than a wholly owned subsidiary of the Company, or any consolidation
or merger in which the holders of the Company's equity securities do not hold at
least a majority of the voting securities of the surviving corporation;
(f) authorize any increase in the number of authorized
shares of Series A Stock; or
(g) declare or pay any dividends or other distributions
on Series B Stock.
2.8.5.4. Series B Stock Voting
So long as no fewer than 419,947 shares of Series B Stock remain
outstanding, and subject to the rights of any series of Preferred Stock that may
from time to time be authorized and outstanding, without the affirmative consent
of the holders of shares representing a majority (unless a greater number is
otherwise required by law) of the voting power of the Series B Stock then
outstanding, acting separately as a class, given by written consent or by vote
at a meeting called for such purpose for which notice shall have been given to
the holders of Series B Stock, the Company shall not:
(a) amend or waive any provision of the Company's Articles
of Incorporation in any manner that has an adverse effect upon the preferences,
privileges, restrictions or other rights of Series B Stock compared to any other
series of Preferred Stock;
(b) amend or waive any provision of the Company's Bylaws in
any manner that has a material adverse effect upon the preferences,
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<PAGE>
privileges, restrictions or other rights of the Series B Stock compared to any
other series of Preferred Stock;
(c) authorize or issue, or obligate itself to issue, any new
class or series of equity security or any security convertible into or
exercisable for any equity security having a preference over, or being on a
parity with, the Series B Stock with respect to redemption, voting, dividends or
distributions upon liquidation;
(d) approve or effect any liquidation or dissolution of the
Company;
(e) effect any sale, lease, assignment, transfer or other
conveyance of all or substantially all of the assets of the Company to any
person other than a wholly owned subsidiary of the Company, or any consolidation
or merger in which the holders of the Company's equity securities do not hold at
least a majority of the voting securities of the surviving corporation;
(f) authorize any increase in the number of authorized
shares of Series B Stock; or
(g) declare or pay any dividends or other distributions on
Series A Stock.
2.8.6. No Reissuance of Stock
No share or shares of Series A Stock or Series B Stock converted,
redeemed, purchased or otherwise acquired by the Company shall be reissued, and
all such shares shall be canceled, retired and eliminated from the shares that
the Company shall be authorized to issue. The Company may from time to time take
such appropriate corporate action as may be necessary to reduce the authorized
number of shares of Series A Stock and Series B Stock accordingly.
3. Preemptive Rights
Except as provided in Section 2.4 of that certain Amended and Restated
Investors' Rights Agreement among the Company and certain holders of its Common
Stock and Preferred Stock dated March 31, 1997, the shareholders of the Company
have no preemptive rights to acquire additional shares of the capital stock of
the Company.
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<PAGE>
4. Cumulative Voting
The shareholders of the Company shall not be entitled to cumulative voting
at any election of directors.
5. Limitation of Director Liability
A director of the Company shall not be personally liable to the Company or
its shareholders for monetary damages for conduct as a director, except for
liability of the director (i) for acts or omissions that involve intentional
misconduct by the director or a knowing violation of law by the director, (ii)
for conduct violating RCW 23B.08.310 of the Washington Business Corporation Act,
or (iii) for any transaction from which the director will personally receive a
benefit in money, property or services to which the director is not legally
entitled. If the Washington Business Corporation Act is amended in the future
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Company shall be
eliminated or limited to the full extent permitted by the Washington Business
Corporation Act, as so amended, without any requirement of further action by the
shareholders.
6. Indemnification
The Company shall indemnify any individual made a party to a proceeding
because that individual is or was a director of the Company and shall advance or
reimburse the reasonable expenses incurred by such individual in advance of
final disposition of the proceeding, without regard to the limitations in RCW
23B.08.510 through 23B.08.550 of the Washington Business Corporation Act, or any
other limitation which may hereafter be enacted to the extent such limitation
may be disregarded if authorized by the Articles of Incorporation, to the full
extent and under all circumstances permitted by applicable law.
Any repeal or modification of this Article by the shareholders of the
Company shall not adversely affect any right of any individual who is or was a
director of the Company which existed at the time of such repeal or
modification.
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<PAGE>
EXECUTED this 2nd day of July, 1998.
ONYX SOFTWARE CORPORATION
By /s/ Brent Frei
------------------------
Brent Frei
President and Secretary
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<PAGE>
ARTICLES OF AMENDMENT
OF
ONYX SOFTWARE CORPORATION
1. Section 2.1 of the Articles of Incorporation is deleted in its entirety
and amended to read as follows:
2.1. Authorized Capital
The Company is authorized to issue 50,000,000 shares, consisting
of 40,000,000 shares designated as common stock ("Common Stock") and
10,000,000 shares designated as preferred stock ("Preferred Stock"),
the par value of each of which is $0.01. Common Stock is subject to
the rights and preferences of Preferred Stock as hereinafter set
forth. Except to the extent such rights are granted to Preferred
Stock or one or more series thereof, holders of shares of Common Stock
shall have unlimited voting rights and are entitled to receive the net
assets of the Company upon dissolution.
2. Section 2.8.4.1.1 of the Articles of Incorporation is deleted in its
entirety and amended to read as follows:
Each share of Series A Stock and Series B Stock may, at the
option of the holder, be converted at any time, including after the
delivery of a Liquidation Notice, into such number of fully paid and
nonassessable shares of Common Stock as is equal to the product
obtained by multiplying the applicable Series A Conversion Rate or
Series B Conversion Rate (determined under Section 2.8.4.2) by the
number of shares of Series A Stock or Series B Stock being converted
(rounded to the nearest whole number of shares, with .5 being rounded
up).
3. Section 2.8.4.1.2 of the Articles of Incorporation is deleted in its
entirety and amended to read as follows:
2.8.4.1.2. Mandatory Conversion
Each outstanding share of Series A Stock and Series B Stock
shall be converted automatically, without any action by the holders of
such shares and whether or not the certificates representing such
shares are surrendered to the Company or its
<PAGE>
transfer agent, into the number of shares of Common Stock into which
such Series A Stock or Series B Stock is convertible pursuant to
Section 2.8.4.1.1 upon the earliest of (a) the moment immediately
prior to the closing of a firmly underwritten, public offering of
shares of Common Stock, registered under the Securities Act of 1933,
as amended, in which, with respect to the automatic conversion of the
shares of Series A Stock only, the aggregate gross offering proceeds
(before deduction of underwriters' discounts and commissions and
expenses of the offering) are in excess of $20,000,000 or (b) the
effectiveness of any consent to or vote in favor of such conversion by
holders of a majority of the then outstanding shares of such series.
4. Section 2.8.4.3 of the Articles of Incorporation is deleted in its
entirety and amended to read as follows:
2.8.4.3. Conversion Prices
The conversion price for Series A Stock in effect from time to
time shall initially be $1.38, subject to adjustment, in accordance
with Section 2.8.4.4 (the "Series A Conversion Price"). The
conversion price for Series B Stock in effect from time to time shall
initially be $5.883034327, subject to adjustment, in accordance with
Section 2.8.4.4 (the "Series B Conversion Price").
5. A new Section 2.8.7 of the Articles of Incorporation has been added to
read as follows:
2.8.7. Elimination of Preferred Stock Provisions Upon Conversion of
Outstanding Shares
When, as a result of the conversion of the outstanding shares of
Preferred Stock into shares of Common Stock, no shares of Preferred
Stock shall remain, Section 2.8 shall no longer be in effect and
operative.
6. Section 3 of the Articles of Incorporation is deleted in its entirety
and amended to read as follows:
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2
<PAGE>
3. Preemptive Rights
The shareholders of the Company have no preemptive rights to
acquire additional shares of the capital stock of the Company.
7. Section 5 of the Articles of Incorporation is deleted in its entirety
and amended to read as follows:
5. Directors
5.1. Number; Election; Term
Following a Full Conversion Event, the number of Directors of
the Company shall be determined, and the Directors of the Company
shall be elected and removed from office, as provided in this Section
5.1.
The number of Directors of the Company shall be determined in
the manner provided by the Bylaws and may be increased or decreased
from time to time in the manner provided therein. Prior to the first
annual election of Directors following such a Full Conversion Event,
unless a Director earlier dies, resigns or is removed, his or her term
of office shall expire at the next annual meeting of shareholders. At
the first annual election of Directors following such a Full
Conversion Event, the Board shall be divided into three classes, with
said classes to be as equal in number as may be possible, with any
Director or Directors in excess of the number divisible by three being
assigned to Class 3 and Class 2, as the case may be. At the first
election of Directors to such classified Board, each Class 1 Director
shall be elected to serve until the next ensuing annual meeting of
shareholders, each Class 2 Director shall be elected to serve until
the second ensuing annual meeting of shareholders and each Class 3
Director shall be elected to serve until the third ensuing annual
meeting of shareholders. At each annual meeting of shareholders
following the meeting at which the Board is initially classified, the
number of Directors equal to the number of Directors in the class
whose term expires at the time of such meeting shall be elected to
serve until the third ensuing annual meeting of shareholders.
Notwithstanding any of the foregoing provisions of this Article,
Directors shall serve until their
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3
<PAGE>
successors are elected and qualified or until their earlier death,
resignation or removal from office, or until there is a decrease in
the number of Directors.
The Directors of the Company may be removed only for cause; such
removal shall be in the manner provided by the Bylaws.
5.2. Limitation of Director Liability
A director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for conduct as a
director, except for liability of the director (i) for acts or
omissions that involve intentional misconduct by the director or a
knowing violation of law by the director, (ii) for conduct violating
RCW 23B.08.310 of the Washington Business Corporation Act, or (iii)
for any transaction from which the director will personally receive a
benefit in money, property or services to which the director is not
legally entitled. If the Washington Business Corporation Act is
amended in the future to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Company shall be eliminated or limited
to the full extent permitted by the Washington Business Corporation
Act, as so amended, without any requirement of further action by the
shareholders.
8. A new Section 7 has been added to read as follows:
7. Special Voting Requirements
Following a Full Conversion Event, in addition to any
affirmative vote required by law, by these Restated Articles of
Incorporation or otherwise, any "Business Combination" (as hereinafter
defined) involving the Company shall be subject to approval in the
manner set forth in this Section 7.
7.1. Definitions
For the purposes of this Section 7:
(a) "Business Combination" means (i) a merger, share exchange or
consolidation of the Company or any of its
- -------------------------------------------------------------------------------
4
<PAGE>
Subsidiaries with any other corporation or entity; (ii) the sale,
lease, exchange, mortgage, pledge, transfer or other disposition or
encumbrance, whether in one transaction or a series of transactions,
by the Company or any of its Subsidiaries of all or a substantial part
of the Company's assets otherwise than in the usual and regular course
of business; or (iii) any agreement, contract or other arrangement
providing for any of the foregoing transactions.
(b) "Continuing Director" means any member of the Board who was
a member of the Board on September 30, 1998 or who is elected to the
Board after September 30, 1998 upon the recommendation of a majority
of the Continuing Directors voting separately and as a subclass of
Directors on such recommendation.
(c) "Subsidiary" means a domestic or foreign corporation, a
majority of the outstanding voting shares of which are owned, directly
or indirectly, by the Company.
7.2. Vote Required for Business Combinations
7.2.1. Supermajority Vote
Except as provided in Subsections 7.2.2 and 7.2.3, the
affirmative vote of the holders of not less than two-thirds of the
outstanding shares entitled to vote thereon and, to the extent, if
any, provided by resolution adopted by the Board authorizing the
issuance of a class or series of Common Stock or Preferred Stock, the
affirmative vote of the holders of not less than two-thirds of the
outstanding shares of such class or series, voting as a separate
voting group, shall be required for the adoption or authorization of a
Business Combination.
7.2.2. Majority Vote
Notwithstanding Subsection 7.2.1, if a Business Combination
shall have been approved by a majority of the Continuing Directors,
voting separately and as a subclass of Directors, and if such Business
Combination is otherwise required to be approved by the Company's
shareholders pursuant to the provisions of the Washington Business
Corporation Act or of these Restated Articles of Incorporation other
than this
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5
<PAGE>
Section 7, then the affirmative vote of the holders of not less than a
majority of the outstanding shares entitled to vote thereon and, to
the extent, if any, provided by resolution adopted by the Board
authorizing the issuance of a class or series of Common Stock or
Preferred Stock, the affirmative vote of the holders of not less than
a majority of the outstanding shares of such class or series, voting
as a separate voting group, shall be required for the adoption or
authorization of such Business Combination.
7.2.3. No Shareholder Vote
Notwithstanding Subsection 7.2.1 or 7.2.2, if a Business
Combination shall have been approved by a majority of the Continuing
Directors, voting separately and as a subclass of Directors, and if
such Business Combination is not otherwise required to be approved by
the Company's shareholders pursuant to the provisions of the
Washington Business Corporation Act or of these Restated Articles of
Incorporation other than this Section 7, then no vote of the
shareholders of the Company shall be required for approval of such
Business Combination.
9. A new Section 8 of the Articles of Incorporation has been added to read
as follows:
8. Special Meetings of Shareholders
Following a Full Conversion Event, special meetings of the
shareholders shall be called in the manner set forth in this Section
8.
The Chairman of the Board, the President or the Board may call
special meetings of the shareholders for any purpose. Further, a
special meeting of the shareholders shall be held if the holders of
not less than twenty-five percent (25%) of all the votes entitled to
be cast on any issue proposed to be considered at such special meeting
have dated, signed and delivered to the Secretary of the Company no
later than 20 days prior to the date of such meeting one or more
written demands for such meeting, describing the purpose or purposes
for which it is to be held.
10. A new Section 9 of the Articles of Incorporation has been added to
read as follows:
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6
<PAGE>
9. Amendments to Restated Articles of Incorporation
The Company reserves, and the rights of the shareholders of the
Company are granted subject to, the right to amend or repeal any of
the provisions contained in these Restated Articles of Incorporation.
Following a Full Conversion Event, the provisions contained in these
Restated Articles shall only be amended as follows:
9.1. Supermajority Voting
Except as provided in Section 9.2 or Section 9.3, the following
Sections and Subsections may be amended or repealed only upon the
affirmative vote of the holders of at least two-thirds of the
outstanding shares and, to the extent, if any, provided by resolution
adopted by the Board authorizing the issuance of a class or series of
Common Stock or Preferred Stock, by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of such class
or series, voting as a separate voting group:
Section 2.1 ("Shares--Authorized Capital")
Section 2.2 ("Shares--Issuance of Preferred Stock in Series")
Section 3 ("Preemptive Rights")
Section 4 ("Cumulative Voting")
Section 5 ("Directors")
Section 7 ("Special Voting Requirements")
Section 8 ("Special Meetings of Shareholders")
Section 9 ("Amendments to Restated Articles of Incorporation").
9.2. Majority Voting
Notwithstanding the provisions of Section 9.1, and except as
provided in Section 9.3, an amendment or repeal of a Section
identified in Section 9.1 that is approved by a majority of the
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7
<PAGE>
Continuing Directors (as defined in Section 9.1), voting separately
and as a subclass of Directors, shall require the affirmative vote of
the holders of at least a majority of the outstanding shares entitled
to vote thereon and, to the extent, if any, provided by resolution
adopted by the Board authorizing the issuance of a class or series of
Common Stock or Preferred Stock, by the affirmative vote of the
holders of at least a majority of the outstanding shares of such class
or series, voting as a separate voting group.
9.3. No Shareholder Vote
Notwithstanding the provisions of Section 9.1 or 9.2 hereof, if
the amendment or repeal of any Section not identified in Section 9.1
shall have been approved by a majority of the Continuing Directors,
voting separately and as a subclass of Directors, and if such
amendment or repeal is not otherwise required to be approved by the
Company's shareholders pursuant to the provisions of the Washington
Business Corporation Act or of these Restated Articles of
Incorporation other than this Section 9, then no vote of the
shareholders of the Company shall be required for approval of such
amendment or repeal.
11. A new Section 10 of the Articles of Incorporation has been added to
read as follows:
10. Restatement of Articles of Incorporation
Following a Full Conversion Event, the Board of Directors may,
at its discretion and without a vote of the shareholders of the
Company, cause the elimination of the provisions of these Restated
Articles of Incorporation which are no longer operative and in effect
by reason of such Full Conversion Event, including, without
limitation, Section 2.8, and make such clerical amendments as are
appropriate to effectuate any amendments to the provisions of these
articles of incorporation that become effective upon such Full
Conversion Event, by providing for the filing of restated articles of
incorporation setting forth the provisions of these Restated Articles
of Incorporation, as they may be amended, which remain in effect and
operative.
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8
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
ONYX SOFTWARE CORPORATION
Originally adopted on: March 9, 1994
Amended and restated on November 24, 1998
December 8, 1998
Amendments are listed on page i
<PAGE>
AMENDMENTS
----------
<TABLE>
<CAPTION>
Section Effect of Amendment Date of Amendment
------- ------------------- -----------------
<C> <S> <C>
2.2 Change percent required from 10% to December 8, 1998
25% to call special shareholder
meetings
2.5 To implement changes to SEC December 8, 1998
shareholder proposal rules
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
--------
<S> <C> <C>
SECTION 1. OFFICES....................................................... 1
SECTION 2. SHAREHOLDERS.................................................. 1
2.1 Annual Meeting................................................ 1
2.2 Special Meetings.............................................. 1
2.3 Meetings by Communications Equipment.......................... 1
2.4 Date, Time and Place of Meeting............................... 2
2.5 Notice of Meeting............................................. 2
2.6 Business for Shareholders' Meetings........................... 2
2.6.1 Business at Annual Meetings........................... 2
2.6.2 Business at Special Meetings.......................... 3
2.6.3 Notice to Corporation................................. 3
2.7 Waiver of Notice.............................................. 3
2.8 Fixing of Record Date for Determining Shareholders............ 4
2.9 Voting Record................................................. 4
2.10 Quorum........................................................ 4
2.11 Manner of Acting.............................................. 5
2.12 Proxies....................................................... 5
2.13 Voting of Shares.............................................. 5
2.14 Voting for Directors.......................................... 5
2.15 Action by Shareholders Without a Meeting...................... 5
SECTION 3. BOARD OF DIRECTORS............................................ 6
3.1 General Powers................................................ 6
3.2 Number and Tenure............................................. 6
3.3 Annual and Regular Meetings................................... 6
3.4 Special Meetings.............................................. 6
3.5 Meetings by Communications Equipment.......................... 7
3.6 Notice of Special Meetings.................................... 7
3.6.1 Personal Delivery..................................... 7
3.6.2 Delivery by Mail...................................... 7
3.6.3 Delivery by Private Carrier........................... 7
3.6.4 Facsimile Notice...................................... 7
3.6.5 Delivery by Telegraph................................. 7
3.6.6 Oral Notice........................................... 8
3.7 Waiver of Notice.............................................. 8
3.7.1 In Writing............................................ 8
3.7.2 By Attendance......................................... 8
3.8 Quorum........................................................ 8
3.9 Manner of Acting.............................................. 8
3.10 Presumption of Assent......................................... 9
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
3.11 Action by Board or Committees Without a Meeting............... 9
3.12 Resignation................................................... 9
3.13 Removal....................................................... 9
3.14 Vacancies..................................................... 9
3.15 Executive and Other Committees................................ 10
3.15.1 Creation of Committees................................ 10
3.15.2 Authority of Committees............................... 10
3.15.3 Minutes of Meetings................................... 10
3.15.4 Removal............................................... 10
3.16 Compensation.................................................. 11
SECTION 4. OFFICERS...................................................... 11
4.1 Appointment and Term.......................................... 11
4.2 Resignation................................................... 11
4.3 Removal....................................................... 11
4.4 Contract Rights of Officers................................... 11
4.5 Chairman of the Board......................................... 12
4.6 President..................................................... 12
4.7 Vice President................................................ 12
4.8 Secretary..................................................... 12
4.9 Treasurer..................................................... 12
4.10 Salaries...................................................... 13
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS......................... 13
5.1 Contracts..................................................... 13
5.2 Loans to the Corporation...................................... 13
5.3 Checks, Drafts, Etc........................................... 13
5.4 Deposits...................................................... 13
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER.................... 13
6.1 Issuance of Shares............................................ 13
6.2 Certificates for Shares....................................... 14
6.3 Stock Records................................................. 14
6.4 Restriction on Transfer....................................... 14
6.5 Transfer of Shares............................................ 15
6.6 Lost or Destroyed Certificates................................ 15
SECTION 7. BOOKS AND RECORDS............................................. 15
SECTION 8. ACCOUNTING YEAR............................................... 16
SECTION 9. SEAL.......................................................... 16
SECTION 10. INDEMNIFICATION.............................................. 16
10.1 Right to Indemnification...................................... 16
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
10.2 Restrictions on Indemnification............................... 17
10.3 Advancement of Expenses....................................... 17
10.4 Right of Indemnitee to Bring Suit............................. 17
10.5 Procedures Exclusive.......................................... 18
10.6 Nonexclusivity of Rights...................................... 18
10.7 Insurance, Contracts and Funding.............................. 18
10.8 Indemnification of Employees and Agents of the Corporation.... 18
10.9 Persons Serving Other Entities................................ 18
SECTION 11. AMENDMENTS................................................... 19
</TABLE>
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<PAGE>
Amended and Restated Bylaws
of
ONYX Software Corporation
SECTION 1. OFFICES
The principal office of the corporation shall be located at the principal
place of business or such other place as the Board of Directors ("Board") may
designate. The corporation may have such other offices as the Board may
designate or as the business of the corporation may require.
SECTION 2. SHAREHOLDERS
2.1 Annual Meeting
The annual meeting of the shareholders shall be held on the second Tuesday
in the month of March in each year at 9:00 a.m., or at such other date or time
as may be determined by the Board of Directors for the purpose of electing
Directors and transacting such other business as may properly come before the
meeting. If the day fixed for the annual meeting is a legal holiday at the
place of the meeting, the meeting shall be held on the next succeeding business
day.
2.2 Special Meetings
The Chairman of the Board, the President or the Board may call special
meetings of the shareholders for any purpose. Further, a special meeting of the
shareholders shall be held if the holders of not less than 25% of all the votes
entitled to be cast on any issue proposed to be considered at such special
meeting have dated, signed and delivered to the Secretary one or more written
demands for such meeting, describing the purpose or purposes for which it is to
be held.
2.3 Meetings by Communications Equipment
Shareholders may participate in any meeting of the shareholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall
constitute presence in person at a meeting.
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<PAGE>
2.4 Date, Time and Place of Meeting
Except as otherwise provided in these Bylaws, all meetings of shareholders,
including those held pursuant to demand by shareholders, shall be held on such
date and at such time and place designated by or at the direction of the Board.
2.5 Notice of Meeting
Written notice stating the place, day and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board, the Chairman of the
Board, the President or the Secretary to each shareholder entitled to notice of
or to vote at the meeting not less than 10 nor more than 60 days before the
meeting, except that notice of a meeting to act on an amendment to the Articles
of Incorporation, a plan of merger or share exchange, the sale, lease, exchange
or other disposition of all or substantially all of the corporation's assets
other than in the regular course of business or the dissolution of the
corporation shall be given not less than 20 or more than 60 days before such
meeting. If an annual or special shareholders' meeting is adjourned to a
different date, time or place, no notice of the new date, time or place is
required if they are announced at the meeting before adjournment. If a new
record date for the adjourned meeting is or must be fixed, notice of the
adjourned meeting must be given to shareholders entitled to notice of or to vote
as of the new record date.
Such notice may be transmitted by mail, private carrier, personal delivery,
telegraph, teletype or communications equipment that transmits a facsimile of
the notice. If these forms of written notice are impractical in the view of the
Board, the Chairman of the Board, the President or the Secretary, written notice
may be transmitted by an advertisement in a newspaper of general circulation in
the area of the corporation's principal office. If such notice is mailed, it is
effective when deposited in the official government mail, first-class postage
prepaid, properly addressed to the shareholder at such shareholder's address as
it appears in the corporation's current record of shareholders. Notice given in
any other manner is effective when dispatched to the shareholder's address,
telephone number or other number appearing on the records of the corporation.
Any notice given by publication is effective five days after first publication.
2.6 Business for Shareholders' Meetings
2.6.1 Business at Annual Meetings
In addition to the election of directors, other proper business may be
transacted at an annual meeting of shareholders, provided that such business is
properly brought before such meeting. To be properly brought before an annual
meeting, business must be (a) brought by or at the direction of the Board or (b)
brought before the meeting by a shareholder pursuant to written notice thereof,
in accordance with subsection 2.6.3 hereof, and received by the Secretary not
fewer than 90 nor more than 120 days prior to the anniversary date of the prior
year's annual meeting. Any such shareholder notice shall set forth (i) the name
and address of
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<PAGE>
the shareholder proposing such business; (ii) a representation that the
shareholder is entitled to vote at such meeting and a statement of the number of
shares of the corporation which are beneficially owned by the shareholder; (iii)
a representation that the shareholder intends to appear in person or by proxy at
the meeting to propose such business; and (iv) as to each matter the Articles of
Amendment proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting, the language of the proposal (if appropriate), and
any material interest of the shareholder in such business. No business shall be
conducted at any annual meeting of shareholders except in accordance with this
subsection 2.6.1. If the facts warrant, the Board, or the chairman of an annual
meeting of shareholders, may determine and declare that (a) that a proposal does
not constitute proper business to be transacted at the meeting or (b) that
business was not properly brought before the meeting in accordance with the
provisions of this subsection 2.6.1 and, if, in either case, it is so
determined, any such business shall not be transacted. In addition to the
procedures set forth in this subsection 2.6.1, shareholders desiring to include
a proposal in the Company's proxy statement must also comply with the
requirements set forth in Rule 14a-8 under Section 14 of the Securities Exchange
Act of 1934, as amended, or any successor provision.
2.6.2 Business at Special Meetings
At any special meeting of the shareholders, only such business as is
specified in the notice of such special meeting given by or at the direction of
the person or persons calling such meeting, in accordance with subsection 2.4
hereof, shall come before such meeting.
2.6.3 Notice to Corporation
Any written notice required to be delivered by a shareholder to the
corporation pursuant to subsection 2.2, subsection 2.4, subsection 2.6.1 or
subsection 2.6.2 hereof must be given, either by personal delivery or by
registered or certified mail, postage prepaid, to the Secretary at the
corporation's principal executive offices in the City of Bellevue, State of
Washington Any such shareholder notice shall set forth (i) the name and address
of the shareholder proposing such business; (ii) a representation that the
shareholder is entitled to vote at such meeting and a statement of the number of
shares of the corporation that are beneficially owned by the shareholder; (iii)
a representation that the shareholder intends to appear in person or by proxy at
the meeting to propose such business; and (iv) as to each matter the shareholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting, the language of the proposal (if appropriate), and any
material interest of the shareholder in such business.
2.7 Waiver of Notice
Whenever any notice is required to be given to any shareholder under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver of notice in writing, signed by the person or
persons entitled to such notice and
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delivered to the corporation, whether before or after the date and time of the
meeting or before or after the action to be taken by consent is effective, shall
be the equivalent of the giving of such notice. Further, notice of the time,
place and purpose of any meeting will be waived by any shareholder by attendance
in person or by proxy, unless such shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting.
2.8 Fixing of Record Date for Determining Shareholders
For the purpose of determining shareholders entitled (a) to notice of or to
vote at any meeting of shareholders or any adjournment thereof, (b) to demand a
special meeting, or (c) to receive payment of any dividend, or in order to make
a determination of shareholders for any other purpose, the Board may fix a
future date as the record date for any such determination. Such record date
shall be not more than 70 days, and, in case of a meeting of shareholders, not
less than 10 days, prior to the date on which the particular action requiring
such determination is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting, the
record date shall be the day immediately preceding the date on which notice of
the meeting is first given to shareholders. Such a determination shall apply to
any adjournment of the meeting unless the Board fixes a new record date, which
it shall do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting. If no record date is set for the
determination of shareholders entitled to receive payment of any stock dividend
or distribution (other than one involving a purchase, redemption, or other
acquisition of the corporation's shares) the record date shall be the date the
Board authorizes the stock dividend or distribution.
2.9 Voting Record
At least 10 days before each meeting of shareholders, an alphabetical list
of the shareholders entitled to notice of such meeting shall be made, arranged
by voting group and by each class or series of shares, with the address of and
number of shares held by each shareholder. This record shall be kept at the
principal office of the corporation for 10 days prior to such meeting, and shall
be kept open at such meeting, for the inspection of any shareholder or any
shareholder's agent or attorney.
2.10 Quorum
A majority of the votes entitled to be cast on a matter by the holders of
shares that, pursuant to the Articles of Incorporation or the Washington
Business Corporation Act, are entitled to vote and be counted collectively upon
such matter, represented in person or by proxy, shall constitute a quorum of
such shares at a meeting of shareholders. If less than a majority of such votes
are represented at a meeting, a majority of the votes so represented may adjourn
the meeting from time to time. Any business may be transacted at a reconvened
meeting that might have been transacted at the meeting as originally called,
provided a quorum is present or represented at such meeting. Once a share is
represented for any purpose at a meeting other than solely to object to holding
the meeting or transacting business, it is deemed present for quorum purposes
for the remainder of the meeting and any
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adjournment (unless a new record date is or must be set for the adjourned
meeting) notwithstanding the withdrawal of enough shareholders to leave less
than a quorum.
2.11 Manner of Acting
If a quorum is present, action on a matter other than the election of
Directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed the
votes cast against such action by the shares entitled to vote and be counted
collectively thereon, unless the Articles of Incorporation or the Washington
Business Corporation Act requires a greater number of affirmative votes.
2.12 Proxies
A shareholder may vote by proxy executed in writing by the shareholder or
by his or her attorney-in-fact or agent. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes. A proxy shall become invalid 11 months after the date of its execution,
unless otherwise provided in the proxy. A proxy with respect to a specified
meeting shall entitle its holder to vote at any reconvened meeting following
adjournment of such meeting but shall not be valid after the final adjournment.
2.13 Voting of Shares
Except as provided in the Articles of Incorporation or in Section 2.14,
each outstanding share entitled to vote with respect to a matter submitted to a
meeting of shareholders shall be entitled to one vote upon such matter.
2.14 Voting for Directors
Each shareholder entitled to vote at an election of Directors may vote, in
person or by proxy, the number of shares owned by such shareholder for as many
persons as there are Directors to be elected and for whose election such
shareholder has a right to vote, or (unless otherwise provided in the Articles
of Incorporation), each such shareholder may cumulate such shareholder's votes
by distributing among one or more candidates as many votes as are equal to the
number of such Directors multiplied by the number of such shareholder's shares.
Unless otherwise provided in the Articles of Incorporation, the candidates
elected shall be those receiving the largest number of votes cast, up to the
number of Directors to be elected.
2.15 Action by Shareholders Without a Meeting
Any action that may or is required to be taken at a meeting of the
shareholders may be taken without a meeting by unanimous consent if one or more
written consents setting forth the action so taken shall be signed by all the
shareholders entitled to vote with respect to the matter. Unless the consent
specifies a later effective date, actions taken by written consent of the
shareholders are effective when (a) consents sufficient to authorize taking the
action are in possession of the corporation and (b) the period of advance notice
required by the Articles of
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Incorporation to be given to any nonconsenting or nonvoting shareholders has
been satisfied. Any such consent shall be inserted in the minute book as if it
were the minutes of a meeting of the shareholders.
SECTION 3. BOARD OF DIRECTORS
3.1 General Powers
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the corporation shall be managed under the direction
of, the Board, except as may be otherwise provided in these Bylaws, the Articles
of Incorporation or the Washington Business Corporation Act.
3.2 Number and Tenure
The Board shall be composed of not less than 1 nor more than 11 Directors,
the specific number to be set by resolution of the Board. The number of
Directors may be changed from time to time by amendment to these Bylaws, but no
decrease in the number of Directors shall have the effect of shortening the term
of any incumbent Director. Unless a Director dies, resigns, or is removed, his
or her term of office shall expire at the next annual meeting of shareholders;
provided, however, that a Director shall continue to serve until his or her
successor is elected or until there is a decrease in the authorized number of
Directors. Directors need not be shareholders of the corporation or residents
of the state of Washington and need not meet any other qualifications.
3.3 Annual and Regular Meetings
An annual Board meeting shall be held without notice immediately after and
at the same place as the annual meeting of shareholders. By resolution the
Board, or any committee designated by the Board, may specify the time and place
for holding regular meetings without notice other than such resolution.
3.4 Special Meetings
Special meetings of the Board or any committee designated by the Board may
be called by or at the request of the Chairman of the Board, the President, the
Secretary or, in the case of special Board meetings, any Director and, in the
case of any special meeting of any committee designated by the Board, by its
Chairman. The person or persons authorized to call special meetings may fix any
place for holding any special Board or committee meeting called by them.
3.5 Meetings by Communications Equipment
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by, or conduct the meeting
through the use of, any
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means of communication by which all Directors participating in the meeting can
hear each other during the meeting. Participation by such means shall constitute
presence in person at a meeting.
3.6 Notice of Special Meetings
Notice of a special Board or committee meeting stating the place, day and
hour of the meeting shall be given to a Director in writing or orally, as
provided below. Neither the business to be transacted at nor the purpose of any
special meeting need be specified in the notice of such meeting.
3.6.1 Personal Delivery
If notice is given by personal delivery, the notice shall be delivered to a
Director at least two days before the meeting.
3.6.2 Delivery by Mail
If notice is delivered by mail, the notice shall be deposited in the
official government mail at least five days before the meeting, properly
addressed to a Director at his or her address shown on the records of the
corporation, with postage thereon prepaid.
3.6.3 Delivery by Private Carrier
If notice is given by private carrier, the notice shall be dispatched to a
Director at his or her address shown on the records of the corporation at least
three days before the meeting.
3.6.4 Facsimile Notice
If notice is delivered by wire or wireless equipment that transmits a
facsimile of the notice, the notice shall be dispatched at least two days before
the meeting to a Director at his or her telephone number or other number
appearing on the records of the corporation.
3.6.5 Delivery by Telegraph
If notice is delivered by telegraph, the notice shall be delivered to the
telegraph company for delivery to a Director at his or her address shown on the
records of the corporation at least three days before the meeting.
3.6.6 Oral Notice
If notice is delivered orally, by telephone, in person or by wire or
wireless equipment that does not transmit a facsimile of the notice, the notice
shall be communicated to the Director at least two days before the meeting.
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3.7 Waiver of Notice
3.7.1 In Writing
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any regular or special meeting of the Board or any committee designated by
the Board need be specified in the waiver of notice of such meeting.
3.7.2 By Attendance
A Director's attendance at or participation in a Board or committee meeting
shall constitute a waiver of notice of such meeting, unless the Director at the
beginning of the meeting, or promptly upon his or her arrival, objects to
holding the meeting or transacting business at such meeting and does not
thereafter vote for or assent to action taken at the meeting.
3.8 Quorum
A majority of the number of Directors fixed by or in the manner provided in
these Bylaws shall constitute a quorum for the transaction of business at any
Board meeting but, if less than a majority are present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice. A majority of the number of Directors composing any committee
of the Board, as established and fixed by resolution of the Board, shall
constitute a quorum for the transaction of business at any meeting of such
committee but, if less than a majority are present at a meeting, a majority of
such Directors present may adjourn the committee meeting from time to time
without further notice.
3.9 Manner of Acting
If a quorum is present when the vote is taken, the act of the majority of
the Directors present at a Board or committee meeting shall be the act of the
Board or such committee, unless the vote of a greater number is required by
these Bylaws, the Articles of Incorporation or the Washington Business
Corporation Act.
3.10 Presumption of Assent
A Director of the corporation who is present at a Board or committee
meeting at which any action is taken shall be deemed to have assented to the
action taken unless (a) the Director objects at the beginning of the meeting, or
promptly upon the Director's arrival, to holding the meeting or transacting any
business at such meeting, (b) the Director's dissent or abstention from the
action taken is entered in the minutes of the meeting, or (c) the Director
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delivers written notice of the Director's dissent or abstention to the presiding
officer of the meeting before its adjournment or to the corporation within a
reasonable time after adjournment of the meeting. The right of dissent or
abstention is not available to a Director who votes in favor of the action
taken.
3.11 Action by Board or Committees Without a Meeting
Any action that could be taken at a meeting of the Board or of any
committee created by the Board may be taken without a meeting if one or more
written consents setting forth the action so taken are signed by each of the
Directors or by each committee member either before or after the action is taken
and delivered to the corporation. Action taken by written consent of Directors
without a meeting is effective when the last Director signs the consent, unless
the consent specifies a later effective date. Any such written consent shall be
inserted in the minute book as if it were the minutes of a Board or a committee
meeting.
3.12 Resignation
Any Director may resign from the Board or any committee of the Board at any
time by delivering either oral tender of resignation at any meeting of the Board
or any committee or written notice to the Chairman of the Board, the President,
the Secretary or the Board. Any such resignation is effective upon delivery
thereof unless the notice of resignation specifies a later effective date and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
3.13 Removal
At a meeting of shareholders called expressly for that purpose, one or more
members of the Board, including the entire Board, may be removed with or without
cause (unless the Articles of Incorporation permit removal for cause only) by
the holders of the shares entitled to elect the Director or Directors whose
removal is sought if the number of votes cast to remove the Director exceeds the
number of votes cast not to remove the Director.
3.14 Vacancies
Unless the Articles of Incorporation provide otherwise, any vacancy
occurring on the Board may be filled by the shareholders, the Board or, if the
Directors in office constitute fewer than a quorum, by the affirmative vote of a
majority of the remaining Directors. Any vacant office to be held by a Director
elected by the holders of one or more classes or series of shares entitled to
vote and be counted collectively thereon shall be filled only by the vote of the
holders of such class or series of shares. A Director elected to fill a vacancy
shall serve only until the next election of Directors by the shareholders.
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3.15 Executive and Other Committees
3.15.1 Creation of Committees
The Board, by resolution adopted by the greater of a majority of the
Directors then in office and the number of Directors required to take action in
accordance with these Bylaws, may create standing or temporary committees,
including an Executive Committee, and appoint members from its own number and
invest such committees with such powers as it may see fit, subject to such
conditions as may be prescribed by the Board, the Articles of Incorporation,
these Bylaws and applicable law. Each committee must have two or more members,
who shall serve at the pleasure of the Board.
3.15.2 Authority of Committees
Each committee shall have and may exercise all of the authority of the
Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions adopted in like manner, except that no
such committee shall have the authority to: (1) authorize or approve a
distribution except according to a general formula or method prescribed by the
Board, (2) approve or propose to shareholders actions or proposals required by
the Washington Business Corporation Act to be approved by shareholders, (3) fill
vacancies on the Board or any committee thereof, (4) amend the Articles of
Incorporation pursuant to RCW 23B.10.020, (5) adopt, amend or repeal Bylaws, (6)
approve a plan of merger not requiring shareholder approval, or (7) authorize or
approve the issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences and limitations of a class or
series of shares except that the Board may authorize a committee or a senior
executive officer of the corporation to do so within limits specifically
prescribed by the Board.
3.15.3 Minutes of Meetings
All committees shall keep regular minutes of their meetings and shall cause
them to be recorded in books kept for that purpose.
3.15.4 Removal
The Board may remove any member of any committee elected or appointed by it
but only by the affirmative vote of the greater of a majority of the Directors
then in office and the number of Directors required to take action in accordance
with these Bylaws.
3.16 Compensation
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a fixed
sum for attendance at each Board or committee meeting, or a stated salary as
Director or a committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee
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member from serving the corporation in any other capacity and receiving
compensation therefor.
SECTION 4. OFFICERS
4.1 Appointment and Term
The officers of the corporation shall be those officers appointed from time
to time by the Board or by any other officer empowered to do so. The Board
shall have sole power and authority to appoint executive officers. As used
herein, the term "executive officer" shall mean the President, any Vice
President in charge of a principal business unit, division or function or any
other officer who performs a policy-making function. The Board or the President
may appoint such other officers and assistant officers to hold office for such
period, have such authority and perform such duties as may be prescribed. The
Board may delegate to any other officer the power to appoint any subordinate
officers and to prescribe their respective terms of office, authority and
duties. Any two or more offices may be held by the same person. Unless an
officer dies, resigns or is removed from office, he or she shall hold office
until his or her successor is appointed.
4.2 Resignation
Any officer may resign at any time by delivering written notice to the
corporation. Any such resignation is effective upon delivery, unless the notice
of resignation specifies a later effective date, and, unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective.
4.3 Removal
Any officer may be removed by the Board at any time, with or without cause.
An officer or assistant officer, if appointed by another officer, may be removed
by any officer authorized to appoint officers or assistant officers.
4.4 Contract Rights of Officers
The appointment of an officer does not itself create contract rights.
4.5 Chairman of the Board
If appointed, the Chairman of the Board shall perform such duties as shall
be assigned to him or her by the Board from time to time, and shall preside over
meetings of the Board and shareholders unless another officer is appointed or
designated by the Board as Chairman of such meetings.
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4.6 President
If appointed, the President shall be the chief executive officer of the
corporation unless some other officer is so designated by the Board, shall
preside over meetings of the Board and shareholders in the absence of a Chairman
of the Board, and, subject to the Board's control, shall supervise and control
all of the assets, business and affairs of the corporation. In general, the
President shall perform all duties incident to the office of President and such
other duties as are prescribed by the Board from time to time. If no Secretary
has been appointed, the President shall have responsibility for the preparation
of minutes of meetings of the Board and shareholders and for authentication of
the records of the corporation.
4.7 Vice President
In the event of the death of the President or his or her inability to act,
the Vice President (or if there is more than one Vice President, the Vice
President who was designated by the Board as the successor to the President, or
if no Vice President is so designated, the Vice President first elected to such
office) shall perform the duties of the President, except as may be limited by
resolution of the Board, with all the powers of and subject to all the
restrictions upon the President. Vice Presidents shall perform such other
duties as from time to time may be assigned to them by the President or by or at
the direction of the Board.
4.8 Secretary
If appointed, the Secretary shall be responsible for preparation of minutes
of the meetings of the Board and shareholders, maintenance of the corporation
records and stock registers, and authentication of the corporation's records and
shall in general perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him or her by the President
or by or at the direction of the Board. In the absence of the Secretary, an
Assistant Secretary may perform the duties of the Secretary.
4.9 Treasurer
If appointed, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws, and in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the President or by or at the direction of the Board. In the absence
of the Treasurer, an Assistant Treasurer may perform the duties of the
Treasurer.
4.10 Salaries
The salaries of the officers shall be fixed from time to time by the Board
or by any person or persons to whom the Board has delegated such authority. No
officer shall be
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prevented from receiving such salary by reason of the fact that he or she is
also a Director of the corporation.
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 Contracts
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances.
5.2 Loans to the Corporation
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board. Such authority may be general or confined to specific instances.
5.3 Checks, Drafts, Etc.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, or agent or agents, of the corporation and in such
manner as is from time to time determined by resolution of the Board.
5.4 Deposits
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Issuance of Shares
No shares of the corporation shall be issued unless authorized by the
Board, or by a committee designated by the Board to the extent such committee is
empowered to do so.
6.2 Certificates for Shares
Certificates representing shares of the corporation shall be signed, either
manually or in facsimile, by the President or any Vice President and by the
Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary
and shall include on their face written notice of any restrictions that may be
imposed on the transferability of such shares. All certificates shall be
consecutively numbered or otherwise identified.
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6.3 Stock Records
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of each person to whom certificates for shares are issued,
together with the class and number of shares represented by each such
certificate and the date of issue thereof, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
6.4 Restriction on Transfer
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
shares of the corporation shall bear a legend on the face of the certificate, or
on the reverse of the certificate if a reference to the legend is contained on
the face, which reads substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS, AND NO INTEREST MAY BE SOLD,
DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED
UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION
INVOLVING SAID SECURITIES, (B) THIS CORPORATION RECEIVES AN OPINION OF
LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS
CORPORATION STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION,
OR (C) THIS CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION."
6.5 Transfer of Shares
The transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to
the corporation for transfer shall be canceled and no new certificate shall be
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issued until the former certificates for a like number of shares shall have been
surrendered and canceled.
6.6 Lost or Destroyed Certificates
In the case of a lost, destroyed or damaged certificate, a new certificate
may be issued in its place upon such terms and indemnity to the corporation as
the Board may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its shareholders
and the Board, a record of all actions taken by the shareholders or the Board
without a meeting, and a record of all actions taken by a committee of the Board
exercising the authority of the Board on behalf of the corporation.
(b) Maintain appropriate accounting records.
(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares showing the number and class of shares
held by each; provided, however, such record may be maintained by an agent of
the corporation.
(d) Maintain its records in written form or in another form capable of
conversion into written form within a reasonable time.
(e) Keep a copy of the following records at its principal office:
1. the Articles of Incorporation and all amendments thereto as
currently in effect;
2. these Bylaws and all amendments thereto as currently in effect;
3. the minutes of all meetings of shareholders and records of all
action taken by shareholders without a meeting, for the past three years;
4. the financial statements described in Section 23B.16.200(1) of the
Washington Business Corporation Act, for the past three years;
5. all written communications to shareholders generally within the
past three years;
6. a list of the names and business addresses of the current Directors
and officers; and
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7. the most recent annual report delivered to the Washington Secretary
of State.
SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year, provided
that if a different accounting year is at any time selected by the Board for
purposes of federal income taxes, or any other purpose, the accounting year
shall be the year so selected.
SECTION 9. SEAL
The Board may provide for a corporate seal that shall consist of the name
of the corporation, the state of its incorporation and the year of its
incorporation.
SECTION 10. INDEMNIFICATION
10.1 Right to Indemnification
Each person who was, is or is threatened to be made a party to or is
otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit, claim or proceeding, whether
civil, criminal, administrative or investigative and whether formal or informal
(hereafter a "proceeding"), by reason of the fact that he or she is or was a
Director or officer of the corporation or, that being or having been such a
Director or officer or an employee of the corporation, he or she is or was
serving at the request of the corporation as a Director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise (hereafter an "indemnitee"),
whether the basis of a proceeding is alleged action in an official capacity or
in any other capacity while serving as such a Director, officer, partner,
trustee, employee or agent shall be indemnified and held harmless by the
corporation against all losses, claims, damages (compensatory, exemplary,
punitive or otherwise), liabilities and expenses (including attorneys' fees,
costs, judgments, fines, ERISA excise taxes or penalties, amounts to be paid in
settlement and any other expenses) actually and reasonably incurred or suffered
by such indemnitee in connection therewith and such indemnification shall
continue as to an indemnitee who has ceased to be a Director or officer of the
Company or a Director, officer partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and shall inure to the benefit of the indemnitee's heirs, executors
and administrators. Except as provided in subsection 10.4 of this Section with
respect to proceedings seeking to enforce rights to indemnification, the
corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if a proceeding (or part
thereof) was authorized or ratified by the Board. The right to indemnification
conferred in this Section shall be a contract right.
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10.2 Restrictions on Indemnification
No indemnification shall be provided to any such indemnitee for acts or
omissions of the indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the Washington Business Corporation Act,
for any transaction with respect to which it was finally adjudged that such
indemnitee personally received a benefit in money, property or services to which
the indemnitee was not legally entitled or if the corporation is otherwise
prohibited by applicable law from paying such indemnification. Notwithstanding
the foregoing, if Section 23B.08.560 or any successor provision of the
Washington Business Corporation Act is hereafter amended, the restrictions on
indemnification set forth in this subsection 10.2 shall be as set forth in such
amended statutory provision.
10.3 Advancement of Expenses
The right to indemnification conferred in this Section shall include the
right to be paid by the corporation the expenses incurred in defending any
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"). An advancement of expenses shall be made upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified.
10.4 Right of Indemnitee to Bring Suit
If a claim under subsection 10.1 or 10.3 of this Section is not paid in
full by the corporation within 60 days after a written claim has been received
by the corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the corporation to recover the
unpaid amount of the claim. If successful in whole or in part, in any such suit
or in a suit brought by the corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of litigating such suit. The indemnitee shall be presumed
to be entitled to indemnification under this Section upon submission of a
written claim (and, in an action brought to enforce a claim for an advancement
of expenses, when the required undertaking has been tendered to the corporation)
and thereafter the corporation shall have the burden of proof to overcome the
presumption that the indemnitee is so entitled.
10.5 Procedures Exclusive
Pursuant to Section 23B.08.560(2) or any successor provision of the
Washington Business Corporation Act, the procedures for indemnification and the
advancement of expenses set forth in this Section are in lieu of the procedures
required by Section 23B.08.550 or any successor provision of the Washington
Business Corporation Act.
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10.6 Nonexclusivity of Rights
Except as set forth in subsection 10.5, the right to indemnification and
the advancement of expenses conferred in this Section shall not be exclusive of
any other right that any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation or Bylaws of the corporation, general
or specific action of the Board or shareholders, contract or otherwise.
10.7 Insurance, Contracts and Funding
The corporation may maintain insurance, at its expense, to protect itself
and any Director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any expense, liability or loss, whether
or not the corporation would have the authority or right to indemnify such
person against such expense, liability or loss under the Washington Business
Corporation Act or other law. The corporation may enter into contracts with any
Director, officer, partner, trustee, employee or agent of the corporation in
furtherance of the provisions of this Section and may create a trust fund, grant
a security interest or use other means (including, without limitation, a letter
of credit) to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Section.
10.8 Indemnification of Employees and Agents of the Corporation
In addition to the rights of indemnification set forth in subsection 10.1,
the corporation may, by action of the Board, grant rights to indemnification and
advancement of expenses to employees and agents or any class or group of
employees and agents of the corporation (a) with the same scope and effect as
the provisions of this Section with respect to indemnification and the
advancement of expenses of Directors and officers of the corporation; (b)
pursuant to rights granted or provided by the Washington Business Corporation
Act; or (c) as are otherwise consistent with law.
10.9 Persons Serving Other Entities
Any person who, while a Director, officer or employee of the corporation,
is or was serving (a) as a Director, officer, employee or agent of another
corporation of which a majority of the shares entitled to vote in the election
of its directors is held by the corporation or (b) as a partner, trustee or
otherwise in an executive or management capacity in a partnership, joint
venture, trust, employee benefit plan or other enterprise of which the
corporation or a majority owned subsidiary of the corporation is a general
partner or has a majority ownership shall conclusively be deemed to be so
serving at the request of the corporation and entitled to indemnification and
the advancement of expenses under subsections 10.1 and 10.3 of this Section.
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SECTION 11. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board, except that the Board may not repeal or amend any Bylaw
that the shareholders have expressly provided, in amending or repealing such
Bylaw, may not be amended or repealed by the Board. The shareholders may also
alter, amend and repeal these Bylaws or adopt new Bylaws. All Bylaws made by
the Board may be amended, repealed, altered or modified by the shareholders.
The foregoing Amended and Restated Bylaws were adopted by the Board of
Directors December 8, 1998.
/s/ Sarwat Ramadan
--------------------------------
Secretary
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EXHIBIT 10.1
ONYX SOFTWARE CORPORATION
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
_______________________
December 14, 1998
<PAGE>
CONTENTS
<TABLE>
<C> <S> <C>
1. Registration Rights..................................... 1
1.1 Definitions...................................... 1
1.2 Request for Registration......................... 2
1.3 Company Registration............................. 4
1.4 Obligations of the Company....................... 4
1.5 Furnish Information.............................. 6
1.6 Expenses of Demand Registration.................. 6
1.7 Expenses of Company Registration................. 7
1.8 Underwriting Requirements........................ 7
1.9 Delay of Registration............................ 8
1.10 Indemnification.................................. 8
1.11 Reports Under Securities Exchange Act of 1934.... 10
1.12 Form S-3 Registration............................ 11
1.13 Assignment of Registration Rights................ 12
1.14 Limitations on Subsequent Registration Rights.... 12
1.15 "Market Stand-Off" Agreement..................... 13
1.16 Termination of Registration Rights............... 13
2. Covenants of the Company................................ 14
2.1 Delivery of Financial Statements................. 14
2.2 Inspection....................................... 15
2.3 Budget........................................... 15
2.4 Right of First Offer............................. 15
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
2.5 Initial Public Offering.............................. 17
2.6 IRC Section 305...................................... 18
2.7 Proprietary Information and Inventions Agreements.... 19
2.8 Articles and Bylaws.................................. 19
2.9 Expenses of Directors................................ 19
2.10 Board of Directors Meetings.......................... 19
2.11 Qualified Small Business Stock....................... 19
2.12 Termination of Covenants............................. 20
3. Miscellaneous............................................... 20
3.1 Successors and Assigns............................... 20
3.2 Governing Law........................................ 20
3.3 Counterparts......................................... 20
3.4 Titles and Subtitles................................. 20
3.5 Notices.............................................. 20
3.6 Expenses............................................. 21
3.7 Amendments and Waivers............................... 21
3.8 Severability......................................... 21
3.9 Stock Split.......................................... 21
3.10 Aggregation of Stock................................. 21
3.11 Amendment of Prior Agreement......................... 21
3.12 Company's Right of First Offer....................... 22
3.13 Entire Agreement..................................... 23
</TABLE>
<PAGE>
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT ("Agreement") is made
as of December 14, 1998 by and among Onyx Software Corporation, a Washington
corporation (the "Company"), the purchasers of the Company's Preferred Stock
whose signatures appear on the execution pages of this Agreement (each, an
"Investor" and collectively, the "Investors"), Brent Frei ("Frei"), Brian
Janssen ("Janssen"), and Todd Stevenson ("Stevenson") and certain other Company
shareholders whose signatures appear on the execution pages of this Agreement
(Frei, Janssen, Stevenson and such other executing shareholders being
collectively referred to as the "Shareholders").
RECITALS
WHEREAS, the Company and the Investors holding Preferred Stock are parties
to that certain Amended and Restated Investors' Rights Agreement, dated March
31, 1997 (the "1997 Agreement");
WHEREAS, The Company and J. Michael Ellis and Barbara S. Ellis (the
"Ellises") are parties to that certain Agreement and Plan of Merger, dated
December 14, 1998, among the Company, EnCyc Acquisition, Inc., EnCyc, Inc and
the Ellises (the "Merger Agreement");
WHEREAS, in order to induce the Company and the Ellises to enter into the
Merger Agreement, the Investors holding Preferred Stock, the Shareholders and
the Company hereby agree to amend and restate the 1997 Agreement as set forth
herein, and such parties further agree that this Agreement shall govern the
rights of the Investors to cause the Company to register shares of Common Stock
issuable to the Investors and certain other matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights.
The Company covenants and agrees as follows:
1.1 Definitions.
For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the SEC which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
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(c) The term "Initiating Holders" means Holders owning or having the
right to acquire at least (i) 25% of the Company's Common Stock, $0.01 par value
per share (the "Common Stock") then issuable or issued upon conversion of (A)
the Company's Series A Preferred Stock, $0.01 par value per share (the "Series A
Preferred Stock") or (B) the Company's Series B Preferred Stock, $0.01 par value
per share (the "Series B Preferred Stock") or (ii) 50% of the Registrable
Securities then outstanding.
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof.
(e) the term "Investor" means the holders of the Company's Preferred
Stock or Common Stock whose signatures appear on the execution pages of this
Agreement and are so designated (each, an "Investor" and collectively, the
"Investors").
(f) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(g) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(h) The term "Registrable Securities" means (i) the Common Stock held
by the Shareholders, (ii) the Common Stock issuable or issued upon conversion of
the Series A Preferred Stock, (iii) the Common Stock issuable or issued upon
conversion of the Series B Preferred Stock, and (iv) any Common Stock issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of the shares referenced in (i), (ii) and
(iii) above, excluding in all cases, however, any Registrable Securities sold by
a person in a transaction in which such person's rights under this Section 1 are
not assigned.
(i) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(j) The term "SEC" shall mean the Securities and Exchange Commission.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier of (i)
March 31, 2000 or (ii) six (6) months after the date of closing of the initial
public offering of securities of the Company (other than an offering of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or in connection with a SEC Rule 145 transaction) (the
"IPO"), a written request from the Initiating Holders that the
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Company file a registration statement under the Act, the anticipated aggregate
offering price to the public of which would exceed $20,000,000 (or $5,000,000 if
the Company has previously completed its IPO), then the Company shall:
(i) within ten (10) days of the receipt thereof, give written
notice of such request to all Holders; and
(ii) subject to the limitations of this Section 1.2, file as soon as
practicable, and in any event within sixty (60) days of the receipt of such
request, a registration statement for the registration under the Act of all
Registrable Securities which the Holders request, in writing within twenty (20)
days of the mailing of the Company's notice under Section 1.2(a)(i), to be
registered.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to Section 1.2(a),
and the Company shall include such information in the written notice referred to
in Section 1.2(a)(i). The underwriter will be selected by the Company and shall
be reasonably acceptable to a majority in interest of the Initiating Holders.
In such event, the right of any Holder to include such Holder's Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in Section
1.4(e)) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Section 1.2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, then the Initiating Holders shall so advise all
Holders of Registrable Securities which would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be included
in the underwriting shall be allocated first to the Investors, in proportion (as
nearly as practicable) to the amount of Registrable Securities indicated for
sale by each such Investor, and then among all other Holders thereof, including
the Initiating Holders, in proportion (as nearly as practicable) to the amount
of Registrable Securities of the Company indicated for sale by each Holder;
provided, however, that except in connection with the IPO, if any Investors
participate in the offering, the aggregate number of Registrable Securities to
be underwritten which are held by Investors shall not be reduced to less than
thirty percent (30%) of the aggregate number of Registrable Securities proposed
to be included in such underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2 a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
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<PAGE>
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 120 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2:
(i) after the Company has effected two registrations pursuant to this
Section 1.2, and such registrations have been declared or ordered effective;
(ii) during the period starting with the date thirty (30) days prior
to the Company's good faith estimate of the date of filing of, and ending on a
date one hundred eighty (180) days after the effective date of, a registration
statement subject to Section 1.3 hereof; provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective; or
(iii) if the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 1.12 below.
1.3 Company Registration.
If (but without any obligation to do so) the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its stock or other securities under
the Act in connection with the public offering of such securities solely for
cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration on any form which does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable Securities, a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered or a
registration relating to an SEC Rule 145 transaction), the Company shall, at
such time, promptly give each Holder written notice of such registration. Upon
the written request of each Holder given within twenty (20) days after mailing
of such notice by the Company in accordance with Section 3.5, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered.
1.4 Obligations of the Company.
Whenever required under this Section 1 to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to
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become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for a period of up to one hundred twenty (120) days or until the
distribution contemplated in the Registration Statement has been completed;
provided, however, that (i) such 120-day period shall be extended for a period
of time equal to the period the Holders refrain from selling any securities
included in such registration at the request of an underwriter of Common Stock
(or other securities) of the Company; and (ii) in the case of any registration
of Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 120-day period shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Act governing the obligation to
file a post-effective amendment permit, in lieu of filing a post-effective
amendment which (A) includes any prospectus required by Section 10(a)(3) of the
Act or (B) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference to the Company's periodic reports filed pursuant to
Section 13 or 15(d) of the 1934 Act of information required to be included in
the registration statement by clauses (A) and (B) above.
(b) Promptly prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus
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<PAGE>
included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange and Nasdaq market on which
similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereto and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters.
1.5 Furnish Information.
It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Section 1 with respect to the Registrable Securities
of any selling Holder that such Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Holder's Registrable Securities.
1.6 Expenses of Demand Registration.
All expenses other than underwriting discounts and commissions incurred in
connection with registrations, filings or qualifications pursuant to Section
1.2, including (without limitation) all registration, filing and qualification
fees, printers' and accounting fees, fees and disbursements of counsel for the
Company and the reasonable fees and disbursements of one counsel for the selling
Holders shall be borne by the Company; provided, however, that the Company shall
not be required to pay for any expenses of any registration proceeding begun
pursuant to Section 1.2 if the registration request is subsequently withdrawn at
the request of the Holders of a majority of the Registrable Securities to be
registered (in which case all participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 1.2; provided
further, however, that if at the time of such withdrawal, the Holders
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have learned of a material adverse change in the condition, business, or
prospects of the Company from that known to the Holders at the time of their
request and have withdrawn the request with reasonable promptness following
disclosure by the Company of such material adverse change, then the Holders
shall not be required to pay any of such expenses and shall retain their rights
pursuant to Section 1.2.
1.7 Expenses of Company Registration.
The Company shall bear and pay all expenses incurred in connection with any
registration, filing or qualification of Registrable Securities with respect to
the registrations pursuant to Section 1.3 for each Holder (which right may be
assigned as provided in Section 1.13), including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees
relating or apportionable thereto and the fees and disbursements of one counsel
for the selling Holders selected by them, but excluding underwriting discounts
and commissions relating to Registrable Securities.
1.8 Underwriting Requirements.
In connection with any offering involving an underwriting of shares of the
Company's capital stock, the Company shall not be required under Section 1.3 to
include any of the Holders' securities in such underwriting unless they accept
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
Underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the underwriters advise the Company that marketing factors require
a limitation on the number of shares, including Registrable Securities, to be
included in such offering, then the Company shall so advise all Holders of
Registrable Securities that would otherwise have been underwritten pursuant to
Section 1.3, and the number of shares, including Registrable Securities, that
may be included in the registration shall be apportioned (i) first to the
Company, (ii) then pro rata among the selling Investors according to the total
amount of Registrable Securities requested to be sold in such registration by
such selling Investors, (iii) then pro rata among any other selling Holders
according to the total amount of Registrable Securities requested to be sold in
such registration by such Holders, and (iv) then pro rata among any other
selling shareholders according to the total amount of securities otherwise
entitled to be included therein owned by each such other selling shareholder, or
in such other proportions as shall mutually be agreed to by such selling
shareholders; provided, however, that, except in connection with the IPO, if any
Investors participate in the offering, the aggregate number of Registrable
Securities to be underwritten which are held by Investors shall not be reduced
to less than 30% of the aggregate number of securities proposed to be included
in such underwriting. For purposes of apportionment, for any selling Investor
or other Holder which is a partnership or corporation, the partners, retired
partners and shareholders of such Investor or other Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
Investor" or "selling Holder," as the case may be, and
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any pro rata reduction with respect to such selling Investor or selling Holder
shall be based upon the aggregate amount of shares carrying registration rights
owned by all entities and individuals included in such selling Investor or
selling Holder, as defined in this sentence.
1.9 Delay of Registration.
No Holder shall have any right to obtain or seek an injunction restraining
or otherwise delaying any such registration as the result of any controversy
that might arise with respect to the interpretation or implementation of this
Section 1.
1.10 Indemnification.
In the event any Registrable Securities are included in a registration
statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (each, a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, or the 1934 Act or any state securities
law; and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 1.10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims,
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damages or liabilities (joint or several) to which any of the foregoing persons
may become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this Section 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided
further, that in no event shall any indemnity under this Section 1.10(b) exceed
the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
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indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with an underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section 1.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1.
1.11 Reports Under Securities Exchange Act of 1934.
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may
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be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.12 Form S-3 Registration.
In case the Company shall receive from any Holder or Holders a written
request that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 1.12: (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that, in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 60 days after receipt of
the request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; or (4) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
Subject to the foregoing, the Company shall file a registration statement
covering the Registrable Securities and other securities so requested to be
registered as soon as practicable, and in any event within 45 days (provided
that selling shareholders have provided in a timely manner all information
regarding such selling shareholders required to be included in such registration
statement), after receipt of the request or requests of the Holders. All
expenses incurred in connection with a registration requested pursuant to
Section 1.12, including (without limitation) all registration, filing,
qualification, printers' and accounting fees and the reasonable fees and
disbursements of counsel for the selling Holder or Holders and counsel for the
Company, but excluding any underwriters' discounts or commissions associated
with
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Registrable Securities, shall be borne by the Company. Registrations effected
pursuant to this Section 1.12 shall not be counted as demands for registration
or registrations effected pursuant to Sections 1.2 or 1.3, respectively.
1.13 Assignment of Registration Rights.
The rights to cause the Company to register Registrable Securities pursuant
to this Section 1 may be assigned (but only with all related obligations) by a
Holder to a transferee or assignee of such securities who, (i) is an affiliate
of the Holder, or (ii) after such assignment or transfer, holds at least 100,000
shares of Registrable Securities (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other recapitalizations), provided:
(a) the Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
(b) such transferee or assignee agrees in writing to be bound by and subject to
the terms and conditions of this Agreement, including without limitation the
provisions of Section 1.15 below; and (c) such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Act. For the
purposes of determining the number of shares of Registrable Securities held by a
transferee or assignee, the holdings of transferees and assignees of a
partnership or corporation who are partners or retired partners of such
partnership or shareholders of such corporation (including spouses and
ancestors, lineal descendants and siblings of such partners, shareholders or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the holdings of the
partnership or corporation; provided that all assignees and transferees who
would not qualify individually for assignment of registration rights shall have
a single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 1.
1.14 Limitations on Subsequent Registration Rights.
From and after the date of this Agreement, the Company shall not, without
the prior written consent of a majority in interest of the Investors (based on
the outstanding Registrable Securities) and the Holders of a majority of the
outstanding Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder (a) to include such securities in any registration
filed under Section 1.2 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will not
reduce the amount of the Registrable Securities of the Holders which is included
therein or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in Section 1.2(a) or within one hundred twenty (120) days
of the effective date of any registration effected pursuant to Section 1.2.
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1.15 "Market Stand-Off" Agreement.
Each Holder hereby agrees that, during the period of duration specified by
the Company and an underwriter of Common Stock or other securities of the
Company, following the effective date of a registration statement of the Company
filed under the Act, it shall not, to the extent requested by the Company and
such underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period,
except Common Stock included in such registration; provided, however, that:
(a) such agreement shall be applicable only to the IPO;
(b) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements;
(c) such market stand-off time period shall not exceed one hundred
eighty (180) days;
(d) any discretionary waiver or termination by the underwriters of the
restrictions of this Section 1.15 or of any similar agreement shall apply to all
persons subject to such agreements, and the aggregate amount of securities with
respect to which such restrictions are waived or terminated shall be apportioned
among all such persons in a pro rata manner based on the amount of securities
subject to such agreements; and
(e) such agreement shall not be applicable to any registered
securities purchased in or following the IPO other than pursuant to the exercise
of the IPO Purchase Option (as defined in Section 2.5).
In order to enforce the foregoing covenant, the Company may impose stop
transfer instructions with respect to the Registrable Securities of the Holders
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this Section
1.15 shall not apply to a registration relating solely to employee benefit plans
on Form S-1 or Form S-8 or similar forms which may be promulgated in the future,
or a registration relating solely to an SEC Rule 145 transaction on Form S-4 or
similar forms which may be promulgated in the future.
1.16 Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any right provided for in
this Section 1 after seven (7) years following the consummation of the IPO.
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(b) In addition, the right of any Holder to request registration or
inclusion in any registration pursuant to Sections 1.2, 1.3 and/or 1.12 shall
terminate on the closing of the first Company initiated registered public
offering of Common Stock of the Company if all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90-day period, or on such date after the closing
of the first Company initiated registered public offering of Common Stock as of
which all shares of Registrable Securities held or entitled to be held upon
conversion by such Holder may immediately be sold under Rule 144 during any 90-
day period; provided, however, that the provisions of this Section 1.16(b) shall
not apply to any Holder who owns more than one percent (1%) of the Company's
outstanding stock until such time as such Holder owns less than one percent (1%)
of the outstanding stock of the Company.
2. Covenants of the Company.
2.1 Delivery of Financial Statements.
The Company shall deliver to the Investors:
(a) as soon as practicable, but in any event within one hundred and
twenty (120) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year and statements of income and
cash flows for such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles
("GAAP"), and audited and certified by independent public accountants of
nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, statements of income and
cash flows for such fiscal quarter and an unaudited balance sheet as of the end
of such fiscal quarter;
(c) within thirty (30) days of the end of each month, an unaudited
income statement, statement of cash flows and balance sheet for and as of the
end of such month, in reasonable detail;
(d) as soon as practicable, but in any event prior to the end of each
fiscal year, a budget and business or operating plan for the next fiscal year in
the form approved by the Board of Directors of the Company, prepared on a
monthly basis, including balance sheets and sources and applications of funds
statements for such months and, as soon as prepared, any other budgets or
revised budgets prepared by the Company;
(e) with respect to the financial statements called for in subsections
(b) and (c) of this Section 2.1, an instrument executed by the Chief Financial
Officer or President of the Company and certifying that such financials were
prepared in accordance with GAAP consistently applied in accordance with prior
practice (with the exception of footnotes that
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may be required by GAAP) and fairly present the financial condition of the
Company and its results of operation for the period and as of the date
specified, subject to year-end audit adjustment; and
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investors or any
assignee of the Investors may from time to time reasonably request; provided,
however, that the Company shall not be obligated under this subsection (f) or
any other subsection of Section 2.1 to provide information which it deems in
good faith to be a trade secret or similar confidential information, unless the
Investors or assignee signs a confidentiality agreement regarding such
information in form and substance reasonably acceptable to the Company.
2.2 Inspection.
The Company shall permit the Investors, at Investors' expense, to visit and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its officers,
all at such reasonable times as may be requested by Investors; provided,
however, that the Company shall not be obligated pursuant to this Section 2.2 to
provide access to any information which it reasonably considers to be a trade
secret or similar confidential information, unless the Investors sign a
confidentiality agreement regarding such information in form and substance
reasonably acceptable to the Company.
2.3 Budget.
Prior to the beginning of each fiscal year, the Company shall prepare and
submit to the Board of Directors, and furnish to Investors copies of, a proposed
operating plan for such fiscal year which shall include monthly capital and
operating expense budgets, cash flow statements and profit and loss and
quarterly balance sheet projections, itemized in such detail as the Board of
Directors may request. A majority of the Board of Directors shall approve such
budgets, statements and projections.
2.4 Right of First Offer.
Subject to the terms and conditions specified in this Section 2.4, the
Company hereby grants to the Investors a right of first offer with respect to
future sales by the Company of its Shares (as hereinafter defined). For
purposes of this Section 2.4, Investors include any affiliates of the Investors.
Investors shall be entitled to apportion the right of first offer hereby granted
among themselves and their affiliates in such proportions as they deem
appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to the
Investors in accordance with the following provisions:
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(a) The Company shall deliver a notice by certified mail ("Notice") to
the investors stating (i) its bona fide intention to offer such Shares, (ii) the
number of such Shares to be offered to parties other than Investors, (iii) the
price and terms, if any, upon which it proposes to offer such Shares and (iv)
the number of Shares being offered to Investors pursuant to Section 2.4(b).
(b) Within 20 calendar days after receipt of the Notice, each Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to the number of Shares which would be necessary for such Investor to
purchase in order to maintain its same pro rata ownership interest in the
Company after the offering of Shares (on a fully diluted basis) as existed
immediately prior to its receipt of the Notice (on a fully diluted basis). An
Investor's pro rata ownership interest shall be equal to the ratio of (A) the
number of shares of the Company's Common Stock (including all shares of Common
Stock issuable upon conversion of the Series A Preferred Stock and the Series B
Preferred Stock and upon the exercise of any outstanding warrants or options) of
which the Investor is deemed to be a holder immediately prior to the issuance of
such Shares to (B) the total number of shares of the Company's Common Stock
(including all shares of Common Stock issued or issuable upon conversion of the
Series A Preferred Stock and the Series B Preferred Stock and upon the exercise
of any outstanding warrants or options).
(c) The Company may, during the 90-day period following the expiration
of the period provided in Section 2.4(b) hereof, offer the remaining Shares
(including any Shares unsubscribed by Investors) to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for
the sale of the Shares within such period, or if such agreement is not
consummated within 30 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Investors in accordance herewith.
(d) The right of first offer in this Section 2.4 shall not be
applicable (i) to the issuance or sale after the date of this Agreement of
shares of Common Stock issuable pursuant to options to purchase Common Stock
granted by the Company that are outstanding as of the date of this Agreement to
employees, directors, consultants or independent contractors for the primary
purpose of soliciting or retaining their employment or services, (ii) such
additional shares of Common Stock issued or issuable to employees, directors,
consultants or independent contractors for the primary purpose of soliciting or
retaining their employment or services the aggregate number of which in any
twelve-month period (calculated based upon the twelve months preceding the date
of the grant of options or warrants to purchase such shares of Common Stock or
the issuance of such Common Stock or securities convertible into such Common
Stock) does not exceed three percent of the number of shares of Common Stock
deemed outstanding immediately prior to such issuance (which shall include the
actual number of shares outstanding plus all shares issuable upon the conversion
or exercise of all outstanding convertible securities, warrants and options),
(iii) such additional shares of Common Stock issued or issuable to employees,
directors,
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consultants or independent contractors the grant or issuance of which is
approved by a majority in interest of the holders of the Company's Series A
Preferred Stock and a majority in interest of the holders of the Company's
Series B Preferred Stock, (iv) to or after consummation of a bona fide, firmly
underwritten public offering of shares of Common Stock, (v) to the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities or (vi) the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise.
(e) The right of first offer set forth in this Section 2.4 may not be
assigned or transferred, except that such right is assignable by an Investor to
any wholly owned subsidiary or parent of, or to any corporation or entity that
is, within the meaning of the Act, controlling, controlled by or under common
control with such Investor.
2.5 Initial Public Offering.
(a) Notwithstanding the provisions of Section 2.4(d)(iv), the Company
hereby grants to Investors holding Series B Preferred Stock a right of first
offer to purchase Shares in the IPO (the "IPO Purchase Option") at a price equal
to the public offering price of such Shares. Investors exercising such IPO
Purchase Option (the "IPO Purchasers") may purchase up to a number of Shares
which is the greater of (i) the number of Shares having an Offering Price (as
defined below) of $3,000,000 and (ii) ten percent (10%) of all Shares offered by
the Company in the IPO; provided, however, that in no event shall the IPO
Purchasers be entitled to purchase more than the number of Shares which have an
Offering Price of $4,000,000 (such maximum number of shares purchasable under
this Section 2.5, the "Maximum Number"). The "Offering Price" shall mean the
price at which shares are sold in the IPO.
(b) The Company shall deliver notice of the IPO, as required by
Section 1.2 or 1.3 of this Agreement, within ten (10) days following the filing
of a registration statement relating to the IPO. Within five (5) days following
delivery of such notice, each Investor may exercise the IPO Purchase Option (by
delivery of notice to such effect to the Company) for a number of Shares up to
the Maximum Number multiplied by a fraction (i) the numerator of which is the
number of shares of Series B Preferred Stock issued or issuable to such Investor
and (ii) the denominator of which is the number of shares of Series B Preferred
Stock issued or issuable to all Investors. To the extent any Investor does not
exercise the IPO Purchase Option within such five (5) day period, the Company
shall promptly provide notice thereof to all IPO Purchasers, and each IPO
Purchaser may elect, within two (2) days following such notice, to purchase a
portion (based on the proportion that the number of shares of Series B Preferred
Stock issued or issuable to such IPO Purchaser bears to the number of shares of
Series B Preferred Stock issued or issuable to all IPO Purchasers) of the Shares
as to which the IPO Purchase Option was not exercised. For purposes of this
Section 2.5, each Investor includes any affiliates of such Investor.
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(c) An Investor's exercise of the IPO Purchase Option shall be
deemed an expression of interest in receiving an offer by the Company to
purchase the number of Shares indicated by such Investor pursuant to subsection
2.5(b) above. The Company's offer to sell such Shares to the IPO Purchasers
shall be deemed to occur automatically upon the completion of the earliest to
occur of each of (i) the Company's providing the IPO Purchasers with a copy of
the final prospectus filed with the Securities and Exchange Commission with
respect to the Shares and (ii) two hours after the latest to occur of (A) the
effectiveness of the IPO registration statement and (B) the Company's
determination of the Offering Price (the completion of the last to occur of the
foregoing, the "Offer Commencement"). Each IPO Purchaser shall have an
unconditional right to terminate its IPO Purchase Option and revoke its exercise
thereof by written notice to the Company on or before the Offer Commencement.
Once revoked by an IPO Purchaser, the IPO Purchase Option shall become null and
void. An IPO Purchaser's exercise of the IPO Purchase Option shall, unless so
revoked by such IPO Purchaser on or before the Offer Commencement, automatically
be deemed to be a binding commitment to purchase the Shares indicated by such
IPO Purchaser pursuant to subsection 2.5(b) above when each of the actions
specified in the immediately preceding sentence have occurred. The IPO
Purchaser's purchase of the Shares shall occur simultaneously with the closing
of the purchase and sale of the other shares distributed in the IPO. It is the
intent of the parties that the Shares issued to the IPO Purchasers shall be
unrestricted, fully registered shares, offered and sold in the IPO.
(d) Shares purchased by the Investors pursuant to their exercise of
the IPO Purchase Option shall be subject to the provisions of Section 1.15 of
this Agreement.
(e) The IPO Purchase Option set forth in this Section 2.5 may not be
assigned or transferred, except that such right is assignable by an Investor to
any wholly owned subsidiary or parent of, or to any corporation or entity that
is, within the meaning of the Act, controlling, controlled by or under common
control with such Investor.
2.6 IRC Section 305.
(a) The Company will not, without approval of holders of a majority of the
Series A Preferred Stock then outstanding, do any act or thing which would
result in taxation of the holders of shares of the Series A Preferred Stock
under Section 305 of the Internal Revenue Code of 1986, as amended (the "Code")
(or any comparable provision of the Code as hereafter from time to time
amended).
(b) The Company will not, without approval of holders of a majority of the
Series B Preferred Stock then outstanding, do any act or thing which would
result in taxation of the holders of shares of the Series B Preferred Stock
under Section 305 of the Code (or any comparable provision of the Code as
hereafter from time to time amended).
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2.7 Proprietary Information and Inventions Agreements.
The Company shall use its best efforts to cause all employees and
consultants of the Company to enter into the Company's standard form of
Proprietary Information and Inventions Agreement and to prevent any violations
of such agreements by such employees and consultants.
2.8 Articles and Bylaws.
The Company shall at all times maintain provisions in its Bylaws and/or
Articles indemnifying all directors against liability and absolving all
directors from liability to the Company and its shareholders to the maximum
extent permitted under the laws of the State of Washington.
2.9 Expenses of Directors.
The Company shall promptly reimburse in full each director of the Company
who is not an employee of the Company, who was elected as a director solely or
in part by the holders of Series A Preferred Stock or the Series B Preferred
Stock and who does not reside in the city where Board of Directors or Committee
meetings are called to be held, for all of his reasonable out-of-pocket expenses
incurred in attending each meeting of the Board of Directors of the Company or
any Committee thereof.
2.10 Board of Directors Meetings.
The Company shall use its best efforts to ensure that meetings of its Board
of Directors are held at least once each fiscal quarter.
2.11 Qualified Small Business Stock
The Company shall use reasonably diligent efforts to comply with the
reporting requirements of Section 1202(d)(1)(C) of the Code and any related
Treasury Regulations. In addition, within a reasonable time (which shall not
exceed 30 days) after any Purchaser delivers to the Company a written request
therefor, the Company shall deliver to such Purchaser a written statement
informing the Purchaser whether, to the Company's knowledge, the Company
constitutes a "qualified small business corporation" as defined in Section
1202(c) of the Code. The Company's obligation to furnish a written statement
pursuant to this Section 2.11 shall continue notwithstanding the fact that a
class of the Company's securities may be traded on an established securities
market. The Company shall use commercially reasonable efforts to cause the
shares of capital stock of the Investors to qualify as "qualified small business
stock" as defined in Section 1202(c) of the Code.
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2.12 Termination of Covenants.
The covenants contained in this Section 2 shall survive in their entirety
until the earlier to occur of (a) the date upon which Investors own no
Registrable Securities (as defined in Section 1) or (b) the date of closing of
the IPO.
3. Miscellaneous.
3.1 Successors and Assigns.
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties (including transferees of any shares of
Registrable Securities). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.2 Governing Law.
This Agreement shall be governed by and construed under the laws of the
State of Washington as applied to agreements among Washington residents entered
into and to be performed entirely within Washington.
3.3 Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
3.4 Titles and Subtitles.
The titles and subtitles used in this Agreement are used for convenience
only and are not to be considered in construing or interpreting this Agreement.
3.5 Notices.
Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery to the party to be notified or upon deposit with the United
States Post Office, by registered or certified mail, postage prepaid and
addressed to the party to be notified at the address indicated for such party on
the signature page hereof, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties.
-20-
<PAGE>
3.6 Expenses.
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
3.7 Amendments and Waivers.
Any term of this Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of (a) the
Company, (b) the holders of a majority of outstanding shares of Series A
Preferred Stock and any outstanding shares of Common Stock issued upon
conversion of Series A Preferred Stock, (c) the holders of a majority of
outstanding shares of Series B Preferred Stock and any outstanding shares of
Common Stock issued upon conversion of Series B Preferred Stock and (d) the
holders of a majority of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities then outstanding, each future
holder of all such Registrable Securities, and the Company.
3.8 Severability.
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement and
the balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
3.9 Stock Split.
All references to numbers of shares and prices per share in this Agreement
shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
3.10 Aggregation of Stock.
All shares of Registrable Securities held or acquired by affiliated
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
3.11 Amendment of Prior Agreement.
The Company, the Shareholders and the Investors who were parties to the
1997 Agreement agree and represent that the undersigned Shareholders and
Investors include all Investors who were parties to the 1997 Agreement,
represent a majority of the Registrable Securities as defined in the 1997
Agreement and that the 1997 Agreement is hereinafter null and void.
Notwithstanding the foregoing, the Company and the undersigned Shareholders
-21-
<PAGE>
agree and affirm that the undersigned Shareholders constitute holders of at
least 75% of the capital stock of the Company subject to that certain
Shareholders Agreement dated as of April 20, 1994 among the Company and certain
of the Shareholders (the "Shareholders Agreement"), and that Section 5 of the
Shareholders Agreement has been rescinded and terminated.
3.12 Company's Right of First Offer.
Each time an Investor, or any successor thereto, proposes to transfer or
dispose of any Shares (as defined in Section 2.4) it shall first offer such
Shares to the Company in accordance with the following provisions:
(a) The Investor shall deliver a notice by certified mail ("Notice")
to the Company stating (i) its bona fide intention to transfer such Shares, (ii)
the number of such Shares to be transferred, and (iii) the price and terms, if
any, upon which it proposes to transfer such Shares. Such offer must be stated
in terms of a cash purchase price, or cash and debt payable in cash. Offers
which call for payment in kind, or for exchange of property in kind, shall be
invalid for purposes of this Agreement and shall not be permissible by an
Investor.
(b) Within twenty (20) calendar days after receipt of the Notice, the
Company may elect to purchase, at the price and on the terms specified in the
Notice, any portion of the Shares specified in the Notice.
(c) The Investor may, during the ninety (90) day period following the
expiration of the period provided in Section 3.12(b) hereof, sell the remaining
Shares to any third party on the price and terms specified in the Notice. If
the Investor does not enter into an agreement for the sale of the Shares within
such period, or if such agreement is not consummated within thirty (30) days of
the execution thereof, the right provided hereunder shall be deemed to be
revived and such Shares shall not be offered unless first reoffered to the
Company in accordance herewith.
(d) The right of first offer in this Section 3.12 shall terminate upon
the earlier of: (i) the closing of the IPO; (ii) the closing of the Company's
sale of all or substantially all of its assets or the acquisition of the Company
by another entity by means of merger or consolidation, either of which result in
the holders of the outstanding shares of the Company's capital stock receiving
solely cash from the acquiring entity or its affiliates; or (iii) the
acquisition of the Company by another entity by means of merger or consolidation
resulting in the exchange of the outstanding shares of the Company's capital
stock for securities issued or caused to be issued by the acquiring entity or
its affiliates in a transaction in which the holders of the Company's capital
stock immediately prior to the transaction own less than a majority of all of
the capital stock of the acquiring entity after the transaction.
(e) The right of first offer in this Section 3.12 shall not be
applicable to any sale or transfer of Shares (i) by an Investor pursuant to a
bona fide, firmly underwritten public
-22-
<PAGE>
offering, (ii) pursuant to a merger, consolidation or exchange of stock of the
Company, or (iii) to the partners or retired partners or other affiliates of an
Investor (including spouses and ancestors, lineal descendants and siblings of
such partners or affiliates or spouses who acquire Shares by gift, will or
intestate succession); provided that, with regard to transfers described in
clause (iii), all assignees and transferees agree to be bound by the terms of
this Agreement.
(f) The right of first offer set forth in this Section 3.12 may not be
assigned or transferred by Company, except that such right is assignable by the
Company to any wholly owned subsidiary or parent of, or to any corporation or
entity that is, within the meaning of the Act, controlling, controlled by, or
under common control with, the Company.
3.13 Entire Agreement.
This Agreement constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and supersedes all prior
oral and written agreements and understandings with respect to such subjects.
-23-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first written above.
COMPANY: ONYX SOFTWARE CORPORATION
By: /s/ Brent Frei
------------------------------------
Its: CEO
-------------------------------
Address: 310 - 120th Avenue N.E.
Bellevue, WA 98005
INVESTORS:
FOUNDATION CAPITAL, L.P.
BY FOUNDATION CAPITAL
MANAGEMENT, L.L.C.
By: /s/ William B. Elmore
------------------------------------
Its:
-------------------------------
Address: 75 Willow Road, Suite 103
Menlo Park, CA 94025
FOUNDATION CAPITAL ENTREPRENEURS FUND,
L.L.C.
BY FOUNDATION CAPITAL MANAGEMENT, L.L.C.
By: /s/ William B. Elmore
------------------------------------
Its:
------------------------------
Address: 75 Willow Road, Suite 103
Menlo Park, CA 94025
-24-
<PAGE>
TCV II, V.O.F.
a Netherlands Antilles General Partnership
By: Technology Crossover Management II, L.L.C.
Its: Investment General Partner
By: /s/ Robert C. Bensky
--------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Address: 56 Main Street, Suite 210
Millburn, NJ 07041
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
TECHNOLOGY CROSSOVER VENTURES II, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.
Its: General Partner
By: /s/ Robert C. Bensky
--------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Address: 56 Main Street, Suite 210
Millburn, NJ 07041
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
-25-
<PAGE>
TCV II (Q), L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.
Its: General Partner
By: /s/ Robert C. Bensky
-------------------------------------------
Name: Robert C. Bensky
--------------------------------------
Title: Chief Financial Officer
--------------------------------------
Address: 56 Main Street, Suite 210
Millburn, NJ 07041
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
TCV II STRATEGIC PARTNERS, L.P.
a Delaware Limited Partnership
By: Technology Crossover Management II, L.L.C.
Its: General Partner
By: /s/ Robert C. Bensky
-------------------------------------------
Name: Robert C. Bensky
--------------------------------------
Title: Chief Financial Officer
--------------------------------------
Address: 56 Main Street, Suite 210
Millburn, NJ 07041
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
-26-
<PAGE>
TECHNOLOGY CROSSOVER VENTURES II, C.V.
a Netherlands Antilles Limited Partnership
By: Technology Crossover Management II, L.L.C.
Its: Investment General Partner
By: /s/ Robert C. Bensky
-------------------------------------------
Name: Robert C. Bensky
--------------------------------------
Title: Chief Financial Officer
--------------------------------------
Address: 56 Main Street, Suite 210
Millburn, NJ 07041
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
HILLMAN/DOVER LIMITED PARTNERSHIP
By: Wilmington Securities, Inc.
Its: General Partner
By: /s/ Andrew H. McQuarrie
-------------------------------------------
Name: Andrew H. McQuarrie
--------------------------------------
Title: Vice President
--------------------------------------
Address: 824 Market Street, Suite 900
Wilmington, DE 19801
with a copy to:
2000 Grant Building
Pittsburgh, PA 15219
-27-
<PAGE>
/s/ J. Michael Ellis
-----------------------------------------------
J. Michael Ellis
Address: 99 Sunrise Dr
------------------------------------
Holland MI 49423
------------------------------------
/s/ Barbara S. Ellis
----------------------------------------------
Barbara S. Ellis
Address: 99 Sunrise Dr
------------------------------------
Holland MI 49423
------------------------------------
SHAREHOLDERS:
/s/ Brent Frei
---------------------------------------------
Brent Frei
Address:
------------------------------------
------------------------------------
/s/ Brian Janssen
---------------------------------------------
Brian Janssen
Address: 1000 Lakeside Ave S
------------------------------------
Seattle, WA 98144
------------------------------------
/s/ Todd A. Stevenson
----------------------------------------------
Todd Stevenson
Address: 1805 Bellevue Ave #304
------------------------------------
Seattle, WA 98122
------------------------------------
/s/ Mary Forler
----------------------------------------------
Mary Forler
Address: 15018 SE 20th St
------------------------------------
Bellevue, WA 98007
------------------------------------
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<PAGE>
/s/ Ronald Frei
----------------------------------------------
Ronald Frei
Address: Rt 1 Box 66
------------------------------------
Grangeville Id 83530
------------------------------------
/s/ Glenda Frei
----------------------------------------------
Glenda Frei
Address: Rt 1 Box 66
------------------------------------
Grangeville Id 83530
------------------------------------
/s/ Barbara A Stevenson
----------------------------------------------
Barbara Stevenson
Address: 5761 SE Flavel Dr
------------------------------------
Portand, Oregon 97206
------------------------------------
/s/ Leon D. Stevenson
----------------------------------------------
Leon Stevenson
Address: 5761 SE Flavel Dr.
------------------------------------
Portland Oregon 97206
------------------------------------
/s/ Michael D. Racine
----------------------------------------------
Michael Racine
Address: 8425 309th PL SE
------------------------------------
Preston, WA 98050
------------------------------------
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<PAGE>
/s/ Mary Winifred Moore
----------------------------------------------
Mary Winifred Racine
Address: 8425 309th PL SE
------------------------------------
Preston, WA 98050
------------------------------------
/s/ Bettie Ruzicka
----------------------------------------------
Bettie Ruzicka
Address: 703 N. Junction
------------------------------------
Grangeville, Id 83530
------------------------------------
/s/ Larry L. Ruzicka
----------------------------------------------
Larry L. Ruzicka
Address: 703 N. Junction St.
------------------------------------
Grangeville, Id 83530
------------------------------------
/s/ Colleen Chmelik
----------------------------------------------
Colleen Chmelik
Address: 16965 129th Ave SE
------------------------------------
Renton, WA 98058
------------------------------------
/s/ James A. Chmelik
----------------------------------------------
James Chmelik
Address: 16965 129th Ave SE
------------------------------------
Renton, WA 98058
------------------------------------
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<PAGE>
EXHIBIT 10.11
September 14, 1997
Keith Brown
11200 Hinsdale Street
Boise, ID 83713
Offer of Employment
Dear Keith,
We are pleased to extend this offer to you to join ONYX Software Corporation
("ONYX") in the position of Vice President, Marketing on the Marketing team as
well as on the Executive team. In this position, you will be responsible for
the development, management, execution and continual analysis of global
marketing strategy and programs that will highly impact the achievement of our
long range corporate goals. We are all excited about the experiences and
approaches you will bring to ONYX in this role.
Compensation Plan
- -----------------
Your base salary will be $9,166 per month or the equivalent of $110,000
annually. Salaries are paid semi monthly near the 15th and last day of each
month with automatic deposit.
You will be immediately eligible to participate in the company's Merit Bonus
Program. For every quarter the company reaches its goals, a portion of revenue
is allocated to teams and individuals throughout the company based on their
contribution and performance.
Benefits
- --------
You will be eligible for all benefits established for regular, full-time
employees. Benefits include coverage for you and your eligible dependents for
medical, dental, vision, life, and LTD insurance. There is a moderate monthly
premium deducted for
<PAGE>
full family coverage. Additionally, you will be immediately eligible to
participate in the ONYX 401(k) Plan.
Relocation
- ----------
To assist you and your family in your relocation to the Seattle area, we will
establish a Relocation Allowance in a reasonable amount to cover transfer costs
including shipment of goods, temporary housing, trips needed to transfer you
family, and other incidental costs.
Purchase of Company
- -------------------
It is our plan that the role of VP Marketing will be a viable, long term role in
the company and you are moving to Seattle in good faith on that premise.
Therefore, to address your concern regarding the elimination of your role in the
event ONYX is purchased, we will agree to the following terms and conditions
which will be in effect for a period of 18 months commencing with your date of
hire:
In the event ONYX is purchased resulting in the "no fault" elimination of
your role as VP, Marketing, and where another comparable position is not
offered, ONYX will agree to provide six months' base salary as severance
and to accelerate pro rata vesting of the first 25% of your initial stock
option grant.
Stock Options (subject to final approval by Board of Directors)
- ---------------------------------------------------------------
ONYX Software has adopted a combined Incentive and Non-Qualified Stock Option
Plan. The Plan provides employees with the opportunity to participate in the
company's growth and success through stock ownership. Eighty Thousand (80,000)
options at an option price of $.70 per share are targeted as your initial grant
on your start date. Options vest over a period of 4-l/2 years from date of
grant. The first 25% of granted options vests after 18 months of continuous
employment from date of grant. Thereafter, a portion of the remaining options
vest after each six-month period of continuous employment. Additional options
may be granted annually in future years considering continuing performance
growth.
Conditions and Expectations of Employment
- -----------------------------------------
It is a condition of this offer that, upon starting employment, you will sign an
Employee Confidentiality and Invention Agreement which contains additional
requirements for the protection of ONYX's business. We wish to emphasize the
importance we place on the proper treatment of any confidential information with
which you may have come into contact in the past. We are offering you this job
based
-2-
<PAGE>
on your skills and abilities and not your possession of any trade secret,
confidential or proprietary information. We require that you not obtain, keep,
use for our benefit or disclose to us any confidential, proprietary or trade
secret information that belongs to others, unless the party who has the rights
to the information consents in advance. Also, by signing below you affirm that
you are not a party to any agreements, such as noncompetition agreements, that
would prohibit you from working for us.
The employment opportunity that we offer is of indefinite duration and will
continue as long as both you and ONYX consider it of mutual benefit. Either you
or ONYX is free to terminate the employment relationship at any time, with or
without cause. Any statements to the contrary are not authorized and may not be
relied upon.
ONYX provides new employees with a 90-day performance review focusing on
expected achievements and future expectations. Both performance and salaries
are reviewed on an ongoing basis with adjustments to compensation based on
business results and merit.
We are extremely pleased to have you join ONYX and believe this will be an
exceptional career opportunity for you. We look forward to your signed
acceptance of this offer and your confirmation of a starting date with ONYX to
be October 1, 1997.
Best regards,
/s/ Brent Frei
Brent Frei
President & CEO
/s/ Keith Brown 9/17/97
---------------------------------
Accepted Date
Encl.: ONYX Software Corporation Employee Confidentiality, Non-Compete and
Invention Agreement
-3-
<PAGE>
EXHIBIT 10.12
ONYX SOFTWARE CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") dated as of _______ __,
1998 is made between ONYX Software Corporation, a Washington corporation (the
"Company"), and ________________ ("Indemnitee").
RECITALS
A. Indemnitee is a director or officer of the Company and in such capacity
is performing valuable services for the Company.
B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance and the significant cost of such
insurance.
C. The Company and Indemnitee further recognize the substantial increase
in litigation subjecting directors and officers to expensive litigation risks at
the same time that such liability insurance has been severely limited.
D. The Company has adopted bylaws (the "Bylaws") providing for
indemnification of the officers, directors, agents and employees of the Company
to the full extent permitted by the Business Corporation Act of Washington (the
"Statute").
E. The Bylaws and the Statute specifically provide that they are not
exclusive, and thereby contemplate that contracts may be entered into between
the Company and its directors and officers with respect to indemnification of
such directors and officers.
F. To induce Indemnitee to serve or continue to serve as a director or
officer of the Company, the Company desires to confirm the contract
indemnification rights provided in the Bylaws and agrees to provide the
Indemnitee with the benefits contemplated by this Agreement.
AGREEMENT
In consideration of the recitals above, the mutual covenants and agreements
herein contained, and Indemnitee's continued service as a director or officer,
as the case may be, of the Company after the date hereof, the parties to this
Agreement agree as follows:
1. INDEMNIFICATION OF INDEMNITEE
1.1. SCOPE
The Company agrees to hold harmless and indemnify Indemnitee to the full
extent provided under the provisions of the Company's Fourth Restated Articles
of Incorporation and
Page 1
<PAGE>
the Bylaws, and to the full extent permitted by law, notwithstanding that the
basis for such indemnification is not specifically enumerated in this Agreement,
the Company's Fourth Restated Articles of Incorporation, the Bylaws, any statute
or otherwise. In the event of any change, after the date of this Agreement, in
any applicable law, statute or rule regarding the right of a Washington
corporation to indemnify a member of its board of directors or an officer, such
change, to the extent that it would expand Indemnitee's rights hereunder, shall
be included within Indemnitee's rights and the Company's obligations hereunder,
and, to the extent that it would narrow Indemnitee's rights or the Company's
obligations hereunder, shall not affect or limit the scope of this Agreement;
provided, however, that in no event shall any part of this Agreement be
construed so as to require indemnification when such indemnification is not
permitted by then applicable law.
1.2. NONEXCLUSIVITY
The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Company's
Fourth Restated Articles of Incorporation, the Bylaws, any agreement, any vote
of shareholders or disinterested directors, the Statute, or otherwise, whether
as to action in Indemnitee's official capacity or otherwise.
1.3. INCLUDED COVERAGE
If Indemnitee was or is made a party, or is threatened to be made a party,
to or is otherwise involved (including, without limitation, as a witness) in any
Proceeding (as defined below), the Company shall hold harmless and indemnify
Indemnitee from and against any and all losses, claims, damages (compensatory,
exemplary, punitive or otherwise), liabilities or expenses, including, without
limitation, attorneys' fees, costs, judgments, fines, ERISA excise taxes or
penalties, witness fees, amounts paid in settlement and other expenses incurred
in connection with the investigation, defense, settlement or approval of such
Proceeding (collectively, "Damages").
1.4. DEFINITION OF PROCEEDING
For purposes of this Agreement, "Proceeding" shall mean any completed,
actual, pending or threatened action, suit, claim, hearing or proceeding,
whether civil, criminal, arbitrative, administrative, investigative or pursuant
to any alternative dispute resolution mechanism (including an action by or in
the right of the Company) and whether formal or informal, in which Indemnitee
is, was or becomes involved by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company or that, being or having
been such a director, officer, employee or agent, Indemnitee is or was serving
at the request of the Company as a director, officer, employee, trustee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise (collectively, a "Related Company"), including service with respect
to an employee benefit plan, whether the basis of such proceeding is alleged
action (or inaction) by Indemnitee in an official capacity as a director,
officer, employee, trustee or agent or in any other capacity while serving as a
director, officer, employee, trustee or agent; provided, however, that, except
with respect to
Page 2
<PAGE>
an Enforcement Action (defined in Section 3.1 below, an action challenging the
Company's determination that Indemnitee is not entitled to indemnification
pursuant to Section 1.5, and any other action to enforce the provisions of this
Agreement, "Proceeding" shall not include any action, suit, claim or proceeding
instituted by or at the direction of Indemnitee unless such action, suit, claim
or proceeding is or was authorized by the Company's Board of Directors.
1.5. DETERMINATION OF ENTITLEMENT
In the event that a determination of Indemnitee's entitlement to
indemnification is required pursuant to Section 23B.08.550 of the Statute or a
successor statute or pursuant to other applicable law, the appropriate decision-
maker shall make such determination; provided, however, that Indemnitee shall
initially be presumed in all cases to be entitled to indemnification, that
Indemnitee may establish a conclusive presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty of
perjury that such fact is true and that, unless the Company shall deliver to
Indemnitee written notice of a determination that Indemnitee is not entitled to
indemnification within twenty (20) calendar days after the Company's receipt of
Indemnitee's initial written request for indemnification, such determination
shall conclusively be deemed to have been made in favor of the Company's
provision of indemnification, and that the Company hereby agrees not to assert
otherwise.
1.6. CONTRIBUTION
If the indemnification provided under Section 1.1 is unavailable by reason
of a court decision, based on grounds other than any of those set forth in
paragraphs (b) through (d) of Section 4.1, then, in respect of any Proceeding in
which the Company is jointly liable with Indemnitee (or would be if joined in
such Proceeding), the Company shall contribute to the amount of Damages
(including attorneys' fees) actually and reasonably incurred and paid or payable
by Indemnitee in such proportion as is appropriate to reflect (i) the relative
benefits received by the Company on the one hand and Indemnitee on the other
from the transaction from which such Proceeding arose and (ii) the relative
fault of the Company on the one hand and of Indemnitee on the other in
connection with the events that resulted in such Damages as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of Indemnitee on the other shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such Damages.
The Company agrees that it would not be just and equitable if contribution
pursuant to this Section 1.6 were determined by pro rata allocation or any other
method of allocation that does not take account of the foregoing equitable
considerations.
1.7. SURVIVAL
The indemnification and contribution provided under this Agreement shall
apply to any and all Proceedings, notwithstanding that Indemnitee has ceased to
serve the Company or a Related Company and shall continue so long as Indemnitee
shall be subject to any possible
Page 3
<PAGE>
Proceeding, whether civil, criminal or investigative, by reason of the fact that
Indemnitee was a director or officer of the Company or serving in any other
capacity referred to in Section 1.4 of this Agreement.
2. EXPENSE ADVANCES
2.1. GENERALLY
The right to indemnification of Damages conferred by Section 1 shall
include the right to have the Company pay Indemnitee's expenses in any
Proceeding as such expenses are incurred and in advance of such Proceeding's
final disposition (such right, an "Expense Advance").
2.2. CONDITIONS TO EXPENSE ADVANCE
The Company's obligation to provide an Expense Advance is subject to the
following conditions:
2.2.1. UNDERTAKING
If the Proceeding arose in connection with Indemnitee's service as a
director or an officer of the Company (and not in any other capacity in which
Indemnitee rendered service, including service to any Related Company), then
Indemnitee or Indemnitee's representative shall have executed and delivered to
the Company an undertaking, which need not be secured and shall be accepted
without reference to Indemnitee's financial ability to make repayment, by or on
behalf of Indemnitee to repay all Expense Advances if it shall ultimately be
determined by a final, unappealable decision rendered by a court having
jurisdiction over the parties that Indemnitee is not entitled to be indemnified
under this Agreement or otherwise.
2.2.2. COOPERATION
Indemnitee shall give the Company such information and cooperation as
it may reasonably request and as shall be within Indemnitee's legal power to so
provide.
2.2.3. AFFIRMATION
Indemnitee shall furnish, upon request by the Company and if required
under applicable law, a written affirmation of Indemnitee's good faith belief
that any applicable standards of conduct have been met by Indemnitee.
Page 4
<PAGE>
3. PROCEDURES FOR ENFORCEMENT
3.1. ENFORCEMENT
In the event that any claim for indemnification, whether an Expense Advance
or otherwise, is made hereunder and is not paid in full within thirty (30)
calendar days after written notice of such claim is delivered to the Company,
Indemnitee may, but need not, at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim (an "Enforcement Action").
3.2. PRESUMPTIONS IN ENFORCEMENT ACTION
In any Enforcement Action, the following presumptions (and limitation on
presumptions) shall apply:
(a) The Company expressly affirms and agrees that it has entered into this
Agreement and assumed the obligations imposed on it hereunder to induce
Indemnitee to continue as a director or officer, as the case may be, of the
Company;
(b) Neither (i) the failure of the Company (including the Company's Board
of Directors, independent or special legal counsel or the Company's
shareholders) to have made a determination prior to the commencement of the
Enforcement Action that indemnification of Indemnitee is proper in the
circumstances nor (ii) an actual determination by the Company, its Board of
Directors, independent or special legal counsel or shareholders that Indemnitee
is not entitled to indemnification shall be a defense to the Enforcement Action
or create a presumption that Indemnitee is not entitled to indemnification
hereunder; and
(c) If Indemnitee is or was serving as a director or officer of a
corporation of which a majority of the shares entitled to vote in the election
of its directors is held by the Company or as a partner, trustee or otherwise in
an executive or management capacity in a partnership, joint venture, trust or
other enterprise of which the Company or a wholly owned subsidiary of the
Company is a general partner or has a majority ownership, then such corporation,
partnership, joint venture, trust or other enterprise shall conclusively be
deemed a Related Company and Indemnitee shall conclusively be deemed to be
serving such Related Company at the Company's request.
3.3. ATTORNEYS' FEES AND EXPENSES FOR ENFORCEMENT ACTION
In the event Indemnitee is required to bring an Enforcement Action, the
Company shall pay all of Indemnitee's fees and expenses in bringing and pursuing
the Enforcement Action (including attorneys' fees at any stage, including on
appeal); provided, however, that the Company shall not be required to provide
such payment for such attorneys' fees or expenses if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such Enforcement Action was not made in good faith.
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4. LIMITATIONS ON INDEMNITY; MUTUAL ACKNOWLEDGMENT
4.1. LIMITATION ON INDEMNITY
No indemnity pursuant to this Agreement shall be provided by the Company:
(a) On account of any suit in which a final, unappealable judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Company in violation of the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended;
(b) For Damages that have been paid directly to Indemnitee by an insurance
carrier under a policy of insurance maintained by the Company;
(c) With respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(d) On account of Indemnitee's conduct which is finally adjudged by a court
having jurisdiction in the matter to have been intentional misconduct, a knowing
violation of law or the RCW 23B.08.310 or any successor provision of the
Statute, or a transaction from which Indemnitee derived an improper personal
benefit; or
(e) If a final decision by a court having jurisdiction in the matter with
no further right of appeal shall determine that such indemnification is not
lawful.
4.2. PARTIAL INDEMNIFICATION
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of any Damages in
connection with a Proceeding, but not, however, for the total amount thereof,
the Company shall nevertheless indemnify Indemnitee for the portion of such
Damages to which Indemnitee is entitled.
4.3. MUTUAL ACKNOWLEDGMENT
The Company and Indemnitee acknowledge that, in certain instances, federal
law or public policy may override applicable state law and prohibit the Company
from indemnifying Indemnitee under this Agreement or otherwise. For example,
the Company and Indemnitee acknowledge that the Securities and Exchange
Commission (the "SEC") has taken the position that indemnification is not
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
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5. NOTIFICATION AND DEFENSE OF CLAIM
5.1. NOTIFICATION
Promptly after receipt by Indemnitee of notice of the commencement of any
Proceeding, Indemnitee shall, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the commencement
thereof; but the omission so to notify the Company will not, however, relieve
the Company from any liability which it may have to Indemnitee under this
Agreement unless and only to the extent that such omission can be shown to have
prejudiced the Company's ability to defend the Proceeding.
If, at the time of the receipt of a notice of a claim pursuant to Section
5.1, the Company has director and officer liability insurance in effect, the
Company shall give prompt notice of the commencement of such proceeding to the
insurers in accordance with the procedures set forth in the respective policies.
The Company shall take all necessary or desirable action to cause such insurers
to pay, on behalf of the Indemnitee, all amounts payable as a result of such
Proceeding in accordance with the terms of such policies.
5.2. DEFENSE OF CLAIM
With respect to any such Proceeding as to which Indemnitee notifies the
Company of the commencement thereof:
(a) The Company may participate therein at its own expense;
(b) The Company, jointly with any other indemnifying party similarly
notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than reasonable costs of
investigation) subsequently incurred by Indemnitee in connection with the
defense thereof unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company (or any other person or
persons included in the joint defense) and Indemnitee in the conduct of the
defense of such action, (iii) the Company shall not, in fact, have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of counsel shall be at the Company's expense, or (iv) the Company
is not financially or legally able to perform its indemnification obligations.
The Company shall not be entitled to assume the defense of any proceeding
brought by or on behalf of the Company or as to which Indemnitee shall have
reasonably made the conclusion provided for in (ii) or (iv) above;
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any Proceeding effected without
its written consent;
(d) The Company shall not settle any action or claim in any manner that
would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent; and
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(e) Neither the Company nor Indemnitee will unreasonably withhold its, his
or her consent to any proposed settlement.
6. SEVERABILITY
Nothing in this Agreement is intended to require or shall be construed as
requiring the Company to do or to fail to do any act in violation of applicable
law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable, as provided in
this Section 6. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify or make contribution to Indemnitee to the full extent
permitted by any applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
7. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION
(a) This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Washington.
(b) This Agreement shall be binding on Indemnitee and on the Company and
its successors and assigns (including any transferee of all or substantially all
its assets and any successor by merger or otherwise by operation of law), and
shall inure to the benefit of Indemnitee and Indemnitee's heirs, personal
representatives and assigns and to the benefit of the Company and its successors
and assigns. The Company shall not effect any merger, consolidation, sale of
all or substantially all of its assets or other reorganization in which it is
not the surviving entity, unless the surviving entity agrees in writing to
assure all of the Company's obligations under this Agreement.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
8. ENTIRE AGREEMENT
This Agreement is the entire agreement of the parties regarding its subject
matter and supersedes all prior written or oral communications or agreements.
9. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
instrument.
10. AMENDMENTS; WAIVERS
Neither this Agreement nor any provision may be amended except by written
agreement signed by the parties. No waiver of any breach or default shall be
considered valid
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unless in writing, and no such waiver shall be deemed a waiver of any subsequent
breach or default.
11. NOTICES
All notices, claims and other communications hereunder shall be in writing
and made by hand delivery, registered or certified mail (postage prepaid, return
receipt requested), facsimile or overnight air courier guaranteeing next-day
delivery:
(a) If to the Company, to: with a copy to:
ONYX Software Corporation Perkins Coie
310 - 120th Avenue N.E. 1201 Third Avenue, 40th Floor
Bellevue, WA 98005 Seattle, WA 98101
Attn: Sarwat Ramadan, Attn: Gregory Gorder, Esq
Chief Financial Officer
(b) If to Indemnitee, to the address specified on the last page of this
Agreement or to such other address as either party may from time to time furnish
to the other party by a notice given in accordance with the provisions of this
Section 11. All such notices, claims and communications shall be deemed to have
been duly given if (i) personally delivered, at the time delivered, (ii) mailed,
five days after dispatched, (iii) sent by facsimile transmission, upon
confirmation of receipt, and (iv) sent by any other means, upon receipt.
12. DIRECTORS' AND OFFICERS' INSURANCE
(a) The Company hereby covenants and agrees that, subject to the provisions
of Section 12(c) hereof, the Company shall, from a date no later than the
closing date of the Company's first registered public offering of the Company's
Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, maintain directors' and officers' insurance
in full force and effect so long as Indemnitee continues to serve as a director
or officer of the Company and thereafter so long as Indemnitee shall be subject
to any possible Proceeding.
(b) In all policies of directors' and officers' insurance, Indemnitee shall
be named as an insured in such a manner as to provide Indemnitee the same rights
and benefits, subject to the same limitations, as are accorded to the Company's
directors or officers most favorably insured by such policy.
(c) Notwithstanding the foregoing provisions of this Section 12, the
Company shall have no obligation to maintain directors' and officers' insurance
if the Company determines in good faith that such insurance is not reasonably
available, the premium costs for such insurance are disproportionate to the
amount of coverage provided, or the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit.
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13. SPECIFIC PERFORMANCE
The Company and Indemnitee agree herein that a monetary remedy for breach
of this Agreement, at some later date, will be inadequate, impracticable and
difficult of proof, and further agree that such breach would cause Indemnitee
irreparable harm. Accordingly, the Company and Indemnitee agree that Indemnitee
shall be entitled to temporary and permanent injunctive relief to enforce this
Agreement without the necessity of proving actual damages or irreparable harm.
The Company and Indemnitee further agree that Indemnitee shall be entitled to
such injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, without the necessity of posting bond or
other undertaking in connection therewith. Any such requirement of bond or
undertaking is hereby waived by the Company, and the Company acknowledges that
in the absence of such a waiver, a bond or undertaking may be required by the
court.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
COMPANY:
ONYX SOFTWARE CORPORATION
By
-----------------------------------------
Its
---------------------------------------
INDEMNITEE:
--------------------------------------------
Print name:
--------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
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Schedule A to Exhibit 10.12
ONYX Director and Officer Signatories to the Indemnification Agreement
1. Ray Bingham
2. Keith Brown
3. William Elmore
4. Eben Frankenberg
5. Brent Frei
6. Howard Hawk
7. Jay Hoag
8. Paul Koontz
9. Michael Racine
10. Sarwat Ramadan
11. Mary Reeder
12. Daniel Santell
13. Todd Stevenson
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our reports dated
November 16, 1998 (except Note 12 as to which the date is December 29, 1998) in
Amendment No. 1 to the Registration Statement (Form S-1 No. 333-68559) and the
related Prospectus of ONYX Software Corporation for the registration of
3,565,000 shares of its common stock, to be filed with the Securities and
Exchange Commission on or about January 20, 1999.
ERNST & YOUNG LLP
Seattle, Washington
January 20, 1999
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
The undersigned, Ray Bingham, hereby authorizes and appoints Brent R. Frei
and Sarwat H. Ramadan, and each of them, with full power of substitution and
resubstitution and full power to act without the other, as his true and lawful
attorney-in-fact and agent to act in his name, place and stead and to execute in
the name and on behalf of him, individually and in each capacity stated below,
and to file, any and all amendments to this Registration Statement, including
any and all post-effective amendments and amendments thereto and any
registration statement relating to the same offering as this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other 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, ratifying and confirming all that said attorneys-in-fact and agents or
any of them or their and his or her substitute or substitutes may lawfully do or
cause to be done by virtue thereof.
/s/ Ray Bingham
-------------------------------
Ray Bingham
<PAGE>
Exhibit 99.1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS,
ON FINANCIAL STATEMENT SCHEDULE
We have audited the consolidated balance sheets of ONYX Software Corporation
as of December 31, 1996 and 1997 and September 30, 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997 and the nine
months ended September 30, 1998, and have issued our report thereon dated
November 16, 1998 (except Note 12 as to which the date is December 29, 1998)
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Seattle, Washington
November 16, 1998
