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As filed with the Securities and Exchange Commission on July 2, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BEA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0394711
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
385 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089-1208
(408) 743-4000
(Address, including zip code, and telephone number, including area code, of
registrar's principal executive offices)
William T. Coleman III
Chairman, President and Chief Executive Officer
385 Moffett Park Drive
Sunnyvale, California 94089-1208
(408) 743-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
Michael C. Phillips, Esq.
Cori M. Allen, Esq.
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304
(650) 813-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act 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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<CAPTION>
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CALCULATION OF REGISTRATION FEE
=========================================================================================================================
TITLE OF SHARES TO BE Amount to be Proposed Maximum Proposed Maximum Amount of
REGISTERED Registered Aggregate Price Per Share Aggregate Offering Price Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $.001
par value.................... 560,704 shares $21.00(1) $11,774,784(1) $3,474.00
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) based on the average of the high and low
reported sales prices on the Nasdaq National Market on June 26, 1998.
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
AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
===============================================================================
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+ REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+ SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+ OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+ BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+ THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THE +
+ SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+ UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated July 2, 1998
PROSPECTUS
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560,704 Shares
BEA Systems, Inc.
COMMON STOCK
This Prospectus relates to the offer and sale from time to time by the holders
of up to 560,704 shares (the "Shares") of Common Stock, par value $.001 per
share (the "Common Stock") of the Company. The Shares were issued in connection
with a stock purchase agreement, dated as of April 27, 1998 among the Company,
the Leader Group, Inc., a Colorado corporation, ("Leader Group") and the former
shareholders of the Leader Group (the "Selling Stockholders") (the "Stock
Purchase Agreement"). This Prospectus has been prepared in connection with
registering the Shares to allow for sales of Shares by the applicable Selling
Stockholders to the public in accordance with the terms of the Stock Purchase
Agreement.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SECURITIES IN
ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
The Common Stock is listed on the Nasdaq National Market ("NASDAQ") under the
symbol "BEAS." On July 1, 1998, the last sale price of the Common Stock on
NASDAQ was $22 3/8 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OFFERED HEREBY INVOLVE CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6 OF THIS PROSPECTUS.
The Selling Stockholders from time to time may offer and sell the Shares held
by them directly or through agents or broker-dealers on terms to be determined
at the time of sale. To the extent required, the names of any agent or broker-
dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." Each of the
Selling Stockholders reserves the sole right to accept or reject, in whole or in
part, any proposed purchase of the Shares to be made directly or through agents.
The Company will not receive any of the proceeds from the sale of Shares by
the Selling Stockholders but has agreed to bear certain expenses of registration
of the Shares under federal and state securities laws.
The Selling Stockholders and any agents or broker-dealers that participate
with the Selling Stockholders in the distribution of Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any commissions received by them and any profit on the
resale of the Shares may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Registration Rights" for indemnification
arrangements between the Company and the Selling Stockholders.
The date of this Prospectus is , 1998
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No person has been authorized to give any information or to make any
representations not contained or incorporated by reference in this Prospectus in
connection with the offer described in this Prospectus and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Company or the Selling Securityholders. Neither the delivery
of this Prospectus nor any sale made under this Prospectus shall under any
circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof or since the date of any documents
incorporated herein by reference. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the
securities to which it relates, or an offer or solicitation in any state to any
person to whom it is unlawful to make such offer in such state.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith the Company files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.,
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a
web site (http://www.sec.gov) containing reports, proxy and information
statements and other information of registrants, including the Company, that
file electronically with the Commission. In addition, the Common Stock is
listed on the Nasdaq National Market and similar information concerning the
Company can be inspected and copied at the offices of the National Association
of Securities Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850.
The Company has filed with the Commission a registration statement on Form S-3
(the "Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Shares. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other documents are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. For further information regarding the Company
and the Shares, reference is hereby made to the Registration Statement and such
exhibits and schedules which may be obtained from the Commission at its
principal office in Washington, D.C. upon payment of the fees prescribed by the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange
Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-KSB for the year ended January 31,
1998;
b. The Company's Quarterly Report on Form 10-Q for the quarter ended
April 30, 1998; and
c. The Company's Current Report on Form 8-K dated as of June 30, 1998.
Each document filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby shall be deemed to be incorporated
by reference in this Prospectus and to be part hereof from the date of filing
such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
2
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Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to Kevin A. Faulkner, Senior Director-Investor Relations, 385 Moffett
Park Drive, Sunnyvale, California 94089-1208, telephone number: (408) 743-4000.
3
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THE COMPANY
BEA Systems, Inc. ("BEA" or the "Company") is a leading provider of cross-
platform middleware solutions for enterprise applications. BEA's products and
services enable mission-critical applications to work seamlessly in distributed
computing, Internet, and legacy environments. BEA provides transactional,
messaging, and distributed object-based software for developing and deploying
these enterprise applications. In addition, BEA provides complete enterprise
middleware solutions through its partner network, and a full range of services
including consulting, training and support. The flagship of the BEA enterprise
middleware solution is BEA TUXEDO, a software platform that manages transactions
and communications for enterprise-wide applications, enabling organizations to
realize the benefits offered by distributed computing environments while
preserving the traditional advantages of mainframe-based systems. BEA products
provide a middleware software infrastructure that supports thousands of
simultaneous users distributed worldwide.
BEA's products are marketed and sold by the Company's direct sales force
through a network of 50 offices in 24 countries worldwide and also indirectly by
its distribution partners. BEA's products have been adopted by customers in a
wide variety of industries, including telecommunications, banking and finance,
manufacturing, retail, technology and transportation. The total number of
customers using the Company's products is approximately 1,400 worldwide. These
customers include: The AT&T Corp., Bell Communications Research, Inc., The
Boeing Company, Deutsche Telekom, Federal Express Corp., Fidelity Investments,
The Gap, Inc., McKesson Corp., Motorola, Inc., Nippon Telephone & Telegraph,
Norwest Corporation, United Airlines, Inc., U.K. Employment Services, Union
Pacific Railroad and Walgreen Co. In addition, the Company partners with
independent software vendors ("ISVs") such as PeopleSoft, Inc. and Clarify, Inc.
and computer hardware manufacturers such as Hewlett-Packard, IBM and Unisys to
sell BEA products to enterprise customers.
Over the past decade, the information systems of many organizations have been
evolving from traditional mainframe systems to distributed computing
environments. This evolution has been driven by the benefits offered by
distributed computing, including lower incremental technology costs, faster
application development and deployment, increased flexibility and improved
access to business information. However, the inherent technical and business
limitations of distributed computing have generally precluded its use for
complex, large-scale, mission-critical applications, such as airline
reservations, credit card processing and customer billing and support systems,
that enable and support fundamental business processes. These shortcomings
include the limited scalability, reliability and interoperability of distributed
computing environments. In addition, it has been difficult to integrate
distributed computing technologies with existing mission-critical applications,
limiting organizations' ability to leverage their substantial investments in
legacy systems and existing personnel and skills.
BEA's products and services enable companies to overcome the limitations of
distributed computing for mission-critical applications. The Company's
enterprise middleware solutions, featuring time-tested and market-proven BEA
TUXEDO technology, provide a middleware platform that addresses the scalability,
manageability, platform independence, interoperability, integrity, reliability
and security requirements of complex, large-scale, distributed computing in the
heterogeneous environments present in most major organizations. The BEA solution
allows companies to leverage their substantial investments in legacy systems,
significantly extending the useful lives of mainframe and programmer assets
while exploiting the benefits offered by distributed computing. The Company also
offers solutions that enable customers to quickly develop secure, reliable
applications on the Internet that interoperate with new and existing systems.
The Company's objective is to establish its middleware solutions as the
industry standard for developing, deploying and managing distributed mission-
critical applications. To this end, BEA intends to enhance its technological
leadership by adding new functionality to its products; expand its global
distribution facilities to complement its direct sales, services, training and
support capabilities; promote the embedding of BEA products into the product
offerings of ISVs to accelerate the acceptance of BEA products; leverage
strategic partnerships to augment the efforts of its direct sales force; and
provide the software and services necessary to conduct safe, reliable enterprise
transactions over the Internet.
From its inception, the Company has made a number of strategic acquisitions.
The Company acquired worldwide exclusive rights to TUXEDO from Novell, Inc.
("Novell") in February 1996, acquired Information Management Company ("IMC") and
Independence Technologies, Inc. ("ITI"), two leading distributors of TUXEDO, in
September 1995 and November 1995, respectively, and acquired a number of other
TUXEDO distribution, sales and support organizations between May 1996 and
December 1996. In March 1997, the Company acquired exclusive rights to MessageQ,
4
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ObjectBroker and other related products from Digital Equipment Corporation
("Digital"). See Note 4 of Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-KSB. In the quarter ended January 31, 1998,
the Company acquired a business unit of Nocom Nordic Communications AB
("Nocom"), and in the quarter ended April 30, 1998, the Company acquired a
business unit of Penta Systems Technology, Inc. ("Penta"). In April 1998, the
Company acquired the Leader Group, Inc. ("Leader Group"), a Denver-based
consulting services firm. Most recently, on June 16, 1998, the Company purchased
the TOP END enterprise middleware technology and product family ("TOP END") from
NCR Corporation ("NCR"). See "Risk Factors--Past and Future Acquisitions; Risks
Associated with TOP END Acquisition."
The Company was incorporated in Delaware in January 1995 under the name BEA
Enterprises, Inc. and changed its name to BEA Systems, Inc. in September 1995.
References herein to "BEA" or the "Company" refer to BEA Systems, Inc., its
subsidiaries and predecessor entities acquired in previous acquisitions. The
Company's headquarters are located at 385 Moffett Park Drive, Sunnyvale,
California 94089-1208, and its telephone number is (408) 743-4000.
RECENT EVENTS
ACQUISITION OF TOP END
On June 16, 1998, the Company completed an Asset Purchase Agreement (the
"Asset Purchase Agreement") with NCR under which the Company purchased the TOP
END enterprise middleware technology and product family (the "Acquisition") from
NCR for approximately $92.4 million in cash. TOP END coordinates and connects
end users to the databases they are accessing, often spanning multiple computer
networks and hardware in different geographic locations. The Company expects the
Acquisition to strengthen the range of open, robust middleware solutions offered
by BEA. The Company also believes that the addition of TOP END to BEA's
middleware product family will enable the Company to better meet the needs of
customers for comprehensive, scalable enterprise middleware solutions.
CONVERTIBLE SUBORDINATED DEBT OFFERING
On June 16, 1998, the Company completed the sale of $200 million of its 4%
Convertible Subordinated Notes (the "Notes") due June 15, 2005 in an offering to
qualified institutional investors. The Company granted the initial purchasers a
30-day option to purchase an additional $50 million of notes to cover
overallotments, if any. The Notes are subordinated to all existing and future
senior indebtedness of the Company and are convertible into Common Stock of the
Company at a conversion price of $26.41 per share. The Company has agreed to
file a shelf registration statement with respect to the Notes and the Common
Stock issuable upon conversion thereof within 90 days after the date of original
issuance of the Notes. The Notes are redeemable at the option of the Company in
whole or in part at any time on or after June 5, 2001, in cash plus accrued
interest through the redemption date, if any, subject to certain events. The
net proceeds of the offering have been added to working capital and will be used
for general corporate purposes. A portion of the proceeds may be used to fund
acquisitions of complimentary businesses, products or technologies. See "Risk
Factors Significant Leverage; Debt Service."
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of Shares by
the Selling Stockholders, but has agreed to bear certain expenses of
registration of the Shares under federal and state securities laws. This
Registration Statement is intended to satisfy certain of the Company's
obligations under the Stock Purchase Agreement entered into with the Leader
Group and the Selling Stockholders.
5
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RISK FACTORS
In addition to the other information contained in this Offering Circular,
investors should carefully consider the following risk factors in evaluating an
investment in the Common Stock offered hereby. This Offering Circular includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. All statements other than statements of
historical fact are "forward-looking statements" for purposes of these
provisions, including any projections of earnings, revenues or other financial
items, any statements of the plans and objectives of management for future
operations, any statements concerning proposed new products or services, any
statements regarding future economic conditions or performance, and any
statement of assumptions underlying any of the foregoing. In some cases,
forward-looking statements can be identified by the use of terminology such as
"may," "will," "expects," "plans," "anticipates," "estimates," "potential," or
"continue," or the negative thereof or other comparable terminology. Although
the Company believes that the expectations reflected in the forward-looking
statements contained herein are reasonable, there can be no assurance that such
expectations or any of the forward-looking statements will prove to be correct,
and actual results could differ materially from these projected or assumed in
the forward-looking statements. The Company's future financial condition and
results of operations, as well as any forward-looking statements, are subject to
inherent risks and uncertainties, including but not limited to the risk factors
set forth below and for the reasons described elsewhere in this Offering
Circular. All forward-looking statements and reasons why results may differ
included in this Offering Circular are made as of the date hereof, and the
Company assumes no obligation to update any such forward-looking statement or
reason why actual results might differ.
LIMITED OPERATING HISTORY; INTEGRATION OF ACQUISITIONS; NO ASSURANCE OF
PROFITABILITY
The Company was incorporated in January 1995 and, accordingly, has a limited
operating history upon which an evaluation of the Company and its prospects can
be based. Revenues generated by the Company to date have been derived primarily
from sales of BEA TUXEDO, a product to which the Company acquired worldwide
rights in February 1996, and from fees for related services. Since its
inception, the Company has acquired a number of businesses, technologies and
products. Prior to the consummation of these acquisitions, the Company had no
revenues and limited business activities. Accordingly, the Company is subject to
the risks inherent both in the operation of a business with a limited operative
history and the integration of a number of separate and independent business
operations and there can be no assurance that the Company will be able to
address these risks successfully. Although the Company has experienced recent
substantial revenue growth and has been profitable for each of the two previous
quarters ended January 31, 1998 and April 30, 1998, the Company has incurred
significant net losses including losses of approximately $22.0 million and $88.7
million for the fiscal years ended January 31, 1998 and 1997, respectively. At
April 30, 1998, the Company had an accumulated deficit of approximately $127.9
million. In addition, in connection with certain acquisitions completed prior to
April 30, 1998, the Company recorded approximately $129.0 million as intangible
assets, approximately $114.4 million of which has already been amortized and
approximately $14.6 million of which is expected to be amortized in future
periods through the Company's fiscal year ending January 31, 2003. The amount of
such intangible assets to be expensed to cost of revenues and general and
administrative expense in future periods, for intangible assets acquired prior
to April 30, 1998 (excluding amounts, if any, relating to the pending
acquisition of TOP END enterprise middleware technology and product family from
NCR), is expected to be $10.1 million and $5.3 million in the fiscal years
ending January 31, 1999 and 2000, respectively. In May 1998, the Company
entered into an agreement to acquire the TOP END enterprise middleware
technology and product family from NCR, which was completed on June 16, 1998.
This acquisition will result in significant additional amortization of
intangible assets and potentially a one-time expense for acquired in-process
research and development, the amounts of which are not yet determinable. To the
extent the Company makes additional acquisitions of businesses, products and
technologies in the future, the Company may report additional, potentially
significant, expenses related thereto. To the extent future events result in
the impairment of any capitalized intangible assets, amortization expenses may
occur sooner than the Company expects. For the foregoing reasons, there can be
no assurance that the Company will be profitable in any future period and recent
operating results should not be considered indicative of future financial
performance.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company expects that it will experience significant fluctuations in future
quarterly operating results as a result of many factors, including, among
others: the size and timing of customer orders, introduction or enhancement of
products by the Company or its competitors, market acceptance of middleware
products, the lengthy sales cycle for the Company's
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products, technological changes in computer systems and environments, the
structure and timing of future acquisitions of businesses, products and
technologies, including the acquisition of the TOP END enterprise middleware
technology and product family from NCR, the impact and duration of deteriorating
economic and political conditions in Asia and related declines in Asian currency
values, general economic conditions which can affect customers' capital
investment levels, the ability of the Company to develop, introduce and market
new products on a timely basis, changes in the Company's or its competitors'
pricing policies, customer order deferrals in anticipation of future new
products and product enhancements, the Company's success in expanding its sales
and marketing programs, mix of products and services sold, mix of distribution
channels, ability to meet the service requirements of its customers, costs
associated with acquisitions, including the acquisition of the TOP END
enterprise middleware technology and product family from NCR, the terms and
timing of financing activities, loss of key personnel and fluctuations in other
foreign currency exchange rates and interpretations of the recently introduced
statement of position on software revenue recognition. As a result of all of
these factors, the Company believes that quarterly revenues and operating
results are difficult to forecast and period-to-period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance.
A portion of the Company's revenues are derived from large orders as customers
deploy BEA products throughout their organizations. As the revenue size of
individual license transactions increases, the risk of fluctuation in future
quarterly results can also be expected to increase. Any inability of the
Company to generate large customer orders, or any delay or loss of such orders
in a particular quarter, will have a material adverse effect on the Company's
revenues and, more significantly on a percentage basis, its net income or loss
in that quarter. Moreover, the Company typically receives and fulfills a
majority of its orders within the quarter, with a substantial portion occurring
in the last month of a fiscal quarter. As a result, the Company may not learn
of revenue shortfalls until late in a fiscal quarter. Additionally, the
Company's operating expenses are based in part on its expectations for future
revenue and are relatively fixed in the short term. Any revenue shortfall below
expectations could have an immediate and significant adverse effect on the
results of operations.
As is common in the software industry, the Company believes that its fourth
quarter orders are favorably impacted by a variety of factors including year-end
capital purchases by larger corporate customers and sales incentive programs.
This increase typically results in first quarter customer orders being lower
than orders received in the immediately preceding fourth quarter. The Company
anticipates that this seasonal impact is likely to increase as it continues to
focus on large corporate accounts.
Similarly, shortfalls in BEA's revenues and earnings from levels expected by
securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's Common Stock. Moreover, the Company's stock
price is subject to the volatility generally associated with software and
technology stocks and may also be affected by broader market trends unrelated to
the Company's performance.
PAST AND FUTURE ACQUISITIONS; RISKS ASSOCIATED WITH TOP END ACQUISITION
From its inception in January 1995, the Company has made a number of strategic
acquisitions. Integration of acquired companies, divisions and products involves
the assimilation of potentially conflicting operations and products, which
divert the attention of the Company's management team and may have a material
adverse effect on the Company's operating results in future quarters. In
addition, in connection with certain of its acquisitions, the Company is
required to make certain future payments. Any failure to make such payments or
otherwise perform continuing obligations relative to these acquisitions would
result in the loss of certain of its rights in the acquired businesses or
products and would have a material adverse effect on the Company's business,
operating results and financial condition. Most recently, the Company acquired
Leader Group and Penta in the quarter ended April 30, 1998 and has most recently
completed the TOP END acquisition (discussed below) in June 1998. The Company
intends to make additional acquisitions in the future, although there can be no
assurance that suitable companies, divisions or products will be available for
acquisition. Such acquisitions entail numerous risks, including an inability to
successfully assimilate acquired operations and products, an inability to retain
key employees of the acquired operations, diversion of management's attention,
and difficulties and uncertainties in transitioning the key business
relationships from the acquired entity to the Company. In addition, future
acquisitions by the Company may result in the issuance of dilutive securities,
the assumption or incurrence of debt obligations, large one-time expenses and
the creation of intangible assets that result in significant future amortization
expense. These factors could have a material adverse effect on the Company's
business, operating results and financial condition.
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The recently-completed TOP END acquisition is subject to a number of risks
that could adversely affect the Company's ability to achieve the anticipated
benefits of the TOP END acquisition. These risks may be exacerbated by the fact
that the TOP END operations and personnel are located in San Diego, California,
where the Company did not previously have any material operations. The need to
focus management's attention on establishing relationships with, and procedures
for communicating with, TOP END employees may reduce the ability of the Company
to successfully pursue other opportunities for a period of time. Any departure
of key TOP END employees or significant numbers of other TOP END employees could
have a material adverse effect on the Company. The Company may face difficulties
in retaining TOP END customers, and customers' uncertainties as to the Company's
plans and abilities to support both the TOP END products and BEA TUXEDO after
the acquisition could adversely affect the Company's ability to retain these
customers, which could have a material adverse effect on the Company. The TOP
END acquisition will also result in a potential write-off related to in-process
research and development as of the time of closing the acquisition and
substantial ongoing amortization expenses, the amounts of which are not yet
determinable, which will have a negative impact on the Company's future
operating results. See "Summary-Recent Events."
PRODUCT CONCENTRATION
The Company currently derives the majority of its license and service revenues
from BEA TUXEDO and from related products and services. These products and
services are expected to continue to account for the majority of the Company's
revenues for the foreseeable future. As a result, factors adversely affecting
the pricing of or demand for BEA TUXEDO, such as competition, product
performance or technological change, could have a material adverse effect on the
Company's business and consolidated results of operations and financial
condition. Furthermore, the Company is obligated to make certain payments to
Novell through January 1999 to acquire the perpetual rights to the BEA TUXEDO
product. Failure by the Company to make these payments for any reason could
terminate the Company's continuing rights to this product.
LENGTHY SALES CYCLE
The Company's products are typically used to integrate large, sophisticated
applications that are critical to a customer's business and the purchase of the
Company's products is often part of a customer's implementation of a distributed
computing environment. Customers evaluating the Company's software products face
complex decisions regarding alternative approaches to the integration of
enterprise applications, competitive product offerings, rapidly changing
software technologies and limited internal resources due to other information
systems requirements. For these and other reasons, the sales cycle for the
Company's products is lengthy and is subject to delays or cancellation over
which the Company has little or no control. To the extent the revenue size of
license transactions increases, customer evaluations and procurement processes
are expect to lengthen the overall sales cycle. The Company believes its sales
cycles can be affected by general economic conditions which impact customers'
capital investment decisions. Any significant change in the Company's sales
cycle could have a material adverse effect on the Company's business, results of
operations and financial condition.
Although the Company has a standard license agreement which meets the revenue
recognition criteria under current generally accepted accounting principles, the
Company must often negotiate and revise terms and conditions of this standard
agreement, particularly in larger sales transactions. Negotiation of mutually
acceptable language can extend the sales cycle and in certain situations, may
require the Company to defer recognition of revenue on the sale. In addition,
while the recently issued Statement of Position (SOP) 97-2, Software Revenue
Recognition (as amended by SOP 98-4), is not expected to have a material impact
on the Company's revenues and earnings, detailed implementation guidance of
these standards has not yet been issued. Once issued, such guidance could lead
to unanticipated changes in the Company's current revenue recognition practices
and have an adverse impact on revenues and earnings. In the event that
implementation guidance is different, the Company believes that it can adapt its
current business practice to comply with this guidance; however, there can be no
assurances that this will be the case.
COMPETITION
The market for middleware software and related services is highly competitive.
The Company's competitors are diverse and offer a variety of solutions directed
at various segments of the middleware software marketplace. These competitors
include system and database vendors such as IBM and database vendors such as
Oracle, which offer their own middleware functionality for use with their
proprietary systems. Microsoft has released a product that includes certain
middleware functionality and has demonstrated and announced that it intends to
include this functionality in future versions of its
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Windows NT operating system. In addition, there are companies offering and
developing middleware and integration software products and related services
that directly compete with products offered by the Company. Further, the
software development tool vendors typically emphasize the broad versatility of
their toolsets and, in some cases, offer complementary middleware software that
supports these tools and performs messaging and other basic middleware
functions. Last, internal development groups within prospective customers'
organizations may develop software and hardware systems that may substitute for
those offered by the Company. A number of the Company's competitors and
potential competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, greater name recognition
and a larger installed base of customers than the Company.
The Company's principal competitors currently include hardware vendors who
bundle their own middleware software products with their computer systems and
database vendors that advocate client/server networks driven by the database
server. IBM is the primary hardware vendor who offers a line of middleware and
database solutions for its customers. The bundling of middleware functionality
in IBM proprietary hardware and database systems requires the Company to compete
with IBM in its installed base, where IBM has certain inherent advantages due to
its significantly greater financial, technical, marketing and other resources,
greater name recognition and the integration of its enterprise middleware
functionality with its proprietary hardware and database systems. The Company
needs to differentiate its products based on functionality, interoperability
with non-IBM systems, performance and reliability and establish its products as
more effective solutions to customers' needs. Oracle is the primary relational
database vendor offering products that are intended to serve as alternatives to
the Company's enterprise middleware solutions. There can be no assurance that
the Company will compete successfully with hardware, database, or other vendors,
or that the products offered by such vendors will not achieve greater market
acceptance than the Company's products.
Microsoft has demonstrated certain middleware functionality and announced that
it intends to include this functionality in future versions of its Windows NT
operating system. Microsoft has also introduced a product that includes certain
middleware functionality. The bundling of middleware functionality in Windows
NT will require the Company to compete with Microsoft in the Windows NT
marketplace, where Microsoft will have certain inherent advantages due to its
significantly greater financial, technical, marketing and other resources,
greater name recognition, its substantial installed base and the integration of
its middleware functionality with Windows NT. If Microsoft successfully
incorporates middleware software products into Windows NT or separately offers
middleware applications, the Company will need to differentiate its products
based on functionality, interoperability with non-Microsoft platforms,
performance and reliability and establish its products as more effective
solutions to customers' needs. There can be no assurance that the Company will
be able to successfully differentiate its products from those offered by
Microsoft, or that Microsoft's entry into the middleware market will not
materially adversely affect the Company's business, operating results and
financial condition.
In addition, current and potential competitors may make strategic acquisitions
or establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's current and prospective customers. Accordingly, it is possible that
new competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share. Such competition could materially
adversely affect the Company's ability to sell additional software licenses and
maintenance, consulting and support services on terms favorable to the Company.
Further, competitive pressures could require the Company to reduce the price of
its products and related services, which could materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors and the failure to do so would have a material adverse
effect upon the Company's business, operating results and financial condition.
INTERNATIONAL OPERATIONS
International revenues accounted for 55 percent and 51 percent of consolidated
revenues in the quarter ended April 30, 1998 and the quarter ended April 30,
1997, respectively. The Company sells its products and services through a
network of branches and subsidiaries located in 24 countries worldwide. In
addition, the Company also markets through distributors in Europe and the
Asia/Pacific region. Management believes that its success depends upon continued
expansion of its international operations. The Company's international business
is subject to a number of risks, including unexpected changes in regulatory
practices and tariffs, greater difficulties in staffing and managing foreign
operations, longer collection cycles, seasonality, potential changes in tax
laws, greater difficulty in protecting intellectual property and the impact of
fluctuating exchange rates between the US dollar and foreign currencies in
markets where BEA does business, in particular the French franc, the German
mark, the British pound, the Japanese yen, the Australian dollar and the Korean
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won. The Company's international revenues may also be impacted by general
economic and political conditions in these foreign markets. Since the late
summer of 1997, a number of Pacific Rim countries have experienced economic,
banking and currency difficulties that have led to economic downturns in those
countries. Among other things, the decline in value of Asian currencies,
together with difficulties obtaining credit, has resulted in a decline in the
purchasing power of the Company's Asian customers, which in turn has resulted in
the delay of orders for the Company's products from certain Asian customers and
is likely to result in further delays and, possibly the cancellation, of such
orders. As a result of such delays, the Company's revenues from Asia for the
quarter ended April 30, 1998 comprised a lower percentage of total revenues than
the Company has historically experienced. The Company anticipates that its
financial results will continue to be adversely impacted by the weak Asian
economic conditions. The extent of the future impact of these conditions is
difficult to predict. There can be no assurances that these factors and other
factors will not have a material adverse effect on the Company's future
international revenues and consequently on the Company's business and
consolidated financial condition and results of operations.
MANAGEMENT OF GROWTH
The Company currently is continuing to experience a period of rapid and
substantial growth that has placed, and is expected to continue to place, a
strain on the Company's administrative and operational infrastructure. The
number of Company employees has increased from 120 employees in three offices in
the United States at January 31, 1996 to over 950 employees in 50 offices in 24
countries at April 30, 1998. The Company's ability to manage its staff and
growth effectively will require continued improvement in its operational,
financial and management controls, reporting systems and procedures. In this
regard, the Company is currently updating its management information systems to
integrate financial and other reporting among the Company's multiple domestic
and foreign offices. In addition, the Company intends to continue to increase
its staff worldwide and to continue to improve financial reporting and controls
for the Company's global operations. There can be no assurance that the Company
will be able to successfully implement improvements to its management
information and control systems in an efficient or timely manner or that, during
the course of this implementation, deficiencies in existing systems and controls
will be discovered. If management of the Company is unable to manage growth
effectively, the Company's business, results of operations and financial
condition will be materially adversely affected.
DEPENDENCE ON GROWTH OF MARKET FOR MIDDLEWARE
The middleware market, in which the Company conducts its business, is emerging
and is characterized by continuing technological developments, evolving industry
standards and changing customer requirements. BEA's success is dependent in
large part on the Company's middleware software products' achieving market
acceptance by large customers with substantial legacy mainframe systems. The
Company's future financial performance will depend in large part on continued
growth in the number of companies extending their mainframe-based, mission-
critical applications to an enterprise-wide distributed computing environment
through the use of middleware technology. There can be no assurance that the
market for middleware technology and related services will continue to grow. If
the middleware market fails to grow or grows more slowly than the Company
currently anticipates, or if the Company experiences increased competition in
this market, the Company's business, results of operations and financial
condition will be adversely affected.
DEPENDENCE ON KEY PERSONNEL AND NEED TO HIRE ADDITIONAL PERSONNEL
The Company believes its future success will depend upon its ability to
attract and retain highly skilled personnel including the Company's founders,
Messrs. William T. Coleman III, Edward W. Scott, Jr., Alfred S. Chuang and key
members of management. Competition for such personnel is intense and there can
be no assurance that the Company will be able to retain its key employees or
that it will be successful in attracting, assimilating and retaining them in the
future. As the Company seeks to expand its global organization, the hiring of
qualified sales, technical and support personnel will be difficult due to the
limited number of qualified professionals. Failure to attract, assimilate and
retain key personnel would have a material adverse effect on the Company's
business, results of operations and financial condition.
EXPANDING DISTRIBUTION CHANNELS AND RELIANCE ON THIRD PARTIES
To date, the Company has sold its products principally through its direct
sales force, as well as through indirect sales channels, such as ISVs, hardware
OEMs, systems integrators, independent consultants and distributors. The
Company's ability to achieve significant revenue growth in the future will
depend in large part on its success in expanding its direct
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sales force and in further establishing and maintaining relationships with
distributors, ISVs and OEMs. In particular, a significant element of the
Company's strategy is to embed its technology in products offered by the
Company's ISV customers. The Company intends to seek distribution arrangements
with other ISVs to embed the Company's technology in their products and expects
that these arrangements will account for a significant portion of the Company's
revenues in future periods. There can be no assurance that the Company will be
able to successfully expand its direct sales force or other distribution
channels, secure license agreements with additional ISVs on commercially
reasonable terms or at all, or otherwise further develop its relationships with
distributors and ISVs, or that any such expansion or additional license
agreements would result in an increase in revenues. Although the Company
believes that its investments in the expansion of its direct sales force and in
the establishment of other distribution channels through third parties
ultimately will improve the Company's operating results, to the extent that such
investments are made and revenues do not correspondingly increase, the Company's
business, results of operations and financial condition will be materially and
adversely affected.
The Company relies on informal relationships with a number of consulting and
systems integration firms to enhance its sales, support, service and marketing
efforts, particularly with respect to implementation and support of its products
as well as lead generation and assistance in the sale process. The Company will
need to expand its relationships with third parties in order to support license
revenue growth. Many such firms have similar, and often more established,
relationships with the Company's principal competitors. There can be no
assurance that these and other third parties will provide the level and quality
of service required to meet the needs of the Company's customers, that the
Company will be able to maintain an effective, long term relationship with such
third parties, or that such third parties will continue to meet the needs of the
Company's customers.
RAPID TECHNOLOGY CHANGE; DEPENDENCE ON NEW PRODUCTS AND PRODUCT ENHANCEMENTS
The market for the Company's products is highly fragmented, competitive with
alternative computing architectures and characterized by continuing
technological development, evolving industry standards and changing customer
requirements. The introduction of products embodying new technologies, the
emergence of new industry standards or changes in customer requirements could
render the Company's existing products obsolete and unmarketable. As a result,
the Company's success depends upon its ability to enhance existing products,
respond to changing customer requirements and develop and introduce in a timely
manner new products that keep pace with technological developments and emerging
industry standards. There can be no assurance that the Company's products will
adequately address the changing needs of the marketplace or that the Company
will be successful in developing and marketing enhancements to its existing
products or products incorporating new technology on a timely basis. Failure to
develop and introduce new products, or enhancements to existing products, in a
timely manner in response to changing market conditions or customer
requirements, will materially and adversely affect the Company's business,
results of operations and financial condition.
RISK OF SOFTWARE DEFECTS
The software products offered by the Company are internally complex and,
despite extensive testing and quality control, may contain errors or defects,
especially when first introduced. Such defects or errors could result in
corrective releases for the Company's software products, damage to the Company's
reputation, loss of revenue, product returns or order cancellations, or lack of
market acceptance of its products, any of which could have a material and
adverse effect on the Company's business, results of operations and financial
condition.
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective as
a result of existing or future federal, state or local laws or ordinances or
unfavorable judicial decisions. Although the Company has not experienced any
product liability claims to date, the sale and support of its products may
entail the risk of such claims, which could be substantial in light of the use
of such products in mission-critical applications. A successful product
liability claim brought against the Company could have a material adverse effect
on the Company's business, results of operations and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISK OF INFRINGEMENT
The Company's success depends upon its proprietary technology. The Company
relies on a combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
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its proprietary rights. No assurance can be given that competitors will not
successfully challenge the validity or scope of the Company's patents or that
such patents will provide a competitive advantage to the Company.
As part of its confidentiality procedures, the Company generally enters into
non-disclosure agreements with its employees, distributors and corporate
partners and into license agreements with respect to its software, documentation
and other proprietary information. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use the Company's
products or technology without authorization, or to develop similar technology
independently. In particular, the Company has, in the past, provided certain
hardware OEMs with access to its source code and any unauthorized publication or
proliferation of this source code could materially adversely affect the
Company's business, operating results and financial condition. Policing
unauthorized use of the Company's products is difficult, and although the
Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem.
Effective protection of intellectual property rights is unavailable or limited
in certain foreign countries. There can be no assurance that the Company's
protection of its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology, duplicate the
Company's products or design around any patents issued to the Company or other
intellectual property rights of the Company.
The Company does not believe that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by the Company with respect to current or
future products. Any such claims, with or without merit, could result in costly
litigation that could absorb significant management time, which could have a
material adverse effect on the Company's business, operating results and
financial condition. Such claims might require the Company to enter into
royalty or license agreements. Such royalty or license agreements, if required,
may not be available on terms acceptable to the Company or at all, which could
have a material adverse effect upon the Company's business, operating results
and financial condition.
CONTROL BY MANAGEMENT AND CURRENT STOCKHOLDERS
As of April 30, 1998, the Company's officers and directors and their
affiliates, in the aggregate, had voting control over approximately 62 percent
of the Company's voting Common Stock. In particular, Warburg, Pincus Ventures,
L.P. ("Warburg") had voting control over approximately 49 percent of the
Company's voting Common Stock and beneficially owned approximately 64 percent of
the Company's Common Stock (which includes the non-voting Class B Common Stock
owned by Warburg). As a result, these stockholders will be able to control all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. The voting power of Warburg and
the Company's officers and directors under certain circumstances could have the
effect of delaying or preventing a change in control of the Company.
SIGNIFICANT LEVERAGE; DEBT SERVICE
In connection with the sale of 4% Convertible Subordinated Notes, the Company
incurred $200 million indebtedness (excluding $50 million of Notes to cover
over-allotments, if any). As a result of this indebtedness, the Company's
principal and interest payment obligations will increase substantially. The
degree to which the Company will be leveraged could materially and adversely
affect the Company's ability to obtain financing for working capital,
acquisitions or other purposes and could make it more vulnerable to industry
downturns and competitive pressures. The Company's ability to meet its debt
service obligations will be dependent upon the Company's future performance,
which will be subject to financial, business and other factors affecting the
operations of the Company, many of which are beyond its control.
The Company will require substantial amounts of cash to fund scheduled
payments of interests on the Notes, payment of the principal amount of the
Notes, payment of principal and interest on the Company's other indebtedness,
future capital expenditures and any increased working capital requirements. If
the Company is unable to meet its cash requirements out of cash flow from
operations, there can be no assurance that it will be able to obtain alternative
financing. In the absence of such financing, the Company's ability to respond
to changing business and economic conditions, to make future acquisitions, to
absorb adverse operating results or to fund capital expenditures or increased
working capital requirements may be adversely affected. If the Company does not
generate sufficient increases in cash flow from operations to repay the Notes at
maturity, it could attempt to refinance the Notes; however, no assurance can be
given that such a refinancing would be available on terms acceptable to the
Company, if at all. Any failure by the Company to satisfy its obligations with
respect to the Notes at maturity (with respect to payments of principal) or
prior thereto (with respect to payments of
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interest or required repurchases) would constitute a default under the Indenture
and could cause a default under agreements governing other indebtedness, if any,
of the Company.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue up to 120,000,000 shares, $0.001 par value,
divided into two classes designated "Common Stock" and "Preferred Stock." Of
such shares authorized, 5,000,000 are designated as Preferred Stock and
115,000,000 shares are designated as Common Stock, of which 35,000,000 shares
are designated Class B Common Stock.
COMMON STOCK
As of June 24, 1998, there were 43,047,480 shares of Common Stock outstanding
that were held of record by approximately 250 stockholders.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The Company does
not have cumulative voting rights in the election of directors, and accordingly,
holders of a majority of the shares voting are able to elect all of the
directors. Subject to preferences that may be granted to any then outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor as well as any distributions to the stockholders. See "Price
Range of Common Stock and Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in all assets of the Company remaining after payment of
liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive or other subscription of
conversion rights. There are no redemption or sinking fund provisions applicable
to the Common Stock.
CLASS B COMMON STOCK
As of June 24, 1998, there were 23,323,554 shares of Class B Common Stock
outstanding, all of which shares were held by Warburg. The Class B Common Stock
has the same rights, preferences, privileges and restrictions as the Common
Stock, except that the Class B Common Stock is convertible into Common Stock,
has no voting rights (except as required by Delaware law) and has no right to
vote for the election of directors. The shares of Class B Common Stock are, upon
any transfer of such shares by Warburg, convertible into a like number of shares
of Common Stock, subject to adjustment upon certain events with respect to the
Common Stock. The shares of Class B Common Stock are also convertible at the
option of Warburg into Common Stock, so long as such conversion results in
Warburg holding equal to or less than 49% of the Company's outstanding voting
securities.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Board of Directors
will have the authority, without further action by the stockholders, to issue up
to 5,000,000 shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any series
or the designation of such series, any or all of which may be greater than the
rights of Common Stock, without any further vote or action by stockholders. The
issuance of Preferred Stock could adversely affect the voting power of holders
of Common Stock and the likelihood that such holders will receive dividend
payments and payments upon liquidation and could have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
present plan to issue any shares of Preferred Stock after consummation of the
offering.
REGISTRATION RIGHTS
Pursuant to an investor rights agreement (the "Founders Registration Rights
Agreement") entered into in September 1995 between the Company and holders (the
"Founding Holders") of a total of approximately 47,512,087 shares of the
Company's Common Stock and Class B Common Stock as of June 24, 1998, including
William T. Coleman III, Alfred S. Chuang, Edward W. Scott, Jr., and Warburg, the
Founding Holders are entitled to certain rights with respect to the registration
of such shares under the Securities Act of 1933, as amended (the "Securities
Act"). If the Company proposes to
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register any of its securities under the Securities Act, either for its own
account or the account of other security holders, the Company is required to
notify such Founding Holders and to use its best efforts to effect the
registration, and such Founding Holders are entitled to include at the Company's
expense their Registrable Securities (as such term is defined in the Founders
Registration Rights Agreement) in such registration, subject to certain
conditions and limitations. In addition, Founding Holders may also require the
Company to file a registration statement under the Securities Act at the
Company's expense with respect to their shares, and the Company is required to
use its diligent reasonable efforts to effect such registration. Further,
Founding Holders may require the Company to file registration statements on Form
S-3 at the Company's expense, when such form is available for use by the
Company. These rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of shares
included in such registration and the right of the Company not to effect a
requested registration within six months following a registered offering of the
Company's securities. In addition, the Founding Holders have waived their rights
to include their Registrable Securities in the Registration Statement, and have
agreed not to exercise their rights to require the Company to file a
registration statement with respect to their Registrable Securities until
September 6, 1998.
The Company has also entered into a registration rights agreement with the
initial purchasers of the Notes (the "Noteholders Registration Rights
Agreement") pursuant to which the Company will, at the Company's expense, for
the benefit of the holders of the Notes and the shares of Common Stock issuable
upon conversion thereof (together, the "Noteholders Securities"), (i) file with
the Securities and Exchange Commission (the "Commission"), on or before
September 6, 1998, a registration statement (the "Noteholders Shelf Registration
Statement") covering resales of the Noteholders Securities, (ii) use all
reasonable efforts to cause the Noteholders Shelf Registration Statement to be
declared effective under the Securities Act on or before December 5, 1998
(subject to the right of the Company to postpone having the Noteholders Shelf
Registration Statement declared effective for an additional 90 days in certain
limited circumstances) and (iii) use all reasonable efforts to keep effective
the Noteholders Shelf Registration Statement until two years after the date it
is declared effective or, if earlier, until there are no outstanding Noteholders
Securities (the "Effectiveness Period"). The Company will be permitted to
suspend the use of the prospectus which is part of the Noteholders Shelf
Registration Statement in connection with the sales of Noteholders Securities
during certain periods of time under certain circumstances relating to pending
corporate developments, public filings with the Commission and other events.
The Company may also, upon written notice to all the noteholders, postpone
having the Noteholders Shelf Registration Statement declared effective as
required by the Noteholders Registration Rights Agreement for a reasonable
period not to exceed 90 days if the Company possesses material non-public
information the disclosure of which would have a material adverse effect on the
Company and its subsidiaries taken as a whole.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
The Certificate of Incorporation of the Company provides for the Board of
Directors to be divided into three classes, with staggered three-year terms. As
a result, only one class of directors will be elected at each annual meeting of
stockholders of the Company, with the other classes continuing for the remainder
of their respective three-year terms. Stockholders have no cumulative voting
rights, and the Company's stockholders representing a majority of the shares of
Common Stock outstanding are able to elect all of the directors. The Company's
Bylaws also provide that all stockholder action must be effected at a duly
called meeting of stockholders and not by a consent in writing; the Bylaws
provide that only the Company's Chief Executive Officer, the President of the
Company and the Board of Directors may call a special meeting of stockholders.
The classification of the Board of Directors and lack of cumulative voting
will make it more difficult for the Company's existing stockholders to replace
the Board of Directors as well as for another party to obtain control of the
Company by replacing the Board of Directors. Since the Board of Directors has
the power to retain and discharge officers of the Company, these provisions
could also make it more difficult for existing stockholders or another party to
effect a change in management.
These and other provisions may have the effect of deterring hostile takeovers
or delaying changes in control or management of the Company. These provisions
are intended to enhance the likelihood of continued stability in the composition
of the Board of Directors and in the policies furnished by the Board of
Directors and to discourage certain types of transactions that may involve an
actual or threatened change of control of the Company. These provisions are
designed to reduce the vulnerability of the Company to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for the Company's
shares and, as a consequence, they also may inhibit
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fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to Section 203 or the Delaware General Corporation Law
("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the Board of
Directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested holder, (ii)
upon consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) at or subsequent
to such time, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
In general, Section 203 defines business combination to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder, (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested stockholder, (iii)
subject to certain exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder, (iv) any transaction involving the corporation that has the effect
of increasing the proportionate share of the stock or any class or series of the
corporation beneficially owned by the interested stockholder or (v) the receipt
by the interested stockholder of the benefit of any loss, advances, guarantees,
pledges or other financial benefits by or through the corporation. In general,
Section 203 defines interested stockholder as an entity or person beneficially
owning 15% or more of the outstanding voting stock of the corporation and any
entity or person affiliated with or controlling or controlled by such entity or
person. See "--Anti-Takeover Effects of Provisions of the Company's Charter and
Bylaws."
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SELLING STOCKHOLDERS
The following table provides the names of and the number of shares of Common
Stock beneficially owned by each Selling Stockholder, and the number of shares
of Common Stock beneficially owned by each Selling Stockholder upon completion
of the offering or offerings pursuant to this Prospectus, assuming each Selling
Stockholder sells all of its or his/her respective Shares. Since the Selling
Stockholders may sell all, or some or none of their Shares, no estimate can be
made of the aggregate number of Shares that are to be offered hereby or that
will be owned by each Selling Stockholder upon completion of an offering to
which this Prospectus relates. No Selling Stockholder beneficially owns one
percent or greater of the Company's outstanding Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER THE OFFERING
----------------- ------------------
NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
----------------- ---------------- ------------------
<S> <C> <C> <C>
Ken Allen 180,332 180,332 0
Mark Campbell 711 711 0
Scott Elder 717 717 0
John Funk 6,287 6,287 0
Laura Ferkel 107 107 0
Bob Hensle 819 819 0
Dave Leichner 6,645 6,645 0
Greg Mally 676 676 0
Tim Ortt 450 450 0
Jeff Peotter 180,332 180,332 0
Jeff Ryan 180,332 180,332 0
Matt Rice 424 424 0
Carolyn Sampson 798 798 0
Jeff Smith 460 460 0
Tim Uttormark 862 862 0
John Graves 355 355 0
Charlie Therit 397 397 0
</TABLE>
16
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time by the holders
thereof of up to 560,704 shares of Common Stock. The Shares were issued in
connection with a stock purchase Agreement, dated as of April 27, 1998 among the
Company, Leader Group, and the Selling Stockholders. This Prospectus has been
prepared in connection with registering the Shares to allow for sales of Shares
by the applicable Selling Stockholders to the public in accordance with the
terms of the Stock Purchase Agreement. The Company has registered the Shares
for sale pursuant to the terms of the Stock Purchase Agreement, but registration
of such Shares does not necessarily mean that any of such Shares will be offered
and sold by the holders thereof.
The Company will not receive any proceeds from the offering by the Selling
Stockholders. The Shares may be sold from time to time to purchasers directly
by any of the Selling Stockholders. Alternatively, the Selling Stockholders may
from time to time offer the Shares through dealers or agents, who may receive
compensation in the form of commissions from the Selling Stockholders and/or the
purchasers of Shares for whom they may act as agent. The Selling Stockholders
and any dealers or agents that participate in the distribution of Shares may be
deemed to be "underwriters" within the meaning of the Securities Act and any
profit on the sale of Shares by them and any commissions received by any such
dealers or agents might be deemed to be underwriting commissions under the
Securities Act.
At a time a particular offer of Shares is made, a Prospectus Supplement, if
required, will be distributed that will set forth the name and names of any
dealers or agents and any commissions and other terms constituting compensation
from the Selling Stockholders and any other required information. The Shares
may be sold from time to time at varying prices determined at the time of sale
or at negotiated prices.
In order to comply with the securities laws of certain states, if applicable,
the Shares may be sold only through registered or licensed brokers or dealers.
In addition, in certain states, the Shares may not be sold unless they have been
registered or qualified for sale in such state or an exemption from such
registration or qualification requirement is available and is complied with.
The Shares may also be sold in one or more of the following transactions: (a)
block transactions (which may involve crosses) in which a broker-dealer may sell
all or a portion of such stock as agent but may position and resell all or a
portion of the block as principal to facilitate the transaction; (b) purchases
by any such broker-dealer as principal and resale by such broker-dealer for its
own account pursuant to a Prospectus Supplement; (c) ordinary brokerage
transactions and transactions in which any such broker-dealer solicits
purchasers; (d) sales "at the market" to or through a market maker or into an
existing trading market, on an exchange or otherwise, for such shares; and (e)
sales in other ways not involving market makers or established trading markets,
including direct sales to purchasers. In effecting sales, broker-dealers
engaged by the Selling Stockholders may arrange for other broker-dealers to
participate.
EXPERTS
The consolidated financial statements of BEA Systems, Inc. included in the
Company's Annual Report on Form 10-KSB for the year ended January 31, 1998 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon, included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated by reference herein in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered pursuant to
this Prospectus will be passed upon for the Company by Morrison & Foerster LLP,
Palo Alto, California. Certain attorneys at Morrison & Foerster LLP own an
aggregate of 34,500 shares of Common Stock of the Company.
17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other expenses of Issuance and Distribution
The following table sets forth the estimated fees and expenses payable by the
Company in connection with the issuance and distribution of the Common Stock
registered hereby. All of such fees and expenses are estimates, except the
Securities Act registration fee.
<TABLE>
<S> <C>
Securities Act Registration Fee................................................... $ 3,474
Printing and duplicating fees..................................................... 25,000
Legal fees and expenses........................................................... 20,000
Accounting fees and expenses...................................................... 12,000
Miscellaneous expenses............................................................ 5,000
-------
*Total........................................................................... $65,474
=======
</TABLE>
* None of the expenses listed above will be borne by the Selling Stockholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate Law of the State of Delaware, the
Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Amended and Restated Bylaws also provide for mandatory indemnification of its
directors and executive officers, and permissive indemnification of its
employees and agents, to the fullest extent permissible under Delaware law.
The Registrant's Amended and Restated Certificate of Incorporation provides
that the liability of its directors for monetary damages shall be eliminated to
the fullest extend permissible under Delaware law. Pursuant to Delaware law,
this includes elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to the Registrant and its Stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of non-
monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Registrant, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision also does not affect a
director's responsibilities under any other laws, such as the securities laws or
state or federal environmental laws. The Registrant maintains a policy of
directors' and officers' liability insurance that insures the Company's
directors and officers against the cots of defense, settlement or payment of a
judgment under certain circumstances.
Pursuant to written agreement between the respective Selling Securityholders
and the Company, the directors and officers of the Company are indemnified by
such Selling Securityholders against certain civil liabilities that they may
incur under the Securities Act in connection with this Registration Statement
and the related Prospectus.
18
<PAGE>
ITEM 16. EXHIBITS
4.1 - Restated Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1 to Registrant's Registration Statement on
Form SB-2 (File No. 333-20791))
4.2 - Bylaws of the Registrant (incorporated by reference to Exhibit 3.3 to
Registrant's Registration Statement on Form SB-2 (File No. 333-20791))
5.1 - Opinion of Morrison & Foerster LLP
23.1 - Consent of Ernst & Young LLP, Independent Auditors
23.2 - Consent of Morrison & Foerster LLP (included in Exhibit 5.1)
24.1 - Power of Attorney (included on signature page hereto)
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) any deviation from the low or high and of the estimated
maximum offering price may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement; provided,
however, that subparagraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in the periodic reports filed by the Registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
these securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby further undertakes that, for the purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual reports pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, when applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference to this
registration statement 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.
19
<PAGE>
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance under 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 of 1933 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 of
1933, 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.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 of this
registration statement, or otherwise (other than insurance), the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in such Act and will be governed by the final adjudication
of such issue.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sunnyvale, State of California on July 2, 1998.
BEA SYSTEMS, INC.
By: /s/ William T. Coleman III
--------------------------
President, Chief Executive Officer
and Chairman of the Board
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints William T. Coleman, III and
Steve L. Brown as his/her true and lawful attorneys-in-fact and agents, jointly
and severally, with full power of substitution and resubstitution, for and in
his/her stead, in any and all capacities, to sign on his/her behalf the
Registration Statement on Form S-3 in connection with the sale by BEA Systems,
Inc. of shares of offered securities, and to execute any amendments thereto
(including post-effective amendments) or certificates that may be required in
connection with this Registration Statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission and granting unto said attorneys-in-fact and
agents, jointly and severally, the full power and authority to do and perform
each and every act and thing necessary or advisable to all intents and purposes
as he/she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, jointly and severally, or his/her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-3 has been signed by the following persons in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ William T. Coleman III President, Chief Executive Officer, Chairman of the July 2, 1998
- ----------------------------------- Board and Director (Principal Executive Officer)
William T. Coleman III
/s/ Edward W. Scott, Jr. Executive Vice President of Worldwide Field July 2, 1998
- ----------------------------------- Operations, Assistant Secretary and Director
Edward W. Scott, Jr.
/s/ Steve L. Brown Executive Vice President, Chief Financial Officer and July 2, 1998
- ----------------------------------- Secretary (Principal Financial and Accounting Officer)
Steve L. Brown
/s/ Carol A. Bartz
- ----------------------------------- Director July 2, 1998
Carol A. Bartz
/s/ Cary J. Davis
- ----------------------------------- Director July 2, 1998
Cary J. Davis
/s/ Stewart K.P. Gross
- ----------------------------------- Director July 2, 1998
Stewart K.P. Gross
/s/ William H. Janeway
- ----------------------------------- Director July 2, 1998
William H. Janeway
/s/ Dean O. Morton
- ----------------------------------- Director July 2, 1998
Dean O. Morton
</TABLE>
21
<PAGE>
EXHIBIT 5.1
July 2, 1998
BEA Systems, Inc.
385 Moffett Park Drive
Sunnyvale, CA 94089-1208
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-3
filed by BEA Systems, Inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission on July 2, 1998 (the "Registration
Statement") relating to the registration under the Securities Act of 1933, as
amended, of up to 560,704 shares of the Company's common stock, $.001 par value
(the "Stock"), being offered by certain selling stockholders specified therein
(the "Selling Stockholders").
As counsel to the Company, we have examined the proceedings taken by the
Company and the Selling Stockholders in connection with the sale by the Selling
Stockholders of up to 560,704 shares of Stock.
It is our opinion that the 560,704 shares of Stock that may be sold are
legally and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the prospectus constituting a part thereof and any amendments
thereto.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of BEA Systems, Inc.
for the registration of 560,704 shares of its common stock and to the
incorporation by reference therein of our report dated February 24, 1998, with
respect to the consolidated financial statements of BEA Systems, Inc. included
in its Annual Report (Form 10-KSB) for the year ended January 31, 1998, filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Palo Alto, California
June 25, 1998
