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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-92085
Prospectus
BEA Systems, Inc.
2,327,254 Shares of Common Stock
2,327,254 shares of our common stock were issued to former stockholders of
The Theory Center, Inc. as payment for the acquisition by us of The Theory
Center, Inc. Some of these stockholders may wish to sell these shares in the
future, and this prospectus allows them to do so. We will not receive any of the
proceeds from any sale of shares by these stockholders, but we have agreed to
bear the expenses of registration of the shares by this prospectus. Share
numbers in this prospectus reflect our 2-for-1 stock split to be effected on
December 19, 1999 in the form of a stock dividend payable to record holders of
our stock as of November 19, 1999.
Our stock is listed on the Nasdaq National Market under the
symbol: BEAS
The last sale price of the common stock on the Nasdaq National Market on
January 21, 2000 was $82.00 per share.
_______________________________
Investing in the common stock involves a high level of investment risk. See
"Risk Factors" beginning on page 6 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
_______________________________
January 24, 1999
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TABLE OF CONTENTS
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Page
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Available Information................................... 3
Incorporation of Certain Documents by Reference......... 3
The Company............................................. 4
Use of Proceeds......................................... 6
Risk Factors............................................ 6
Selling Stockholders.................................... 14
Plan of Distribution.................................... 15
Experts................................................. 15
Legal Matters........................................... 15
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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 stockholders. 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 BEA Systems, Inc. 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
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance with the Act we
file reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). These 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 ours, that file electronically with
the Commission. In addition, the Common Stock is listed on the Nasdaq National
Market and similar information concerning us can be inspected and copied at the
offices of the National Association of Securities Dealers, Inc., 9513 Key West
Avenue, Rockville, Maryland 20850.
We have filed with the Commission a registration statement on Form S-3 (of
which this prospectus is a part) under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares being offered by this
prospectus. This prospectus does not contain all of the information set forth in
this registration statement, some 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 of these statements are qualified in all respects by this reference and the
exhibits and schedules thereto. For further information regarding us and the
shares being offered by this prospectus, 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-K for the year ended
January 31, 1999;
b. The Company's Quarterly Reports on Form 10-Q for the quarters
ended April 30, 1999, July 31, 1999 and October 31, 1999; and
c. The description of the Registrant's Common Stock contained in the
Company's registration statement on Form 8-A (File No. 000-22369).
Each document we file 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.
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, 2315 North
First Street, San Jose 95131, telephone number: (408) 570-8000.
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THE COMPANY
BEA Systems, Inc. is a leading provider of e-commerce platform software.
Our award-winning e-commerce transaction platform, coupled with our consulting,
education and support services, helps companies launch reliable e-commerce
initiatives quickly. Our solutions help companies of all sizes build e-commerce
infrastructures that leverage existing investments and provide the foundation
for running a successful integrated e-business. We provide transactional,
messaging, and distributed object-based software, an industry-leading Java Web
application server, as well as a suite of Enterprise Java Bean components, for
developing and deploying these initiatives.
Our E-Commerce Transaction Platform includes:
. BEA Tuxedo(R) -- One of the leading transaction application servers
for building and managing high-performance and reliable e-commerce
applications.
. BEA WebLogic(R) -- A family of application servers for rapidly and
easily building, deploying, and managing component-based e-commerce
applications.
. BEA Commerce Foundation -- Reusable components that enable rapid
assembly of e-commerce applications that can be adapted quickly to
take advantage of new opportunities or provide new competitive
advantages.
. BEA eLink(TM) -- For integrating new Web applications in real time
with back-office systems, packaged applications, and other businesses
across the Web.
In addition, BEA offers education, customer support, and professional
services to help small companies and large corporations develop their Web
architectures, build applications for their e-commerce systems and to write
reliable e-commerce applications in the Java language and the EJB Java object
model.
Our products are marketed and sold worldwide through a network of sales
offices, as well as hardware vendors, independent software vendors and systems
integration companies that are BEA distribution partners and software
distributors. Our products have been adopted in a wide variety of industries,
including banking and finance, telecommunications, retail, Internet,
manufacturing, transportation, package delivery, insurance and government. Our
products serve as a platform or integration tool for applications such as
billing, provisioning, customer service, electronic funds transfers, ATM
networks, securities trading, Web-based banking, Internet sales, supply chain
management, scheduling and logistics, and hotel, airline and rental car
reservations. Licenses for our products are typically priced on a per-user,
per-application basis, but we also offer licenses priced per server CPU and
time-based enterprise licenses.
Over the past decade, the information systems of many large organizations
have evolved from traditional mainframe-based systems to distributed computing
environments. This evolution is 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. Despite these benefits, large-scale mission-critical
applications that enable and support fundamental business processes, such as
airline reservations, credit card processing, and customer billing and support
systems have largely remained in mainframe environments. For several decades,
the high levels of reliability, scalability, security, manageability and control
required for these complex, transactional-intensive systems have been provided
by mainframe middleware. Mainframe environments, however, suffer from several
shortcomings, including inflexibility, lengthy development and maintenance
cycles, and limited, character-based user interfaces. Increasingly, these
shortcomings are forcing many organizations to seek out solutions, such as those
offered by us, that will enable them to overcome the limitations of distributed
computing for mission-critical applications while providing the robust computing
infrastructure previously unavailable outside the mainframe environment.
As a result, the information technology infrastructures of large
corporations are typically characterized by mixed environments that may include
mainframes, mini-computers, servers running on platforms such as UNIX and
Windows NT, databases from a variety of vendors, data warehouses, personal
computers, mainframe terminals, automated teller machines, point-of-sale devices
and credit card readers, all of which are dispersed geographically across the
enterprises' many facilities. The various applications used by these
corporations typically run on several different computers, and may need to
access data from, or update data in, a number of different databases.
In addition, many businesses are incorporating the World Wide Web into
these infrastructures. Businesses use the Internet as a means of selling
products to consumers and other businesses, opening new accounts and scheduling
service installation, providing account information and customer care, enabling
reservations, funds transfers, bill payments and securities trading, and
gathering information about customers and their buying habits. Many businesses
also use intranets for functions such as inventory control, decision support,
logistics, reservations, customer care and provisioning, and sometimes use
extranets to make similar information and applications available throughout
their supply chain. Additional value can be obtained
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from these applications by fully integrating Web-based applications with
existing enterprise applications, such as shipping, inventory control, billing,
payroll, and general ledger.
We provide a broad family of cross-platform middleware solutions for
enterprise applications. Our products and services enable mission-critical,
distributed applications to work seamlessly in client/server, Internet and
legacy environments. Customers use our products as a deployment platform for
custom and packaged applications, as a means for robust enterprise application
integration of mainframe, server and Web-based applications, and as a deployment
platform for Web-based applications. We also provide reusable Enterprise Java
Beans components that provide common e-commerce funtionality, such as "shopping
cart," order management, product catalogs, pricing and work flow management.
Customers also rely on our services offerings to develop components and custom
applications, to customize packaged applications and to integrate applications.
The total number of licensees using our products and solutions is greater
than 3,000 worldwide. Our target end-user customers are organizations with
sophisticated, high-end information systems with numerous, often geographically-
dispersed users and diverse, heterogeneous computing environments. Typical
customers are mainframe-reliant, have large-scale client/server implementations
that handle very high volumes of business transactions, or have Web-based
applications with large and unpredictable usage volumes.
We were incorporated in Delaware in January 1995 under the name BEA
Enterprises, Inc. and changed our name to BEA Systems, Inc. in September 1995.
References to "BEA" or the "Company" refer to BEA Systems, Inc., our
subsidiaries and predecessor entities acquired in previous acquisitions. Our
headquarters are located at 2315 North First Street, San Jose, California,
95131, and its telephone number is (408) 570-8000.
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USE OF PROCEEDS
All of the shares being offered under this prospectus are offered by the
selling stockholders, and we will not receive any of the proceeds from the sale
of the shares. This registration statement is intended to satisfy certain of
our obligations under our merger agreement with The Theory Center. Under that
agreement, we have agreed to pay expenses of registration of these shares under
federal and state securities laws.
RISK FACTORS
You should carefully consider the following risk factors in evaluating an
investment in the common stock. This prospectus includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. All statements in this prospectus other than statements
of historical fact are "forward-looking statements" for purposes of these
provisions, including any statements of the plans and objectives for future
operations 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. Our actual results could differ materially from these
projected or assumed in these forward-looking statements because of risks and
uncertainties, including risks and uncertainties described in the risk factors
below and elsewhere in this prospectus. We assume no obligation to update any
such forward-looking statement or reason why actual results might differ.
Significant unanticipated fluctuations in our quarterly revenues and operating
results may not meet securities analysts' or investors' expectations and result
in a decline in our stock price.
Although we have had significant revenue growth in recent quarters, our
growth rates may not be sustainable. If our revenues, operating results,
earnings or future projections are below the levels expected by securities
analysts, our stock price is likely to decline. Our stock price is also subject
to the volatility generally associated with software and technology stocks and
may also be affected by broader market trends unrelated to our performance.
We expect to experience significant fluctuations in our future quarterly
revenues and operating results as a result of many factors, including:
. the size and timing of customer orders
. introduction or enhancement of our products or our competitors' products
. general economic conditions, which can affect our customers' capital
investment levels and the length of our sales cycle
. a widely-predicted freeze in deployment of new computer systems by large
corporations in the last quarter of calendar year 1999 and first quarter
of 2000, related to remediation of the Year 2000 problem
. recent hiring ahead of demand
. the structure, timing and integration of acquisitions of businesses,
products and technologies
. the terms and timing of financing activities
. market acceptance of middleware products
. the lengthy sales cycle for our products
. technological changes in computer systems and environments
. whether we are able to develop, introduce and market new products on a
timely basis
. changes in our competitors' product offerings and pricing policies, and
customer order deferrals in anticipation of new products and product
enhancements from BEA or competitors
. whether we are able to expand our sales and marketing programs
. the mix of our products and services sold and mix of distribution
channels
. whether we are able to meet our customers' service requirements
. costs associated with acquisitions, including the acquisition of The
Theory Center
. the impact and duration of deteriorating economic and political
conditions in Asia
. loss of key personnel
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. fluctuations in foreign currency exchange rates
. interpretations of the accounting pronouncements on software revenue
recognition.
Industry sources widely predict that many large corporations will stop
deploying new computer systems in late 1999 and early 2000, in order to avoid
disrupting their computer systems before the Year 2000. Large corporations
represent the majority of our customer base, and a material portion of our
license fees come from new computer system deployments. We are monitoring our
customer base, especially customers expected to place orders in late 1999, to
determine their plans and have been informed by some of our customers that they
intend to stop deploying new computer systems. We are also taking several
management steps to reduce our exposure to Year 2000 deployment delays, such as
providing special incentives to our sales force during this time and focusing on
transactions that are not dependent on new deployments of pending projects.
However, if the Year 2000 related delays in deployments are larger than we
anticipate, last longer than we anticipate, or involve more of our targeted
customers than we anticipate, our revenues in late 1999 or early 2000 could be
materially lower than expected. Furthermore, certain of our customers who
originally intended to delay deployments in late 1999 have informed us that they
may accelerate their deployments. This could result in an unusual fluctuation of
orders, in which an unusually large number of orders are received in mid or late
1999, then an unusual decrease in orders in subsequent quarters. Customer
behavior, and consequently our orders, during this period will be unusually
difficult to forecast.
As a result of all of these factors, we believe that quarterly revenues and
operating results are difficult to forecast and period-to-period comparisons of
our results of operations are not necessarily meaningful and should not be
relied upon as indications of trends or future performance.
Our revenues are derived principally from large orders as customers deploy
our products throughout their organizations or chose to standardize on our
products for their system architecture. Increases in the dollar size of
individual license transactions also increase the risk of fluctuation in future
quarterly results. If we cannot generate large customer orders, or customers
delay or cancel such orders in a particular quarter, it will have a material
adverse effect on our revenues and, more significantly on a percentage basis,
our net income or loss in that quarter. Moreover, we typically receive and
fulfill a majority of our orders within the quarter, with the substantial
majority of our orders received in the last month of each fiscal quarter. As a
result, we may not learn of revenue shortfalls until late in a fiscal quarter,
after it is too late to adjust expenses for that quarter. Additionally, our
operating expenses are based in part on our expectations for future revenues and
are relatively fixed in the short term. Any revenue shortfall below our
expectations could have an immediate and significant adverse effect on our
results of operations.
Our limited operating history and need to continue to integrate our acquisitions
makes it difficult to predict our future results
We were incorporated in January 1995 and therefore have a limited operating
history. We have generated revenues to date primarily from sales of BEA TUXEDO,
a software product to which we acquired worldwide distribution rights in
February 1996, and from fees for related software products and services. We have
also acquired a number of businesses, technologies and products, most recently
The Theory Center. Our limited operating history and the need to integrate a
number of separate and independent business operations subject our business to
numerous risks. At October 31, 1999, we had an accumulated deficit of
approximately $189.1 million. In addition, in connection with certain
acquisitions completed prior to October 31, 1999, we recorded approximately
$265.5 million as intangible assets. Under Generally Accepted Accounting
Principles, these intangible assets are required to be amortized in future
periods. Approximately $202.9 million of these assets have been amortized as of
October 31, 1999 and we expect to amortize the remaining approximately $62.6
million in future periods through our fiscal year ending January 31, 2003. We
expect to amortize $11.0 million of such intangible assets over the remaining
quarter of the fiscal year ending January 31, 2000 and $ 39.0 million in the
fiscal year ended January 31, 2001. If we acquire additional businesses,
products and technologies in the future, we may report additional, potentially
significant expenses. If future events cause the impairment of any intangible
assets acquired in our past or future acquisitions, we may have to write off
expenses sooner than we expect. Because of our limited operating history and
ongoing write-offs associated with our prior acquisitions, there can be no
assurance that we will be profitable in any future period and recent operating
results should not be considered indicative of future financial performance.
If we cannot successfully integrate our past and future acquisitions, our
revenues may decline and expenses may increase
From our inception in January 1995, we have made several strategic
acquisitions. Integration of acquired companies, divisions and products involves
the assimilation of potentially conflicting operations and products, which
divert the attention of our management team and may have a material adverse
effect on our operating results in future quarters. We acquired Leader Group,
Inc. ("Leader Group") and a business unit of Penta Systems Technology, Inc.
("Penta") in the quarter ended April 30,
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1998, NCR's TOP END technology in June 1998, the Entersoft Systems Corporation
("Entersoft") in July 1998, WebLogic, Inc. ("WebLogic") in September 1998,
Component Systems, LLC in May 1999, Technology Resource Group, Inc. ("TRG") in
July 1999, Avitek, Inc. ("Avitek") in August 1999 and The Theory Center ("TTC")
in November 1999. While we intend to make additional acquisitions in the future,
there may not be suitable companies, divisions or products available for
acquisition. Our acquisitions entail numerous risks, including the risk we will
not successfully assimilate the acquired operations and products, or retain key
employees of the acquired operations. There are also risks relating to the
diversion of our management's attention, and difficulties and uncertainties in
our ability to maintain the key business relationships the acquired entities
have established. In addition, if we undertake future acquisitions, we may issue
dilutive securities, assume or incur additional debt obligations, incur large
one-time expenses, and acquire intangible assets that would result in
significant future amortization expense. Any of these events could have a
material adverse effect on our business, operating results and financial
condition.
Recently, the Financial Accounting Standards Board ("FASB") voted to
eliminate pooling of interests accounting for acquisitions and the ability to
write-off in-process research and development has been limited by recent
pronouncements. The effect of these changes would be to increase the portion of
the purchase price for any future acquisitions that must be charged to the
Company's cost of revenues and operating expenses in the periods following any
such acquisitions. As a consequence, the Company's results of operations in
periods following any such acquisitions could be materially adversely affected.
Although these changes would not directly affect the purchase price for any of
these acquisitions, they would have the effect of increasing the reported
expenses associated with any of these acquisitions. To that extent, these
changes may make it more difficult for the Company to acquire other companies,
product lines or technologies.
Our revenues are derived primarily from two main product and services lines, and
a decline in demand or prices for either could substantially adversely affect
our operating results
We currently derive the majority of our license and service revenues from
BEA TUXEDO and from related products and services. Although we expect these
products and services to continue to account for the majority of our revenues in
the immediate future, we believe that BEA WebLogic will become an increasingly
important revenue source. As a result, factors adversely affecting the pricing
of or demand for BEA TUXEDO and BEA WebLogic, such as competition, product
performance or technological change, could have a material adverse effect on our
business and consolidated results of operations and financial condition.
The lengthy sales cycle for our products makes our revenues susceptible to
substantial fluctuations
Our customers typically use our products to implement large, sophisticated
applications that are critical to their business, and their purchases are often
part of their implementation of a distributed or Web-based computing
environment. Customers evaluating our 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 our products is lengthy and is
subject to delays or cancellation over which we have little or no control. We
have experienced a significant increase in the number of million and multi-
million dollar license transactions. In some cases, this has resulted in more
extended customer evaluation and procurement processes, which in turn have
lengthened the overall sales cycle for our products. Moreover, in contrast,
during the second half of fiscal 1999, an increasing number of our customers
began negotiating licenses to use our enterprise application solutions as an
architectural platform for several applications. These architectural commitments
are larger in scope and potential revenue than single application transactions.
In some cases, these architectural commitments also have longer sales cycles
than our typical single application transactions, because of both the customer's
decision cycle in adopting an architectural platform and heightened corporate
approval requirements for larger contracts. We believe general economic
conditions that impact customers' capital investment decisions also affect our
sales cycles. In addition, industry sources widely predict that large
corporations will stop deploying new computer systems in late 1999 and early
2000, in order to avoid disrupting their computer systems before the Year 2000.
If our customers stop deploying new computer systems, our revenues could be
materially reduced and our operating results could be materially adversely
affected, especially in the fourth quarter of calendar year 1999 (our fiscal
Year 2000) and the first quarter of calendar 2000. Any significant change in
customer buying decisions or sales cycles for our products could have a material
adverse effect on our business, results of operations and financial condition.
Although we use a standard license agreement which meets the revenue
recognition criteria under current generally accepted accounting principles, we
must often negotiate and revise terms and conditions of this standard agreement,
particularly in larger license transactions. Negotiation of mutually acceptable
terms and conditions can extend the sales cycle and, in certain situations, may
require us to defer recognition of revenue on the license. In addition, while we
do not expect the Statement of Position 97-2, Software Revenues Recognition,
("SOP 97-2") and SOP 98-4 and SOP 98-9, which amend certain provisions of SOP
97-2, to have a material impact on our revenues and earnings, detailed
implementation guidelines of the standard have not
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yet been issued. Once issued, such detailed guidance could lead to unanticipated
changes in our current revenues recognition practices and such changes could
have an adverse impact on revenues and earnings.
If we do not effectively compete with new and existing competitors, our revenues
and operating margins will decline
The market for application server and integration software, and related
software components and services is highly competitive. Our competitors are
diverse and offer a variety of solutions directed at various segments of this
marketplace. These competitors include operating system vendors such as IBM, Sun
Microsystems and database vendors such as Oracle. Microsoft has released a
product that includes certain basic application server functionality and has
announced that it intends to include application server and integration
functionality in future versions of its operating systems, including Windows
2000. In addition, there are companies offering and developing application
server and integration software products and related services that directly
compete with products we offer. Further, software development tool vendors
typically emphasize the broad versatility of their toolsets and, in some cases,
offer complementary software that supports these tools and performs basic
application server and integration functions. Last, internal development groups
within prospective customers' organizations may develop software and hardware
systems that may substitute for those we offer. A number of our 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 us.
Our principal competitors currently include hardware vendors who bundle
their own application server and integration software products, or similar
products, with their computer systems and database vendors that advocate
client/server networks driven by the database server. IBM and Sun Microsystems
are the primary hardware vendors who offer a line of application server and
integration solutions for its customers. IBM's sale of application server and
integration functionality along with its IBM proprietary hardware systems
requires us 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 application server and integration functionality with its
proprietary hardware and database systems. We need to differentiate our products
based on functionality, interoperability with non-IBM systems, performance and
reliability, and establish our 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 our enterprise
application server and integration solutions.
Microsoft has announced that it intends to include certain application
server and integration functionality in future versions of its Windows 2000
operating system. Microsoft has also introduced a product that includes certain
basic application server functionality. The bundling of competing functionality
in versions of Windows requires us to compete with Microsoft in the Windows
marketplace, where Microsoft has certain inherent advantages due to its
significantly greater financial, technical, marketing and other resources, its
greater name recognition, its substantial installed base and the integration of
its application server and integration functionality with Windows. We need to
differentiate our products from Microsoft's based on scalability, functionality,
interoperability with non-Microsoft platforms, performance and reliability, and
need to establish our products as more effective solutions to customers' needs.
We may not be able to successfully differentiate our products from those offered
by Microsoft, and Microsoft's entry into the application server and integration
market could materially adversely affect our 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 our 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 our ability to sell additional software licenses and
maintenance, consulting and support services on terms favorable to us. Further,
competitive pressures could require us to reduce the price of our products and
related services, which could materially adversely affect our business,
operating results and financial condition. We may not be able to compete
successfully against current and future competitors and any failure to do so
would have a material adverse effect upon our business, operating results and
financial condition.
If we fail to adequately protect our intellectual property rights, competitors
may use our technology and trademarks, which could weaken our competitive
position, reduce our revenues and increase our costs
Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. It is possible that other companies could successfully
challenge the validity or scope of our patents and that our patents may not
provide a competitive advantage to us.
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As part of our confidentiality procedures, we generally enter into non-
disclosure agreements with our employees, distributors and corporate partners
and into license agreements with respect to our software, documentation and
other proprietary information. Despite these precautions, third parties could
copy or otherwise obtain and use our products or technology without
authorization, or develop similar technology independently. In particular, we
have, in the past, provided certain hardware OEMs with access to our source
code, and any unauthorized publication or proliferation of this source code
could materially adversely affect our business, operating results and financial
condition. It is difficult for us to police unauthorized use of our products,
and although we are unable to determine the extent to which piracy of our
software products exists, software piracy is a persistent problem. Effective
protection of intellectual property rights is unavailable or limited in certain
foreign countries. The protection of our proprietary rights may not be adequate
and our competitors could independently develop similar technology, duplicate
our products, and they could design around patents and other intellectual
property rights we hold.
Third parties could assert that our software products and services infringe
their intellectual property rights, which could expose us to increased costs and
litigation
It is possible that third parties could claim our current or future
products infringe their rights. Any such claims, with or without merit, could
cause costly litigation that could absorb significant management time, which
could materially adversely effect our business, operating results and financial
condition. These type of claims might require us to enter into royalty or
license agreements. If required, we may not be able to obtain such royalty or
license agreements, or obtain them on terms acceptable to us, which could have a
material adverse effect upon our business, operating results and financial
condition.
Our international operations expose us to greater management, collections,
currency, intellectual property, regulatory and other risks
International revenues accounted for 31 and 33 percent of our consolidated
revenues for the quarters ended October 31, 1999 and 1998, respectively. We sell
our products and services through a network of branches and subsidiaries located
in 27 countries worldwide. In addition, we also market through distributors in
Europe and the Asia/Pacific region. We believe that our success depends upon
continued expansion of our international operations. Our 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
won. General economic and political conditions in these foreign markets may also
impact our international revenues. Since the late summer of 1997, a number of
Pacific Rim countries have experienced economic, banking and currency
difficulties that has 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 our Asian
customers, which in turn has resulted in the delay of orders for our products
from certain Asian customers and is likely to result in further delays and,
possibly the cancellation, of such orders. We anticipate that weak Asian
conditions may adversely impact our financial results. It is difficult for us to
predict the extent of the future impact of these conditions. There can be no
assurances that these factors and other factors will not have a material adverse
effect on our future international revenues and consequently on our business and
consolidated financial condition and results of operations.
If we are unable to manage our growth, our business will suffer
We have continued to experience a period of rapid and substantial growth
that has placed, and if such growth continues would continue to place, a strain
on the Company's administrative and operational infrastructure. We have
increased the number of our employees from 120 employees in three offices in the
United States at January 31, 1996 to over 1,600 employees in over 72 offices in
28 countries at October 31, 1999. Our ability to manage our staff and growth
effectively requires us to continue to improve our operational, financial and
management controls, reporting systems and procedures. In this regard, we are
currently updating our management information systems to integrate financial and
other reporting among our multiple domestic and foreign offices. In addition, we
intend to continue to increase our staff worldwide and to continue to improve
the financial reporting and controls for our global operations. It is possible
we will not be able to successfully implement improvements to our management
information and control systems in an efficient or timely manner and that,
during the course of this implementation, we could discover deficiencies in
existing systems and controls. If we are unable to manage growth effectively,
our business, results of operations and financial condition will be materially
adversely affected.
<PAGE>
If the market for middleware and application servers and integration software
does not grow as quickly as we expect, our revenues will be harmed
We sell our products and services in the middleware and application server
and integration markets. These markets are emerging and are characterized by
continuing technological developments, evolving industry standards and changing
customer requirements. Our success is dependent in large part on acceptance of
our products by large customers with substantial legacy mainframe systems,
customers establishing a presence on the Web for commerce, and developers of
web-based commerce applications. Our 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 and to the Internet through the use of application server
and integration technology. There can be no assurance that the markets for
application server and integration technology and related services will continue
to grow. If these markets fail to grow or grow more slowly than we currently
anticipate, or if we experience increased competition in these markets, our
business, results of operations and financial condition will be adversely
affected.
Year 2000 issues could negatively affect our business
It is possible that our current products contain undetected errors or
defects associated with Year 2000 date functions that may result in material
costs or liabilities to us, moreover, our software directly and indirectly
interacts with a large number of other hardware and software systems. Some of
our customers are running product versions that are not Year 2000 compliant. We
have been encouraging our customers to migrate to current product versions. We
are unable to predict to what extent our business may be affected if our
software or the systems that operate in conjunction with our software experience
a material Year 2000 related failure. Any Year 2000 defect in our products or
the software and hardware systems with which our products operate, as well as
any Year 2000 errors caused by older non-current products that were not upgraded
by our customers, could expose us to litigation that could have a material
adverse impact on us. The risks of such litigation may be particularly acute due
to the mission-critical applications for which our products are used. Some
commentators have stated that a significant amount of litigation will arise out
of Year 2000 compliance issues, and we are aware of a growing number of lawsuits
against other software vendors. Because of the unprecedented nature of such
litigation, it is uncertain whether or to what extent we may be affected by it.
We could also experience serious unanticipated negative consequences caused
by undetected Year 2000 defects in our internal systems, including third party
software and hardware products. Internal systems are primarily composed of
third-party software and third-party hardware which contain embedded software
and our own software products. For example we could experience a (i) corruption
of data contained in our internal information systems or a (ii) failure of
hardware, software, or other information technology systems, causing an
interruption or failure of normal business operations. Any such events could
have a material adverse impact on our operating results. In addition, we could
experience serious unanticipated negative consequences caused by the failure of
services or products provided by third parties that are critical to the
continued our day-to-day operation, such as electrical power, telecommunications
services, and shipping services (particularly outside of countries such as the
United States where Year 2000 remediation has progressed the furthest), which
consequences could have a material adverse effect on our business operations.
In addition, a widely-predicted freeze in deployment of new computer
systems by large corporations in the second half of calendar year 1999 related
to remediation of the Year 2000 problem could result in an unusual fluctuation
of orders, with a temporarily positive impact on the number of orders that were
received in late 1999, followed by an unusual decrease in orders in subsequent
quarters.
If we lose key personnel or cannot hire enough qualified personnel, it will
adversely affect our ability to manage our business, develop new products and
increase revenue
We believe our future success will depend upon our ability to attract and
retain highly skilled personnel including the Company's founders, Messrs.
William T. Coleman III, Alfred S. Chuang and key members of management.
Competition for these types of employees is intense, and it is possible that we
will not be able to retain our key employees and that we will not be successful
in attracting, assimilating and retaining qualified candidates in the future. As
we seek to expand our 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 our business, results of operations and
financial condition.
Our failure to maintain ongoing sales through distribution channels will result
in lower revenues
<PAGE>
To date, we have sold our products principally through our direct sales
force, as well as through indirect sales channels, such as system platform
companies, packaged application software developers, systems integrators and
independent consultants, independent software tool vendors and distributors. Our
ability to achieve revenue growth in the future will depend in large part on our
success in expanding our direct sales force and in further establishing and
expanding relationships with distributors, ISVs, OEMs and systems integrators.
In particular, a significant part of our strategy is to embed our technology in
products our ISV customers offer. We intend to seek distribution arrangements
with additional ISVs to embed our middleware and Web application servers
technology in their products. It is possible that we will not be able to
successfully expand our direct sales force or other distribution channels,
secure license agreements with additional ISVs on commercially reasonable terms
or at all, and otherwise further develop our relationships with indirect
distribution channels. Moreover, even if we succeed in these endeavors, it still
may not increase our revenues. If we invest resources in these types of
expansion and our revenues do not correspondingly increase, our business,
results of operations and financial condition will be materially and adversely
affected.
We rely on informal relationships with a number of consulting and systems
integration firms to enhance our sales, support, service and marketing efforts,
particularly with respect to implementation and support of our products as well
as lead generation and assistance in the sale process. We will need to expand
our relationships with third parties in order to support license revenues
growth. Many such firms have similar, and often more established, relationships
with our principal competitors. It is possible that these and other third
parties will not provide the level and quality of service required to meet the
needs of our customers, that we will not be able to maintain an effective, long
term relationship with these third parties, and that these third parties will
not successfully meet the needs of our customers.
If we do not develop and enhance new and existing products to keep pace with
technological, market and industry changes, our revenues may decline
The market for our products is highly fragmented, competitive with
alternative computing architectures, and characterized by continuing
technological developments, 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 our existing products obsolete and unmarketable. As a result, our success
depends upon our 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.
It is possible that our products will not adequately address the changing needs
of the marketplace and that we will not be successful in developing and
marketing enhancements to our 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
our business, results of operations and financial condition.
If our products contain software defects, it could harm our revenues and expose
us to litigation
The software products we offer are internally complex and, despite
extensive testing and quality control, may contain errors or defects, especially
when we first introduced them. We may need to issue corrective releases of our
software products to fix these defects or errors. These defects and errors could
also cause damage to our reputation, loss of revenues, product returns or order
cancellations, or lack of market acceptance of our products. Accordingly, these
defects and errors could have a material and adverse effect on our business,
results of operations and financial condition.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. It is
possible, however, that the limitation of liability provisions contained in our
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 we have not experienced any product liability claims to date, sale and
support of our products entails the risk of such claims, which could be
substantial in light of customers' use of such products in mission-critical
applications. If a claimant brings a product liability claim against us, it
could have a material adverse effect on our business, results of operations and
financial condition.
Our products interoperate with many parts of complicated computer systems,
such as mainframes, servers, personal computers, application software,
databases, operating systems and data transformation software. Failure of anyone
of these parts due to the Year 2000 problem could cause all or large parts of
computer systems to fail. In such circumstances, it may be difficult to
determine which part failed, and it is likely that customers will bring a
lawsuit against several suppliers. Even if our software is not at fault, we
could suffer material expense and material diversion of management time in
defending any such lawsuits. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Year 2000 Compliance".
<PAGE>
Warburg, Pincus Ventures, L.P. and our current management can control matters
requiring stockholder approval
As of October 31, 1999, our officers and directors and their affiliates, in
the aggregate, had voting control over approximately 55 percent of our voting
Common Stock. In particular, Warburg, Pincus Ventures, L.P. had effective
voting control over approximately 48 percent of our voting Common Stock
(assuming the conversion of the non-voting Class B Common Stock owned by
Warburg, Pincus). As a result, these stockholders would be able to control
matters requiring majority stockholder approval, including the election of
directors and approval of significant corporate transactions. The voting power
of Warburg combined with our officers and directors under certain circumstances
could've the effect of delaying, or preventing a change in control.
We have substantial debt outstanding which could affect our ability to obtain
additional working capital and which requires substantial cash payments
In connection with our sale of 4% Convertible Subordinated Notes in June
and July 1998, we incurred $250 million in long-term indebtedness. Our principal
and interest payment obligations increased substantially because of this
indebtedness. The degree to which we are leveraged could materially and
adversely affect our ability to obtain financing for working capital,
acquisitions or other purposes and could make us more vulnerable to industry
downturns and competitive pressures. These notes are convertible into Common
Stock, which conversion could cause substantial dilution to stockholders and
would increase the number of shares eligible for sale in the market, but would
eliminate the need for the Company to repay the principal amount of such
converted notes. There can be no assurance, however, that any of these notes
will be converted. Our ability to meet our debt service obligations will be
dependent upon our future performance, which will be subject to financial,
business and other factors affecting our operations, many of which are beyond
our control.
We will require substantial amounts of cash to fund scheduled payments of
interest on these notes, payment of the principal amount of these notes at
maturity, payment of principal and interest on our other indebtedness, future
capital expenditures and any increased working capital requirements. If we
cannot meet our cash requirements out of cash flow from operations, there can be
no assurance that we will be able to obtain alternative financing. If we cannot
obtain such financing, our 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. Any failure by us to satisfy our obligations with respect to
these notes at maturity (with respect to payments of principal) or prior thereto
(with respect to payments of interest or required repurchases) would constitute
a default under the indenture entered into in connection with the issuance of
these notes and could cause a default under agreements governing our other
indebtedness, if any.
Recent accounting pronouncements could cause us to defer revenue
The American Institute of Certified Public Accountants has issued a series
of recent pronouncements which address revenue recognition in the software
industry, including SOP 97-2, SOP 98-4, and SOP 98-9. These pronouncements
principally focus on concepts versus specific implementation guidance. We
believe we are in compliance with these standards, but the software industry and
the accounting profession are currently discussing a wide range of potential
interpretations which may result in the issuance of more pronouncements or
interpretive guidance. As future guidance becomes available or if the software
industry broadly adopts certain practices which are different than the Company's
current revenue recognition practices which could have a material adverse effect
on our business practices, financial condition, or results of operations.
We have not fully assessed our ability to comply with SOP 98-9 using
current business practices. However, the Company believes that SOP 98-9 may
require significantly more revenues to be deferred for certain types of
transactions.
<PAGE>
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 offers and sells all of its or his/her respective
Shares. Selling Stockholders may, however, offer and sell all, or some or none
of their Shares. Under some circumstances, the respective donees, pledgees and
transferees or other successors in interest of the Selling Stockholders may also
sell the shares listed below as being held by the Selling Stockholders. 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 Offered After the Offering
----------------- ------------------
Number of Shares Number of Shares Number of Shares
----------------- ---------------- ------------------
<S> <C> <C> <C>
Daniel Lemberg................................ 329,368 329,368 0
Gregg S. Hymowitz............................. 170,084 170,084 0
Kenneth P. Birman............................. 159,454 159,454 0
Daniel Bock................................... 132,992 132,992 0
Robert Hoag................................... 127,564 127,564 0
Daniel & Robert Bock.......................... 107,898 107,898 0
William Lindsey............................... 106,302 106,302 0
John Belizaire................................ 87,298 87,298 0
William W. Lee................................ 87,298 87,298 0
Julian Pelenur................................ 87,298 87,298 0
Joseph A. M. Pilkerton........................ 87,298 87,298 0
J. Mitchell Hull.............................. 79,728 79,728 0
Michael Toporek............................... 79,728 79,728 0
Walter Grossman............................... 53,152 53,152 0
Keith Liu..................................... 53,152 53,152 0
Fali Rubenstein............................... 53,152 53,152 0
Arthur Spurrell............................... 53,152 53,152 0
Laura Spurrell................................ 53,152 53,152 0
Jay Associates................................ 42,522 42,522 0
Yeshiva Beth Hillel........................... 42,522 42,522 0
Lebow Family Revocable Trust.................. 37,206 37,206 0
Irving N. Segal............................... 31,890 31,890 0
Abe Sher...................................... 27,638 27,638 0
Jacob Koval................................... 26,576 26,576 0
Sheldon and Ruth Perl......................... 21,260 21,260 0
Premier Ideas Incorporated.................... 21,260 21,260 0
Wolf Sicherman................................ 15,946 15,946 0
Navidec, Inc.................................. 14,174 14,174 0
Melvin Blatman................................ 10,630 10,630 0
Rose Blatman.................................. 10,630 10,630 0
E80S Partners................................. 10,630 10,630 0
Judy Grossman c/f C. Grossman................. 10,630 10,630 0
Judy Grossman c/f L. Grossman................. 10,630 10,630 0
Carol Labi.................................... 10,630 10,630 0
Wayne I. Maggin............................... 10,630 10,630 0
Stephen and Rosalyn Meadow.................... 10,630 10,630 0
Adam M. Palley................................ 10,630 10,630 0
Kay Silverman Revocable Trust................. 10,630 10,630 0
Peter Stone................................... 10,630 10,630 0
Jeffrey Toporek............................... 10,630 10,630 0
Lawrence Wolfe................................ 10,630 10,630 0
</TABLE>
* Less than 1%
<PAGE>
PLAN OF DISTRIBUTION
This prospectus relates to the offer and sale from time to time by the
holders of up to 2,327,254 shares of Common Stock. These shares were issued in
connection with the merger agreement between BEA and The Theory Center, Inc..
This prospectus has been prepared in connection with registering these shares to
allow for sales of these shares by the applicable selling stockholders to the
public as required by the terms of this merger agreement. We have registered the
shares for sale pursuant to the terms of the merger agreement, but registration
of these shares does not necessarily mean that any of these shares will be
offered and sold by the holders thereof.
We will not receive any proceeds from this offering. The shares may be sold
from time to time to purchasers directly by any of the selling stockholders, or
under some circumstances, donees, pledgees, transferees or other successors in
interest ("Transferees") thereof. Alternatively, the selling stockholders, or
Transferees thereof, 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, or Transferees thereof, and/or the purchasers of the shares for
whom they may act as agent. The selling stockholders, or Transferees thereof,
and any dealers or agents that participate in the distribution of the shares may
be deemed to be "underwriters" within the meaning of the Securities Act and any
profit on the sale of the shares by them and any commissions received by any
such dealers or agents might be deemed to be underwriting commissions under the
Securities Act of 1933.
At a time a particular offer of the 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, or Transferees thereof, 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
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual report on form 10-K for
the year ended January 31, 1999, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority 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 approximately 24,000 of Common Stock of the Company.
