<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1999
REGISTRATION NO. 333-80553
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
SILVERSTREAM SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 04-3318325
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
-------------------------
ONE BURLINGTON WOODS, SUITE 200
BURLINGTON, MASSACHUSETTS 01803
(781) 238-5400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
DAVID A. LITWACK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SILVERSTREAM SOFTWARE, INC.
ONE BURLINGTON WOODS, SUITE 200
BURLINGTON, MA 01803
(781) 238-5400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
-------------------------
COPIES TO:
<TABLE>
<S> <C>
MARK G. BORDEN, ESQ. JOHN A. MELTAUS, ESQ.
JOHN H. CHORY, ESQ. TESTA, HURWITZ & THIBEAULT, LLP
HALE AND DORR LLP 125 HIGH STREET
60 STATE STREET BOSTON, MASSACHUSETTS 02110
BOSTON, MASSACHUSETTS 02109 TELEPHONE: (617) 248-7000
TELEPHONE: (617) 526-6000 TELECOPY: (617) 248-7100
TELECOPY: (617) 526-5000
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
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,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------------
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE(3)
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value per
share................................. 2,683,333 shares $15.00 $40,249,995 $11,189.50
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 350,000 shares that the underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
(3) Paid in connection with original filing on June 11, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Issued , 1999
2,333,333 Shares
[LOGO][LOGO]
COMMON STOCK
------------------------
SILVERSTREAM SOFTWARE, INC. IS OFFERING 2,333,333 SHARES OF COMMON STOCK. THIS
IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR
SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN
$13.00 AND $15.00 PER SHARE.
------------------------
WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "SSSW."
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS SILVERSTREAM
-------- ------------- ------------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total............................ $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
SilverStream has granted the underwriters the right to purchase up to an
additional 350,000 shares of common stock to cover over-allotments. Morgan
Stanley & Co. Incorporated expects to deliver the shares of common stock to
purchasers on , 1999.
------------------------
MORGAN STANLEY DEAN WITTER
BANCBOSTON ROBERTSON STEPHENS
SG COWEN
, 1999
<PAGE> 3
[Narrative description of graphic material omitted in electronically filed
document:
The following text is at the top of the page and spans the front cover foldout:
SILVERSTREAM: ENABLING POWERFUL BUSINESS APPLICATIONS FOR THE WEB.
The following text appears on the inside front cover foldout:
Organizations around the world are focusing on how the Web will impact their
businesses, and are starting to develop A NEW GENERATION OF WEB-BASED
APPLICATIONS that allow them to take advantage of the power of the Web.
Previously a company's Web site would simply involve publishing static marketing
documents. However, it was not long before the world realized that the Web could
be used for FAR MORE POWERFUL APPLICATIONS SUCH AS E-COMMERCE, CUSTOMER SERVICE
AND SUPPLY CHAIN MANAGEMENT.
Web-based applications are transforming the way we do business. These
applications have the following characteristics:
- They use the Web to reach a much broader audience, bringing businesses
closer to their customers, partners, suppliers and employees.
- They integrate data from existing applications, including relational
databases, enterprise resource planning systems, legacy mainframe systems,
document management systems and external data sources.
Application servers are the platforms that allow organizations to build this
new generation of applications. Furthermore, the Web architecture offers
significant cost benefits over traditional computing architectures because
it avoids the need to install and maintain software on the user's remote
computer. Instead, a Web browser or 'thin client' is used to run the
application. As a result, many organizations are integrating future
application development to a Web architecture based on application servers.
The inside front cover contains a graphic that consists of a large disk entitled
"Web." On the left side of the large disk are several groups of human figures
labeled "customers," "suppliers," "employees," "consumers" and "partners." On
the right side of the disk are several three-dimensional cylinders under the
heading "Data Sources." The cylinders are labeled "Lotus Notes," "SAP," "DB/2,"
"Oracle" and "PeopleSoft."
In the center of the large disk are two smaller disks, stacked one on top of the
other. The bottom disk is entitled "Customer-Written Applications" and includes
several icons labeled "E-commerce," "Transaction Processing," "Decision
Support," "Demand & Supply Chain Management," "Customer Support" and "Enterprise
Portals."
The top disk is entitled "SilverStream Application Server" and contains a
detailed graphic outlining the fundamental components of the SilverStream
Application Server architecture:
1. At the bottom is a horizontal three-dimensional rectangle entitled
"Enterprise Deployment Services," which rectangle includes four boxes
entitled "Scalability," "Reliability," "Security" and "Manageability."
2. On top of the rectangle are three vertical three-dimensional rectangles:
a. The vertical rectangle on the left is entitled "Presentation Layer,"
and includes two boxes entitled "HTML" and "Java"
b. The vertical rectangle in the middle is entitled "Business Logic
Layer," and includes three boxes entitled "Distributed Objects,"
"Transactions" and "Content Management"
c. The vertical rectangle on the right is entitled "Data Access Layer,"
and includes two boxes entitled "Data Access Objects" and "Enterprise
Data Connectors"
3. Above the three rectangles and connected to each by thin lines is a
horizontal three-dimensional rectangle entitled "Development Tools."
4. To the left of the rectangle entitled "Presentation Layer" are two
computer icons under the title "Users." There is a two-way arrow between
the rectangle and the icons.
5. To the right of the rectangle entitled "Data Access Layer" are three
three-dimensional cylinders under the title "Data." There is a two-way
arrow between the rectangle and the cylinders.]
The following text appears below the graphic:
The SilverStream Application Server is a comprehensive platform that allows
developers to:
- Increase productivity using powerful integrated development tools that
shorten time-to-market
- Access and integrate data and applications from multiple diverse sources
- Incorporate custom business logic by building reusable business objects
- Create the presentation layer using Java or HTML as the user interface
- Develop sophisticated applications with high transaction processing
capabilities
- Deploy applications that scale to handle high volumes of users and
transactions with high reliability
- Secure applications and data from unwanted access
- Integrate and manage rich content required for applications such as
product catalogs
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 6
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS.......................... 15
USE OF PROCEEDS....................... 16
DIVIDEND POLICY....................... 16
CAPITALIZATION........................ 17
DILUTION.............................. 18
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 21
BUSINESS.............................. 32
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT............................ 46
CERTAIN TRANSACTIONS.................. 50
PRINCIPAL STOCKHOLDERS................ 52
DESCRIPTION OF CAPITAL STOCK.......... 54
SHARES ELIGIBLE FOR FUTURE SALE....... 56
UNDERWRITERS.......................... 58
LEGAL MATTERS......................... 60
EXPERTS............................... 60
WHERE YOU CAN FIND MORE INFORMATION... 60
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS THAT BUY, SELL OR TRADE THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding SilverStream and the common stock being sold in this
offering and our Consolidated Financial Statements and Notes thereto appearing
elsewhere in this prospectus.
SILVERSTREAM SOFTWARE, INC.
SilverStream is a global provider of software and services that enable
businesses and other large organizations to create, deploy and manage software
programs for intranets, extranets and the Internet. The advantages of Web-based
technology are driving the creation of a new generation of business-
transforming software programs. These powerful Web-based programs, or Web
applications, link a broad universe of customers, vendors, employees and
partners with multiple, diverse data sources. Our products and services help our
customers to rapidly develop Web applications that are reliable, secure and able
to handle increasing and variable volumes of user traffic, commonly known as
being scalable. Using our products and services, organizations can create and
deploy robust Web applications in diverse areas such as e-commerce, employee
self-service, supply chain management and customer service.
Organizations are using Web applications to conduct "e-business," which
encompasses business-to-business, business-to-employee and business-to-consumer
transactions. These organizations recognize that if they are able to offer
easy-to-access, compelling, real-time applications as a means of transacting
business and interacting with business partners and customers, they can create
closer and more enduring business relationships, new efficiencies and
significant competitive and strategic advantages. To date, organizations have
been required to use many different development tools, programming languages and
technologies, often from different vendors, and have had to rely on custom
programming and complex integration activities to develop their Web
applications. These applications have often been difficult and expensive to
create, deploy and manage. In order to compete in this dynamic e-business
environment, organizations need expandable, reliable and secure solutions that
shorten the time-to-market for powerful new Web applications.
SilverStream's products and services are designed to help our customers
meet the new challenges posed by Web-based technology and applications. Our
products consist of an application server, an integrated set of development
tools and enterprise data connectors. Our Application Server is a software
product that provides access to various forms of electronic information and
communicates with end user computers, usually in the form of a Web application.
Our enterprise data connectors provide access to various kinds of third-party
data sources. Our products reduce the complexity of developing Web applications
and enable customers to extend the reach of these applications, access multiple
information sources and simplify administration. We also offer comprehensive
consulting, education and technical support services to help ensure the
successful development and implementation of Web applications by our customers.
We market our products and services globally through our direct sales force
and a network of independent software vendors, value-added resellers and
consulting partners. To date, we have licensed the SilverStream Application
Server to over 500 customers in a wide variety of industries, including
communication, financial services, government, manufacturing, oil and gas,
pharmaceutical, technology and transportation.
We are a Delaware corporation. Our principal executive offices are located
at One Burlington Woods, Suite 200, Burlington, Massachusetts 01803 and our
telephone number is (781) 238-5400. Our World Wide Web site address is
www.silverstream.com. The information in the Web site is not incorporated by
reference into this prospectus.
SilverStream(R) is our registered trademark and SilverStream Application
Server and the SilverStream logo are our trademarks. This prospectus also
contains trademarks and trade names of other companies.
3
<PAGE> 6
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THE OFFERING
<TABLE>
<S> <C>
Common stock offered........................ 2,333,333 shares
Common stock to be outstanding after this
offering.................................. 16,312,749 shares
Use of proceeds............................. For general corporate purposes, including
working capital and capital expenditures.
For more detailed information, see "Use of
Proceeds" on page 16.
Proposed Nasdaq National Market symbol...... SSSW
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 YEARS ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ---------------------- ----------------------
1996 1997 1998 1998 1999
-------------- --------- ---------- --------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Software license................... $ -- $ 249 $ 5,983 $ 1,527 $ 5,515
Services........................... -- -- 825 217 2,267
--------- --------- ---------- --------- ----------
Total revenue........................ -- 249 6,808 1,744 7,782
Cost of revenue:
Software license................... -- 90 695 202 587
Services........................... -- 282 1,414 519 3,167
--------- --------- ---------- --------- ----------
Total cost of revenue................ -- 372 2,109 721 3,754
--------- --------- ---------- --------- ----------
Gross profit (loss).................. -- (123) 4,699 1,023 4,028
Total operating expenses............. 1,005 8,437 18,059 7,876 13,358
--------- --------- ---------- --------- ----------
Loss from operations................. (1,005) (8,560) (13,360) (6,853) (9,330)
Net loss............................. $ (952) $ (8,335) $ (12,885) $ (6,601) $ (9,152)
========= ========= ========== ========= ==========
Basic and diluted net loss per
share.............................. $ (.41) $ (1.65) $ (2.52) $ (1.29) $ (1.75)
Weighted-average common shares used
in computing basic and diluted net
loss per share..................... 2,322,605 5,065,356 5,122,480 5,109,286 5,230,455
Pro forma basic and diluted net loss
per share.......................... $ (1.06) $ (.69)
Weighted-average common shares used
in computing pro forma basic and
diluted net loss per share......... 12,181,677 13,297,354
</TABLE>
Shares used in computing pro forma basic and diluted net loss per share
above include the 8,659,208 shares of common stock issuable upon conversion of
our outstanding preferred stock upon the closing of this offering.
The pro forma as adjusted column in the consolidated balance sheet data
below gives effect to the conversion of our outstanding preferred stock into
common stock on a one-for-one basis upon the closing of this offering and the
sale of the 2,333,333 shares of common stock in this offering at an assumed
initial public offering price of $14.00, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us.
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $10,778 $40,158
Working capital............................................. 10,439 39,819
Total assets................................................ 20,938 50,318
Long-term debt, less current portion........................ 682 682
Redeemable convertible preferred stock...................... 11,638 --
Total stockholders' equity.................................. 1,178 42,196
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE> 7
Except as set forth in the Consolidated Financial Statements and Notes
thereto or as otherwise indicated, all information in this prospectus:
- Assumes no exercise of the underwriters' over-allotment option;
- Reflects the conversion of all outstanding shares of our convertible
preferred stock into shares of common stock on a one-for-one basis; and
- Reflects the filing, as of the closing of the offering, of our second
amended and restated certificate of incorporation and the adoption of our
amended and restated by-laws implementing provisions described below
under "Description of Capital Stock -- Delaware Law and Our Charter and
By-Law Provisions; Anti-Takeover Effects" on page 54.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted.
5
<PAGE> 8
RISK FACTORS
You should consider carefully the risks described below before you decide
to buy our common stock. The risks and uncertainties described below are not the
only ones facing us. If any of the following risks actually occur, our business,
financial condition or results of operations would likely suffer. In such case,
the trading price of our common stock could fall, and you may lose all or part
of the money you paid to buy our common stock.
RISKS RELATED TO OUR BUSINESS
WE HAVE INCURRED SUBSTANTIAL LOSSES, WE EXPECT CONTINUED LOSSES AND CONTINUED
LOSSES WILL HARM OUR BUSINESS.
We have never been profitable. Our failure to significantly increase our
revenue would seriously harm our business and operating results. We have
experienced operating losses in each quarterly and annual period since inception
and we expect to incur significant losses in the future. We incurred net losses
of $952,000 for the period ended December 31, 1996, $8.3 million for the year
ended December 31, 1997, $12.9 million for the year ended December 31, 1998 and
$9.2 million for the six months ended June 30, 1999. As of June 30, 1999, we had
an accumulated deficit of $31.3 million. We expect to significantly increase our
research and development, sales and marketing and general and administrative
expenses in future periods. As a result, we will need to significantly increase
our quarterly revenue to achieve and maintain profitability. If our revenue
grows more slowly than we anticipate or if our operating expenses increase more
than we expect or cannot be reduced in the event of lower revenue, our business
will be materially and adversely affected.
WE EXPECT TO DEPEND ON OUR APPLICATION SERVER AND RELATED SERVICES FOR
SUBSTANTIALLY ALL OF OUR REVENUE FOR THE FORESEEABLE FUTURE AND IF OUR
APPLICATION SERVER DOES NOT ACHIEVE WIDESPREAD MARKET ACCEPTANCE, OUR BUSINESS
AND RESULTS OF OPERATIONS WILL SUFFER.
We expect to continue to derive substantially all of our revenue from our
SilverStream Application Server and related products and services. Failure to
achieve broad market acceptance of the SilverStream Application Server, or a
decline in the price of, or demand for, our Application Server would seriously
harm our business and operating results. We cannot predict the level of market
acceptance that will be achieved or maintained by our products and services.
OUR BUSINESS WILL SUFFER IF WE DO NOT SUCCESSFULLY INTRODUCE ENHANCEMENTS TO
OUR APPLICATION SERVER.
Our future financial performance will depend significantly on revenue from
future enhancements to the SilverStream Application Server that we are currently
developing and plan to develop. Any delay or difficulties in completing these
enhancements would seriously harm our business and operating results. We are
currently developing Version 3.0 of our Application Server, which we expect will
include functionality that we do not currently have, including improvements to
the programming environment as well as support for computing standards, such as
Enterprise JavaBeans and Java2, and third-party development tools. Version 3.0
will require significant additional development and we cannot predict the time
required to complete development and testing or the date of commercial release.
In addition, we cannot be certain that enhanced versions of the SilverStream
Application Server will meet customer performance needs or expectations when
shipped or that new versions will be free of significant software defects or
bugs.
WE HAVE ONLY BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME AND YOUR BASIS FOR
EVALUATING US IS LIMITED.
We began commercial shipments of our first software products in November
1997. You must consider the risks, expenses and uncertainties that an early
stage company like ours faces, particularly in the new and rapidly evolving
Internet market. Because we have only recently commenced commercial sales, our
past results and rates of growth may not be meaningful and you should not rely
on them as an indication of our future performance.
6
<PAGE> 9
OUR LIMITED OPERATING HISTORY MAKES FORECASTING DIFFICULT AND THE FAILURE TO
MEET EXPECTATIONS COULD CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.
As a result of our limited operating history, it is difficult to forecast
accurately our revenues, and we have limited meaningful historical financial
data upon which to base planned operating expenses. If we do not achieve our
expected revenues, our operating results will be below our expectations and the
expectations of investors and market analysts, which could cause the price of
our common stock to decline. Specifically, we were founded in May 1996, and
began shipping our first products, the SilverStream Application Server 1.0 and
related software development tools, in November 1997. Our operating expenses are
largely based on anticipated revenue trends and a high percentage of our
expenses are and will continue to be fixed in the short-term. The revenue and
income potential of our products and business are unproven and the market that
we are addressing is rapidly evolving.
THE MARKET FOR OUR PRODUCTS IS EMERGING AND OUR BUSINESS WILL SUFFER IF IT
DOES NOT DEVELOP AS WE EXPECT.
The market for Web application server software has only recently begun to
develop, is rapidly evolving and will likely have an increasing number of
competitors. We cannot be certain that a viable market for our products will
emerge or be sustainable. If the application server market fails to develop, or
develops more slowly than expected, our business and operating results would be
seriously harmed.
THE UNPREDICTABILITY OF OUR QUARTERLY OPERATING RESULTS MAY ADVERSELY AFFECT
THE TRADING PRICE OF OUR COMMON STOCK.
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future, making it difficult to predict
future performance. These variations result from a number of factors, many of
which are outside of our control. Because of this difficulty in predicting
future performance, our operating results will likely fall below the
expectations of securities analysts or investors in some future quarter or
quarters. Our failure to meet these expectations would likely adversely affect
the market price of our common stock.
Our quarterly operating results may vary depending on a number of factors,
including:
- Demand for our SilverStream Application Server and related products and
services;
- Actions taken by our competitors, including new product introductions and
enhancements;
- Our success in, and continued penetration of, international markets and
the economic conditions of these markets;
- Deferral of customer orders in anticipation of product enhancements or
new products;
- Our ability to expand our sales and marketing operations, including
hiring additional sales personnel, and to expand indirect sales channels;
and
- Our ability to expand our service operations, including hiring additional
services personnel, and to attract additional third-party service
providers.
Although we have limited historical financial data, we believe that our
quarterly operating results may experience seasonal fluctuations. For instance,
quarterly results may fluctuate based on our clients' calendar year budgeting
cycles, slow summer purchasing patterns in Europe and our compensation policies
that tend to compensate sales personnel, typically in the latter half of the
year, for achieving annual quotas.
WE DEPEND ON INCREASED BUSINESS FROM OUR CURRENT AND NEW CUSTOMERS AND IF WE
FAIL TO GROW OUR CUSTOMER BASE OR GENERATE REPEAT BUSINESS, OUR OPERATING
RESULTS COULD BE HARMED.
If we fail to grow our customer base or generate repeat and expanded
business from our current and new customers, our business and operating results
would be seriously harmed. Most of our customers
7
<PAGE> 10
initially make a limited purchase of our products and services for pilot
programs. Many of these customers may not choose to purchase additional licenses
to expand their use of our products. Many of these customers have not yet
developed or deployed initial applications based on our products. If these
customers do not successfully develop and deploy such initial applications, they
may not choose to purchase deployment licenses or additional development
licenses. Our business model depends on the expanded use of our products within
our customers' organizations.
In addition, as we introduce new versions of our products or new products,
our current customers may not require the functionality of our new products and
may not ultimately license these products. Because the total amount of
maintenance and support fees we receive in any period depends in large part on
the size and number of licenses that we have previously sold, any downturn in
our software license revenue would negatively impact our future services
revenue. In addition, if customers elect not to renew their maintenance
agreements, our services revenue could be significantly adversely affected.
OUR MARKETS ARE HIGHLY COMPETITIVE AND OUR FAILURE TO COMPETE SUCCESSFULLY
WILL LIMIT OUR ABILITY TO RETAIN AND INCREASE OUR MARKET SHARE.
Our markets are new, rapidly evolving and highly competitive, and we expect
this competition to persist and intensify in the future. Our failure to maintain
and enhance our competitive position will limit our ability to retain and
increase our market share resulting in serious harm to our business and
operating results.
Some of our competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than we do. Many of
these companies have more extensive customer bases, broader customer
relationships and broader industry alliances that they could leverage, including
relationships with many of our current and potential customers. These companies
also have significantly more established customer support and professional
services organizations. In addition, these companies may adopt aggressive
pricing policies or may bundle their competitive products with broader product
offerings. See "Business--Competition" on page 32 for more information about our
competition.
OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY RESULTS.
A customer's decision to purchase our products typically involves a
significant decision by the prospective customer's senior information technology
managers, as the customer applications to be built and deployed using our
products are generally critical to the customer's business. In addition, we
generally need to educate potential customers on the use and benefits of an
application server and on the performance features of the SilverStream
Application Server. Our long sales cycle makes it difficult to predict the
quarter in which sales may occur. The sale of our products is also subject to
delays from the lengthy budgeting, approval and competitive evaluation processes
that typically accompany significant information technology purchasing
decisions. For example, customers frequently begin by evaluating our products on
a limited basis and devote time and resources to testing our products before
they decide whether or not to purchase a license for deployment. Customers may
also defer orders as a result of anticipated releases of new products or
enhancements by us or our competitors.
FAILURE TO DEVELOP AND EXPAND OUR SALES AND MARKETING CAPABILITIES WOULD HARM
OUR BUSINESS.
We need to expand our sales and marketing operations in order to increase
market awareness of our products, market the SilverStream Application Server to
a greater number of organizations and generate increased revenue. However,
competition for qualified sales personnel is intense and we may not be able to
hire enough qualified individuals in the future. If we are unable to attract or
retain such qualified sales personnel, our business and operating results would
be seriously harmed. Our products and services require a sophisticated sales
effort targeted at senior information technology management of our prospective
customers. New hires require extensive training and typically require at least
six months to achieve full productivity. We have limited experience managing a
large, expanding and geographically dispersed direct
8
<PAGE> 11
sales force. In addition, we have limited experience marketing our products
broadly to a large number of potential customers.
FAILURE TO MAINTAIN EXISTING, OR INCREASE THE NUMBER OF, THIRD-PARTY
DISTRIBUTION RELATIONSHIPS MAY LIMIT OUR ABILITY TO PENETRATE THE MARKET.
We have a limited number of third-party distribution agreements and we may
not be able to increase the number of our distribution relationships or maintain
our existing relationships. Our failure to increase the number of our
distribution relationships or maintain our existing relationships may limit our
ability to penetrate the market. Our current agreements with our distribution
partners do not prevent these companies from selling products of other
companies, including products that may compete with our products, and do not
generally require these partners to purchase minimum quantities of our products.
These distributors could give higher priority to the products of other companies
or to their own products, than they give to our products. As a result, the loss
of, or a significant reduction in sales volume, to our current or future
distribution partners could seriously harm our revenue and operating results,
and a significant increase in sales through these channels could also negatively
impact our gross margins. In addition, sales through these channels generally
have a lower price than direct sales.
FAILURE TO EXPAND OUR SERVICES OFFERINGS WOULD HARM OUR BUSINESS.
We believe that growth in our product sales depends on our ability to
provide our customers with comprehensive services, including application
engineering, implementation, training and support, and to educate third-party
resellers, instructors and consultants on how to provide similar services. If we
fail to attract, train and retain the skilled persons who deliver these
services, our business and operating results would be harmed. We plan to
increase the number of our services personnel to meet these needs. However,
competition for qualified service personnel is intense and we may not be able to
attract, train or retain the number of highly qualified service personnel that
our business needs.
We expect our services revenue to increase in dollar amount as we continue
to provide consulting, education and technical support services that complement
our products and as our installed base of customers grows. To date, our cost of
services revenue has been significantly higher than our services revenue, and we
expect to continue to incur losses from our services business in the future.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD HARM OUR
BUSINESS.
To be successful, we believe we must expand our international operations.
Therefore, we expect to commit significant resources to expand our international
sales and marketing activities. However, we may not be able to maintain or
increase market demand for our product which may harm our business. We are
increasingly subject to a number of risks associated with international business
activities which may increase our costs, lengthen our sales cycle and require
significant management attention. These risks generally include:
- Increased expenses associated with customizing products for foreign
countries;
- Currency exchange rate fluctuations;
- Unexpected changes in regulatory requirements resulting in unanticipated
costs and delays;
- Tariffs, export controls and other trade barriers;
- Longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
- Potentially adverse tax consequences, including restrictions on the
repatriation of earnings; and
- The risks related to the recent global economic turbulence and adverse
economic circumstances in Asia.
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<PAGE> 12
OUR FUTURE SUCCESS DEPENDS ON CONTINUED USE OF THE INTERNET AND GROWTH OF
ELECTRONIC BUSINESS.
Our future success depends heavily on the acceptance and wide use of the
Internet for electronic business. If electronic business does not continue to
grow or grows more slowly than expected, demand for our products and services
will be reduced. Consumers and businesses may reject the Internet as a viable
commercial medium for a number of reasons, including potentially inadequate
network infrastructure, slow development of enabling technologies, insufficient
commercial support or privacy concerns. The Internet's infrastructure may not be
able to support the demands placed on it by increased usage. In addition, delays
in the development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or increased governmental regulation,
could cause the Internet to lose its viability as a commercial medium. Even if
the required infrastructure, standards, protocols and complementary products,
services or facilities are developed, we may incur substantial expenses adapting
our solutions to changing or emerging technologies.
IF WE FAIL TO RESPOND TO RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY
STANDARDS OUR PRODUCTS MAY BECOME OBSOLETE.
The markets for our products and services are marked by rapid technological
change, frequent new product introductions and enhancements, uncertain product
life cycles, changes in customer demands and evolving industry standards. New
products based on new technologies or new industry standards may quickly render
an existing product obsolete and unmarketable. Any delays in our ability to
develop and release enhanced or new products could seriously harm our business
and operating results. Our technology is complex, and new products and product
enhancements can require long development and testing periods. Our failure to
conform to prevailing standards could have a negative effect on our business and
operating results.
IN ORDER TO MANAGE OUR GROWTH AND EXPANSION, WE WILL NEED TO IMPROVE OUR
MANAGEMENT AND OPERATIONAL SYSTEMS ON A TIMELY BASIS.
We have expanded our operations rapidly since inception. We intend to
continue to expand in the foreseeable future to pursue existing and potential
market opportunities. This rapid growth places a significant demand on
management and operational resources. To be successful, we will need to
implement additional management information systems, improve our operating,
administrative, financial and accounting systems, procedures and controls, train
new employees and maintain close coordination among our executive, engineering,
professional services, accounting, finance, marketing, sales and operations
organizations. In addition, our growth has resulted, and any future growth will
result, in increased responsibilities for management personnel.
In addition, our principal executive office lease is due to expire in July
2000. We may move our headquarters to new office space or expand into additional
office space. We cannot be certain that office space will be available on
reasonable terms. We would likely experience significant costs, and we could
experience a disruption in the development or marketing of our products, in
connection with an expansion or move.
FAILURE TO RETAIN AND ATTRACT KEY PERSONNEL WOULD HARM OUR BUSINESS.
Our success depends largely on the skills, experience and performance of
the members of our senior management and other key personnel, including our
Chairman, David Skok, and our President and Chief Executive Officer, David
Litwack. If we lose one or more of the members of our senior management or other
key employees, our business and operating results could be seriously harmed. In
addition, our future success will depend largely on our ability to continue
attracting, training, motivating and retaining highly skilled personnel. None of
our senior management or other key personnel is bound by an employment
10
<PAGE> 13
agreement. Like other software companies in the Boston, Massachusetts area, we
face intense competition for qualified personnel including software engineering,
service and support, and sales and marketing personnel.
WE INCLUDE THIRD-PARTY SOFTWARE AND TECHNOLOGY IN OUR PRODUCTS AND OUR
BUSINESS WOULD BE HARMED IF WE WERE NOT ABLE TO CONTINUE USING THIS THIRD-PARTY
SOFTWARE AND TECHNOLOGY.
Our products integrate third-party text search, object middleware,
compiler, encryption, transaction processing and monitoring, Java virtual
machine and database technology and products. There are inherent limitations in
the use and capabilities of much of the technology that we license from third
parties. Our business would be seriously harmed if the providers from whom we
license software and technology ceased to deliver and support reliable products,
enhance their current products in a timely fashion or respond to emerging
industry standards. In addition, the third-party software may not continue to be
available to us on commercially reasonable terms or at all. For example, we
license some of the components of our products from limited or sole source
suppliers, including encryption technology which we license from RSA Data
Security. Many of these licenses are subject to periodic renewal. The loss of,
or inability to maintain or obtain this software for any reason could result in
significant shipment delays or reductions. Furthermore, we might be forced to
limit the features available in our current or future product offerings. Either
alternative could seriously harm our business and operating results.
Almost all of our products are written in Java and require a Java virtual
machine made available by Sun Microsystems in order to operate. Sun may not
continue to make the Java virtual machines available at commercially reasonable
terms or at all. Furthermore, if Sun were to make significant changes to the
Java language or its Java virtual machines, or fail to correct defects and
limitations in these products, our ability to continue to improve and ship our
products could be impaired. In the future, our customers may also require the
ability to deploy our products on platforms for which technically acceptable
Java implementations either do not exist or are not available on commercially
reasonable terms.
OUR SOFTWARE PRODUCTS MAY CONTAIN ERRORS OR DEFECTS THAT COULD RESULT IN LOST
REVENUES, DELAYED OR LIMITED MARKET ACCEPTANCE OR PRODUCT LIABILITY CLAIMS WITH
SUBSTANTIAL LITIGATION COSTS.
Complex software products like ours can contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. Defects or errors in current or future products, including the planned
SilverStream Application Server Version 3.0, could result in lost revenue or a
delay in market acceptance, which would seriously harm our business and
operating results. We have in the past discovered software errors in our new
releases and new products after their introduction and expect that this will
continue. Despite internal testing and testing by current and potential
customers, our current and future products may contain serious defects,
including Year 2000 errors.
As many of our customers use our products for business-critical
applications, errors, defects or other performance problems could result in
financial or other damage to our customers and could significantly impair their
operations. Our customers could seek damages for losses related to any of these
issues. A product liability claim brought against us, even if not successful,
would likely be time consuming and costly to defend and could adversely affect
our marketing efforts.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF THE SYSTEMS WE USE ARE NOT YEAR
2000 COMPLIANT OR IF OUR CUSTOMERS OR POTENTIAL CUSTOMERS ALTER THEIR PURCHASING
PATTERNS AS A RESULT OF THE YEAR 2000.
We are in the process of assessing any Year 2000 issues with the computer,
communications and software systems that we use to deliver our products and to
manage our internal operations. We have not finalized our assessment or
formulated a final plan or budget to remedy our Year 2000 issues. If our systems
do not operate properly with respect to date calculations involving the Year
2000 and subsequent dates, we could incur unanticipated expenses to remedy any
problems, which could seriously harm our business. We may also experience
reduced sales of our products as current or potential customers reduce
11
<PAGE> 14
their budgets for enterprise software and Internet products due to increased
expenditures on their own Year 2000 compliance efforts.
The risks posed by Year 2000 issues could adversely affect our business in
a number of significant ways. Although we believe that our internally developed
systems and technology are Year 2000 compliant, our information technology
systems nevertheless could be substantially impaired or cease to operate due to
Year 2000 problems. Additionally, we rely on information technology supplied by
third parties, and our other business partners, including third-party
distributors and consultants, also are heavily dependent on information
technology systems and on their own and third-party vendor systems. Year 2000
problems experienced by us or any of these third parties could materially
adversely affect our business. Prior versions of our products may contain
technology from third parties that is not Year 2000 compliant. Additionally, the
Internet could face serious disruptions arising from the Year 2000 problem.
Many of our customers and potential customers have implemented policies
that prohibit or strongly discourage making changes or additions to their
internal computer systems until after January 1, 2000. We will experience fewer
sales if potential customers delay the purchase and implementation of our
products until after January 1, 2000. Purchasing decisions may be delayed as
potential customers stabilize their internal computer systems or divert their
information technology budgets to address Year 2000 issues. If our potential
customers delay purchasing or implementing our products in preparation for the
Year 2000 problem, our business would be seriously harmed.
Given the pervasive nature of the Year 2000 problem, we cannot guarantee
that disruptions in other industries and market segments will not adversely
affect our business. Moreover, our costs related to Year 2000 compliance, which
thus far have not been material, could ultimately be significant. In the event
that we experience disruptions as a result of the Year 2000 problem, our
business could be seriously harmed. Our efforts to address Year 2000 issues are
described in more detail in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000 Compliance" on page 28.
OUR BUSINESS MAY SUFFER IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY.
We have no patents, and none may be issued from our existing patent
applications. We rely on a combination of contractual provisions,
confidentiality procedures, and patent, trademark, trade secret and copyright
laws to protect the proprietary aspects of our technology. These legal
protections afford only limited protection and competitors may gain access to
our intellectual property which may result in the loss of our customers. In
addition, despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use our
proprietary information. Litigation may be necessary to enforce our intellectual
property rights, to protect our trade secrets and to determine the validity and
scope of the proprietary rights of others. Any litigation could result in
substantial costs and diversion of resources with no assurance of success and
could seriously harm our business and operating results. In addition, we sell
our products internationally, and the laws of many countries do not protect our
proprietary rights as well as the laws of the United States. Our future patents,
if any, may be successfully challenged or may not provide us with any
competitive advantages.
We obtain a major portion of our software license revenue from licensing
our products under standardized "shrink wrap" agreements that our customers do
not sign. If any of these agreements were deemed unenforceable, those customers
may seek to use and copy our technology without appropriate limitations.
WE COULD INCUR SUBSTANTIAL COSTS DEFENDING OUR INTELLECTUAL PROPERTY FROM
INFRINGEMENT OR A CLAIM OF INFRINGEMENT.
Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
make, use or sell our products. As a result, we may be found to infringe on the
proprietary rights of others. In the event of a successful claim of infringement
against us and our failure or inability to license the infringed technology, our
business and operating results would be significantly harmed. Companies in the
software market and the Internet market are increasingly bringing
12
<PAGE> 15
suits alleging infringement of their proprietary rights, particularly patent
rights. We have been subject to such claims in the past. Any litigation or
claims, whether or not valid, could result in substantial costs and diversion of
resources with no assurance of success. Intellectual property litigation or
claims could force us to do one or more of the following:
- Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- Obtain a license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms; and
- Redesign products or services.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND CONSEQUENTLY HARM OUR
FINANCIAL CONDITION.
In order to remain competitive, we may find it necessary to acquire
additional businesses, products or technologies. If we identify an appropriate
acquisition candidate, we may not be able to negotiate the terms of the
acquisition successfully, finance the acquisition, or integrate the acquired
business, products or technologies into our existing business and operations.
Further, completing a potential acquisition and integrating an acquired business
will cause significant diversions of management time and resources. If we
consummate one or more significant acquisitions in which the consideration
consists of stock or other securities, your equity could be significantly
diluted. If we were to proceed with one or more significant acquisitions in
which the consideration included cash, we could be required to use a substantial
portion of our available cash, including proceeds from this offering, to
consummate an acquisition. Acquisition financing may not be available on
favorable terms, or at all. In addition, we may be required to amortize
significant amounts of goodwill and other intangible assets in connection with
future acquisitions, which would seriously harm our operating results.
RISKS RELATED TO THIS OFFERING
WE MAY NEED ADDITIONAL FINANCING WHICH COULD BE DIFFICULT TO OBTAIN.
We expect the net proceeds from this offering, together with cash generated
from operations will be sufficient to meet our working capital and capital
expenditure needs for at least the next 12 months. After that, we may need to
raise additional funds and we cannot be certain that we will be able to obtain
additional financing on favorable terms, if at all. Further, if we issue
additional equity securities, stockholders may experience additional dilution or
the new equity securities may have rights, preferences or privileges senior to
those of existing holders of common stock. If we cannot raise funds on
acceptable terms, if and when needed, we may not be able to develop or enhance
our products and services, take advantage of future opportunities, grow our
business or respond to competitive pressures or unanticipated requirements,
which could seriously harm our business.
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS PURCHASING SHARES IN THIS OFFERING.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering. We will negotiate and determine the initial
public offering price with the representatives of the underwriters based on
several factors. You may be unable to sell your shares of common stock at or
above the initial public offering price, which may result in substantial losses
to you. The market price of the common stock may fluctuate significantly in
response to the following factors, some of which are beyond our control:
- Variations in our quarterly operating results;
- Changes in securities analysts' estimates of our financial performance;
- Changes in market valuations of similar companies;
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<PAGE> 16
- Announcements by us or our competitors of new or enhanced products or
significant contracts, acquisitions or strategic partnerships;
- Additions or departures of key personnel; and
- Future sales of our common stock or other securities.
WE MAY INCUR SIGNIFICANT COSTS FROM CLASS ACTION LITIGATION DUE TO OUR
EXPECTED STOCK PRICE VOLATILITY.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.
OUR STOCK PRICE COULD BE ADVERSELY AFFECTED BY SHARES BECOMING AVAILABLE FOR
SALE.
Sales of a substantial number of shares of our common stock in the public
market after this offering could depress the market price of our common stock
and could impair our ability to raise capital through the sale of additional
equity securities. For a more detailed description, see "Shares Eligible for
Future Sale" on page 56.
PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE, SUBSTANTIAL DILUTION.
We expect that the initial public offering price of our common stock will
be substantially higher than the book value per share of the outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution. In the past, we issued options to
acquire common stock at prices significantly below the initial public offering
price. To the extent these outstanding options are ultimately exercised, there
will be further dilution to investors in this offering.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL OF OUR COMPANY.
Provisions of our certificate of incorporation and bylaws, as well as
provisions of Delaware law, could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders. For more
information regarding these provisions, see "Description of Capital Stock --
Delaware Law and Our Charter and By-Law Provisions; Anti-Takeover Effects" on
page 54.
INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER SILVERSTREAM AFTER
THIS OFFERING AND COULD DELAY OR PREVENT A CHANGE IN CORPORATE CONTROL.
Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
57.8% of our outstanding common stock. As a result, these stockholders will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This could have the effect of delaying or preventing a change of
control of SilverStream.
WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING AND THE
FAILURE OF MANAGEMENT TO APPLY SUCH FUNDS EFFECTIVELY COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
We plan to use the proceeds from this offering for general corporate
purposes. Therefore, we will have broad discretion as to how we will spend the
proceeds, and stockholders may not agree with the ways in which we use the
proceeds. We may not be successful in investing the proceeds from this offering,
in our operations or external investments, to yield a favorable return.
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<PAGE> 17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. In some cases you can identify these
statements by forward-looking words such as "anticipate," "believe," "could,"
"estimate," "expect," "intend," "may," "should," "will" and "would" or similar
words. You should read statements that contain these words carefully because
they discuss our future expectations, contain projections of our future results
of operations or of our financial position or state other "forward-looking"
information. We believe that it is important to communicate our future
expectations to our investors. However, there may be events in the future that
we are not able to accurately predict or control. The factors listed above in
the section captioned "Risk Factors," as well as any cautionary language in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could have a material adverse effect on our
business, results of operations and financial position.
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<PAGE> 18
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 2,333,333 shares of
common stock will be approximately $29.4 million, assuming an initial public
offering price of $14.00 per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us. If the
over-allotment option is exercised in full, we estimate that our net proceeds
will be approximately $33.9 million.
The principal purposes of this offering are to establish a public market
for our common stock, to increase our visibility in the marketplace, to
facilitate future access to public capital markets, to provide liquidity to
existing stockholders and to obtain additional working capital.
We expect to use the net proceeds for working capital, capital expenditures
and general corporate purposes, including approximately $8.0 million for
expansion of sales and marketing operations, $4.0 million for research and
development activities, $5.0 million for expansion of professional services,
$1.0 million for expansion of facilities and $1.0 million for improvements to
operational and financial systems. The amount and timing of these expenditures
will vary depending on a number of factors, including the amount of cash
generated by our operations, competitive and technological developments, future
changes in our business objectives, and the rate of growth, if any, of our
business. Although we may use a portion of the net proceeds to acquire
businesses, products or technologies that are complementary to our business, we
have no specific acquisitions planned. Pending these uses, we plan to invest the
net proceeds in short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future. We currently intend to retain all future earnings, if any, for use in
the operation of our business. Our existing equipment line of credit and term
loans prohibit the payment of dividends without the consent of the lender.
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<PAGE> 19
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. The
pro forma information gives effect to the conversion of all of our outstanding
preferred stock into common stock on a one-for-one basis upon the closing of
this offering and assumes the filing of our second amended and restated
certificate of incorporation after the closing of this offering authorizing
2,000,000 shares of preferred stock and 100,000,000 shares of common stock. The
pro forma as adjusted information gives effect to the foregoing as well as the
issuance and sale of the 2,333,333 shares of common stock in this offering at an
assumed initial public offering price of $14.00 per share, after deducting the
estimated underwriting discounts and commissions and estimated offering expenses
payable by us. The outstanding share information excludes 1,401,192 shares of
common stock issuable on exercise of outstanding options as of June 30, 1999
with a weighted average exercise price of $3.53 per share.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ --------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt, less current portion...................... $ 682 $ 682 $ 682
Redeemable convertible preferred stock, $.001 par value,
5,283,050 shares authorized, 5,183,988 shares issued and
outstanding, actual; no shares authorized, issued and
outstanding, pro forma and pro forma as adjusted........ 11,638 -- --
Stockholders' equity:
Convertible preferred stock, $.001 par value, 3,600,000
shares authorized, 3,475,220 shares issued and
outstanding, actual; no shares authorized, issued and
outstanding, pro forma and pro forma as adjusted........ 31,584 -- --
Preferred stock, $.001 par value, no shares authorized,
issued and outstanding, actual; 2,000,000 shares
authorized, pro forma and pro forma as adjusted, no
shares issued and outstanding, pro forma and pro forma
as adjusted............................................. -- -- --
Common stock, $.001 par value; 21,000,000 shares
authorized, 5,320,208 shares issued and outstanding,
actual; 100,000,000 shares authorized, pro forma and pro
forma as adjusted, 13,979,416 shares issued and
outstanding, pro forma, 16,312,749 shares issued and
outstanding, pro forma as adjusted...................... 6 15 16
Additional paid-in capital................................ 1,089 44,302 73,681
Accumulated deficit....................................... (31,324) (31,324) (31,324)
Other comprehensive loss.................................. (73) (73) (73)
Notes receivable from stockholders........................ (104) (104) (104)
-------- -------- --------
Total stockholders' equity...................... 1,178 12,816 42,196
-------- -------- --------
Total capitalization............................ $ 13,498 $ 13,498 $ 42,878
======== ======== ========
</TABLE>
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DILUTION
SilverStream's pro forma net tangible book value as of June 30, 1999, after
giving effect to the conversion of all outstanding shares of convertible
preferred stock into common stock on a one-for-one basis upon the closing of
this offering, was approximately $12.1 million, or $.86 per share of common
stock. Pro forma net tangible book value per share represents our total assets
less total liabilities and intangibles, divided by the 13,979,416 shares of
common stock outstanding after giving effect to the conversion of all
outstanding shares of convertible preferred stock into common stock on a
one-for-one basis. Net tangible book value dilution per share to new investors
is the difference between the amount per share paid by purchasers of common
stock in this offering and the pro forma net tangible book value per share
immediately following the offering. After giving effect to the issuance and sale
of the 2,333,333 shares of common stock in this offering, at an assumed offering
price of $14.00 per share and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us, SilverStream's
pro forma net tangible book value as of June 30, 1999 would have been $41.5
million, or $2.54 per share. This represents an immediate increase in pro forma
net tangible book value to existing stockholders of $1.68 per share. The initial
public offering price per share will significantly exceed the net tangible book
value per share. Accordingly, new investors who purchase common stock in this
offering will suffer an immediate dilution of their investment of $11.46 per
share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Pro forma net tangible book value per share as of June 30,
1999................................................... $ .86
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 1.68
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.54
------
Dilution per share to new investors......................... $11.46
======
</TABLE>
The following table summarizes on a pro forma basis, giving effect to the
conversion of all outstanding shares of convertible preferred stock into common
stock on a one-for-one basis upon the closing of this offering, as of June 30,
1999, the difference between the number of shares of common stock purchased from
SilverStream, the total consideration paid to SilverStream, and the average
price per share paid by existing stockholders and by new investors. The
calculation below is based on an assumed offering price of $14.00 per share,
before deduction of estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. 13,979,416 85.7% $44,316,224 57.6% $ 3.17
New investors......................... 2,333,333 14.3 32,666,662 42.4 14.00
---------- ----- ----------- ------
Total....................... 16,312,749 100.0% $76,982,886 100.0%
========== ===== =========== ======
</TABLE>
The table above assumes no exercise of stock options outstanding at June
30, 1999. As of June 30, 1999, there were options outstanding to purchase
1,401,192 shares of common stock with a weighted average exercise price of $3.53
per share. To the extent all of such outstanding options had been exercised as
of June 30, 1999, pro forma net tangible book value per share after this
offering would be $2.62 and total dilution per share to new investors would be
$11.38.
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to 2,683,333 shares, or 16.1% of
the total number of shares of common stock outstanding after this offering.
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<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the period ended December 31, 1996 and the years ended
December 31, 1997 and 1998 and the consolidated balance sheet data as of
December 31, 1997 and 1998 are derived from our Consolidated Financial
Statements that have been audited by Ernst & Young LLP, independent auditors,
and are included elsewhere in this prospectus. The consolidated balance sheet
data as of December 31, 1996 are derived from our audited consolidated financial
statements not included in this prospectus. The consolidated financial data as
of June 30, 1998 and 1999 and for the six-month periods ended June 30, 1998 and
1999 are derived from our unaudited Consolidated Financial Statements included
elsewhere in this prospectus and include all adjustments, consisting only of
normal, recurring adjustments, that SilverStream considers necessary for a fair
presentation of our consolidated financial position and our consolidated results
of operations for those periods. Operating results for the six-month period
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1999.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 YEARS ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------------- -----------------------
1996 1997 1998 1998 1999
-------------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue:
Software license.................. $ -- $ 249 $ 5,983 $ 1,527 $ 5,515
Services.......................... -- -- 825 217 2,267
---------- ---------- ---------- ---------- ----------
Total revenue............. -- 249 6,808 1,744 7,782
Cost of revenue:
Software license.................. -- 90 695 202 587
Services.......................... -- 282 1,414 519 3,167
---------- ---------- ---------- ---------- ----------
Total cost of revenue..... -- 372 2,109 721 3,754
---------- ---------- ---------- ---------- ----------
Gross profit (loss)................. -- (123) 4,699 1,023 4,028
Operating expenses:
Sales and marketing............... 35 3,854 10,848 4,454 8,356
Research and development.......... 850 2,622 5,070 2,429 3,342
General and administrative........ 120 1,961 2,141 993 1,660
---------- ---------- ---------- ---------- ----------
Total operating
expenses................ 1,005 8,437 18,059 7,876 13,358
---------- ---------- ---------- ---------- ----------
Loss from operations................ (1,005) (8,560) (13,360) (6,853) (9,330)
Other income, net................... 53 225 475 252 178
---------- ---------- ---------- ---------- ----------
Net loss............................ $ (952) $ (8,335) $ (12,885) $ (6,601) $ (9,152)
========== ========== ========== ========== ==========
Basic and diluted net loss per
share............................. $ (.41) $ (1.65) $ (2.52) $ (1.29) $ (1.75)
========== ========== ========== ========== ==========
Weighted-average common shares used
in computing basic and diluted net
loss per share.................... 2,322,605 5,065,356 5,122,480 5,109,286 5,230,455
========== ========== ========== ========== ==========
Pro forma basic and diluted net loss
per share......................... $ (1.06) $ (.69)
========== ==========
Weighted-average common shares used
in computing pro forma basic and
diluted net loss per share........ 12,181,677 13,297,354
========== ==========
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
------ ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................. $2,734 $16,649 $ 1,198 $ 4,717 $10,778
Working capital........................... 2,591 16,349 5,119 11,507 10,439
Total assets.............................. 3,056 18,974 10,245 15,406 20,938
Long-term debt, less current portion...... 189 295 325 511 682
Redeemable convertible preferred stock.... 3,658 11,638 11,638 11,638 11,638
Total stockholders' equity (deficit)...... (947) 5,944 (5,048) 1,045 1,178
</TABLE>
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this prospectus.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results may differ materially from those indicated in such
forward-looking statements.
OVERVIEW
SilverStream is a global provider of software and services that enable
businesses and other large organizations to create, deploy and manage software
programs for intranets, extranets and the Internet. From our incorporation in
May 1996 through December 1997, we were considered a development stage
enterprise and our activities were primarily focused on raising capital,
conducting research and development, and establishing markets and distribution
channels for our products. In November 1997, we began commercial shipment of the
initial version of our Application Server. Today, we have licensed the
SilverStream Application Server to more than 500 customers around the world.
We derive our revenue from the sale of software product licenses and from
professional consulting, education and technical support services. We plan to
generate future revenues from both new and existing customers. As existing
customers create new software applications based on the SilverStream Application
Server, they may require more application servers to run these applications. We
plan to widen our customer base by selling licenses and services to new
customers. We anticipate that we will continue to sell annual update assurance
and support agreements to most customers. We recognize our software license
revenue in accordance with Statement of Position 97-2, "Software Revenue
Recognition." Statement of Position 97-2 generally requires revenues earned on
software arrangements involving multiple elements to be allocated to each
element based on the relative fair values of the elements. We generally
recognize revenue allocated to software licenses upon delivery of the software
products, provided that we have no remaining significant obligations with regard
to implementation, the license fee is fixed or determinable and collection of
the fee is probable. Our customers often contract for maintenance which provides
them with new releases of software and various technical support and services
for a period of typically one year. These agreements are separately negotiated
and priced. We recognize maintenance revenue ratably over this 12-month period.
We license our software to independent software vendors who pay us a prepayment
at the beginning of their contract. We recognize this revenue ratably over the
period of the contract, typically one year, as the only undelivered element
under these agreements is service, for which no pattern of performance is
discernable. We also earn partner fees, which are deferred and recognized on a
straight-line basis as an offset to operating expenses over the life of the
agreement, typically one year. We consider such fees to be reimbursement for
costs incurred in connection with our partner program. Revenue derived from
arrangements with resellers of our products is not recognized until the software
is shipped to the end-user. We recognize revenue from the sale of technical
support services ratably over the maintenance term and revenue from the sale of
consulting and education services as the services are performed.
We record cash receipts from customers and billed amounts due from
customers in excess of recognized revenue as deferred revenue. The timing and
amount of cash receipts from customers can vary significantly depending on
specific contract terms and can therefore have a significant impact on the
amount of deferred revenue in any given period.
Our cost of software license revenue includes royalties due to third
parties for technology included in our products, the cost of manuals and product
documentation, media used to deliver our products and shipping and fulfillment
costs. Our cost of services revenue includes salaries and related expenses for
our consulting, education and technical support services organizations, costs of
third parties contracted to provide consulting services to customers and an
allocation of our facilities, communications and depreciation expenses.
21
<PAGE> 24
Our operating expenses are classified into three general categories: sales
and marketing, research and development and general and administrative. Sales
and marketing expenses consist primarily of salaries and other related costs for
sales and marketing personnel, sales commissions, travel, public relations and
marketing materials and tradeshows. Research and development expenses consist
primarily of personnel costs to support product development. General and
administrative expenses consist primarily of salaries and other related costs
for operations and finance employees, legal and accounting services and
facilities-related expenses.
Since our inception, we have incurred substantial costs to develop our
technology and products, to recruit and train personnel for our engineering,
sales and marketing and professional services departments, and to establish an
administrative organization. As a result, we have incurred net losses in each
fiscal quarter since inception and had an accumulated deficit of $22.2 million
as of December 31, 1998 and $31.3 million as of June 30, 1999. We anticipate
that our operating expenses will increase substantially in future quarters as we
increase sales and marketing operations, expand distribution channels, increase
research and development, broaden professional services, expand facilities and
support, and improve operational and financial systems. Accordingly, we expect
to incur additional losses for the foreseeable future. In addition, our limited
operating history makes it difficult for us to predict future operating results
and, accordingly, there can be no assurance that we will achieve or sustain
revenue growth or profitability.
RESULTS OF OPERATIONS
The following table presents selected consolidated financial data for the
periods indicated as a percentage of total revenue. Data for the period from
inception through December 31, 1996 is not presented because we had no revenue
during that period.
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1997 1998 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Software license................................ 100.0% 87.9% 87.5% 70.9%
Services........................................ 0.0 12.1 12.5 29.1
-------- -------- -------- --------
Total revenue........................... 100.0 100.0 100.0 100.0
-------- -------- -------- --------
Cost of revenue:
Software license................................ 36.2 10.2 11.6 7.5
Services........................................ 113.4 20.8 29.8 40.7
-------- -------- -------- --------
Total cost of revenue................... 149.6 31.0 41.4 48.2
-------- -------- -------- --------
Gross profit (loss)............................... (49.6) 69.0 58.6 51.8
Sales and marketing............................. 1,550.7 159.3 255.3 107.4
Research and development........................ 1,055.1 74.5 139.3 43.0
General and administrative...................... 789.1 31.4 57.0 21.3
-------- -------- -------- --------
Total operating expenses................ 3,394.9 265.2 451.6 171.7
-------- -------- -------- --------
Loss from operations.............................. (3,444.5) (196.2) (393.0) (119.9)
Other income, net................................. 90.7 6.9 14.5 2.3
-------- -------- -------- --------
Net loss.......................................... (3,353.8)% (189.3)% (378.5)% (117.6)%
======== ======== ======== ========
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
REVENUE
Total revenue increased by approximately $6.1 million from $1.7 million in
the six months ended June 30, 1998 to $7.8 million in the six months ended June
30, 1999. This increase was attributable to an increase in our customer base
resulting in substantial growth in software license and services revenue.
22
<PAGE> 25
Revenue from international sales increased by approximately $1.9 million from
$700,000, or 41% of total revenue, in the six months ended June 30, 1998 to $2.6
million, or 33% of total revenue, in the six months ended June 30, 1999
primarily due to increased selling and related activities in Germany, Belgium,
The Netherlands, Singapore, Hong Kong and Taiwan.
Software License. Software license revenue increased by approximately $4.0
million from $1.5 million in the six months ended June 30, 1998 to $5.5 million
in the six months ended June 30, 1999. This increase is attributable to
increased unit sales of our products following the release of Version 2.0 in
October 1998 and higher prices realized for our products in 1999 as compared to
1998.
Services. Services revenue increased by approximately $2.1 million from
$217,000 in the six months ended June 30, 1998 to $2.3 million in the six months
ended June 30, 1999. Approximately 64% of this increase is attributable to the
creation and expansion of our professional consulting organization and the
provision of a wider range of consulting services to customers and the remainder
is primarily due to an increase in the number of our customers and support
contracts.
We believe that growth in our software license sales depends on our ability
to provide our customers with support, education, and consulting services and to
educate third-party consulting partners on how to use our products. As a result,
we intend to expand our services organizations in 1999 and we believe that
services revenue will continue to increase as a percentage of total revenue. We
expect that revenue from professional consulting services will increase in the
future to the extent that additional customers license our products and as we
expand both our capacity for the delivery of these services as well as the scope
of our services offerings. We expect that services revenue from support
agreements will increase in the future as a result of new and existing license
agreements.
COST OF REVENUE
Software License. Cost of software license revenue increased by
approximately $385,000 from $202,000 in the six months ended June 30, 1998 to
$587,000 in the six months ended June 30, 1999. Of this increase, approximately
74% is attributable to increased product and shipping costs from a larger volume
of sales orders and the remainder is primarily attributable to third-party
royalties. Cost of software license revenue decreased as a percentage of
software license revenue from 13% to 10% from the six months ended June 30, 1998
to the six months ended June 30, 1999. This decrease reflects increased
efficiencies associated with larger sales volumes. We expect software license
costs to increase in the future due to additional customers licensing our
products and the licensing of additional third-party technology that we may
choose to embed in our product offerings.
Services. Cost of services revenue increased by approximately $2.7 million
from $519,000 in the six months ended June 30, 1998 to $3.2 million in the six
months ended June 30, 1999. Of this increase in cost of services revenue,
approximately 61% is due to an increase in the number of our education and
technical support personnel and the remainder is primarily attributable to the
creation and rapid expansion of our consulting services business in late 1998.
To date, our services costs have been higher than our services revenue, and we
expect that trend to continue for the next several quarters as we continue to
expand all of our services organizations in order to meet anticipated demand for
services. We expect services costs to increase in the future to the extent that
we continue to generate new customers and associated software license and
services revenue. Services costs as a percentage of services revenue can be
expected to vary significantly from period to period depending on the mix of
services we provide, whether such services are provided by us or third-party
contractors, and overall utilization rates. Approximately 24% of our services
revenue for the six months ended June 30, 1999 is derived from third-party
subcontractors providing support services on our behalf. We derived no services
revenue from third-party subcontractors for the six months ended June 30, 1998.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased by
approximately $3.9 million from $4.5 million in the six months ended June 30,
1998 to $8.4 million in the six months ended June 30, 1999.
23
<PAGE> 26
Of this increase in sales and marketing expenses, approximately 54% is
attributable to increases in the number of sales employees in North America, and
42% is attributed to expanded international sales operations. We believe these
expenses will increase significantly in future periods as we expect to continue
to expand our sales and marketing efforts. We also anticipate that sales and
marketing expenses may fluctuate as a percentage of a total revenue from period
to period as new sales personnel are hired and begin to achieve productivity.
Research and Development. Research and development expenses increased by
approximately $900,000 from $2.4 million in the six months ended June 30, 1998
to $3.3 million in the six months ended June 30, 1999. The increase in research
and development expenses is primarily attributable to increases in the number of
research and development personnel to support SilverStream's product development
activities. We believe that continued investment in research and development is
critical to attaining our strategic objectives, and, as a result, we expect
research and development expenses to increase significantly in future periods.
To date, all software development costs have been expensed in the period
incurred.
General and Administrative. General and administrative expenses increased
by approximately $707,000 from $993,000 in the six months ended June 30, 1998 to
$1.7 million in the six months ended June 30, 1999. Of this increase,
approximately 61% is attributable to a growing number of administrative
employees and approximately 23% is attributable to an increase in the bad debt
reserve as our revenue and accounts receivable grew. We believe general and
administrative expenses will increase, as we expect to add personnel to support
our expanding operations, incur additional costs related to the growth of our
business, and assume the responsibilities of a public company.
OTHER INCOME, NET
Other income, net decreased from $252,000 in the six months ended June 30,
1998 to $178,000 in the six months ended June 30, 1999. This decrease is
attributable to a decrease in interest income during the six months ended June
30, 1999 over the same period in the previous year. The interest expense results
from capital equipment loans used to purchase computer equipment.
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUE
Total revenue increased by approximately $6.6 million from $249,000 in 1997
to $6.8 million in 1998 due to the release of our initial products in November
1997 and the ensuing increase in our customer base. Revenue from international
sales increased by approximately $1.7 million from $67,000, or 27% of total
revenue, in 1997 to $1.8 million, or 27% of total revenue, in 1998 due to the
same factors. We had no revenue during the period from inception until December
31, 1996.
Software License. Software license revenue increased by approximately $5.7
million from $249,000 in 1997 to $6.0 million in 1998. We first began shipping
our products in November 1997. The increase in software license revenue was due
primarily to an increase in the number of customers resulting from a full year
of selling in 1998 and the release of Version 2.0 of our products in October
1998.
Services. We had no services revenue in 1997 and services revenue of
$825,000 in 1998. Approximately 71% of our services revenue in 1998 resulted
from education and support services delivered to an increasing customer base and
the remainder resulted primarily from the sale of professional consulting
services.
COST OF REVENUE
Software License. Cost of software license revenue increased by
approximately $605,000 from $90,000 in 1997 to $695,000 in 1998. The increase is
attributable to increases in software license revenue and the royalties we pay
on third-party software incorporated into Version 2.0 of our products which
began shipping in October 1998.
Services. Cost of services revenue increased by approximately $1.1 million
from $282,000 in 1997 to $1.4 million in 1998. Of this increase, approximately
68% was due to an increase in our support
24
<PAGE> 27
organization and the balance was primarily due to the creation of our
professional consulting services organization in 1998.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses in 1996 amounted to
$35,000 and increased by approximately $7.0 million from $3.9 million in 1997 to
$10.8 million in 1998. The increase in these periods was due to increases in
sales and marketing personnel and marketing program expenditures. During 1998,
we expanded international sales and marketing operations in Germany, Belgium,
The Netherlands, Hong Kong, Singapore and Taiwan and we increased the number of
personnel and offices in North America.
Research and Development. Research and development expenses in 1996
amounted to $850,000 and increased by approximately $2.4 million from $2.6
million in 1997 to $5.1 million in 1998. The increase in these periods was
primarily due to the hiring of more engineering personnel.
General and Administrative. General and administrative expenses in 1996
amounted to $120,000 and increased by approximately $180,000 from $2.0 million
in 1997 to $2.1 million in 1998. The increase in these periods was primarily due
to the hiring of more personnel.
OTHER INCOME, NET
Other income, net in 1996 amounted to $53,000 and increased by
approximately $250,000 from $225,000 in 1997 to $475,000 in 1998. The increase
was due primarily to an increase in interest income earned from cash balances on
hand in 1998 compared to 1997. Proceeds from the private sale of equity
securities in 1997 and 1998 caused cash and short-term investment balances in
1998 to be higher than those in 1997.
25
<PAGE> 28
QUARTERLY RESULTS
The following table presents our unaudited quarterly operating results for
each of the seven quarters ended June 30, 1999 both in absolute dollars and as a
percentage of our total revenue for each quarter. This information has been
derived from our unaudited consolidated financial statements. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements contained in this prospectus and
include all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of such information. You should
read this information in conjunction with our Consolidated Financial Statements
and Notes thereto appearing elsewhere in this prospectus. You should not draw
any conclusions about our future results from the results of operations for any
quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1998 1998 1998 1998 1999 1999
--------- --------- --------- --------- --------- --------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue:
Software license............... $ 249 $ 579 $ 948 $ 1,916 $ 2,539 $ 2,607 $ 2,908
Services....................... -- 104 113 115 494 867 1,400
------- ------- ------- ------- ------- ------- -------
Total revenue........... 249 683 1,061 2,031 3,033 3,474 4,308
Cost of revenue:
Software license............... 90 118 84 138 355 254 334
Services....................... 282 252 267 361 534 1,330 1,836
------- ------- ------- ------- ------- ------- -------
Total cost of revenue... 372 370 351 499 889 1,584 2,170
------- ------- ------- ------- ------- ------- -------
Gross profit (loss).............. (123) 313 710 1,532 2,144 1,890 2,138
Operating expenses:
Sales and marketing............ 1,283 2,305 2,148 2,678 3,716 4,037 4,319
Research and development....... 647 1,240 1,190 1,336 1,304 1,503 1,839
General and administrative..... 1,123 532 462 489 659 697 963
------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 3,053 4,077 3,800 4,503 5,679 6,237 7,121
------- ------- ------- ------- ------- ------- -------
Loss from operations............. (3,176) (3,764) (3,090) (2,971) (3,535) (4,347) (4,983)
Other income, net................ 216 97 155 143 80 40 138
------- ------- ------- ------- ------- ------- -------
Net loss......................... $(2,960) $(3,667) $(2,935) $(2,828) $(3,455) $(4,307) $(4,845)
======= ======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Software license............... 100% 85% 89% 94% 84% 75% 68%
Services....................... -- 15 11 6 16 25 32
------- ------- ------- ------- ------- ------- -------
Total revenue........... 100 100 100 100 100 100 100
Cost of revenue:
Software license............... 36 17 8 7 11 8 8
Services....................... 113 37 25 18 18 38 42
------- ------- ------- ------- ------- ------- -------
Total cost of revenue... 149 54 33 25 29 46 50
------- ------- ------- ------- ------- ------- -------
Gross profit (loss).............. (49) 46 67 75 71 54 50
Operating expenses:
Sales and marketing............ 516 337 203 132 123 116 100
Research and development....... 260 182 112 65 43 43 43
General and administrative..... 451 78 43 24 22 20 22
------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 1,227 597 358 221 188 179 165
------- ------- ------- ------- ------- ------- -------
Loss from operations............. (1,276) (551) (291) (146) (117) (125) (115)
Other income, net................ 87 14 15 7 3 1 3
------- ------- ------- ------- ------- ------- -------
Net loss......................... (1,189)% (537)% (276)% (139)% (114)% (124)% (112)%
======= ======= ======= ======= ======= ======= =======
</TABLE>
Our total revenue has increased in each quarter following the commercial
release of our products in November 1997. The increase in each quarter is due to
the increase in the number of our customers resulting from increased market
awareness and acceptance of our software, expansion of our sales
26
<PAGE> 29
organization and increased services revenue reflecting the growth in the
installed base of product licenses. Growth in software license revenue
accelerated in the last two quarters of 1998 as we increased our direct sales
force in North America and expanded direct European operations in Germany,
Belgium and The Netherlands. Services revenue increased in the fourth quarter of
1998 and the first two quarters of 1999 following the release of Version 2.0 of
our Application Server and the expansion of our professional consulting services
organization and our services offerings.
Cost of software license revenue has increased in conjunction with our
increases in software license revenue. Software license costs were higher in the
quarter ended March 31, 1998 due to the increased number of releases following
the release of Version 1.0 of our Application Server in November 1997 and in the
quarter ended December 31, 1998 following the release of Version 2.0 in October
1998.
Cost of services revenue has increased as we have increased the size of our
support, education and professional consulting organizations. Cost of services
revenue increased during the quarters ended December 31, 1998, March 31, 1999
and June 30, 1999 due to increased usage of third-party consultants as well as
salaries and related costs for increased professional services personnel as a
result of the expansion of our professional consulting services organization.
Operating expenses have generally increased in absolute dollars each
quarter as we have increased staffing in sales and marketing, product
development and general and administrative functions. Sales and marketing
expenses increased in the quarters ended September 30, 1998 and December 31,
1998 due to an increase in the number of direct sales staff in North America and
the expansion of sales operations in Germany, Belgium and The Netherlands. Sales
and marketing expenses further increased in the quarter ended December 31, 1998
with the expansion of sales operations in Hong Kong, Singapore and Taiwan. Sales
and marketing expenses increased in the quarters ended March 31, 1999 and June
30, 1999 due to increases in salaries, the number of direct sales personnel and
sales commissions and incentives paid in the quarter. Research and development
expenses increased in the quarters ended March 31, 1999 and June 30, 1999 due to
an increase in personnel and the creation of a performance and tuning laboratory
which resulted in increased depreciation and equipment lease costs.
General and administrative expenses decreased during the quarter ended
March 31, 1998 as employees were assigned to other departments as marketing,
sales and research and development activities increased. General and
administrative expenses decreased further in the quarter ended June 30, 1998 due
to a decrease in the provision for doubtful accounts and decreases in travel
expenses. General and administrative expenses increased in the quarter ended
December 31, 1998 due to increases in personnel and contracting fees and an
increase in the provision for doubtful accounts.
Subsequent to the completion of SilverStream's equity financing in late
1997, other income, net generally decreased as cash balances declined until the
quarter following an additional equity financing in March 1999. Interest expense
has generally decreased since the quarter ended June 30, 1998 as equipment term
loans were paid down. In the quarter ended June 30, 1999, interest expense has
increased along with an increase in equipment loan borrowings.
As a result of our limited operating history, we cannot forecast operating
expenses based on historical results. Accordingly, we base our expenses in part
on future revenue projections. Most of these expenses are fixed in the short
term, and we may not be able to quickly reduce spending if revenue is lower than
we have projected. Our ability to forecast accurately our quarterly revenue is
limited due to the long sales and deployment cycle of our software products,
which makes it difficult to predict the quarter in which license sales will
occur, and the early nature of the market for application servers. If our
revenue does not meet projections, our business, operating results and financial
condition could be materially adversely affected and net losses in a given
quarter would be even greater than expected.
We plan to increase our operating expenses to expand sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden professional services, expand our facilities and
support and improve operational and financial systems. If our revenue does not
27
<PAGE> 30
increase along with these expenses, our business, operating results and
financial condition could be materially adversely affected and net losses in a
given quarter would be even greater than expected.
Although we have a limited operating history, we believe that quarterly
operating results may experience seasonal fluctuations. For instance, quarterly
results may fluctuate based on customer calendar year budgeting cycles and slow
summer purchasing patterns in Europe.
NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
As of December 31, 1998, we had net operating losses and research and
development carryforwards of approximately $22.3 million and $350,000,
respectively. The net operating loss and credit carryforwards will expire at
various dates, beginning 2012, if not utilized. Under the provisions of the
Internal Revenue Code, substantial changes in our ownership may limit the amount
of net operating loss carry-forwards that could be utilized annually in the
future to offset taxable income. A valuation allowance has been established in
our financial statements to reflect the uncertainty of future taxable income
required to utilize available tax loss carryforwards and other deferred tax
assets.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through the
private sale of our equity securities, resulting in net proceeds of
approximately $41.0 million. We have also funded our operations through
equipment financings. As of December 31, 1998, we had $4.5 million in cash, cash
equivalents and marketable securities, and $5.1 million in working capital. As
of June 30, 1999, we had $11.0 million in cash, cash equivalents and marketable
securities, and $10.4 million in working capital. We have three term loans for
amounts borrowed to finance equipment. These term loans are from the same bank
and bear interest at the bank's prime rate plus 0.5%. At June 30, 1999, we had a
total of approximately $511,000 outstanding under these term loans. We also have
a $750,000 equipment line of credit with a bank that bears interest at the
bank's prime rate plus 0.5%. At June 30, 1999, approximately $673,000 was
outstanding under this line of credit. Borrowings under these term loans and the
line of credit is secured by substantially all of our tangible assets.
Net cash used in operating activities was $8.0 million in 1997, $13.0
million in 1998 and $8.2 million in the six months ended June 30, 1999. Net cash
flows from operating activities in each period reflect increasing net losses
and, to a lesser extent, accounts receivable offset in part by increases in
accounts payable, accrued expenses and deferred revenue.
Net cash used in investing activities was $1.6 million in 1997 and $4.3
million in 1998 and net cash provided by investing activities was $2.0 million
in the six months ended June 30, 1999. Investing activities reflects purchases
of property and equipment in each period, purchases of short-term investments in
1998, and proceeds from the sale of short-term investments in the six months
ended June 30, 1999.
Net cash provided by financing activities was $23.4 million in 1997, $1.9
million in 1998 and $15.9 million in the six months ended June 30, 1999. Cash
provided by financing activities includes proceeds from the issuance of
preferred and common stock, offset by the payments on long-term debt in each
period, as well as proceeds from equipment financings in 1997 and 1998.
Capital expenditures were $1.6 million in 1997, $1.0 million in 1998 and
$1.1 million in the six months ended June 30, 1999. Our capital expenditures
consisted of purchases of operating resources to manage our operations,
including computer hardware and software, office furniture and equipment and
leasehold improvements. Purchases of computer equipment represent the largest
component of our capital expenditures. We expect this trend to continue as we
increase the number of employees, increase the size of our development and
quality assurance testing facilities and improve and expand our information
systems. We expect that our capital expenditures will continue to increase in
the future. Since inception, we have generally funded capital expenditures
either through the use of working capital or with equipment bank loans.
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We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may utilize cash resources to fund acquisitions of, or investments in,
complementary businesses, technologies or product lines. We believe that the net
proceeds from the sale of the common stock in this offering, together with funds
generated from operations, will be sufficient to meet our working capital
requirements for at least the next 12 months. Thereafter, we may find it
necessary to obtain additional equity or debt financing. In the event additional
financing is required, we may not be able to raise it on acceptable terms or at
all.
YEAR 2000 COMPLIANCE
The "Year 2000 Issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000. This could result in failures or
the creation of erroneous results.
We have defined Year 2000 compliant as the ability to:
- Correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
- Function according to the product documentation provided for this date
change, without changes in operation, assuming correct configuration;
- Where appropriate, respond to two-digit date input in a way that resolves
the ambiguity as to century in a disclosed, defined and predetermined
manner;
- Store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century; and
- Recognize year 2000 as a leap year.
The risks posed by Year 2000 issues could adversely affect our business in
a number of significant ways. Although we believe that our internally developed
systems and technology are Year 2000 compliant, our information and
non-information technology systems nevertheless could be substantially impaired
or cease to operate due to Year 2000 problems. Additionally, we rely on
information technology supplied by third parties and the resellers of our
products are heavily dependent on information technology systems and on their
own third-party vendor systems. Year 2000 problems experienced by us or any of
these third parties could materially adversely affect our business.
We have conducted a Year 2000 readiness review for the current versions of
our products. This review included assessment, validation, testing and, where
necessary, remediation, upgrading and replacement of product versions, as well
as contingency planning. We continue to respond to customer questions about
prior versions of our products on a case-by-case basis.
Based on our review, we believe the current versions of our products are
Year 2000 compliant, when configured and used in accordance with the related
documentation, so long as the underlying operating system of the host machine
and any other software used with or in the host machine or with our products are
also Year 2000 compliant. We do not believe that versions of our products prior
to Version 2.5 are Year 2000 compliant, and we encourage users of these versions
to upgrade to the latest version.
We have not separately tested software obtained from third parties that is
incorporated into our products. We have tested this third-party software as
incorporated in our products as part of our product review. We are also seeking
assurances from these third parties that this software is Year 2000 compliant.
While we believe that this third-party software incorporated in the current
versions of our products is Year 2000 compliant, we have not been able to obtain
assurances from all vendors. We plan to upgrade or
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replace by year end any third-party software incorporated in our products for
which we cannot obtain adequate assurances of Year 2000 compliance from the
vendors.
Despite testing by us and by current and potential clients, and assurances
from developers of products incorporated into our products, our products may
contain undetected errors or defects associated with Year 2000 date functions. A
third-party assurance consists of a letter to us, or a public notice, from the
third party asserting Year 2000 compliance. Errors or defects in our products
could result in delay or loss of revenue, diversion of development resources,
damage to our reputation, increased service and warranty costs, or liability to
our customers, any of which could materially adversely affect our business,
operating results, or financial condition. Some commentators have predicted
significant litigation regarding Year 2000 compliance issues. Because of the
unprecedented nature of such litigation, it is uncertain whether or to what
extent we may be affected by it.
We have initiated an assessment of our material internal information
technology systems, including both our own software products and third-party
software and hardware technology, including our accounting system, customer
service and support system and phone system. We have also initiated an
assessment of our non-information technology systems. We expect to complete
testing of our information and non-information technology systems in 1999. To
the extent that we are not able to test the technology provided by third-party
vendors, we are seeking assurances from these vendors that their systems are
Year 2000 compliant. We are not currently aware of any material operational
issues associated with preparing our internal information technology and
non-information technology systems for the Year 2000. However, we may experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology used in our internal information technology and
non-information technology systems.
We do not currently have any information concerning the Year 2000
compliance status of our customers. Our current or future customers may incur
significant expenses to achieve Year 2000 compliance. If our customers are not
Year 2000 compliant, they may experience material costs to remedy problems, or
they may face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for
purchases of our products and services, or delay those purchases. As a result,
our business, results of operations or financial condition could be materially
adversely affected.
Costs related to the Year 2000 issue have been immaterial to date and we
expect total future costs to remain below $350,000, of which $100,000 has been
accrued as of June 30, 1999. We have funded our Year 2000 plan from operating
cash flows and have not separately accounted for these costs in the past. To
date, these costs have not been material. We will incur additional costs related
to the Year 2000 plan for administrative personnel to manage the project,
outside contractor assistance, technical support for our products, product
engineering and customer satisfaction. We may experience material problems and
costs with Year 2000 compliance that could adversely affect our business,
results of operations and financial condition.
While we have almost completed the process, we have not yet fully developed
a contingency plan to address all situations that may result if we are unable to
achieve Year 2000 readiness of our critical operations. We expect to complete
this contingency plan later this year. The cost of implementing such a plan may
be material. Finally, we are also subject to external forces that might
generally affect industry and commerce, such as utility or transportation
company Year 2000 compliance failure interruptions.
CONVERSION TO EURO
Eleven of the 15 common member countries of the European Union have agreed
to adopt the Euro as their legal currency. We have arranged for the necessary
modifications of our internal information technology and other systems to
accommodate Euro-denominated transactions. We expect to be able to process
Euro-denominated transactions later this year. In addition, our products support
the Euro currency symbol. We are also assessing the business implications of the
conversion to the Euro, including long-term competitive implications and the
effect of market risk with respect to financial instruments. Based on the
foregoing, we do not believe the Euro will have a significant effect on our
business, financial position, cash
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flows or results of operations. We will continue to assess the impact of Euro
conversion issues as the applicable accounting, tax, legal and regulatory
guidance evolves.
MARKET RISK
SilverStream does not currently use derivative financial instruments. We
generally place our marketable security investments in high credit quality
instruments, primarily U.S. Government and Federal Agency obligations,
tax-exempt municipal obligations and corporate obligations with contractual
maturities of ten years or less. We do not expect any material loss from our
marketable security investments and therefore believe that our potential
interest rate exposure is not material.
Internationally, SilverStream invoices customers primarily in local
currency. We are exposed to foreign exchange rate fluctuations from when
customers are invoiced in local currency until collection occurs. We do not
currently enter into foreign currency hedge transactions. Through June 30, 1999,
foreign currency fluctuations have not had a material impact on our financial
position or results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance for accounting for costs of software products developed or
purchased for internal use, including when costs should be capitalized. The
adoption of this standard did not have a material effect on our financial
condition or results of operations.
In April 1998, AcSEC issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. The adoption of
this standard did not have a material effect on our financial condition or
results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS No. 133"), which
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
We are presently analyzing the impact, if any, that the adoption of SFAS No. 133
will have on our financial condition or results of operations.
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BUSINESS
OVERVIEW
SilverStream is a global provider of software and services that enable
businesses and other large organizations to create, deploy and manage software
programs for intranets, extranets and the Internet. The advantages of Web-based
technology are driving the creation of a new generation of business-transforming
software programs. These powerful Web-based programs, or Web applications, link
a broad universe of customers, vendors, employees and partners with multiple,
diverse data sources. In addition, organizations can design their applications
to include the rules that govern the operation of these applications in a manner
consistent with their business policies. These rules are known as business
logic. Our products and services help our customers to rapidly develop Web
applications that are scalable, reliable and secure. Using our products and
services, organizations can create and deploy robust Web applications in diverse
areas such as e-commerce, employee self-service, supply chain management and
customer service.
Our products consist of an application server, an integrated set of
development tools and enterprise data connectors. An application server is a
software product that provides access to various forms of electronic information
and communicates with end user computers, usually in the form of a Web
application. The SilverStream Application Server tightly integrates data
sources, business logic and presentation of content to the user. Using our
Application Server, our customers can seamlessly access information and data
from diverse sources. Our products allow the business logic to be maintained
centrally and therefore easily changed and instantly implemented. The
SilverStream Application Server maintains the presentation, or look and feel, of
the application centrally and presents content to the user locally, without the
need to install application software on the user's remote computer. Our
development tools shorten the time to market by simplifying the development
process required to build complex Web applications. Our enterprise data
connectors facilitate access to data sources associated with some third-party
business applications, such as inventory or employee information systems. We
also offer comprehensive application engineering, implementation, training and
support services to help ensure the successful development and implementation of
Web applications by our customers.
We market our products and services globally through our direct sales force
and a network of independent software vendors, value-added resellers and
consulting partners. To date, we have licensed the SilverStream Application
Server to over 500 customers in a wide variety of industries, including
communication, financial services, government, manufacturing, oil and gas,
pharmaceutical, technology and transportation.
INDUSTRY BACKGROUND
During the last 40 years, computer-based business applications have evolved
through three fundamental architectures: mainframe, client/server, and, now,
Web-based computing. The introduction of each of these architectures has created
opportunities to develop new applications for businesses. Business application
computing began with the mainframe, which enabled centralized control of these
applications, but gave limited access to users. The development of personal
computers and the widespread adoption of local area networks provided the
foundation for client/server computing, which gave more users greater access to
information and applications, but sacrificed centralized control.
Web-based computing combines the benefits of prior computing architectures
with far greater accessibility for networked, mobile and remote users. Today,
organizations are extending their enterprises by using the Internet to connect
their customers, vendors, employees and partners. To link their constituencies
across these extended enterprises, organizations are creating Web applications
that enable the dynamic delivery of information and transactional capabilities.
The increasing use of Web-based computing by organizations reflects the ability
of these powerful Web applications to fundamentally transform the way these
organizations operate. Application servers enable organizations to create,
deploy and manage these Web applications. Forrester Research, an independent
research firm, estimates that the market for application server software will
grow from $412 million in 1998 to $2.2 billion by 2002.
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Organizations often employ Web applications to conduct "e-business," which
refers to business-to-business, business-to-employee and business-to-consumer
transactions and communications conducted through the use of Internet
technology. These organizations recognize that if they are able to offer
easy-to-access, compelling, real-time applications as a means of transacting
business, they can create closer and more enduring business relationships, new
efficiencies and significant competitive and strategic advantages. As a result
of these benefits, the e-business market is large and growing rapidly. Forrester
Research estimates that Internet-based business-to-business trade, the subset of
e-business that encompasses the trade of goods and services in which the final
order is placed over the Internet, will grow from $43 billion in 1998 to over $1
trillion in 2003.
In order to compete in this dynamic e-business environment, organizations
need comprehensive, integrated solutions that enable the creation of powerful
Web-based applications, shorten the time-to-market for initial deployment and
allow rapid updates and changes. To capitalize on the new opportunities afforded
by Web applications, organizations must overcome several challenges:
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
CHALLENGE CUSTOMER NEED
- --------------------------------------------------------------------------------------------------------
Data stored in multiple diverse data - Ability to aggregate and manipulate data from
sources multiple diverse sources
- Ability to present seamless, easy-to-use interface
to data
Heterogeneous, incompatible legacy - Web development programs based on generally
software applications and computer accepted industry standards
platforms - Interoperability of Web applications among legacy
applications and platforms
- Preservation of investment in pre-existing, or
legacy, resources
Availability of business-critical Web - Rapid response time for users
applications - Secure, controlled access
- Reliable performance and up time
Accessibility by unknown and unpredictable - Scalability
user community - Compatibility with various popular user interfaces
Ability to manage and update Web - Centralized business logic
applications - Centralized command and control functionality
Time to market in an environment with - Integrated, powerful and easy-to-use development
limited information technology resources environment
- Rapid development, deployment and modification of
Web applications
- --------------------------------------------------------------------------------------------------------
</TABLE>
To meet these challenges, organizations have been required to use multiple
development tools, programming languages and applications from different
vendors. As a result, organizations have typically
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had to rely on custom programming and complex integration activities to develop
their Web applications, which have often been difficult and expensive to create,
deploy and manage.
THE SILVERSTREAM SOLUTION
SilverStream is a global provider of software and services that enable
businesses and other large organizations to create, deploy and manage software
programs for intranets, extranets and the Internet. Organizations use our
products for such diverse Web applications as e-commerce, employee self-service,
supply chain management, customer service and the management of a sequence of
job tasks. Our products and services provide the following benefits:
Enable Creation and Deployment of Business-Focused Web
Applications. Business-focused Web applications enable the dynamic delivery of
information and transactional capabilities to a broad group of users. Our
products enable large organizations to manage scalable, reliable and secure Web
applications and address the unpredictable traffic volumes and patterns and
other challenges faced by Web applications. By addressing performance,
connectivity and security issues, our products allow customers to focus their
resources on the business elements of their Web applications such as reaching
new customers, developing new businesses, providing superior customer service,
shortening supply cycles and improving the flow of information.
Extend Reach of Applications and Simplify Administration. The SilverStream
Application Server allows organizations to leverage the advantages of thin
client computing, which eliminates the need for application software to be
installed on the user's computer. Our Application Server allows users to access
Web applications through common, easy-to-use Web browsers and other graphical
interfaces. The central location of Web applications permits organizations to
rapidly modify and deploy applications, enabling organizations to respond
quickly to evolving business requirements. These benefits allow organizations to
extend Web applications to a broader audience and assist these organizations in
reducing their administrative and maintenance costs.
Enable Creation of Applications that Access Multiple Information
Sources. The existence of diverse systems, information and data sources often
results in stand-alone applications that are unable to interact with one
another. SilverStream's products allow Web applications to access information
and data seamlessly from various sources, such as databases, software
applications that run on mainframe computers, and manufacturing, accounting,
inventory, purchasing and document management systems. By using our products,
customers can focus on the design and functionality of strategic Web
applications to create comprehensive solutions while preserving their
investments in legacy systems.
Reduce the Complexity of Developing Web Applications. SilverStream's
integrated set of development tools provide a common development environment and
a consistent look and feel that span multiple, diverse technologies, such as the
language used to describe Web pages known as Hyper-Text Markup Language and
commonly referred to as HTML, a widely used programming language known as Java,
and reusable software objects. We provide a consistent development interface
that is familiar to application developers and we offer powerful development
functionality. Our products and related consulting, education and support
services enhance the productivity of Web application developers, allowing our
customers to leverage the existing capabilities of their development staff in an
environment where skilled Web application developers are in short supply.
STRATEGY
Our objective is to enhance our position as a global provider of
application server software and related products and services. To achieve this
goal, we are pursuing the following strategies:
Capture Emerging Market Opportunity. The market for Web-based application
servers is relatively new. We believe that it is important to reach customers at
an early stage of their adoption of Web technology. We intend to expand our
customer base by seeding a large number of accounts with our products and
offering a range of services to help ensure that initial implementations are
successful. We
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plan to leverage these initial successes by selling additional application
servers as customers expand their initial deployments and develop new Web
applications.
Extend Technology Leadership. We intend to enhance our leadership position
by increasing the performance, functionality and ease of use of our Application
Server and by integrating new technologies into our products. We will continue
to devote substantial resources to the enhancement of our application server
software. The next release of our Application Server, Version 3.0, is expected
to include improvements to the programming environment as well as support for
computing standards such as Enterprise JavaBeans (EJB) and Java2, and
third-party development tools such as Inprise's JBuilder and Symantec's Visual
Cafe. We intend to leverage our core technology by developing and selling
additional complementary products. In early 1999, we introduced our Enterprise
Data Connectors, which facilitate connections to popular business applications
such as SAP, Lotus Notes and PeopleSoft.
Maintain Commitment to Generally Accepted Industry Standards and
Interoperability. We plan to continue to support generally accepted industry
standards in our Application Server to facilitate interoperability with major
databases, operating systems, network protocols and hardware platforms. Our
Application Server currently supports standards for programming languages such
as Hyper-Text Markup Language and Java, as well as standards for communication
protocols, security mechanisms, and directory and database access. By supporting
generally accepted standards, we are able to market our products to a broad
range of customers who can then choose among the hardware, software and
networking technologies that best serve their needs without sacrificing
performance, functionality or flexibility.
Leverage Professional Services Capabilities. As Web-based technologies
have become increasingly important to our customers, there has been increased
demand for comprehensive service offerings. By offering our clients a full range
of professional services on a global basis, we promote the rapid success of
customer projects, creating significant opportunities to sell additional
software licenses to our customers. We intend to increase the size of our
service organization worldwide. In addition, we intend to augment our service
offerings by developing and strengthening our strategic relationships with
systems integrators and consultants.
Expand Worldwide Sales Efforts. To expand our sales to both new and
existing customers, we plan to continue to pursue a multi-channel distribution
strategy that includes both our direct sales force and relationships with
independent software vendors, value-added resellers and consulting partners. We
currently have ten offices throughout North America and plan to continue to
expand our North American sales staff. We also plan to continue expansion of our
international presence by establishing additional overseas offices, adding
direct sales personnel and increasing our indirect sales and services channels.
We currently have four sales offices in Europe and three in Asia. Our
international sales accounted for approximately 27% and 33% of our total revenue
in 1998 and the first six months of 1999, respectively.
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PRODUCTS AND SERVICES
PRODUCTS
Our product offerings are summarized below:
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION SHIPMENT DATES
- --------------------------------------------------------------------------------------------------------
Application Server Application server for the creation, deployment and Version 2.5 shipped in
management of Web applications. May 1999. First
version shipped in
Available for Windows NT, Solaris or HP-UX November 1997.
operating systems.
Licensed on a per processor basis for unlimited
users with no per seat or per connection charges.
Single Developer A complete set of development and testing software Version 2.5 shipped in
Pack products for creating Web applications integrated May 1999. First
Group Developer Pack with the SilverStream Application Server. version shipped in
(5 or 10 Developers) November 1997.
The Single Developer Pack is for standalone
development on a single Windows NT machine.
The Group Developer Packs are for teams of up to 5
or 10 developers to work both independently on
their own computers and as a group. Includes 5 or
10 Single Developer Packs and a 5- or 10-user
SilverStream Application Server for group testing
on Windows NT, Solaris or HP-UX operating
systems.
Each of the Developer Packs is priced and sold
separately.
Enterprise Data Products that provide connections to SAP, Lotus First shipped in April
Connectors Notes and PeopleSoft applications. 1999.
Each Enterprise Data Connector is priced and sold
separately.
- --------------------------------------------------------------------------------------------------------
</TABLE>
SERVICES
As part of our ongoing commitment to provide a complete solution for our
customers, we offer comprehensive consulting, education and technical support
services that complement our product offerings. As of June 30, 1999, our
services organization comprised 65 professionals.
To complement our service organization, we train and promote a broad
network of SilverStream partners, ranging from international consulting firms to
local consultants that offer consulting, education and technical support
services. Our customers are encouraged to engage consultants, instructors and
developers whose proficiency with our products has been certified by us and who
have been designated Certified SilverStream Developers or Certified SilverStream
Field Application Engineers.
Consulting Services. We provide application engineering and implementation
services to assist our customers in developing and implementing Web applications
using our products. Consulting services include advisory, prototyping, design,
test and configuration, deployment and tuning services, and technical account
management services. We generally provide our consulting services on a time and
materials basis.
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Education Services. We offer our customers and partners introductory and
advanced training in the use of our software products. Our employees as well as
Certified SilverStream Trainers offer our training classes around the world. We
price these services by course.
Technical Support Services. We believe that a high level of technical
support services is critical to our customers' success and an important
competitive advantage. We offer technical support to our customers, ranging from
dedicated on-site support personnel, to telephone support from our Burlington
and Belgium offices during normal business hours, to 24-hour on-line support
available through our Website. The pricing of our technical support services
varies according to the level of support required.
PRODUCT ARCHITECTURE
The SilverStream Application Server incorporates components and features
required to create, deploy and manage scalable and sophisticated Web
applications. The fundamental components of the architecture are shown below:
[Narrative description of graphic material omitted in electronically filed
document]
This is a detailed graphic outlining the fundamental components of the
SilverStream Application Server architecture:
1. At the bottom is a horizontal three-dimensional rectangle entitled
"Enterprise Deployment Services," which rectangle includes four boxes
entitled "Scalability," "Reliability," "Security" and "Manageability."
2. On top of the rectangle are three vertical three-dimensional rectangles:
a. The vertical rectangle on the left is entitled "Presentation Layer," and
includes two boxes entitled "HTML" and "Java"
b. The vertical rectangle in the middle is entitled "Business Logic Layer,"
and includes three boxes entitled "Distributed Objects," "Transactions"
and "Content Management"
c. The vertical rectangle on the right is entitled "Data Access Layer," and
includes two boxes entitled "Data Access Objects" and "Enterprise Data
Connectors"
3. Above the three rectangles and connected to each by thin lines is a
horizontal three-dimensional rectangle entitled "Development Tools."
4. To the left of the rectangle entitled "Presentation Layer" are two computer
icons under the title "Users." There is a two-way arrow between the rectangle
and the icons.
5. To the right of the rectangle entitled "Data Access Layer" are three
three-dimensional cylinders under the title "Data." There is a two-way arrow
between the rectangle and the cylinders.]
PRESENTATION LAYER
Presentation refers to the user interface layer of an application. This is
where the user interacts with the application by entering data, using menus and
hyperlinks, and viewing dynamically generated pages containing data and rich
content. Our products allow developers to support both Hyper-Text Markup
Language and Java graphical user interfaces. Hyper-Text Markup Language has the
advantage of quickly running in any Web browser. Java has the advantage of
providing a much richer interactive user interface that is similar to that of a
Microsoft Windows application, but requires an initial download of some
software. Typically, our customers choose to mix both technologies in a single
application, using Hyper-Text Markup Language for Internet users and Java for
intranet users who interact heavily with the application.
Hyper-Text Markup Language. The SilverStream Application Server
incorporates a powerful engine for generating dynamic Hyper-Text Markup
Language pages that contain data and rich content. Developers can design
their Hyper-Text Markup Language pages either by writing industry standard
Java Servlets, or using a graphical page designer which generates Servlets
automatically.
Java. The SilverStream Application Server enables the secure
development, downloading and running of graphic Java applications. Java
applications are stored centrally in the SilverStream Application Server
and are downloaded on demand to browsers on remote user computers via the
Web. Our Application Server also provides a Java application runtime called
JRunner which allows the same Java applications to run without a browser,
behaving more like a full Windows application. Our JRunner feature also
provides for the download of applications on demand, providing the feel of
a
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client/server application, but without requiring the application to be
installed or maintained on each remote computer.
BUSINESS LOGIC LAYER
Business logic is the set of rules that a Web-based application follows,
based on the customer's business policies. For example, in a supply-chain Web
application, business logic defines how items such as discounts, freight and
state tax are calculated, how products are re-ordered and how a customer's
credit limit is checked. In a Web-based application, it is usually desirable to
separate the business logic from the user interface. This makes it easier to
change the business logic and maintain the application.
Distributed Objects and Transactions. The SilverStream Application
Server provides a complete set of tools that allows developers to create
re-usable business objects that encapsulate their business logic. We also
provide powerful capabilities for managing transactions involving multiple
tables. In our next version of the SilverStream Application Server, Version
3.0, we intend to provide support for the industry standard Enterprise
JavaBeans version 1.1. This is intended to allow customers to distribute
objects across the network and control transactions across objects.
Content Management. In addition to its primary focus on structured
data, our Application Server also provides a set of features to manage rich
content such as product catalogs, news articles, financial research,
documents, Adobe Acrobat PDF files, graphics, and photographs. These
features include full text retrieval, file upload/download, version control
and a powerful Hyper-Text Markup Language edit control written in Java.
These features allow developers to create Web applications such as
e-commerce sites and corporate portals that combine rich content with
transactions.
DATA ACCESS LAYER
The data access layer provides connectivity to multiple disparate data
sources. The SilverStream Application Server provides high performance drivers,
using industry standard Java Database Connectivity (JDBC), for relational
databases, including Oracle, DB/2, Sybase, Microsoft SQL Server, Informix and
others. For non-relational data sources, our Application Server provides an
architecture known as data source objects. Customers, partners and consultants
can write data source objects to connect to a wide range of data sources. To
simplify the creation of data source objects, we offer our Enterprise Data
Connectors that allow customers to easily create data source objects for SAP,
Lotus Notes and PeopleSoft. Our partners offer a wide range of additional
enterprise data connectors for data sources such as CICS, MQ Series, Tuxedo, Top
End and Encina.
ENTERPRISE DEPLOYMENT SERVICES
Enterprise-class Web applications, which consist of connectivity, business
logic and presentation, require the following attributes:
Scalability. The SilverStream Application Server utilizes a number of
techniques for improving the performance of a large computer system to
deliver very high performance and throughput across multiple processors in
a single server machine. Our Application Server also offers scalability
using load-balanced clusters of servers, which allows our customers to
handle increased load simply by adding more machines to the cluster.
Reliability. SilverStream's advanced failover capabilities are
designed to ensure that customers' applications remain operational even
when a server fails. SilverStream's session-level failover feature enables
users to continue operations uninterrupted with seamless recovery of their
transactional data even when the server to which they were previously
connected fails.
Manageability. The SilverStream management console provides a full
interface to monitor server performance, manage clusters, database
connections, security, and other settings. SilverStream provides a standard
network management protocol to interoperate with existing enterprise
systems management software such as Tivoli's TME, Computer Associates'
Unicenter, or Hewlett-Packard's OpenView. SilverStream's Application Server
allows an application to be updated without taking the server or cluster
down.
Security. Our product provides a complete set of features for
encryption, authentication and access control that are required to create
highly secure applications. In addition to providing its own
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<PAGE> 41
directory, our Application Server is also able to interface to directories
such as Windows NT, NIS+ and those that are standard Lightweight Directory
Access Protocol (LDAP) compliant.
INTEGRATED DEVELOPMENT TOOLS
SilverStream provides a rich set of development tools that are tightly
integrated with the functionality provided by the SilverStream Application
Server. These include several visual designers for Hyper-Text Markup Language
pages, Java applications, business objects and content management. Also included
are a programming editor, context sensitive help, a repository, a debugger and
facilities for integrating with popular source control products. SilverStream's
integrated development tools consist of the following graphical designers:
Page Designer. SilverStream development tools allow developers to
design their Hyper-Text Markup Language pages by writing either industry
standard Java Servlets, or using SilverStream's Page Designer which creates
Servlets graphically. SilverStream's Page Designer offers a visual, object-
oriented, event-driven programming model that makes the development of
data-driven dynamic pages far easier and faster than coding them manually.
Developers drag and drop elements onto a page from a tool palette, set
properties using a property sheet, and then define the behavior of the
elements by writing Java code that is executed at the server whenever an
event is generated (for example, when a user clicks a button). Unlike
competing alternatives that embed scripts inside Hyper-Text Markup Language
pages, this technique leverages the existing skills of developers who have
worked with products such as PowerBuilder or Visual Basic.
Form and View Designers. SilverStream provides a development
environment for generating graphic Java applications. The development
environment is similar to the Page Designer, with a common look and feel.
The Form Designer allows developers to build graphical forms, typically
displaying data. The View Designer is frequently used in conjunction with
the Form Designer to display data in a multi-row presentation.
Object Designer. The Object Designer allows developers to create
business logic written in Java, that will typically reside on the
application server and may be reused by other applications. These objects
may use any of the services offered by the SilverStream Application Server,
including connecting to data sources. They may also be triggered by events
like the receipt of an e-mail or a request to modify a specific piece of
data.
CUSTOMERS
Our customer base spans multiple industry segments. The following is a
representative list of our customers who have purchased a SilverStream
Application Server license. We do not intend the identification of these
customers to imply that these customers are actively endorsing or promoting our
products.
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<PAGE> 42
<TABLE>
<S> <C> <C>
COMMUNICATION MANUFACTURING TECHNOLOGY
Ameritech Fuji Photo Advanced Micro
MCI WorldCom Owens Illinois Devices
Raytheon Hewlett-Packard
Samsung Siebel Systems
StorageTek
MEDIA ENERGY TRANSPORTATION
TCI Communications ARCO Federal Express
The Walt Disney Conoco Southwest Airlines
Company Enron UPS
FINANCIAL SERVICES GOVERNMENT OTHER
Bankers Trust Federal Home Loan Bank AAA
Bank One of Atlanta Dupont
Citicorp Federal Reserve Bank InterContinental Hotels
J.P. Morgan of New York Polaroid
The Chicago Stock Internal Revenue Red Herring
Exchange Service Sears, Roebuck
Transamerica The United States Army
PHARMACEUTICAL
Johnson & Johnson
Pfizer
</TABLE>
Software license revenue from the customers listed above represented
approximately 23% of SilverStream's total software license revenue for the year
ended December 31, 1998 and approximately 10% of SilverStream's total software
license revenue for the six-month period ended June 30, 1999. We derive our
software license revenue from the sale of software product licenses. We do not
charge our customers based on frequency of use of our products.
The following case studies illustrate the challenges faced by
representative customers in deploying business applications and the benefits
derived from developing and deploying these applications using our Application
Server.
GLOBAL TRAVEL COMPANY
The travel agency industry has recently undergone changes due to reduced
commissions from airlines, hotels and rental car companies. To remain
competitive, a global travel company needed to be able to create rapidly many
travel product offerings while providing superior service through travel
agencies and via direct, self-service over the Internet. The company's
requirements included the maintenance of customer profiles in a relational
database, as well as access to a diverse set of airline, hotel and other
reservation systems. Travel agent experts needed to be able to perform the
complex transactions required to plan multi-leg trips, including air travel,
hotel, car rental and dinner and theater reservations.
The travel company selected the SilverStream Application Server and
deployed its Web-based application in two phases. In the first phase, the
company rolled out the application to its affiliated travel agencies.
SilverStream's connectivity features were used to maintain customer profiles and
access travel services. In the second phase, the company used SilverStream's
Hyper-Text Markup Language capability to provide a browser-based interface to
customers via the Internet. Because the company is able to provide access to a
diverse set of reservation systems and offer self-service to customers, we
believe the SilverStream Application Server enabled the company to provide more
efficient processing by travel agents and better customer service. Because the
company is able to rapidly create travel product offerings by using the
SilverStream Application Server, we believe the company is able to meet changing
market demands and to serve its customers more efficiently.
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<PAGE> 43
NATIONAL INSURANCE PROVIDER
An insurance company provides coverage through a network of thousands of
geographically dispersed independent agents. A claim goes through a complex
process inside the company, during which critical information is available to
agents only on a limited basis by telephone inquiry. The customer wanted to
streamline its claims-handling process by providing its agents direct access to
data and information, including daily claim status, claims adjusters' notes and
monthly account activity. However, the claim and account information was stored
in separate relational databases and agents had widely differing hardware and
software packages and platforms.
The customer used the SilverStream Application Server to build and deploy
an application in approximately five months. Agents now have broad access to
relevant, up-to-date information about individual claims and accounts, including
powerful search capabilities. The insurance company is enhancing the application
to give each agent access to all information and services relevant to such
agent's relationship with the company. Because the customer is able to allow its
nationwide network of agents to access relevant data and information easily and
securely, regardless of the user's computer and networking system and without
local administration, we believe the SilverStream Application Server enabled the
customer to reduce inefficiencies in its claims-handling process.
GLOBAL SUPPLIER OF COMPUTER STORAGE DEVICES
A supplier of computer storage devices provides a constantly changing
selection of thousands of sophisticated technology products. These products are
sold by hundreds of direct employees and thousands of distributors worldwide.
The answers to the distributors' many detailed questions were typically hard to
find or unavailable when needed. As part of a strategic growth initiative, the
customer needed to build a repository of support and marketing information that
could be easily accessed across the globe. The source of this information was
hundreds of sales and service employees, who created information about the
products in a broad variety of ways, ranging from data sheets to video clips.
The customer needed an application that would let employee "content creators"
easily place information in a repository in whatever form they wished and then
have that information easily accessible by distributors worldwide. These
distributors had a variety of abilities and had a diverse set of platforms.
The solution was to use SilverStream's products to build a content-rich,
intranet/extranet application. Employees can use an intranet application to
create and manage content. Using a thin Java client, that requires no local
administration, employees are able to find and select "documents," annotate
them, associate them with products and attach any kind of file, including
Microsoft Word or PowerPoint files or even video clips. Documents can be
prioritized, versioned and secured to limit access. The intranet application
also provides usage reports and allows for the specification of expiration
dates. Distributors, using a standard browser, can log in and search for desired
topics. Search requests can be extremely complex, using a variety of criteria,
and may return multiple, prioritized answers. The attached files may then be
viewed or downloaded. Because of these features, we believe this new repository
efficiently links a community of information providers and distributors with a
database that is expected to grow beyond a terabyte in the near future.
SALES, MARKETING AND DISTRIBUTION
We market our products through a worldwide combination of a direct sales
force, partners and distributors. As of June 30, 1999, our sales and marketing
organization consisted of 93 employees, of which:
- 31 are located in our headquarters in Burlington, Massachusetts,
- 29 are located in sales offices in North America, and
- 33 are located in sales offices in the United Kingdom, The Netherlands,
Belgium, Germany, Norway, the Czech Republic, Hong Kong, Singapore and
Taiwan.
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We have three types of partners that either sell, or help us sell, our
products:
- Value added reseller partners, or VAR partners, resell our products to
customers;
- Consulting partners introduce new potential customers to us and provide
consulting services to our customers; and
- Independent software vendor partners, or ISV partners, use our products
to create their own software products.
We enter into partnership agreements with our partners which include some
or all of the following terms and conditions:
- Term of agreement is generally one year with subsequent one-year
renewals;
- Grant of license to demonstrate, use and resell SilverStream products;
- Grant of license to include SilverStream products in partner products;
- Grant of license to use SilverStream trademarks;
- Payment to SilverStream of initial and annual partnership fees; and
- SilverStream product discounts for value added resellers and independent
software vendors.
We derive revenue from our partners as follows:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE APPROXIMATE
PERCENTAGE OF AGGREGATE PERCENTAGE OF
APPROXIMATE AGGREGATE TOTAL REVENUE REVENUE FOR TOTAL REVENUE FOR
TOTAL NUMBER REVENUE FOR FOR YEAR ENDED SIX MONTHS SIX MONTHS
AS OF YEAR ENDED DECEMBER 31, ENDED ENDED
TYPE OF PARTNER JUNE 30, 1999 DECEMBER 31, 1998 1998 JUNE 30, 1999 JUNE 30, 1999
--------------- ------------- --------------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
VAR partners.......... 86 $1,858,000 27% $1,552,000 20%
Consulting partners... 186 666,000 10 362,000 5
ISV partners.......... 27 123,000 2 502,000 6
</TABLE>
As of June 30, 1999, we had approximately 300 partners.
Our products are also sold in France, Japan, South Africa, South America
and Spain, through distributors who sell our products and provide consulting,
training and educational courses to customers in those countries. In Japan, our
distributor has translated our products into Kanji. Our products allow customers
to create applications in different languages.
We also have marketing relationships with other companies who have products
that work well with our products. Our SilverNet technology partners are
comprised of companies who have created commercial products which complement our
products or who market and sell these complementary products. As of June 30,
1999, we had 62 SilverNet technology partners, including Actuate, IBM,
PeopleSoft, Rational and SAP. We work with SilverNet partners to help make it
easier for customers to use our products with the SilverNet partners' products.
Our marketing programs are designed to attract potential customers so that
we, or one of our partners, can demonstrate our products directly to potential
customers. We hold many seminars, some with our partners, send out direct mail
and attend trade shows, and provide information about our company and our
products on our Web site. We also conduct public relations activities, including
interviews and demonstrations for industry analysts and product reviewers.
RESEARCH AND DEVELOPMENT
As of June 30, 1999, we had 50 employees responsible for product
development, quality assurance and documentation. Our research and development
organization is divided into five teams: server, client, application
development, quality assurance and documentation.
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<PAGE> 45
We are very focused on enhancing the scalability, performance and
reliability of our Application Server. Our quality assurance department has a
dedicated performance and tuning laboratory designed to improve the performance
of customers' Web-based applications. This laboratory has the ability to
simulate up to 12,000 simultaneous users communicating with SilverStream
Application Servers running on as many as 32 processors on a dedicated 100
megabits per second network.
We have made, and will continue to make, a substantial investment in
research and development. Research and development expenses were $2.6 million in
1997, $5.1 million in 1998 and $3.3 million in the first six months of 1999. All
of our software development costs have been expensed as incurred.
While we have developed, and expect to continue to develop, most new
products and enhancements to existing products internally, we have licensed
software technology from third parties.
COMPETITION
The market for application server software products is intensely
competitive, subject to rapid technological change and significantly affected by
new product introductions and other market activities of industry participants.
We expect competition to persist and intensify in the future. We encounter
current or potential competition from a number of sources, including:
- Vendors of application server products and services;
- Internally developed applications; and
- Companies that market business application software.
Our Application Server competes with application server products from other
vendors, including: IBM's WebSphere and Domino server solutions; Sun
Microsystems' NetDynamics and Netscape Application Server; Microsoft's Internet
Information Server, Active Server pages, Transaction Server and COM technology;
BEA Systems' Weblogic and Oracle's Application Server. In addition, we compete
with various methods of application distribution and management, including the
web browser, and with application server vendors and others that have introduced
software distribution capabilities into their products.
Potential competitors may bundle their products or incorporate an
application server component into existing products in a manner that discourages
users from purchasing our products. Furthermore, new competitors or alliances
among competitors may emerge and rapidly acquire significant market share. Our
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements than we can.
We believe the primary factors upon which we compete with vendors of
application server software and services are:
- Product performance and functionality;
- Ease of use of our products;
- Ability of our products to handle large volumes of users and
transactions;
- The extent to which our products adhere to industry standards;
- The ability of our products to run on computer hardware from various
manufacturers;
- The ability of our products to connect to various data sources;
- Price; and
- Customer service.
In addition, we believe our products and services provide improved
time-to-market and lower cost of ownership in comparison to in-house development
efforts.
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<PAGE> 46
PROPRIETARY RIGHTS AND LICENSING
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We rely on a combination of
patent, trademark, trade secret and copyright laws and contractual restrictions
to protect the proprietary aspects of our technology. These legal protections
afford only limited protection for our technology. We presently have five patent
applications pending in the United States. We cannot predict whether any of
these applications will result in any issued patents or, if patents are issued,
any meaningful protection. We seek to protect our source code for our software,
documentation and other written materials under trade secret and copyright laws.
We license our software pursuant to "shrinkwrap" and, in some cases, signed
license agreements, which impose restrictions on the licensee's ability to
utilize the software. Finally, we seek to limit disclosure of our intellectual
property by requiring employees and consultants with access to our proprietary
information to execute confidentiality agreements with us and by restricting
access to our source code. Due to rapid technological change, we believe that
factors such as the technological and creative skills of our personnel, new
product developments and enhancements to existing products are more important
than the various legal protections of our technology to establishing and
maintaining a technology leadership position.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult and while we are unable to determine the extent to which piracy of our
software exists, software piracy can be expected to be a persistent problem. In
addition, the laws of many countries do not protect our proprietary rights to as
great an extent as do the laws of the United States. Litigation may be necessary
in the future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of others
or to defend against claims of infringement or invalidity. Any such resulting
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, operating results and
financial condition. There can be no assurance that our means of protecting our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology. Any failure by us to meaningfully
protect our property could have a material adverse effect on our business,
operating results and financial condition.
There can be no assurance that third parties will not claim infringement
with respect to our current or future products. We expect that developers of
Web-based application software products will increasingly be subject to
infringement claims as the number of products and competitors in our industry
segment grows and as the functionality of products in different segments of the
software industry increasingly overlaps. Any such claims, with or without merit,
could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
us to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to us or at
all. A successful infringement claim against us and our failure or inability to
license the infringed rights or develop or license technology with comparable
functionality could have a material adverse effect on our business, financial
condition and operating results.
We integrate third-party software into our products. This third-party
software may not continue to be available on commercially reasonable terms.
Specifically, we license encryption technology from RSA Data Security under a
perpetual agreement that is terminable by either party upon default by the
other. RSA is the sole source of this technology and therefore the loss of this
license would seriously harm our business. In addition, if we cannot maintain
licenses to the other third-party software included in our products,
distribution of our products could be delayed until equivalent software could be
developed or licensed and integrated into our products, which could materially
adversely affect our business, operating results and financial condition.
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EMPLOYEES
As of June 30, 1999, we had a total of 231 employees of whom:
- 50 were in research and development;
- 93 were in sales and marketing;
- 65 were in customer service and support; and
- 23 were in finance and administration.
Our future success will depend in part on our ability to attract, retain
and motivate highly qualified technical and management personnel, for whom
competition is intense. Our employees are not represented by any collective
bargaining unit. We believe our relations with our employees are good.
PROPERTIES
Our headquarters are currently located in a leased facility in Burlington,
Massachusetts, consisting of approximately 40,000 square feet under a sublease
that expires in July 2000. We have also leased offices for sales and support
personnel in North America, Europe and Asia.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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<PAGE> 48
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of SilverStream and their ages and
positions as of May 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David R. Skok............................. 43 Chairman of the Board of Directors
David A. Litwack.......................... 52 President, Chief Executive Officer and Director
Peter E. Brumme........................... 49 Executive Vice President, Sales and Marketing
Craig A. Dynes............................ Vice President, Chief Financial Officer and
44 Treasurer
Arnold S. Epstein......................... 49 Vice President and Chief Technology Officer
Diane Gordon.............................. 40 Vice President, Customer Services
John W. Pearce............................ 45 Vice President, International Operations
Kim A. Sheffield.......................... 43 Vice President, Research and Development
Timothy Barrows........................... 42 Director
Richard A. D'Amore........................ 45 Director
Paul J. Severino.......................... 52 Director
</TABLE>
David R. Skok founded SilverStream and has served as our Chairman of the
Board of Directors since our inception and as our President and Chief Executive
Officer from May 1996 to November 1996. He also served as our Treasurer from May
1996 to June 1999. Before founding SilverStream, Mr. Skok founded Watermark
Software, a document management and imaging company, and served as its President
and Chief Executive Officer from January 1993 until June 1996, following its
acquisition by FileNet. From September 1990 to December 1994, Mr. Skok also
served as Chief Executive Officer of Xionics Document Technologies, Inc., a
document imaging company. Mr. Skok also currently serves as a director of
Xionics.
David A. Litwack has served as our President and Chief Executive Officer
since May 1997, and as a member of our Board of Directors since November 1996.
Before joining SilverStream, Mr. Litwack served as Executive Vice President of
Sybase Inc., an enterprise software company, from February 1995 to May 1997 and
as President of Powersoft Corporation, a client server development tools
company, from June 1991 to its acquisition by Sybase in February 1995. In
addition, Mr. Litwack is a director of Object Design, Inc., a data management
company.
Peter E. Brumme has served as our Executive Vice President, Sales and
Marketing since January 1999 and was our Chief Operating Officer from January
1997 to December 1998. Prior to joining SilverStream, Mr. Brumme served as Chief
Operating Officer of Watermark from July 1995 to December 1996 and as Senior
Vice President, Sales and Marketing from April 1993 to June 1995.
Craig A. Dynes has served as our Vice President and Chief Financial Officer
since July 1997 and as our Treasurer since June 1999. Prior to joining
SilverStream, Mr. Dynes served as Vice President of Finance, Products Group, of
Sybase from October 1996 to June 1997. Mr. Dynes served as Vice President of
Finance and Operations and Chief Financial Officer of Powersoft from August 1995
to October 1996, and as Chief Financial Officer of Watcom, a compiler software
company, from 1992 until July 1995, following its acquisition by Powersoft.
Arnold S. Epstein has served as our Vice President and Chief Technology
Officer since July 1996. Prior to joining SilverStream, Mr. Epstein served as
Chief Technical Officer of Watermark from March 1993 to June 1996.
Diane Gordon has served as our Vice President, Customer Services since
January 1999. Prior to joining SilverStream, Ms. Gordon served as Vice President
of Operations of Gartner Learning, an independent research company, from March
1997 to September 1998. From March 1991 to February 1997, Ms. Gordon served as
Director of Professional Services of Progress Software, a software company.
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<PAGE> 49
John W. Pearce has served as our Vice President, International Sales since
January 1997. He also served as our Chief Financial Officer from July 1996 to
July 1997. Prior to joining SilverStream, Mr. Pearce served as Vice President,
International Sales and Chief Financial Officer of Watermark from January 1993
to June 1996.
Kim A. Sheffield has served as our Vice President, Research and Development
since July 1996. Prior to joining SilverStream, Mr. Sheffield served as Vice
President of Research & Development, Powersoft Division of Sybase from February
1995 to June 1996. From 1988 to February 1995, Mr. Sheffield served in various
capacities with Powersoft including as Vice President of Engineering from July
1994 to February 1995.
Timothy Barrows has served as a director of SilverStream since July 1996.
Mr. Barrows has been a General Partner of Matrix Venture Partners since 1984.
Richard A. D'Amore has served as a director of SilverStream since July
1996. Mr. D'Amore has been a General Partner of North Bridge Venture Partners
since 1994. He is a director of Solectron Corporation, Veeco Instruments Inc.
and Xionics.
Paul J. Severino has served as a director of SilverStream since May 1999.
Mr. Severino has served as the Chairman of NetCentric Corporation, a provider of
Internet protocol telephony applications, since August 1997 and Chief Executive
Officer since February 1998. Prior to that, he served as NetCentric's Acting
Chief Executive Officer from August 1997 to February 1998. He is a founder of
Wellfleet Communications, Inc., a supplier of internetworking communication
products, where he served as Chairman of the Board from October 1986 to October
1994. From October 1994 to October 1996, he served as Chairman of BayNetworks
after its formation from the merger of Wellfleet and Synoptics. Mr. Severino is
also a director of Media 100 Inc. and MTDC (Massachusetts Telecommunications
Development Corporation).
Each executive officer serves at the discretion of the Board of Directors
and holds office until his or her successor is elected and qualified or until
his or her earlier resignation or removal. There are no family relationships
among any of the directors or executive officers of SilverStream. Each of the
directors serves on the Board of Directors pursuant to the terms of an agreement
that will terminate upon the closing of this offering.
ELECTION OF DIRECTORS
Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Messrs. Skok and Barrows will serve in the class whose term expires in 2000;
Messrs. Litwack and D'Amore will serve in the class whose term expires in 2001;
and Mr. Severino will serve in the class whose term expires in 2002. Upon the
expiration of the term of a class of directors, directors in such class will be
elected for three-year terms at the annual meeting of stockholders in the year
in which such term expires. This classification of the Board of Directors may
have the effect of delaying or preventing changes in control or management of
SilverStream.
COMPENSATION OF DIRECTORS
We reimburse directors for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors. We may, in our discretion, grant
stock options and other equity awards to our non-employee directors from time to
time pursuant to our 1997 Stock Incentive Plan. On April 30, 1999, we granted to
Paul J. Severino an option to purchase 25,000 shares of common stock at a per
share exercise price of $8.00 under our 1997 Stock Incentive Plan in connection
with his joining our Board. Mr. Severino's option was fully vested upon grant.
BOARD COMMITTEES
The Board of Directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee, which consists of Messrs. Barrows,
D'Amore and Severino, reviews executive
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<PAGE> 50
salaries, administers our bonus, incentive compensation and stock plans, and
approves the salaries and other benefits of our executive officers. In addition,
the Compensation Committee consults with our management regarding our benefit
plans and compensation policies and practices.
The Audit Committee, which consists of Messrs. Barrows, D'Amore and
Severino, reviews the professional services provided by our independent
accountants, the independence of such accountants from our management, our
annual financial statements and our system of internal accounting controls. The
Audit Committee also reviews such other matters with respect to our accounting,
auditing and financial reporting practices and procedures as it may find
appropriate or may be brought to its attention.
EXECUTIVE COMPENSATION
The table below sets forth, for the year ended December 31, 1998, the cash
compensation earned by (1) our Chairman of the Board, (2) our Chief Executive
Officer and (3) each of the four most highly compensated other executive
officers who received annual compensation in excess of $100,000, collectively
referred to below as the Named Executive Officers. In accordance with the rules
of the Securities and Exchange Commission the compensation set forth in the
table below does not include medical, group life or other benefits which are
available to all of our salaried employees, and perquisites and other benefits,
securities or property which do not exceed the lesser of $50,000 or 10% of the
person's salary and bonus shown in the table. In the table below, columns
required by the regulations of the Securities and Exchange Commission have been
omitted where no information was required to be disclosed under those columns.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)
- --------------------------- --------- --------
<S> <C> <C>
David R. Skok............................................... $120,000 $ 0
Chairman of the Board of Directors
David A. Litwack............................................ 120,000 0
President and Chief Executive Officer
Peter E. Brumme............................................. 125,000 20,000
Executive Vice President, Sales and Marketing
John W. Pearce.............................................. 125,000 20,000
Vice President, International Operations
Kim A. Sheffield............................................ 120,000 20,000
Vice President, Research and Development
Arnold S. Epstein........................................... 120,000 20,000
Vice President and Chief Technology Officer
</TABLE>
The Board of Directors awarded the cash bonuses to the members of senior
management as identified above in recognition of individual performance and the
achievement of company goals in 1998.
STOCK OPTIONS
We have not granted any stock options to our Named Executive Officers.
BENEFIT PLANS
1997 Stock Incentive Plan. Our 1997 Stock Incentive Plan provides for the
issuance of up to 3,500,000 shares of our common stock. The 1997 Stock Incentive
Plan provides for the grant of incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code, nonstatutory stock options, restricted
stock awards and other stock-based awards to our officers, employees, directors,
consultants and advisors.
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<PAGE> 51
Our Board of Directors has authorized the Compensation Committee to
administer the 1997 Stock Incentive Plan. The Compensation Committee selects the
recipients of awards and determines:
- The number of shares of common stock covered by options and the dates
upon which such options become exercisable;
- The exercise price of options;
- The duration of options; and
- The number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase
price.
In the event of a merger, liquidation or other acquisition event, our Board
of Directors is authorized to provide for outstanding awards to be assumed or
substituted for by the acquiror. If the acquiror refuses to assume or substitute
for outstanding awards, they will accelerate and become fully exercisable and
free of restrictions, prior to consummation of the acquisition event.
1996 Founders Stock Incentive Plan. Our 1996 Founders Stock Incentive Plan
authorized the issuance of up to 3,877,000 shares of our common stock. From May
1996 to April 1997, an aggregate of 3,775,031 shares of common stock was issued
under the plan pursuant to founders stock restriction agreements. As of June 30,
1999, an aggregate of 145,394 shares of common stock had been repurchased by
SilverStream pursuant to the terms of such agreements. No additional awards may
be made under the 1996 Founders Stock Incentive Plan.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan
provides for the issuance of up to 300,000 shares of our common stock to
participating employees.
All of our employees, including directors who are employees, and all
employees of any participating subsidiaries:
- Whose customary employment is more than 20 hours per week for more than
five months in a calendar year;
- Who were employed by us prior to July 1, 1999 for the first offering
period or for subsequent offering periods, who have been employed by us
for at least three months prior to enrolling; and
- Who are employed on the first day of a designated payroll deduction
offering period
are eligible to participate in the 1999 Employee Stock Purchase Plan. Employees
who would immediately after the grant own five percent or more of the total
combined voting power or value of our stock or any subsidiary are not eligible
to participate.
To participate in the 1999 Employee Stock Purchase Plan, an employee must
authorize us to deduct from one to ten percent of his or her base pay during the
offering period. The first offering period will commence on the first date of
trading of our common stock on the Nasdaq National Market. The purchase price of
the shares for the first offering period is 85% of the initial public offering
price or the closing price per share of the common stock on the last day of the
offering period, whichever is lower. The purchase price of the shares for the
subsequent offering periods is 85% of the closing price per share of the common
stock on either the first or last day of the offering period, whichever is
lower.
401(k) Plan. Our employee savings and retirement plan is qualified under
Section 401 of the Internal Revenue Code. Our employees may elect to reduce
their current compensation by up to the statutorily prescribed annual limit and
have the amount of such reduction contributed to the 401(k) plan. We may make
matching or additional contributions to the 401(k) plan in amounts to be
determined annually by our Board of Directors.
50
<PAGE> 52
CERTAIN TRANSACTIONS
PREFERRED STOCK ISSUANCES
Since our incorporation in May 1996, we have issued and sold shares of
preferred stock to the following persons and entities who are our executive
officers, directors or principal stockholders. For more detail on shares held by
these purchasers, see "Principal Stockholders" on page 52.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D AGGREGATE
PREFERRED PREFERRED PREFERRED PREFERRED PURCHASE
INVESTOR STOCK STOCK STOCK STOCK PRICE
- -------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
David R. Skok.............................. 930,000 159,475 56,948 52,632 $2,780,009
David A. Litwack........................... 930,000 178,238 38,185 52,632 2,715,277
Peter E. Brumme............................ -- 11,257 -- -- 60,000
John W. Pearce............................. -- 9,381 -- -- 50,001
Kim A. Sheffield........................... -- 9,381 -- -- 50,001
Arnold S. Epstein.......................... -- 11,257 -- -- 60,000
Craig A. Dynes............................. -- 9,381 -- -- 50,001
Matrix IV Management Co., L.P.(1).......... 870,000 375,235 113,896 134,210 5,145,004
North Bridge Venture Partners, L.P.(2)..... 870,000 375,235 113,896 105,263 4,870,008
Funds affiliated with Essex Investment
Management Co., LLC (3).................. -- -- 455,581 342,105 7,249,999
</TABLE>
- ------------
(1) Composed of Matrix Partners IV, L.P. and Matrix IV Entrepreneurs Fund, L.P.
Matrix IV Management Co., L.P. is the general partner of each of Matrix
Partners IV, L.P. and Matrix IV Entrepreneurs Fund, L.P. Timothy Barrows, a
director of SilverStream, is a general partner of Matrix IV Management Co.,
L.P.
(2) Richard A. D'Amore, a director of SilverStream, is a general partner of
North Bridge Venture Management L.P., which is the general partner of North
Bridge Venture Partners, L.P.
(3) Composed of Essex Performance Fund, L.P., Essex High Technology Fund, L.P.,
The New Discovery Fund Limited Ltd., Robertson Foundation and Essex Private
Placement Fund, Limited Partnership.
Series A Financing. On July 9, 1996, August 15, 1996 and November 4, 1996
we issued an aggregate of 3,683,050 shares of Series A preferred stock to six
investors, including David R. Skok, David A. Litwack, Matrix and North Bridge.
The per share purchase price for our Series A preferred stock was $1.00.
Series B Financing. On June 16, 1997 and September 12, 1997, we issued an
aggregate of 1,500,938 shares of Series B preferred stock to 21 investors,
including David R. Skok, David A. Litwack, Peter E. Brumme, John W. Pearce, Kim
A. Sheffield, Arnold E. Epstein, Craig A. Dynes, Matrix and North Bridge. The
per share purchase price for our Series B preferred stock was $5.33.
Series C Financing. On November 6, 1997, December 24, 1997 and March 30,
1998, we issued an aggregate of 1,922,588 shares of Series C preferred stock to
35 investors, including David R. Skok, David A. Litwack, Matrix, North Bridge
and Essex. The per share purchase price for our Series C preferred stock was
$8.78.
Series D Financing. On March 1, 1999, April 9, 1999, April 14, 1999 and
May 27, 1999, we issued an aggregate of 1,552,632 shares of Series D preferred
stock to 25 investors, including David R. Skok, David A. Litwack, Matrix, North
Bridge and Essex. The per share purchase price for our Series D preferred stock
was $9.50.
51
<PAGE> 53
COMMON STOCK ISSUANCES
The following table presents selected information regarding our issuances
of common stock to our executive officers. On May 8, 1996, in connection with
our incorporation, we issued an aggregate of 1,000 shares of common stock to
David R. Skok. We issued the remaining shares of common stock pursuant to
founders stock restriction agreements with each of the executive officers which
give us rights to repurchase all or a portion of the shares at their purchase
price in the event that the executive officer ceases to be employed by us. Each
of the shares issued in 1996 had a purchase price of $.001 per share. Each of
the shares issued in 1997 had a purchase price of $.50 per share.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER DATE OF ISSUANCE NUMBER OF SHARES
- ----------------- ---------------- ----------------
<S> <C> <C>
David R. Skok............................................... 05/08/96 1,000
07/09/96 1,122,000
David A. Litwack............................................ 11/04/96 1,123,000
Peter E. Brumme............................................. 11/12/96 564,850
John W. Pearce.............................................. 08/16/96 347,600
Kim A. Sheffield............................................ 08/16/96 347,600
Arnold S. Epstein........................................... 08/16/96 451,880
Craig A. Dynes.............................................. 11/02/97 70,000
</TABLE>
STOCK OPTION GRANTS
On March 1, 1999, we granted to Diane Gordon, our Vice President, Customer
Services, an option to purchase 40,000 shares of common stock at a per share
exercise price of $4.00 under our 1997 Stock Incentive Plan. Ms. Gordon's option
shall vest 25% on January 4, 2000 and then quarterly for four years.
On April 30, 1999, we granted to Craig A. Dynes, our Vice President, Chief
Financial Officer and Treasurer, an option to purchase 10,000 shares of common
stock at a per share exercise price of $8.00 under our 1997 Stock Incentive
Plan. Mr. Dynes' option shall vest 20% on April 30, 2000 and then quarterly for
four years.
On April 30, 1999, we granted to Diane Gordon an option to purchase 5,000
shares of common stock at a per share exercise price of $8.00 under our 1997
Stock Incentive Plan. Ms. Gordon's option shall vest 20% on April 30, 2000 and
then quarterly for four years.
On April 30, 1999, we granted to Paul J. Severino an option to purchase
25,000 shares of common stock at a per share exercise price of $8.00 under our
1997 Stock Incentive Plan in connection with his joining our Board. Mr.
Severino's options were fully vested upon grant.
------------------------
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. SilverStream agreed to the material terms of each of the preferred
stock issuances set forth above after arms'-length negotiations with previously
unaffiliated persons. All future transactions, including loans between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested directors on the Board of Directors, and will
continue to be on terms no less favorable to us than could be obtained from
unaffiliated third parties.
52
<PAGE> 54
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of May 31, 1999, and as adjusted to reflect the sale of
the shares of common stock in this offering, by:
- Each person who owns beneficially more than 5% of the outstanding shares
of our common stock;
- Each of our directors and the Named Executive Officers; and
- All of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting or investment power with
respect to shares. Shares of common stock issuable under stock options that are
exercisable within 60 days after May 31, 1999 are deemed outstanding for
computing the percentage ownership of the person holding the options but are not
deemed outstanding for computing the percentage ownership of any other person.
Unless otherwise indicated below, to our knowledge, all persons named in the
table have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
applicable law. Unless otherwise indicated, the address of each person owning
more than 5% of the outstanding shares of common stock is c/o SilverStream
Software, Inc., One Burlington Woods, Suite 200, Burlington, Massachusetts
01803.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON
STOCK OUTSTANDING
--------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
Matrix IV Management Co., L.P.(1)......................... 1,493,341 10.7% 9.2%
1000 Winter Street, Suite 4500
Waltham, MA 02154
North Bridge Venture Partners, L.P........................ 1,464,394 10.5 9.0
950 Winter Street, Suite 4600
Waltham, MA 02154
Funds affiliated with Essex Investment Management Co.,
LLC(2).................................................. 797,686 5.7 4.9
125 High Street
Boston, MA 02110-2702
David R. Skok(3).......................................... 2,322,055 16.7 14.2
David A. Litwack(4)....................................... 2,312,055 16.6 14.2
Peter E. Brumme........................................... 576,107 4.1 3.5
John W. Pearce............................................ 356,981 2.6 2.2
Kim A. Sheffield.......................................... 356,981 2.6 2.2
Arnold S. Epstein......................................... 453,757 3.2 2.8
Timothy Barrows(1)........................................ 1,493,341 10.7 9.2
c/o Matrix IV Management Co., L.P.
1000 Winter Street, Suite 4500
Waltham, MA 02154
Richard A. D'Amore(5)..................................... 1,464,394 10.5 9.0
c/o North Bridge Venture Partners, L.P.
950 Winter Street, Suite 4600
Waltham, MA 02154
Paul J. Severino(6)....................................... 25,000 * *
All executive officers and directors as a group (11
persons)(7)............................................... 9,440,052 67.5 57.8
</TABLE>
- ------------
* Less than 1% of the outstanding common stock.
(1) Composed of 1,418,674 shares held by Matrix Partners IV, L.P. and 74,667
shares held by Matrix IV Entrepreneurs Fund, L.P. Matrix IV Management Co.,
L.P. is the general partner of each of Matrix Partners IV, L.P. and Matrix
IV Entrepreneurs Fund, L.P. Mr. Barrows, a director of SilverStream, is
53
<PAGE> 55
a general partner of Matrix IV Management Co., L.P. Mr. Barrows disclaims
beneficial ownership of the shares held by Matrix Partners IV, L.P. and
Matrix IV Entrepreneurs Fund, L.P. except to the extent of his pecuniary
interests therein arising from his general partnership interest in Matrix IV
Management Co., L.P.
(2) Composed of 192,417 shares held by Essex Performance Fund, L.P., 192,417
shares held by Essex High Technology Fund, L.P., 96,178 shares held by The
New Discovery Fund Limited Ltd., 32,099 shares held by Robertson Foundation,
and 284,575 shares held by Essex Private Placement Fund, Limited
Partnership. Essex Investment Management Co., LLC acts as investment advisor
to each of the foregoing entities. Joseph C. McNay is the Principal and
Chief Investment Officer of Essex Investment Management Co., LLC and has
voting and investment power with respect to such shares.
(3) Includes 1,000,000 shares held by the David R. Skok Irrevocable Trust and
100,000 shares held by the David R. Skok 1997 Irrevocable Family Trust.
(4) Includes 1,123,000 shares held by the Litwack Irrevocable Trust.
(5) Consists of 1,464,394 shares held by North Bridge Venture Partners, L.P. Mr.
D'Amore, a director of SilverStream, is a general partner of North Bridge
Venture Management L.P., which is the general partner of North Bridge
Venture Partners, L.P. Mr. D'Amore disclaims beneficial ownership of the
shares held by North Bridge Venture Partners, L.P. except to the extent of
his pecuniary interests therein arising from his general partnership
interests in North Bridge Venture Management, L.P.
(6) Consists of 25,000 shares of common stock issuable upon the exercise of
fully vested stock options.
(7) Includes 25,000 shares of common stock issuable upon the exercise of fully
vested stock options.
54
<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
After this offering, the authorized capital stock of SilverStream will
consist of 100,000,000 shares of common stock, $.001 par value per share, and
2,000,000 shares of preferred stock, $.001 par value per share. As of June 30,
1999, there were outstanding:
- 5,320,208 shares of common stock held by 78 stockholders of record;
- 8,659,208 shares of convertible preferred stock held by 72 stockholders
of record; and
- Options to purchase an aggregate of 1,401,192 shares of common stock.
There will be 16,312,749 shares of common stock outstanding upon the
closing of this offering.
The following summary is not intended to be complete and is qualified by
reference to the provisions of applicable law and to our amended and restated
certificate of incorporation and amended and restated bylaws included as
exhibits to the Registration Statement of which this prospectus is a part.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held on
matters submitted to a vote of stockholders. Holders of our common stock do not
have cumulative voting rights. Accordingly, holders of a majority of the shares
of common stock entitled to vote in any election of directors may elect all of
the directors standing for election. Holders of common stock are entitled to
receive their proportionate share of any dividends declared by the Board of
Directors, subject to any preferential dividend rights of outstanding preferred
stock. Upon the liquidation, dissolution or winding up of SilverStream, the
holders of common stock are entitled to receive ratably the net assets of
SilverStream available after the payment of all debts and other liabilities and
subject to the prior rights of any outstanding preferred stock. The common stock
has no preemptive, subscription, redemption or conversion rights. All
outstanding shares of common stock are fully paid and nonassessable. The shares
offered by SilverStream in this offering will be fully paid and nonassessable.
The rights, preferences and privileges of the common stock are subject to the
rights of the holders of shares of any series of preferred stock which
SilverStream may designate and issue in the future.
PREFERRED STOCK
Our Board of Directors will be authorized to issue shares of preferred
stock in one or more series without stockholder approval. The Board will have
discretion to determine the rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences of each series of preferred stock.
The purpose of authorizing the Board of Directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The Board's ability to issue preferred
stock will provide desirable flexibility in connection with possible
acquisitions and other corporate purposes. However, this ability could make it
more difficult for a third party to acquire, or could discourage a third party
from acquiring, a majority of the outstanding voting stock of SilverStream. The
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock. SilverStream has no
present plans to issue any shares of preferred stock.
DELAWARE LAW AND OUR CHARTER AND BY-LAW PROVISIONS; ANTI-TAKEOVER EFFECTS
SilverStream is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for three years after the date of the transaction in which the
person became an interested stockholder, unless the business combination is
approved in a prescribed manner. A "business combination" includes mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years did own, 15% or more
of the corporation's voting stock.
55
<PAGE> 57
SilverStream's certificate of incorporation and by-laws to be effective on
the closing of this offering provide:
- That the Board of Directors be divided into three classes, as nearly
equal in size as possible, with staggered three-year terms;
- That directors may be removed only for cause by the vote of the holders
of at least 75% of the shares of our capital stock entitled to vote; and
- That any vacancy on the Board of Directors, however occurring, including
a vacancy resulting from an enlargement of the Board, may only be filled
by vote of a majority of the directors then in office.
The classification of the Board of Directors and the limitations on the
removal of directors and filling of vacancies could make it more difficult for a
third party to acquire, or discourage a third party from acquiring,
SilverStream.
The certificate of incorporation and by-laws to be effective on the closing
of this offering also provide that, after the closing of this offering:
- Any action required or permitted to be taken by the stockholders at an
annual meeting or special meeting of stockholders may only be taken if it
is properly brought before such meeting and may not be taken by written
action in lieu of a meeting; and
- Special meetings of the stockholders may only be called by the Chairman
of the Board of Directors, the President, or by the Board of Directors.
Our by-laws will also provide that, in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply
with requirements regarding advance notice to us.
These provisions could delay until the next stockholders' meeting actions
which are favored by the holders of a majority of our outstanding voting
securities. These provisions may also discourage another person or entity from
making a tender offer for our common stock, because such person or entity, even
if it acquired a majority of our outstanding voting securities, would be able to
take action as a stockholder only at a duly called stockholders' meeting, and
not by written consent.
Delaware law provides that the vote of a majority of the shares entitled to
vote on any matter is required to amend a corporation's certificate of
incorporation or by-laws, unless a corporation's certificate of incorporation or
by-laws, as the case may be, requires a greater percentage. Our certificate of
incorporation requires the affirmative vote of the holders of at least 75% of
the shares of our capital stock entitled to vote to amend or repeal any of the
foregoing provisions of our certificate of incorporation. Generally, our by-laws
may be amended or repealed by a majority vote of the Board of Directors or the
holders of a majority of the shares of our capital stock issued and outstanding
and entitled to vote. Changes to our by-laws regarding special meetings of
stockholders, written actions of stockholders in lieu of a meeting, and the
election, removal and classification of members of the Board of Directors
requires the affirmative vote of the holders of at least 75% of the shares of
our capital stock entitled to vote. The stockholder vote would be in addition to
any separate class vote that might in the future be required pursuant to the
terms of any series preferred stock that might be then outstanding.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation provides that our directors and officers
shall be indemnified by us to the fullest extent authorized by Delaware law.
This indemnification covers all expenses and liabilities reasonably incurred in
connection with their services for or on behalf of us. In addition, our
certificate of incorporation provides that our directors will not be personally
liable for monetary damages to us for breaches of their fiduciary duty as
directors, unless they violated their duty of loyalty to us or our stockholders,
acted in bad faith, knowingly or intentionally violated the law, authorized
illegal dividends or redemptions or derived an improper personal benefit from
their action as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.
56
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based on the number of shares outstanding
at June 30, 1999, we will have 16,312,749 shares of common stock outstanding,
assuming no exercise of outstanding options. Of these shares, the 2,333,333
shares to be sold in this offering will be freely tradable without restriction
or further registration under the Securities Act except that any shares
purchased by our affiliates, as that term is defined in Rule 144 under the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 described below. The remaining 13,979,416 shares of common stock are
"restricted securities" under Rule 144. Generally, restricted securities that
have been owned for at least two years may be sold immediately after the
completion of this offering and restricted securities that have been owned for
at least one year may be sold 90 days after the completion of this offering.
SALES OF RESTRICTED SHARES
In general, under Rule 144 stockholders, including our affiliates, who have
beneficially owned shares for at least one year are entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of
one percent of the then outstanding shares of common stock or the average weekly
trading volume in the common stock on the Nasdaq National Market during the four
calendar weeks preceding the date on which notice of such sale is filed,
provided requirements concerning availability of public information, manner of
sale and notice of sale are satisfied. In addition, our affiliates must comply
with the restrictions and requirements of Rule 144, other than the one-year
holding period requirement, in order to sell shares of common stock which are
not restricted securities.
Under Rule 144(k), a stockholder who is not an affiliate and has not been
an affiliate for at least three months prior to the sale and who has
beneficially owned shares for at least two years may sell such shares without
compliance with the foregoing requirements. In meeting the holding periods
described above, a stockholder can include the holding periods of a prior owner
who was not an affiliate. The holding periods described above do not begin until
the full purchase price or other consideration is paid by the stockholder. Rule
701 provides that currently outstanding shares of common stock acquired under
our employee compensation plans may be sold beginning 90 days after the date of
this prospectus (1) by stockholders other than affiliates subject only to the
manner of sale provisions of Rule 144, and (2) by affiliates under Rule 144
without compliance with its one-year holding period requirement.
STOCK OPTIONS
At June 30, 1999, approximately 217,800 shares of common stock were
issuable pursuant to vested options granted under our 1997 Stock Incentive Plan,
all of which are subject to lock-up agreements with the underwriters.
We intend to file a registration statement on Form S-8 under the Securities
Act within 180 days after the date of this prospectus, to register up to
3,069,059 shares of common stock issuable under our 1997 Stock Incentive Plan,
including the 1,401,192 shares of common stock subject to outstanding options as
of June 30, 1999. This registration statement is expected to become effective
upon filing.
LOCK-UP AGREEMENTS
SilverStream and our executive officers, directors and other
securityholders have entered into lock-up agreements with the underwriters.
Without the prior written consent of Morgan Stanley & Co. Incorporated, none of
us will sell or transfer shares of common stock during the period ending 180
days after the date of this prospectus. Up to 116,666 shares purchased pursuant
to the directed share program are not subject to the lock-up agreement. In
addition, for a period of 180 days from the date of this prospectus, except as
required by law, we have agreed not to consent to any offer for sale, sale or
other disposition, or any transaction which is designed or could be expected, to
result in, the disposition by any person, directly or indirectly, of any shares
of common stock without the prior written consent of Morgan Stanley & Co.
Incorporated except that we may, without such consent, grant options and sell
shares pursuant to our stock plans.
57
<PAGE> 59
REGISTRATION RIGHTS
After this offering, the holders of approximately 10,905,208 shares of
common stock will be entitled to rights with respect to the registration of such
shares under the Securities Act. If we propose to register any of our securities
under the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include shares of common stock.
Additionally, such holders are also entitled to demand registration rights
pursuant to which they may require us on up to two occasions to file a
registration statement under the Securities Act at our expense. We are required
to use our best efforts to effect any such registration. Further, holders may
require us to file an unlimited number of additional registration statements on
Form S-3 at our expense. All of these registration rights are subject to the
right of the underwriters of an offering to limit the number of shares included
in such registration and our right not to effect a requested registration within
180 days following an offering of our securities pursuant to a Form S-1,
including the offering made hereby.
58
<PAGE> 60
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, BancBoston Robertson Stephens Inc. and SG Cowen Securities
Corporation are acting as representatives, have severally agreed to purchase,
and SilverStream has agreed to sell to the underwriters, the respective number
of shares of common stock set forth opposite the names of the underwriters
below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ----------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
BancBoston Robertson Stephens Inc. .........................
SG Cowen Securities Corporation.............................
----------
Total............................................. 2,333,333
==========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered in this offering are
subject to the approval of legal matters by their counsel. The underwriters are
obligated to take and pay for all of the shares of common stock offered in this
offering, other than those covered by the over-allotment option described below,
if any such shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to dealers at a price that represents a
concession not in excess of $ a share under the public offering price.
Any underwriters may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to other dealers. After
the initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives of the
underwriters.
SilverStream has granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to an aggregate of 350,000
additional shares of common stock at the public offering price set forth on the
cover page of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered in this offering. To the extent such option is exercised,
each underwriter will become obligated to purchase approximately the same
percentage of such additional shares of common stock as the number set forth
next to such underwriter's name in the preceding table bears to the total number
of shares of common stock set forth next to the names of all underwriters in the
preceding table. If the underwriter's over-allotment option is exercised in
full, the total price to public would be $ , the total underwriters'
discounts and commissions would be $ , and the total proceeds to us
would be $ .
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 116,666 of the shares of common stock offered in
this offering for our directors, officers, employees and related persons.
Individuals purchasing these shares must have a retail account with Morgan
Stanley & Co. Incorporated and must commit to the purchase of these shares
within one day after the date of this prospectus. The number of shares of common
stock available for sale to the general public will be reduced to the extent
such individuals purchase such reserved shares. Any reserved shares which are
not so purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered hereby.
SilverStream, our directors and executive officers and other
securityholders have each agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters,
58
<PAGE> 61
during the period ending 180 days after the date of this prospectus, he, she or
it will not directly or indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock,
whether any such transaction described above is to be settled by delivery of
common stock or such other securities, in cash or otherwise.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have applied to list our common stock on the Nasdaq National Market
under the symbol "SSSW."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases previously
distributed shares of common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against
liabilities in connection with this offering, including liabilities under the
Securities Act.
In March, April and May 1999, we sold shares of our Series D Preferred
Stock in a private placement. In this private placement, a fund invested in by
entities affiliated with Morgan Stanley & Co. Incorporated purchased 105,263
shares of Series D Preferred Stock, which are convertible into 105,263 shares of
common stock, for approximately $1,000,000, or $9.50 per share. The fund
purchased these shares on the same terms as the other investors in the private
placement.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the initial public offering price for the shares of
common stock will be determined by negotiations between SilverStream and the
representatives of the underwriters. Among the factors to be considered in
determining the initial public offering price will be:
- our record of operations, our current financial position and future
prospects;
- the experience of our management;
- sales, earnings and other financial and operating information in recent
periods; and
- the price-earnings ratios, price-sales ratios, market prices of
securities and financial and operating information of companies engaged
in activities similar to ours.
The estimated initial public offering price range set forth on the cover page of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
59
<PAGE> 62
LEGAL MATTERS
The validity of the shares of common stock we are offering will be passed
upon for us by Hale and Dorr LLP, Boston, Massachusetts. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1997 and 1998, and for the
period ended December 31, 1996 and each of the two years in the period ended
December 31, 1998, as set forth in their report. We have included our financial
statements and schedule in this prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
we propose to sell in this offering. This prospectus, which is a part of the
registration statement, does not contain all of the information set forth in the
registration statement. For further information about us and the common stock we
propose to sell in this offering, we refer you to the registration statement and
the exhibits and schedules filed as a part of the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document filed as an exhibit to the registration statement are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to the copy of the contract or document
that has been filed. The registration statement, including exhibits, may be
inspected without charge at the principal office of the Securities and Exchange
Commission in Washington, D.C. and copies of all or any part of which may be
inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Room 1024, Washington, D.C. 20549, and at the Commission's regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can also be obtained at prescribed rates by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
public reference room by calling the Commission at 1-800-SEC-0330. In addition,
the Securities and Exchange Commission maintains a website at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission.
60
<PAGE> 63
SILVERSTREAM SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Redeemable Convertible
Preferred Stock and Stockholders' Equity (Deficit)........ F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SilverStream Software, Inc.
We have audited the accompanying consolidated balance sheets of
SilverStream Software, Inc. (the Company) as of December 31, 1997 and 1998, and
the related consolidated statements of operations, redeemable convertible
preferred stock and stockholders' equity (deficit), and cash flows for the
period May 8, 1996 (inception) through December 31, 1996 and the years ended
December 31, 1997 and 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SilverStream
Software, Inc. at December 31, 1997 and 1998, and the consolidated results of
its operations and its cash flows for the period May 8, 1996 (inception) through
December 31, 1996 and the years ended December 31, 1997 and 1998, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
--------------------------------------
Boston, Massachusetts
March 5, 1999, except for Note 13,
as to which the date is June 23, 1999
F-2
<PAGE> 65
SILVERSTREAM SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $16,649,341 $ 1,198,584 $10,777,706 $10,777,706
Marketable securities................................... -- 3,330,603 246,690 246,690
Accounts receivable; net of allowance for doubtful
accounts of $26,900 at December 31, 1997, $244,733 at
December 31, 1998, and $417,699 at June 30, 1999...... 211,015 3,570,927 6,273,831 6,273,831
Prepaid expenses........................................ 317,250 247,413 3,310 3,310
Other................................................... 267,754 100,930 577,122 577,122
----------- ----------- ----------- -----------
Total current assets............................. 17,445,360 8,448,457 17,878,659 17,878,659
Furniture, equipment and leasehold improvements, net...... 1,528,155 1,796,346 2,323,845 2,323,845
Intangibles, (net)........................................ -- -- 735,273 735,273
----------- ----------- ----------- -----------
Total assets..................................... $18,973,515 $10,244,803 $20,937,777 $20,937,777
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................ $ 746,413 $ 1,176,190 $ 2,638,400 $ 2,638,400
Accrued expenses........................................ -- 654,009 1,882,765 1,882,765
Deferred revenue........................................ 37,087 1,063,658 2,416,690 2,416,690
Current portion of long-term debt....................... 313,210 435,820 502,168 502,168
----------- ----------- ----------- -----------
Total current liabilities........................ 1,096,710 3,329,677 7,440,023 7,440,023
Long-term debt, less current portion...................... 294,727 324,787 681,783 681,783
Commitments and contingencies............................. -- -- -- --
Redeemable convertible preferred stock:
Series A redeemable convertible preferred stock, $.001
par value -- authorized, issued and outstanding
3,683,050 (liquidation preference $3,683,050)......... 3,658,050 3,658,050 3,658,050 --
Series B redeemable convertible preferred stock, $.001
par value -- authorized 1,600,000 shares; issued and
outstanding 1,500,938 (liquidation preference
$8,000,000)........................................... 7,980,000 7,980,000 7,980,000 --
Stockholders' equity (deficit):
Series C convertible preferred stock, $.001 par value --
authorized 2,000,000 shares; issued and outstanding
1,728,283 at December 31, 1997 and 1,922,588 at
December 31, 1998 and June 30, 1999, respectively
(liquidation preference $16,880,323).................. 15,154,325 16,856,323 16,856,323 --
Series D convertible preferred stock, $.001 par value --
authorized 1,600,000 shares; issued and outstanding
1,552,632 at June 30, 1999 (liquidation preference
$12,475,001) (unaudited).............................. -- -- 14,727,997 --
Common stock, $.001 par value -- authorized 21,000,000
shares; issued and outstanding 5,086,391 at December
31, 1997, 5,206,779 at December 31, 1998, 5,320,208 at
June 30, 1999 (unaudited) and 13,979,416 at June 30,
1999 (pro forma)...................................... 5,086 5,207 5,320 13,979
Additional paid-in capital.............................. 174,796 365,985 1,088,534 44,302,245
Accumulated deficit..................................... (9,286,679) (22,171,726) (31,323,518) (31,323,518)
Other comprehensive loss................................ -- -- (73,235) (73,235)
Notes receivable from stockholders...................... (103,500) (103,500) (103,500) (103,500)
----------- ----------- ----------- -----------
Total stockholders' equity (deficit)............. 5,944,028 (5,047,711) 1,177,921 12,815,971
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity
(deficit)...................................... $18,973,515 $10,244,803 $20,937,777 $20,937,777
=========== =========== =========== ===========
</TABLE>
See accompanying notes
F-3
<PAGE> 66
SILVERSTREAM SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 YEARS ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------- -------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software license.................... $ -- $ 248,524 $ 5,982,534 $ 1,526,718 $ 5,515,280
Services............................ -- -- 825,365 217,371 2,267,159
----------- ----------- ------------ ----------- -----------
Total revenue............... -- 248,524 6,807,899 1,744,089 7,782,439
Cost of revenue:
Software license.................... -- 89,997 695,225 202,213 587,399
Services............................ -- 281,796 1,413,962 519,033 3,166,726
----------- ----------- ------------ ----------- -----------
Total cost of revenue....... -- 371,793 2,109,187 721,246 3,754,125
----------- ----------- ------------ ----------- -----------
Gross profit (loss)................... -- (123,269) 4,698,712 1,022,843 4,028,314
Operating expenses:
Sales and marketing................. 34,532 3,853,766 10,848,396 4,453,760 8,356,392
Research and development............ 849,868 2,622,200 5,069,465 2,429,214 3,341,916
General and administrative.......... 120,398 1,961,205 2,141,187 993,326 1,659,914
----------- ----------- ------------ ----------- -----------
Total operating expenses.... 1,004,798 8,437,171 18,059,048 7,876,300 13,358,222
----------- ----------- ------------ ----------- -----------
Loss from operations.................. (1,004,798) (8,560,440) (13,360,336) (6,853,457) (9,329,908)
Interest income....................... 53,214 274,331 559,495 295,396 281,104
Interest expense...................... -- (48,986) (84,206) (43,409) (102,988)
----------- ----------- ------------ ----------- -----------
Net loss.............................. $ (951,584) $(8,335,095) $(12,885,047) $(6,601,470) $(9,151,792)
=========== =========== ============ =========== ===========
Basic and diluted net loss per
share:.............................. $ (.41) $ (1.65) $ (2.52) $ (1.29) $ (1.75)
=========== =========== ============ =========== ===========
Weighted-average common shares used in
computing basic and diluted net loss
per share:.......................... 2,322,605 5,065,356 5,122,480 5,109,286 5,230,455
=========== =========== ============ =========== ===========
Pro forma basic and diluted net loss
per share........................... $ (1.06) $ (.69)
============ ===========
Weighted-average common shares used in
computing pro forma basic and
diluted net loss per share.......... 12,181,677 13,297,354
============ ===========
</TABLE>
See accompanying notes
F-4
<PAGE> 67
SILVERSTREAM SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ----------------------- --------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES PAR VALUE CAPITAL DEFICIT
------ ------ ------ ------ ------ --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
in May, July, August
and November 1996...... 4,639,367 $4,639
Issuance of Series A
preferred stock in
July, August and
November 1996 (net of
issuance costs of
$25,000)............... 3,683,050 $ 3,658,050
Net loss................ $ (951,584)
--------- ----------- --------- ----------- --------- ------ ---------- ------------
Balance at December 31,
1996................... 3,683,050 3,658,050 4,639,367 4,639 (951,584)
Issuance of common stock
in April, August,
November and December
1997................... 577,914 578 $ 174,796
Issuance of Series B
preferred stock in June
and September 1997 (net
of issuance costs of
$20,000)............... 1,500,938 7,980,000
Note issued for purchase
of common stock in
August 1997............
Repurchase and
retirement of common
stock in February and
October 1997........... (130,890) (131)
Issuance of Series C
preferred stock in
November and December
(net of issuance costs
of $20,000)............ 1,728,283 $15,154,325
Net loss................ (8,335,095)
--------- ----------- --------- ----------- --------- ------ ---------- ------------
Balance at December 31,
1997................... 5,183,988 11,638,050 1,728,283 15,154,325 5,086,391 5,086 174,796 (9,286,679)
Issuance of common stock
in January and December
1998................... 64,863 65 181,887
Issuance of Series C
preferred stock in
March 1998 (net of
issuance costs of
$4,000)................ 194,305 1,701,998
Exercise of stock
options in June through
December 1998.......... 55,525 56 9,302
Net loss................ (12,885,047)
--------- ----------- --------- ----------- --------- ------ ---------- ------------
Balance at December 31,
1998................... 5,183,988 11,638,050 1,922,588 16,856,323 5,206,779 5,207 365,985 (22,171,726)
Issuance of Series D
preferred stock in
March, April and May
1999 (net of issuance
costs of $22,000)
(unaudited)............ 1,552,632 14,727,997
Repurchase and
retirement of common
stock in March 1999
(unaudited)............ (10,754) (11)
Exercise of stock
options in March 1999
(unaudited)............ 54,683 54 27,619
Issuance of common stock
in June 1999........... 69,500 70 694,930
Net loss (unaudited).... (9,151,792)
Currency translation
adjustment
(unaudited)............
Comprehensive loss......
--------- ----------- --------- ----------- --------- ------ ---------- ------------
Balance at June 30,
1999................... 5,183,988 $11,638,050 3,475,220 $31,584,320 5,320,208 $5,320 $1,088,534 $(31,323,518)
========= =========== ========= =========== ========= ====== ========== ============
<CAPTION>
OTHER NOTES TOTAL
COMPREHENSIVE RECEIVABLE STOCKHOLDERS'
INCOME FROM SALE EQUITY
(LOSS) OF STOCK (DEFICIT)
------------- ---------- -------------
<S> <C> <C> <C>
Issuance of common stock
in May, July, August
and November 1996...... $ 4,639
Issuance of Series A
preferred stock in
July, August and
November 1996 (net of
issuance costs of
$25,000)...............
Net loss................ (951,584)
-------- --------- ------------
Balance at December 31,
1996................... (946,945)
Issuance of common stock
in April, August,
November and December
1997................... 175,374
Issuance of Series B
preferred stock in June
and September 1997 (net
of issuance costs of
$20,000)...............
Note issued for purchase
of common stock in
August 1997............ $(103,500) (103,500)
Repurchase and
retirement of common
stock in February and
October 1997........... (131)
Issuance of Series C
preferred stock in
November and December
(net of issuance costs
of $20,000)............ 15,154,325
Net loss................ (8,335,095)
-------- --------- ------------
Balance at December 31,
1997................... (103,500) 5,944,028
Issuance of common stock
in January and December
1998................... 181,952
Issuance of Series C
preferred stock in
March 1998 (net of
issuance costs of
$4,000)................ 1,701,998
Exercise of stock
options in June through
December 1998.......... 9,358
Net loss................ (12,885,047)
-------- --------- ------------
Balance at December 31,
1998................... (103,500) (5,047,711)
Issuance of Series D
preferred stock in
March, April and May
1999 (net of issuance
costs of $22,000)
(unaudited)............ 14,727,997
Repurchase and
retirement of common
stock in March 1999
(unaudited)............ (11)
Exercise of stock
options in March 1999
(unaudited)............ 27,673
Issuance of common stock
in June 1999........... 695,000
Net loss (unaudited).... (9,151,792)
Currency translation
adjustment
(unaudited)............ $(73,235) (73,235)
-------- ------------
Comprehensive loss...... 73,235 73,235
-------- --------- ------------
Balance at June 30,
1999................... $(73,235) $(103,500) $ 1,177,921
======== ========= ============
</TABLE>
See accompanying notes
F-5
<PAGE> 68
SILVERSTREAM SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996 YEARS ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------- --------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................... $ (951,584) $(8,335,095) $(12,885,047) $ (6,601,470) $(9,151,792)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 29,750 345,494 724,045 328,421 541,235
Provision for allowances on accounts
receivable..................................... -- 26,900 217,833 27,086 172,966
Operating expenses paid with issuance of
preferred stock................................ 83,050 79,998 -- -- --
Operating expenses paid with issuance of common
stock.......................................... -- 20,700 181,952 22,500 --
Changes in operating assets and liabilities:
Accounts receivable............................ -- (237,915) (3,577,745) (1,545,511) (2,875,870)
Prepaid expenses............................... (13,671) (303,579) 69,837 (46,936) 244,103
Other current assets........................... -- -- 166,824 166,158 (476,192)
Other non-current assets....................... -- -- -- -- (735,273)
Accounts payable and accrued expenses.......... 75,413 403,246 1,083,786 115,632 2,690,966
Deferred revenue............................... -- 37,087 1,026,571 790,762 1,353,032
---------- ----------- ------------ ------------ -----------
Net cash used in operating activities.............. (777,042) (7,963,164) (12,991,944) (6,743,358) (8,236,825)
---------- ----------- ------------ ------------ -----------
INVESTING ACTIVITIES
Purchase of furniture and equipment................ (338,587) (1,564,812) (992,236) (486,339) (1,068,734)
Sale (purchase) of available-for-sale securities... -- -- (3,330,603) (6,807,351) 3,083,913
---------- ----------- ------------ ------------ -----------
Net cash provided by (used in) investing
activities....................................... (338,587) (1,564,812) (4,322,839) (7,293,690) 2,015,179
---------- ----------- ------------ ------------ -----------
FINANCING ACTIVITIES
Net proceeds from issuance of preferred stock...... 3,575,000 23,054,327 1,701,998 1,701,993 14,727,997
Net proceeds from issuance of common stock......... 4,639 51,043 9,358 213 722,662
Proceeds from line of credit....................... 269,914 513,110 602,317 602,317 673,264
Payments on long-term debt......................... -- (175,087) (449,647) (199,727) (249,920)
---------- ----------- ------------ ------------ -----------
Net cash provided by financing activities.......... 3,849,553 23,443,393 1,864,026 2,104,796 15,874,003
---------- ----------- ------------ ------------ -----------
Effects of exchange rate on cash and cash
equivalents...................................... -- -- -- -- (73,235)
Net increase (decrease) in cash and cash
equivalents...................................... 2,733,924 13,915,417 (15,450,757) (11,932,252) 9,579,122
Cash and cash equivalents at beginning of period... -- 2,733,924 16,649,341 16,649,341 1,198,584
---------- ----------- ------------ ------------ -----------
Cash and cash equivalents at end of period......... $2,733,924 $16,649,341 $ 1,198,584 $ 4,717,089 $10,777,706
========== =========== ============ ============ ===========
SUPPLEMENTAL INFORMATION
Cash paid during the period for:
Income taxes..................................... $ -- $ 456 $ 14,283 $ 2,392 $ --
========== =========== ============ ============ ===========
Interest......................................... $ -- $ 48,986 $ 84,206 $ 43,409 $ 31,504
========== =========== ============ ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 69
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
SilverStream Software, Inc. (the Company) was incorporated on May 8, 1996.
The Company is a global provider of application server software and services
that enable businesses and other large organizations to create, deploy and
manage software applications for intranets, extranets and the Internet. The
Company markets their software worldwide and has sales offices in the United
Kingdom, The Netherlands, Belgium, Germany, Norway, the Czech Republic, Hong
Kong, Singapore and Taiwan.
The market for application server software has only recently begun to
develop, is rapidly evolving and will likely have an increasing number of
competitors. The market is marked by rapid technological change, frequent new
product introductions and enhancements and evolving industry standards. The
Company's future financial performance will depend on the market's acceptance of
its application server products and the Company's ability to successfully
introduce enhancements to their application server products and to expand its
operations to meet the evolving customer needs within the industry.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its international subsidiaries, all of which are wholly owned, located in
Europe and Asia. All intercompany accounts and transactions have been eliminated
in consolidation.
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described in this note and
elsewhere in the accompanying consolidated financial statements and notes.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company accounts for cash equivalents and marketable securities in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Cash
equivalents are short-term, highly liquid investments with original maturity
dates of three months or less. Cash equivalents are carried at cost, which
approximates fair market value. The Company's marketable securities are
classified as available-for-sale and are recorded at fair value with any
unrealized gain or loss recorded as an element of stockholders' equity
(deficit). As of December 31, 1998 and March 31, 1999, the Company's marketable
securities consisted of investment-grade corporate bonds.
As of December 31, 1998, the Company's marketable securities had the
following contractual maturities.
<TABLE>
<S> <C>
Within 1 year............................................... $3,083,913
After 1 year through 5 years................................ 246,690
----------
$3,330,603
==========
</TABLE>
F-7
<PAGE> 70
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents, marketable
securities and accounts receivable. Concentration of credit risk with respect to
marketable securities is limited as marketable securities are primarily
investment-grade corporate bonds with high-credit, quality financial
institutions.
Concentration of credit risk with respect to accounts receivable is limited
due to the large number of companies comprising the Company's customer base.
On-going credit evaluations of customers' financial condition are performed and
collateral is generally not required. The Company maintains reserves for
potential credit losses and such losses, in the aggregate, have not exceeded
management's expectations.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost. Depreciation is computed by use
of the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Leasehold improvements........................
Lesser of remaining
lease-term or useful
life
Furniture and fixtures........................
5 years
Computer equipment and software...............
3 years
Telephone equipment...........................
3 years
</TABLE>
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs were
$0, $187,000 and $858,000 for the period ended December 31, 1996 and the years
ended December 31, 1997 and 1998, respectively, and $506,000 and $219,000 for
the six months ended June 30, 1998 and 1999, respectively.
CAPITALIZED SOFTWARE
Capitalization of software development costs under SFAS No. 86 begins upon
the establishment of technological feasibility. Technological feasibility is
established upon the completion of a working model. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software development costs require considerable judgment by
management with respect to certain external factors, including, but not limited
to, technological feasibility, anticipated future gross revenues, estimated
economic life, and changes in software and hardware technologies. Costs incurred
by the Company between completion of a working model and the point at which the
product is ready for general release have been insignificant. Therefore, through
December 31, 1998 and June 30, 1999, all research and development costs have
been expensed as incurred.
REVENUE RECOGNITION
Revenue recognition from software license fees and from sales of software
products is recognized when persuasive evidence of an agreement exists, delivery
of the product has occurred, no significant Company obligations with regard to
implementation remain, the fee is fixed or determinable and collectibility is
probable. Update assurance agreements represent the right to receive unspecified
upgrades on an if-and-when available basis. Fees from update assurance
agreements, which are separately negotiated and priced, are deferred and
recognized on a straight-line basis over the life of the related agreement,
which is typically one year.
F-8
<PAGE> 71
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Services revenue is primarily comprised of revenue from consulting,
technical support and education services. Services revenue from consulting and
education is billed on a time and materials basis and is recognized as the
services are performed. Technical support revenue is deferred and recognized on
a straight-line basis as service revenue over the life of the related agreement,
which is typically one year.
Customer advances and billed amounts due from customers in excess of
revenue recognized are recorded as deferred revenue and recognized as the
services are delivered.
Revenue derived from arrangements with resellers of our products is not
recognized until the software is shipped to the end-user.
Sales to independent software vendors are deferred and recognized on a
straight line basis as product revenue over the life of the agreement, which is
typically one year, since the only undelivered element under these agreements is
service for which no pattern of performance is discernible. Partner fees are
deferred and recognized on a straight line basis as an offset to operating
expenses over the life of the agreement, which is typically one year, since the
Company considers such fees to be reimbursement for costs incurred, primarily
marketing support, in connection with its partner program.
Customer returns are estimated and accrued for as a percentage of net
product revenues based upon historical trends.
The Company adopted Statement of Position (SOP) 97-2, "Software Revenue
Recognition" and SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition," as of January 1, 1998. SOP 97-2 and SOP
98-4 provide guidance for recognizing revenue on software transactions and
supersede SOP 91-1.
The Company will adopt SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions." SOP 98-9 amends SOP
98-4 to extend the period of deferral of the application of certain passages of
SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before March
15, 1999. All other provisions of SOP 97-2 are effective for transactions
entered into in fiscal years beginning after March 15, 1999.
The adoption of SOP 97-2 and SOP 98-4 did not have a material impact on the
Company's financial results. In addition, the Company believes that the adoption
of SOP 98-9 will not have a material impact on the Company's financial results.
LICENSING AGREEMENTS
The Company has entered into various licensing agreements with third-party
software and technology companies, primarily for encryption technology,
requiring royalty payments which are based on either a percentage of product
revenue or per unit sales. Royalty expenses, which are charged to cost of
revenue under these license agreements, totaled $168,000 for the year ended
December 31, 1998, and $20,000 and $119,000 for the six months ended June 30,
1998 and 1999, respectively. Prepaid royalties related to these licensing
agreements were $183,000 and $113,000 for the years ended December 31, 1997 and
1998, respectively, and $217,000 and $316,000 for the periods ended June 30,
1998 and 1999, respectively.
EARNINGS PER SHARE
The Company computes earnings per share in accordance with SFAS No. 128,
"Earnings per Share". SFAS 128 requires calculation and presentation of basic
and diluted earnings per share. Basis earnings per share is calculated based on
the weighted average number of common shares outstanding and excludes any
dilutive effects of warrants, stock options, or other type securities. Diluted
earnings per share is calculated based on the weighted average number of common
shares outstanding and the dilutive effect of warrants, stock options, and
related securities calculated using the treasury stock method. Dilutive
securities are excluded from the diluted earnings per share calculation if their
effect is anti-dilutive.
F-9
<PAGE> 72
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company provides for income taxes under SFAS No. 109, "Accounting for
Income Taxes." Under SFAS 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, which include cash
and cash equivalents, marketable securities, accounts receivable and accounts
payable and long term debt, are based on assumptions concerning the amount and
timing of estimated future cash flows and assumed discount rates reflecting
varying degrees of perceived risk. The carrying value of these financial
instruments approximated their fair value at December 31, 1997 and 1998 due to
the short term nature of these instruments and the variable interest rate on the
long term debt.
FOREIGN CURRENCY TRANSLATIONS
Financial statements of foreign subsidiaries are translated into U.S.
dollars at the exchange rate as of the balance sheet dates, with the exception
of revenues, costs and expenses. All revenues, costs and expenses are translated
at a weighted-average of exchange rates in effect during the year. Net exchange
gains or losses resulting from the translation of the foreign financial
statements are recorded as a separate component of comprehensive income.
Transaction adjustments for all foreign subsidiaries are included in income.
STOCK COMPENSATION ARRANGEMENTS
The Company adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the
Company has continued to account for employee stock options in accordance with
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees," and has included the pro forma disclosures required by SFAS No.
123 for all periods presented.
NON-MONETARY TRANSACTIONS
The Company has entered into certain non-monetary transactions involving
the issuance of preferred or common stock in consideration for professional and
marketing services provided to the Company by third parties. The Company has
accounted for these non-monetary transactions in accordance with SFAS No. 123.
All transactions are accounted for based on the fair value of the goods or
services received or on the fair value of the equity instruments issued,
whichever is more reliably measurable. All expenses related to non-monetary
transactions were recognized in the period incurred.
COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes new rules for the reporting and display
of comprehensive income and its components. SFAS 130 requires unrealized gains
and losses on the Company's available-for-sale securities and the foreign
currency translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. Prior to the three-month period ended March 31, 1999, amounts pertaining
to comprehensive income were not material and have therefore not been separately
stated.
F-10
<PAGE> 73
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT REPORTING
Effective January 1, 1998, the Company adopted the SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS 131
superseded SFAS No. 14, "Financial Reporting for Segment of a Business
Enterprise." SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in interim financial
reports. The Company views its operations and manages its business as one
segment: the development and delivery of application server solutions, that
include software and related products and services. Factors used to identify the
Company's single operating segment include the organizational structure of the
Company and the financial information available for evaluation by the chief
operating decision maker in making decisions about how to allocate resources and
assess performance. The adoption of SFAS 131 did not affect results of operation
or financial position, but did affect the disclosure of segment information. See
Note 11.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information at June 30, 1999 and for the six months
ended June 30, 1998 and 1999, all of which is unaudited, was prepared by the
Company on a basis consistent with the audited financial statements. In
management's opinion, such information reflects all adjustments which are of a
normal recurring nature and which are necessary to present fairly the results of
the periods presented.
UNAUDITED PRO FORMA BALANCE SHEET
Upon an initial public offering of the Company's common stock, each
outstanding share of Series A, B, C, and D convertible preferred stock will be
converted into one share of common stock. This reclassification has been
reflected in the unaudited pro forma balance sheet as of June 30, 1999.
UNAUDITED PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE
The unaudited pro forma basic and diluted net loss per share is computed
using the weighted-average number of outstanding common shares assuming
conversion of all preferred shares into common shares (at date of original
issuance), which will occur upon completion of the initial public offering, as
contemplated herein. Common share equivalents are excluded from the calculation
as their effect is anti-dilutive.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standard Executive Committee ("AcSEC") issued
SOP 98-1, "Accounting of the Costs of Computer Software Developed or Obtained
for Internal Use." The adoption of SOP 98-1, which is effective for SilverStream
beginning January 1, 1999, did not have a material effect on SilverStream's
financial condition or results of operations.
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 is effective for SilverStream's calendar year
1999 financial statements and the adoption did not have a material effect on
SilverStream financial condition or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives Instruments and Hedging Activities." The Company is
currently analyzing the effect, if any, the standard will have on its financial
condition or results of operations.
F-11
<PAGE> 74
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1997 1998 1999
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures....................... $ 360,315 $ 502,821 $ 443,804
Computer equipment and software.............. 1,302,285 2,051,809 3,077,767
Telephone equipment.......................... 150,067 162,205 163,306
Leasehold improvements....................... 90,732 178,800 279,492
---------- ----------- -----------
1,903,399 2,895,635 3,964,369
Less accumulated depreciation and
amortization............................... (375,244) (1,099,289) (1,640,524)
---------- ----------- -----------
$1,528,155 $ 1,796,346 $ 2,323,845
========== =========== ===========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses include the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ --------
(UNAUDITED)
<S> <C> <C>
Provision for estimated returns............................ $231,260 $ 320,704
Fringe benefits............................................ 124,337 482,718
Occupancy.................................................. 130,507 480,177
Professional fees.......................................... 66,387 83,829
Bonus...................................................... 19,996 239,998
Other...................................................... 81,522 275,339
-------- ----------
$654,009 $1,882,765
======== ==========
</TABLE>
5. DEBT
LONG-TERM DEBT
Under the terms of a credit facility, negotiated in 1996 and expiring March
1, 2000, borrowings of approximately $501,598 and $295,286 converted fully into
separate term loans on March 31, 1997 and September 30, 1997, respectively.
Principal repayments began April 1, 1997 and October 1, 1997 in 30 equal monthly
payments. Interest on the loans accrues at prime rate plus 0.5% (8.25% at
December 31, 1998) and is payable monthly in arrears. The outstanding balance
under the facility at December 31, 1997 and 1998 and June 30, 1999 was $607,937,
$308,870 and $159,336, respectively.
Under terms of a credit facility, negotiated in 1997 and expiring March 1,
2001, borrowings of approximately $602,000 converted fully into a term loan on
March 31, 1998. Principal repayments began April 1, 1998 in 36 equal monthly
payments. Interest on the loan accrues at prime rate plus 0.5% and is payable
monthly in arrears. The outstanding balance under the facility at December 31,
1998 and June 30, 1999 was $451,737 and $351,351, respectively.
Borrowings under the terms of both credit facilities are secured by
substantially all the Company's tangible assets.
F-12
<PAGE> 75
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of long term debt are as follows:
<TABLE>
<S> <C>
1999............................................ $435,820
2000............................................ 274,594
2001............................................ 50,193
--------
$760,607
========
</TABLE>
LINE OF CREDIT
The Company currently has a $750,000 line of credit with its bank for the
purpose of financing equipment purchases. The line of credit converts fully into
a term loan on October 31, 1999. Principal repayments begin on November 1, 1999
in 36 equal monthly payments. Interest on the loan accrues at prime plus 0.5%
and is payable monthly. Borrowings are secured by substantially all the
Company's tangible assets. The loan contains restrictive covenants which
include, among other restrictions, maintaining minimum tangible net worth
requirements, and limitations on incurring additional indebtedness and paying
cash dividends. There was $673,263 outstanding under the line of credit at June
30, 1999.
6. LEASES
The Company leases office space and certain equipment under operating
leases expiring through April 2003. Future minimum payments under noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
1999........................................... $1,184,150
2000........................................... 535,114
2001........................................... 31,876
2002........................................... 29,604
2003........................................... 2,415
----------
Total minimum lease payments................... $1,783,159
==========
</TABLE>
Rent expense charged to operations for the period ended December 1996, and
the years ended December 1997 and 1998 was $41,000, $336,000 and $602,000,
respectively, and for the six months ended June 30, 1998 and 1999 was $202,000
and $546,000, respectively.
7. EMPLOYEE BENEFITS
RESTRICTED STOCK ISSUED TO FOUNDER
In May and July 1996, the Company sold 1,123,000 shares of common stock to
the founder pursuant to a founders stock restriction agreement at the fair value
of the stock at the date of the issuance. The shares were issued in the name of
the founder, who has all rights of a stockholder, subject to certain repurchase
and transfer provisions. If the founder ceases to be employed by the Company,
the Company shall have the option to repurchase from the founder a portion of
the shares based upon a predetermined formula. In addition, the founder shall
not sell any of the shares that are subject to repurchase by the Company.
An aggregate of 617,650 shares, 393,050 shares and 280,750 shares of common
stock are subject to repurchase at December 31, 1997 and 1998, and June 30,
1999, respectively.
1996 FOUNDERS STOCK INCENTIVE PLAN
In May 1996, the Company adopted the 1996 Founders Stock Incentive Plan
(the 1996 Plan) covering all eligible employees, officers, directors consultants
and advisors. At inception of the 1996 Plan,
F-13
<PAGE> 76
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company authorized the issuance of up to 3,877,000 shares of common stock.
The Company issued and sold an aggregate of 3,775,031 shares of common stock
under the 1996 Plan pursuant to founders stock restriction agreements at the
fair value of the stock at the date of the issuance. The shares were issued in
the name of the employee, who has all rights of a stockholder, subject to
certain repurchase and transfer provisions. If the employee ceases to be
employed by the Company, the Company shall have the option to repurchase from
the employee a portion of the shares based upon a predetermined formula. In
addition, the employee shall not sell any of the shares that are subject to
repurchase by the Company. An aggregate of 145,394 shares of common stock have
been repurchased by the Company under the 1996 Plan.
An aggregate of 2,235,839 shares, 1,436,707 shares and 1,063,434 shares of
common stock are subject to repurchase at December 31, 1997 and 1998, and June
30, 1999, respectively.
1997 STOCK INCENTIVE PLAN
In February 1997, the Company adopted the 1997 Stock Incentive Plan (the
1997 Plan) covering all eligible employees, officers, directors, consultants and
advisors. At inception of the 1997 Plan, the Company authorized the issuance of
up to 3,500,000 shares of common stock. As of December 31, 1998 the Company has
reserved 1,305,719 shares of common stock for issuance under the 1997 Plan.
Under the 1997 Plan, the Company may grant stock options to purchase shares of
the Company's common stock, restricted common stock awards and other stock-based
awards having terms and conditions at the discretion of the Company's Board of
Directors. The prices, terms and vesting periods of stock awards under the 1997
Plan are determined by the Board of Directors at the date of the grant. The 1997
Plan also contains provisions which stipulate that upon an acquisition event the
Board of Directors is authorized to determine that any stock option, restricted
stock or other stock-based award granted under the 1997 Plan may become
immediately exercisable in full or in part.
The Company issued and sold an aggregate of 300,000 shares of common stock
under the 1997 Plan pursuant to founders stock restriction agreements at the
fair value of the stock at the date of issuance. The shares are issued in the
name of the employee, who has all rights of a stockholder, subject to certain
repurchase and transfer provisions. If the employee ceases to be employed by the
Company, the Company shall have the option to repurchase from the employee a
portion of shares based upon a predetermined formula. In addition, the employee
shall not sell any of the shares that are subject to repurchase by the Company.
An aggregate of 300,000 shares, 160,875 shares and 143,000 shares of common
stock are subject to repurchase at December 31, 1997 and 1998, and June 30,
1999.
The Company holds notes receivable totaling $103,500 from employees at
December 31, 1997 and 1998, and at June 30, 1998 and 1999. These notes arose
from transactions in September 1997 whereby the Company loaned the employees
money to purchase an aggregate of 207,000 shares of the Company's common stock
at the then fair market value. The notes receivable are fully recourse to the
employees and are due to be paid in full, with accrued interest at the rate of
6.39% per annum, on August 26, 2002. These notes receivable are shown as a
reduction in stockholders' equity in the accompanying balance sheets.
401(K) PLAN
The Company has a 401(k) plan (the Plan), whereby eligible employees may
contribute up to 15% of their compensation, subject to limitations established
by the Internal Revenue Code. The Company may also contribute a discretionary
matching contribution, to each such participant's deferred compensation
F-14
<PAGE> 77
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equal to a discretionary percentage determined by the Company. As of June 30,
1999, the Company had not made any discretionary matching contributions in any
of the fiscal periods presented.
STOCK OPTION DISCLOSURES
The Company has adopted the disclosure provisions only of SFAS 123. The
fair values for these options were estimated at the date of grant using the
minimum value method with the following assumptions:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
------------ ------------
1997 1998 1998 1999
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expected life (years)........................... 4.97 5.35 5.17 5.16
Risk free interest rate......................... 5.66% 4.75% 5.5% 5.25%
Dividend yield.................................. -- -- -- --
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- ---------------------------
1997 1998 1998 1999
----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Pro forma net loss......................... $(8,351,473) $(12,996,310) $(6,662,982) $(9,449,877)
Pro forma net loss per share............... $ (1.65) $ (2.54) $ (1.30) $ (1.81)
</TABLE>
Compensation expense under SFAS 123 for 1997 and 1998 is not representative
of future expense, as it includes one and two years of expense, respectively. In
future years, the effect of determining compensation cost using the fair value
method will include additional vesting and associated expense.
Option activity under the 1997 Plan is summarized below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------- SIX MONTHS ENDED
1997 1998 JUNE 30, 1999
------------------ ------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year........................ -- -- 607,000 $ .34 895,175 $1.15
Granted....................... 614,000 $.34 381,950 2.21 593,750 6.69
Expired or canceled........... (7,000) .20 (38,250) .37 (33,050) 1.32
Exercised..................... -- (55,525) .17 (54,683) .32
------- ------- ---------
Outstanding, end of year...... 607,000 .34 895,175 1.15 1,401,192 3.53
======= ======= =========
Exercisable at end of year.... -- 159,850 217,800
Available for future grants... 398,719 55,019 144,319
Weighted-average fair value of
options granted during
year........................ $.33 $2.16 $6.55
</TABLE>
F-15
<PAGE> 78
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents weighted-average price and life information
about significant option groups outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .02 - $ .20 162,475 6.79 Years $ .07 30,525 $.08
$ .50 363,750 5.89 Years .50 127,225 .50
$ .90 137,500 7.99 Years .90 2,100 .90
$3.00 241,450 9.23 Years 3.00 -- --
------- -------
$ .02 - $3.00 905,175 7.26 Years $1.15 159,850 $.43
======= =======
</TABLE>
8. PREFERRED STOCK
In July, August and November 1996, the Company sold 3,683,050 shares of
Series A redeemable convertible preferred stock, par value $.001, at $1.00 per
share. Proceeds to the Company were $3,575,000 (net of $25,000 of issuance
costs).
In June and September 1997, the Company sold 1,500,938 shares of Series B
redeemable convertible preferred stock, par value $.001, at $5.33 per share.
Proceeds to the Company were $7,900,002 (net of $20,000 of issuance costs).
In November and December 1997, the Company sold 1,728,283 shares of Series
C convertible preferred stock, par value $.001, at $8.78 per share. Proceeds to
the Company were $15,154,325 (net of $20,000 of issuance costs).
In March 1998, the Company sold 194,305 shares of Series C convertible
preferred stock, par value $.001, at $8.78 per share. Proceeds to the Company
were $1,701,998 (net of $4,000 of issuance costs).
The Company has reserved up to 8,659,208 shares of its common stock for
issuance upon conversion of the preferred stock.
Significant features of the Series A, B and C preferred stocks are as
follows:
CONVERSION
As more fully described in the Company's amended Certificate of
Incorporation, each share of preferred stock is convertible at the shareholder's
option into such number of shares of common stock as determined by a conversion
factor, as defined. The preferred stock will automatically convert upon the
closing of a qualified public offering of the Company's common stock, as
defined.
REDEMPTION
At the written request of the holders of a majority of the outstanding
shares of Series A and Series B preferred stock, the Company will redeem a
specified percentage of the Series A and Series B preferred stock on December
31, 2001, 2002 and 2003, respectively. The price per share to be paid to the
Series A and Series B preferred stockholders shall be $1.00 and $5.33,
respectively, plus any dividends declared but unpaid.
F-16
<PAGE> 79
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DIVIDENDS
The holders of preferred stock shall be entitled to receive, when and if
declared by the Board of Directors of the Company, dividends in the same amount
per share as would be payable on the number of shares of common stock into which
the preferred stock is then convertible, payable in preference and priority to
payment of any cash dividend on common stock.
VOTING
Shares of preferred stock are entitled to a number of votes on any matter
put before the shareholders of the Company equal to the number of shares of
common stock into which they are convertible.
LIQUIDATION
Upon liquidation of the Company, holders of Series A, Series B and Series C
preferred stock shall be first entitled, before any distribution or payment is
made to holders of common stock, to be paid $1.00, $5.33 and $8.78 per share,
respectively, plus any declared and unpaid dividends thereon.
9. NON-MONETARY TRANSACTIONS
In August 1996, the Company issued 83,050 shares of its Series A redeemable
convertible preferred stock in consideration for $83,050 of fees for personnel
placement services. The transaction was accounted for by recognizing
professional fees expense of $83,050 and increasing the preferred stock balance
by the same amount.
In June 1997, the Company issued 15,009 shares of its Series B redeemable
convertible preferred stock in consideration for $79,998 of fees for marketing
services. The transaction was accounted for by recognizing marketing expense of
$79,998 and increasing the preferred stock balance by the same amount.
In September 1997, the Company issued 207,000 shares of common stock in
exchange for interest bearing notes of $103,500 and cash of $11,500 (see Note
7).
In November 1997, the Company entered into an agreement to issue up to
48,000 shares of its common stock in consideration of software services and
co-marketing efforts. The Company has issued 48,000 shares under the agreement.
The transaction was accounted for by recognizing marketing expense of $43,200
and increasing the common stock balance by the same amount.
In September 1998, the Company issued 39,863 shares of its common stock in
consideration for $159,452 of fees for marketing services. The transactions were
accounted for by recognizing total marketing expense of $159,452 and increasing
the common stock balance by the same amount.
10. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
and income tax purposes. A valuation allowance has been established to reflect
the uncertainty of future taxable income to utilize available tax loss
F-17
<PAGE> 80
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carryforwards and other deferred tax assets. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward......................... $ 3,700,000 $ 8,900,000
Research and development credit carryforward............ 150,000 350,000
Other................................................... 67,000 146,000
Deferred tax liabilities:
Depreciation............................................ (135,000) (247,000)
----------- -----------
3,782,000 9,149,000
Less valuation allowance for deferred tax assets........ (3,782,000) (9,149,000)
----------- -----------
Total..................................................... $ -- $ --
=========== ===========
</TABLE>
As of December 31, 1998, the Company has net operating loss carryforwards
and research and development tax carryforwards of approximately $22,300,000 and
$350,000, respectively, available to offset future Federal taxable income. These
carryforwards begin to expire in 2012 and may be subject to certain limitations.
11. SEGMENT AND GEOGRAPHIC INFORMATION
As discussed in Note 2, the Company operates in one business segment: the
development and delivery of application server software and related software
products and services. In making this determination, the Company considered the
information which management uses to oversee the Company's operations as well as
the manner in which the business is managed.
Foreign operations in 1998 were conducted in four countries in Europe.
During the first six months of 1999, foreign operations were expanded.
Operations are currently conducted in six countries in Europe and three
countries in the Asia Pacific region.
Revenues by geographic region are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996
(INCEPTION) TO YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------------------- -------------------------
1996 1997 1998 1998 1999
-------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States............ $ -- $ 181,017 $4,999,717 $1,023,022 $5,228,455
Other.................... -- 67,507 1,808,182 721,067 2,553,984
-------- ---------- ---------- ---------- ----------
Total.................... $ -- $ 248,524 $6,807,899 $1,744,089 $7,782,439
======== ========== ========== ========== ==========
</TABLE>
Total long lived assets by geographic region are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
-------------- ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States............ $308,837 $1,528,155 $1,733,471 $1,686,072 $2,841,435
Other.................... -- -- 62,876 -- 217,683
-------- ---------- ---------- ---------- ----------
Total.................... $308,837 $1,528,155 $1,796,347 $1,686,072 $3,059,118
======== ========== ========== ========== ==========
</TABLE>
F-18
<PAGE> 81
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. LOSS PER SHARE
The following table sets forth the computation of basic and diluted loss
per share:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 8, 1996
(INCEPTION) TO YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
DECEMBER 31, -------------------------- -------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss............. $ (951,584) $(8,335,095) $(12,885,047) $(6,601,470) $(9,151,792)
Numerator for basic and
diluted loss per
share................ $ (951,584) $(8,335,095) $(12,885,047) $(6,601,470) $(9,151,792)
Denominator:
Weighted average
common shares
outstanding....... 2,322,605 5,065,356 5,122,480 5,109,286 5,230,455
Denominator for basic
and diluted loss per
share................ 2,322,605 5,065,356 5,122,480 5,109,286 5,230,455
</TABLE>
The Company has excluded all preferred stock, outstanding stock options and
shares subject to repurchase by the Company from the calculation of diluted loss
per share because all such securities are antidilutive for all periods
presented. Weighted-average options outstanding to purchase 0, 168,192, and
348,880 shares of common stock for the years ended December 31, 1996, 1997, and
1998, were not included in the computation of diluted net loss per share because
the effect would be antidilutive. Such securities, had they been dilutive, would
have been included in the computation of diluted net loss per share using the
treasury stock method.
13. SUBSEQUENT EVENTS
ISSUANCE OF SERIES D STOCK
In March, April and May 1999, the company sold 1,552,632 shares of Series D
convertible preferred stock, par value $.001, at $9.50 per share. Proceeds to
the Company were $14,727,997 (net of $22,000 of issuance costs). Terms of the
Series D stock are consistent with Series A, Series B and Series C (see Note 8)
except that Series D has no mandatory redemption provisions.
CHANGE IN AUTHORIZED STOCK
On June 9, 1999, the Board of Directors approved an amendment and
restatement of the Company's certificate of incorporation to increase the number
of authorized shares to 100,000,000 shares of common stock and 2,000,000 shares
of undesignated preferred stock. Such amended and restated certificated
incorporation will be effective upon the closing of this offering.
EMPLOYEE STOCK PURCHASE PLAN
On June 9, 1999, the Board of Directors approved the adoption of the
Company's 1999 employee stock purchase plan (the 1999 Purchase Plan). A total of
300,000 shares of common stock has been reserved for issuance under the 1999
Purchase Plan. The 1999 Purchase Plan permits eligible employees to acquire
shares of the Company's common stock through periodic payroll deductions of up
to 10% of base cash compensation. Each offering period will have a maximum
duration of 12 months. The price at which the common stock may be purchased is
85% of the lesser of the closing price of the Company's common stock on the
first day of the applicable offering period or on the last day of the respective
purchase period.
F-19
<PAGE> 82
SILVERSTREAM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The initial offering period will commence on the effectiveness of the initial
public offering and will end at the end of a six month period.
ACQUISITIONS
In June 1999, the Company acquired two international distributors by
issuing 69,500 shares of common stock. The transactions have been accounted for
as purchases and, accordingly, their results of operations are included in the
consolidated financial statements from the dates of acquisition. The purchase
prices have been allocated to the assets acquired and liabilities assumed based
upon their respective fair values.
F-20
<PAGE> 83
[Narrative description of graphic material omitted in electronically filed
document:
This graphic consists of a group of ten equally spaced logos in two rows.
Top row, from left to right: Upside's 1998 Hot 100 Private Companies, NewMedia
Magazine 1998 Hyper Award, Internet World Best of Show, JAVA Developer's Journal
World Class Award and 1999 Network Computing Well-Connected Award. Bottom row,
from left to right: Internet Showcase 1998 Best of Showcase Award, INFO Best
Test Center, Massachusetts Interactive Media Council, Internet World Industry
Award '98 and Best Practice Awards 1998.
The following text appears below the graphic:
SILVERSTREAM SOFTWARE HAS RECEIVED NUMEROUS AWARDS. We believe these awards
demonstrate our ability to deliver application development and deployment
products that help organizations leverage the benefits of Web-based computing.
While we appreciate the recognition, we never lose sight of our mission: TO
BUILD A HIGHLY SCALABLE AND RELIABLE APPLICATION SERVER PRODUCT AND DELIVER
COMPREHENSIVE SERVICES TO ENSURE OUR CUSTOMERS SUCCESS.]
<PAGE> 84
[LOGO][LOGO]
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 11,190
NASD filing fee............................................. 4,525
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 175,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 300,000
Blue Sky fees and expenses (including legal fees)........... 10,000
Transfer agent and registrar fees and expenses.............. 15,000
Miscellaneous............................................... 89,285
Total............................................. $1,000,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article SEVENTH of the Registrant's Second Amended and Restated Certificate
of Incorporation (the "Restated Certificate") provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director notwithstanding any provision of law imposing such
liability, except to the extent that the Delaware General Corporation Law
prohibits the elimination or limitation of liability of directors for breach of
fiduciary duty.
Article EIGHTH of the Restated Certificate provides that a director or
officer of the Registrant (a) shall be indemnified by the Registrant against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any litigation or other legal proceeding
(other than an action by or in the right of the Registrant) brought against him
by virtue of his position as a director or officer of the Registrant if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Registrant, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful and (b) shall be indemnified by the Registrant against all expenses
(including attorneys' fees) and amounts paid in settlement incurred in
connection with any action by or in the right of the Registrant naming him as a
party by virtue of his position as a director or officer of the Registrant if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Registrant, except that no indemnification
shall be made with respect to any matter as to which such person shall have been
adjudged to be liable to the Registrant, unless the Court of Chancery of
Delaware determines that, despite such adjudication but in view of all of the
circumstances, he is entitled to indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, he is required to be indemnified by
the Registrant against all expenses (including attorneys' fees) incurred in
connection therewith. Expenses shall be advanced to a director or officer in
advance of the final disposition of a legal proceeding, provided that he
undertakes to repay the amount advanced if it is ultimately determined that he
is not entitled to indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
II-1
<PAGE> 86
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article EIGHTH of the Restated Certificate further provides that the
indemnification provided therein is not exclusive, and provides that in the
event that the Delaware General Corporation Law is amended to expand the
indemnification permitted to directors or officers the Registrant must indemnify
those persons to the fullest extent permitted by such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Act"). Reference is made to the
form of Underwriting Agreement to be filed as Exhibit 1.1 hereto.
The Registrant has obtained liability insurance for its officers and
directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception, the Registrant has issued the following securities that
were not registered under the Securities Act as summarized below.
(a) Issuances of capital stock.
1. On May 8, 1996, the Registrant issued and sold 1,000 shares of
its common stock for an aggregate purchase price of $10.00 to David R. Skok
in connection with the Registrant's incorporation.
2. On July 9, 1996, the Registrant issued and sold 1,122,000 shares
of its common stock for an aggregate purchase price of $1,122 to David R.
Skok pursuant to a Founders Stock Restriction Agreement.
3. On July 9, 1996, the Registrant issued and sold an aggregate of
2,670,000 shares of its series A preferred stock for an aggregate purchase
price of $2,670,000 to a group of investors pursuant to a Stock Purchase
Agreement.
4. On August 15, 1996, the Registrant issued and sold 83,050 shares
of its series A preferred stock to an individual pursuant to a Stock
Purchase Agreement in consideration of personnel placement services
rendered by the individual to the Registrant.
5. From August 16, 1996 to September 18, 1996, the Registrant issued
and sold an aggregate of 1,432,817 shares of its common stock for an
aggregate purchase price of approximately $1,433 to a group of employees
pursuant to Founders Stock Restriction Agreements.
II-2
<PAGE> 87
6. On November 4, 1996, the Registrant issued and sold 1,123,000
shares of its common stock for an aggregate purchase price of $1,123 to
David A. Litwack pursuant to a Founders Stock Restriction Agreement.
7. On November 4, 1996, the Registrant issued and sold 930,000
shares of its series A preferred stock for an aggregate purchase price of
$930,000 to David A. Litwack pursuant to a Stock Purchase Agreement.
8. On November 12, 1996, the Registrant issued and sold an aggregate
of 960,550 shares of its common stock for an aggregate purchase price of
$960.55 to a group of employees pursuant to Founders Stock Restriction
Agreements.
9. On April 11, 1997, the Registrant issued and sold an aggregate of
258,664 shares of its common stock for an aggregate purchase price of
approximately $5,173 to a group of employees pursuant to Founders Stock
Restriction Agreements.
10. On June 16, 1997, the Registrant issued and sold an aggregate of
1,484,056 shares of its series B preferred stock for an aggregate purchase
price of $7,910,018.48 to a group of investors pursuant to a Stock Purchase
Agreement.
11. From August 26, 1997 to September 3, 1997, the Registrant issued
and sold an aggregate of 230,000 shares of its common stock for an
aggregate purchase price of $115,000 to a group of employees pursuant to
Founders Stock Restriction Agreements.
12. On September 12, 1997, the Registrant issued and sold 16,882
shares of its series B preferred stock for an aggregate purchase price of
$89,981.06 to an individual pursuant to a Stock Purchase Agreement.
13. On November 2, 1997, the Registrant issued and sold 70,000 shares
of its common stock for an aggregate purchase price of $35,000 to an
employee pursuant to a Founders Stock Restriction Agreement.
14. On November 5, 1997, December 1, 1997 and January 16, 1998, the
Registrant issued and sold an aggregate of 48,000 shares of its common
stock to Intel Corporation pursuant to a Collaboration Agreement in
consideration of services rendered by Intel to the Registrant.
15. On November 6, 1997, the Registrant issued and sold an aggregate
of 1,722,588 shares of its series C preferred stock for an aggregate
purchase price of $15,124,322.64 to a group of investors pursuant to a
Stock Purchase Agreement.
16. On December 24, 1997, the Registrant issued and sold 5,695 shares
of its series C preferred stock for an aggregate purchase price of
$50,002.10 to an individual pursuant to a Stock Purchase Agreement.
17. On March 30, 1998, the Registrant issued and sold an aggregate of
194,305 shares of its series C preferred stock for an aggregate purchase
price of $1,705,997.90 to a group of investors pursuant to a Stock Purchase
Agreement.
18. On December 31, 1998, the Registrant issued and sold an aggregate
of 39,863 shares of its common stock to SilverStream Benelux N.V. in
consideration of fees for marketing services from SilverStream Benelux N.V.
to the Registrant.
19. On March 1, 1999, the Registrant issued and sold an aggregate of
1,313,158 shares of its series D preferred stock for an aggregate purchase
price of $12,475,001 to a group of investors pursuant to a Stock Purchase
Agreement.
20. On April 9, 1999, the Registrant issued and sold an aggregate of
55,263 shares of its series D preferred stock for an aggregate purchase
price of $524,998.50 to a group of investors pursuant to a Stock Purchase
Agreement.
II-3
<PAGE> 88
21. On April 14, 1999, the Registrant issued and sold an aggregate of
78,948 shares of its series D preferred stock for an aggregate purchase
price of $750,006 to a group of investors pursuant to a Stock Purchase
Agreement.
22. On May 27, 1999, the Registrant issued and sold 105,263 shares of
its series D preferred stock for an aggregate purchase price of $999,998.50
to an investor pursuant to a Stock Purchase Agreement.
23. On June 21, 1999, the Registrant issued and sold an aggregate of
15,000 shares of its common stock to the former shareholders of
SilverStream s.r.o. and SilverSolutions spol. s.r.o. in consideration of
all of the outstanding share capital of such companies.
24. On June 23, 1999, the Registrant issued and sold an aggregate of
54,500 shares of its common stock to the former shareholders of
SilverStream Norge AS in consideration of all of the outstanding share
capital of such company held by such shareholders and the cancellation of
certain debt payable by such company.
(b) Certain grants and exercises of stock options.
1. From inception through June 30, 1999, the Registrant granted stock
options to purchase 1,589,700 shares of common stock at exercise prices
ranging from $.02 to $10.00 per share to employees, consultants and
directors pursuant to its 1997 Stock Incentive Plan.
2. From inception through June 30, 1999, the Registrant issued and
sold an aggregate of 110,208 shares of its common stock to employees,
consultants and directors for aggregate consideration of approximately
$26,532 pursuant to exercises of options granted under its 1997 Stock
Incentive Plan.
No underwriters were involved in any of the foregoing sales of securities.
Such sales were made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder, or, in the case of options to purchase common stock,
Rule 701 of the Securities Act. All of the foregoing securities are deemed
restricted securities for the purposes of the Securities Act.
II-4
<PAGE> 89
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2 Form of Second Amended and Restated Certificate of
Incorporation of the Registrant, to be filed after to the
closing of this offering
3.3** By-Laws of the Registrant
3.4 Form of Amended and Restated By-Laws of the Registrant, to
be effective upon the closing of this offering
4.1 Specimen common stock certificate
4.2 Third Amended and Restated Investor Rights Agreement dated
March 1, 1999, as amended
5.1 Opinion of Hale and Dorr LLP
10.1** 1996 Founders Stock Incentive Plan
10.2** Amended and Restated 1997 Stock Incentive Plan, and forms of
agreements thereunder
10.3 Amended and Restated 1999 Employee Stock Purchase Plan
10.4** Form of Founders Stock Restriction Agreement
10.5** Sub-Sublease Agreement, dated February 14, 1997, between
Rational Software Corporation (as successor to SQA, Inc.)
and the Registrant
10.6** First Amendment to Sub-Sublease Agreement, dated April 1998
10.7** Term Loan Agreement and Commercial Promissory Note, dated
March 1, 1999, between Fleet National Bank and the
Registrant
10.8** Term Loan Agreement and Commercial Promissory Note, dated
August 11, 1997, between Fleet National Bank and the
Registrant
10.9** Term Loan Agreement and Commercial Promissory Note, dated
November 5, 1996 between Fleet National Bank and the
Registrant
10.10+ OEM Master License Agreement between RSA Data Security, Inc.
and the Registrant, dated as of September 30, 1997, as
amended
10.11+ Support Agreement between RSA Data Security, Inc. and the
Registrant, dated as of June 30, 1999
10.12 Form of VAR Business Partner Agreement
10.13 Form of ISV Business Partners Agreement
10.14 Form of Consulting Partner Agreement
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1** Powers of Attorney
27.1** Financial Data Schedule for the period ended December 31,
1996
27.2** Financial Data Schedule for the year ended December 31, 1997
27.3** Financial Data Schedule for the year ended December 31, 1998
27.4 Financial Data Schedule for the six months June 30, 1998
27.5 Financial Data Schedule for the six months June 30, 1999
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
II-5
<PAGE> 90
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions are
omitted and filed separately with the Securities and Exchange Commission.
(b) Financial Statement:
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the registrant pursuant to the Delaware General
Corporation Law, the Restated Certificate of the registrant, the Underwriting
Agreement, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 hereunder, the registrant
will, unless in the opinion of counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purpose of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-6
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Burlington,
Massachusetts, on this 16th day of July, 1999.
SILVERSTREAM SOFTWARE, INC.
By:
/s/ DAVID A. LITWACK
------------------------------------
David A. Litwack
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board of Directors July 16, 1999
- ---------------------------------------------
David R. Skok
* President, Chief Executive Officer and July 16, 1999
- --------------------------------------------- Director (Principal Executive Officer)
David A. Litwack
/s/ CRAIG A. DYNES Vice President, Chief Financial Officer July 16, 1999
- --------------------------------------------- and Treasurer (Principal Financial and
Craig A. Dynes Accounting Officer)
* Director July 16, 1999
- ---------------------------------------------
Timothy Barrows
* Director July 16, 1999
- ---------------------------------------------
Richard A. D'Amore
* Director July 16, 1999
- ---------------------------------------------
Paul J. Severino
*By: /s/ CRAIG A. DYNES
---------------------------------------
Craig A. Dynes
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 92
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
SILVERSTREAM SOFTWARE, INC.
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1998 Allowance for Doubtful
Accounts....................................... $ 26,900 $218,614 -- $ 781 $244,733
December 31, 1997 Allowance for Doubtful
Accounts....................................... $ -- $ 26,900 -- -- $ 26,900
December 31, 1996 Allowance for Doubtful
Accounts....................................... $ -- $ -- -- -- $ 0
December 31, 1998 Sales Returns Allowance........ $ 13,260 $514,000 -- $379,000 $148,260
December 31, 1997 Sales Returns Allowance........ $ -- $ 13,260 -- -- $ 13,260
December 31, 1996 Sales Returns Allowance........ $ -- $ -- -- -- $ --
</TABLE>
S-1
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant
3.2 -- Form of Second Amended and Restated Certificate of
Incorporation of the Registrant, to be filed after to the
closing of this offering
3.3** -- By-Laws of the Registrant
3.4 -- Form of Amended and Restated By-Laws of the Registrant, to
be effective upon the closing of this offering
4.1 -- Specimen common stock certificate
4.2 -- Third Amended and Restated Investor Rights Agreement dated
March 1, 1999, as amended
5.1 -- Opinion of Hale and Dorr LLP
10.1** -- 1996 Founders Stock Incentive Plan
10.2** -- Amended and Restated 1997 Stock Incentive Plan, and forms of
agreements thereunder
10.3 -- Amended and Restated 1999 Employee Stock Purchase Plan
10.4** -- Form of Founders Stock Restriction Agreement
10.5** -- Sub-Sublease Agreement, dated February 14, 1997, between
Rational Software Corporation (as successor to SQA, Inc.)
and the Registrant
10.6** -- First Amendment to Sub-Sublease Agreement, dated April 1998
10.7** -- Term Loan Agreement and Commercial Promissory Note, dated
March 1, 1999, between Fleet National Bank and the
Registrant
10.8** -- Term Loan Agreement and Commercial Promissory Note, dated
August 11, 1997, between Fleet National Bank and the
Registrant
10.9** -- Term Loan Agreement and Commercial Promissory Note, dated
November 5, 1996 between Fleet National Bank and the
Registrant
10.10+ -- OEM Master License Agreement between RSA Data Security, Inc.
and the Registrant, dated as of June 30, 1999
10.11+ -- Support Agreement between RSA Data Security, Inc. and the
Registrant, dated as of September 30, 1997, as amended
10.12 -- Form of VAR Business Partner Agreement
10.13 -- Form of ISV Business Partners Agreement
10.14 -- Form of Consulting Partner Agreement
21.1 -- Subsidiaries of the Registrant
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1** -- Powers of Attorney
27.1** -- Financial Data Schedule for the period ended December 31,
1996
27.2** -- Financial Data Schedule for the year ended December 31, 1997
27.3** -- Financial Data Schedule for the year ended December 31, 1998
27.4 -- Financial Data Schedule for the six months June 30, 1998
27.5 -- Financial Data Schedule for the six months June 30, 1999
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act, which portions are
omitted and filed separately with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SILVERSTREAM SOFTWARE, INC.
SilverStream Software, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of State of the State of Delaware on May 8, 1996, under the name
Lionheart Software, Inc., which Certificate of Incorporation was amended by a
Certificate of Amendment of Certificate of Incorporation filed on July 8, 1996,
a Certificate of Amendment of Certificate of Incorporation filed on November 13,
1996, a Certificate of Amendment of Certificate of Incorporation filed on June
13, 1997, a Certificate of Amendment of Certificate of Incorporation filed on
November 6, 1997 and a Certificate of Amendment of Certificate of Incorporation
filed on March 1, 1999.
2. At a duly called meeting of the Board of Directors of the Corporation
at which a quorum was present at all times, a resolution was duly adopted,
pursuant to Sections 242 and 245 of the General Corporation Law of the State of
Delaware, setting forth an Amended and Restated Certificate of Incorporation of
the Corporation and declaring said Amended and Restated Certificate of
Incorporation advisable. The stockholders of the Corporation duly approved said
proposed Amended and Restated Certificate of Incorporation by written consent in
accordance with Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware, and written notice of such consent has been given to all
stockholders who have not consented in writing to said restatement. The
resolution setting forth the Amended and Restated Certificate of Incorporation
is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, be and
- -------- hereby is amended and restated in its entirety so that the same
shall read as follows:
FIRST. The name of the Corporation is:
SilverStream Software, Inc.
<PAGE> 2
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) 70,000,000 shares of Common
Stock, $.001 par value per share ("Common Stock"), and (ii) 8,883,050 shares of
Preferred Stock, $.001 par value per share. The Preferred Stock shall be issued
in series. The first such series shall be designated Series A Convertible
Preferred Stock ("Series A Preferred Stock") and shall consist of 3,683,050
shares. The second such series shall be designated Series B Convertible
Preferred Stock ("Series B Preferred Stock") and shall consist of 1,600,000
shares. The third such series shall be designated Series C Convertible Preferred
Stock ("Series C Preferred Stock") and shall consist of 2,000,000 shares. The
fourth such series shall be designated Series D Convertible Preferred Stock
("Series D Preferred Stock") and shall consist of 1,600,000 shares.
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
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<PAGE> 3
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Different series
of Preferred Stock shall not be construed to constitute different classes of
shares for the purposes of voting by classes unless expressly provided.
C. SERIES PREFERRED STOCK.
----------------------
The Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock shall have the following rights, preferences,
powers, privileges and restrictions, qualifications and limitations. For
purposes of the Certificate of Incorporation, unless the context otherwise
requires, "Preferred Stock" shall collectively refer to the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock.
1. DIVIDENDS. The Corporation shall not declare or pay any cash on shares
of Common Stock until the holders of the Preferred Stock then outstanding shall
have first received, or simultaneously receive, a distribution on each
outstanding share of Preferred Stock, in an amount at least equal to the product
of (i) the per share amount, if any, of the dividends or other distributions to
be declared, paid or set aside for the Common Stock, multiplied by (ii) the
number of whole shares of Common Stock into which such share of Preferred Stock
is then convertible.
2. Liquidation, Dissolution or Winding Up; Certain Mergers,
-------------------------------------------------------
Consolidations and Asset Sales.
------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, by reason of
their ownership thereof, an amount equal to $1.00 per share (subject to
appropriate adjustment in the event of any stock dividend,
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<PAGE> 4
stock split, combination or other similar recapitalization affecting such
shares), plus any dividends declared but unpaid thereon (the "Series A
Liquidation Amount"). In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, by reason of
their ownership thereof, an amount equal to $5.33 per share (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
dividends declared but unpaid thereon (the "Series B Liquidation Amount"). In
the event of any voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, the holders of shares of Series C Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, by reason of their ownership
thereof, an amount equal to $8.78 per share (subject to appropriate adjustment
in the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares), plus any dividends declared but unpaid
thereon (the "Series C Liquidation Amount"). In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of shares of Series D Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its stockholders, by reason of their ownership thereof, an amount equal to $9.50
per share (subject to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting such
shares), plus any dividends declared but unpaid thereon (the "Series D
Liquidation Amount"). If upon any such liquidation, dissolution or winding up of
the Corporation the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to permit the payment in
full of the Series A Liquidation Amount, the Series B Liquidation Amount, the
Series C Liquidation Amount and the Series D Liquidation Amount, then the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of Preferred Stock upon the dissolution, liquidation or winding
up of the Corporation, the holders of shares of Common Stock then outstanding
shall share ratably in the distribution of the remaining assets and funds of the
Corporation in proportion to the number of shares of Common Stock held by them.
(c) At the election of the holders of at least a majority of the then
outstanding shares of Preferred Stock, voting together as a class, any merger or
consolidation of the Corporation into or with another corporation (except one in
which the holders of capital stock of the Corporation immediately prior to such
merger or consolidation continue to hold at least 66 2/3% by voting power of the
capital stock of
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<PAGE> 5
the surviving corporation), or the sale of all or of any Substantial Portion of
the assets of the Corporation shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subsections 2(a) and 2(b)
above. The amount deemed distributed to the holders of Preferred Stock upon any
such merger or consolidation shall be the cash or the value of the property,
rights or securities distributed to such holders by the acquiring person, firm
or other entity. The value of such property, rights or other securities shall be
determined in good faith by the Board of Directors of the Corporation.
"Substantial Portion" shall mean assets with a fair market value of at least 50%
of the fair market value of the Company.
3. Voting.
------
(a) Each holder of outstanding shares of Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Preferred Stock held by such holder are then
convertible (as adjusted from time to time pursuant to Section 4 hereof), at
each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law or by the provisions of Subsections 3(b) or (c) below or by
the provisions establishing any other series of Preferred Stock, holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and of any other outstanding series of stock shall vote
together with the holders of Common Stock as a single class.
(b) The holders of record of the shares of Preferred Stock,
exclusively and as a separate class, shall be entitled to elect two directors of
the Corporation, and the holders of record of the shares of Common Stock and of
any other class or series of voting stock (including the Preferred Stock),
exclusively and as a separate class, shall be entitled to elect the balance of
the total number of directors of the Corporation. At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of a majority of the shares of Preferred Stock then outstanding shall constitute
a quorum of the Preferred Stock for the purpose of electing directors by holders
of the Preferred Stock. A vacancy in any directorship filled by the holders of
Preferred Stock shall be filled only by vote or written consent in lieu of a
meeting of the holders of the Preferred Stock or by any remaining director or
directors elected by the holders of Preferred Stock pursuant to this Subsection
3(b). The rights of the holders of the Preferred Stock under this Subsection
3(b) shall terminate on the first date on which there are issued and outstanding
less than 3,200,000 shares of Preferred Stock (subject to appropriate adjustment
in the event of any dividend, stock split, combination or other similar
recapitalization affecting such shares).
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<PAGE> 6
(c) The Corporation shall not amend, alter or repeal the preferences,
special rights or other powers of the Series A Preferred Stock so as to affect
adversely the Series A Preferred Stock, without the written consent or
affirmative vote of the holders of a majority of the then outstanding shares of
Series A Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. The Corporation shall not
amend, alter or repeal the preferences, special rights or other powers of the
Series B Preferred Stock so as to affect adversely the Series B Preferred Stock,
without the written consent or affirmative vote of the holders of a majority of
the then outstanding shares of Series B Preferred Stock, given in writing or by
vote at a meeting, consenting or voting (as the case may be) separately as a
class. The Corporation shall not amend, alter or repeal the preferences, special
rights or other powers of the Series C Preferred Stock so as to affect adversely
the Series C Preferred Stock, without the written consent or affirmative vote of
the holders of a majority of the then outstanding shares of Series C Preferred
Stock, given in writing or by vote at a meeting, consenting or voting (as the
case may be) separately as a class. The Corporation shall not amend, alter or
repeal the preferences, special rights or other powers of the Series D Preferred
Stock so as to affect adversely the Series D Preferred Stock, without the
written consent or affirmative vote of the holders of a majority of the then
outstanding shares of Series D Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a class. For
this purpose, without limiting the generality of the foregoing, the
authorization of any shares of capital stock with preference or priority over
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up of the
Corporation shall be deemed to affect adversely the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
as the case may be.
4. OPTIONAL CONVERSION. The holders of the Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Series A Base Price (as defined below) by the Series
A Conversion Price (as defined below) in effect at the time of conversion. The
"Series A Base Price" shall be $1.00. The "Series A Conversion Price" shall
initially be $1.00. Such Series A Conversion Price, and the rate at which shares
of Series A Preferred Stock may be converted into shares of Common Stock, shall
be subject to adjustment as provided below. Each share of Series B Preferred
Stock shall be convertible, at the option of the holder thereof, at any time and
from time to time, and without the payment of additional consideration by the
holder thereof, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Series B Base Price (as defined
below) by the Series B
6
<PAGE> 7
Conversion Price (as defined below) in effect at the time of conversion. The
"Series B Base Price" shall be $5.33. The "Series B Conversion Price" shall
initially be $5.33. Such Series B Conversion Price, and the rate at which shares
of Series B Preferred Stock may be converted into shares of Common Stock, shall
be subject to adjustment as provided below. Each share of Series C Preferred
Stock shall be convertible, at the option of the holder thereof, at any time and
from time to time, and without the payment of additional consideration by the
holder thereof, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Series C Base Price (as defined
below) by the Series C Conversion Price (as defined below) in effect at the time
of conversion. The "Series C Base Price" shall be $8.78. The "Series C
Conversion Price" shall initially be $8.78. Such Series C Conversion Price, and
the rate at which shares of Series C Preferred Stock may be converted into
shares of Common Stock, shall be subject to adjustment as provided below. Each
share of Series D Preferred Stock shall be convertible, at the option of the
holder thereof, at any time and from time to time, and without the payment of
additional consideration by the holder thereof, into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing the Series
D Base Price (as defined below) by the Series D Conversion Price (as defined
below) in effect at the time of conversion. The "Series D Base Price" shall be
$9.50. The "Series D Conversion Price" shall initially be $9.50. Such Series D
Conversion Price, and the rate at which shares of Series D Preferred Stock may
be converted into shares of Common Stock, shall be subject to adjustment as
provided below.
In the event of a notice of redemption of any shares of Series A
Preferred Stock and Series B Preferred Stock pursuant to Section 6 hereof, the
Conversion Rights of the shares designated for redemption shall terminate at the
close of business on the fifth full day preceding the date fixed for redemption,
unless the redemption price is not paid when due, in which case the Conversion
Rights for such shares shall continue until such price is paid in full. In the
event of a liquidation of the Corporation, the Conversion Rights shall terminate
at the close of business on the first full day preceding the date fixed for the
payment of any amounts distributable on liquidation to the holders of Preferred
Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Preferred Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the then effective Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price or Series D
Conversion Price, as the case may be.
(c) Mechanics of Conversion.
-----------------------
(i) In order for a holder of Preferred Stock to convert
shares of Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Preferred Stock, at
the office of the transfer agent for the
7
<PAGE> 8
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Preferred
Stock represented by such certificate or certificates. Such notice shall state
such holder's name or the names of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. If required
by the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Preferred
Stock, or to his or its nominees, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled, together with
cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Preferred
Stock shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the Preferred
Stock, such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding Preferred
Stock. Before taking any action which would cause an adjustment reducing the
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
or Series D Conversion Price below the then par value of the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
respectively, the Corporation will take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Corporation may validly
and legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price, as the case may be.
(iii) Upon any such conversion, no adjustment to the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price shall be made for any declared but unpaid dividends on the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D Preferred Stock, respectively, surrendered for conversion or on the
Common Stock delivered upon conversion.
(iv) All shares of Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any dividends
declared but unpaid thereon. Any shares of Preferred Stock so converted shall be
retired and cancelled and shall not be
8
<PAGE> 9
reissued, and the Corporation (without the need for stockholder action) may from
time to time take such appropriate action as may be necessary to reduce the
authorized Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Preferred Stock pursuant to this
Section 4. The Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock in a name other than that in which the shares of
Preferred Stock so converted were registered, and no such issuance or delivery
shall be made unless and until the person or entity requesting such issuance has
paid to the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(d) Adjustments to Applicable Conversion Price for Diluting Issues:
--------------------------------------------------------------
(i) SPECIAL DEFINITIONS. For purposes of this Subsection
4(d), the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(B) "ORIGINAL ISSUE DATE" shall mean the date on which
a share of Series D Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences
of indebtedness, shares or other securities directly or indirectly convertible
into or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue Date, other
than shares of Common Stock issued or issuable:
(I) upon conversion of any Convertible
Securities outstanding on the Original
Issue Date, or upon exercise of any
Options outstanding on the Original
Issue Date;
(II) as a dividend or distribution on
Preferred Stock;
(III) by reason of a dividend, stock split,
split-up or other distribution on shares
of Common Stock that is covered by
Subsection 4(e) or 4(f) below;
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<PAGE> 10
(IV) up to 239,474 shares of Series D
Preferred Stock on or before
June 1, 1999 pursuant to Section 2 of
the Series D Preferred Stock Purchase
Agreement, dated as of March 1, 1999, by
and among the Corporation and the
parties thereto, and upon the conversion
of such shares of Series D Preferred
Stock;
(V) up to 1,955,719 shares of Common Stock
to employees or directors of, or
consultants to, the Corporation pursuant
to a stock option, restricted stock or
other plan or arrangement approved by
the Board of Directors of the
Corporation; or
(VI) shares issued in connection with a
strategic collaboration or partnership
approved by the Board of Directors of
the Corporation.
(ii) NO ADJUSTMENT OF APPLICABLE CONVERSION PRICE. No
adjustment in the number of shares of Common Stock into which the Preferred
Stock is convertible shall be made, by adjustment in the applicable Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price, as the case may be: (a) unless the consideration per share
(determined pursuant to Subsection 4(d)(v)) for an Additional Share of Common
Stock issued or deemed to be issued by the Corporation is less than the
applicable Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price, as the case may be, in effect on
the date of, and immediately prior to, the issue of such Additional Shares, or
(b) if prior to such issuance, the Corporation receives written notice from the
holders of at least a majority of the then outstanding shares of Preferred Stock
voting together as a single class, agreeing that no such adjustment shall be
made as the result of the issuance of Additional Shares of Common Stock or both
designees of the Preferred Stock then serving as directors of the Company agree
to waive such adjustment.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES
OF COMMON STOCK. If the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the maximum
number of shares of Common Stock (as set forth in the instrument relating
thereto without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such
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<PAGE> 11
a record date shall have been fixed, as of the close of business on such record
date, provided that Additional Shares of Common Stock shall not be deemed to
have been issued unless the consideration per share (determined pursuant to
Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock would be
less than the applicable Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price or Series D Conversion Price, as the case may be, in
effect on the date of and immediately prior to such issue, or such record date,
as the case may be, and provided further that in any such case in which
Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the applicable Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price, as the case may be, shall be made upon the subsequent issue
of Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the applicable Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price or Series D Conversion Price, as the case may
be, computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase becoming effective, be recomputed to reflect such
increase insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) Upon the expiration or termination of any
unexercised Option, the applicable Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price, as the
case may be, shall not be readjusted, but the Additional Shares of Common Stock
deemed issued as the result of the original issue of such Option shall not be
deemed issued for the purposes of any subsequent adjustment of the applicable
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
or Series D Conversion Price, as the case may be;
(D) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change resulting from
the anti-dilution provisions thereof, the applicable Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price, as the case may be, then in effect shall forthwith be readjusted to such
applicable Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price, as the case may be, as would have
obtained had the adjustment which was made upon the issuance of such Option or
Convertible Security not exercised or converted prior to such change been made
upon the basis of such change; and
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<PAGE> 12
(E) No readjustment pursuant to clause (B) or (D)
above shall have the effect of increasing the applicable Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price or Series D
Conversion Price, as the case may be, to an amount which exceeds the lower of
(i) the applicable Series A Conversion Price, Series B Conversion Price, Series
C Conversion Price or Series D Conversion Price, as the case may be, on the
original adjustment date, or (ii) the applicable Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price, as the case may be, that would have resulted from any issuances of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.
(iv) ADJUSTMENT OF APPLICABLE CONVERSION PRICE UPON ISSUANCE
OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall at any
time after the Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price or Series D Conversion Price, as the case may
be, in effect on the date of and immediately prior to such issue, then and in
such event, such Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price, as the case may be, shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price, as the
case may be, by a fraction, (A) the numerator of which shall be (1) the number
of shares of Common Stock outstanding immediately prior to such issue plus (2)
the number of shares of Common Stock which the aggregate consideration received
or to be received by the Corporation for the total number of Additional Shares
of Common Stock so issued would purchase at such Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price, as the case may be; and (B) the denominator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issue plus the
number of such Additional Shares of Common Stock so issued.
Notwithstanding the provisions of this Subsection 4(d)(iv), in
the event the Corporation makes a Dilutive Issuance (as defined below), the
adjustment to the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price, as the case may be, provided for
in this Subsection 4(d)(iv) as a result of such Dilutive Issuance shall not be
made with respect to shares of Preferred Stock held by a person or entity who
was given the opportunity to purchase its Pro Rata Portion (as defined below) of
such Dilutive Issuance (whether pursuant to a right of first refusal or
otherwise), and who failed to purchase its Pro Rata Portion of such Dilutive
Issuance. Each such holder shall be deemed to have waived (i) the reductions in
the Series A Conversion Price, Series B Conversion Price, Series C
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Conversion Price or Series D Conversion Price, as the case may be, of such
holder's shares of Preferred Stock that would have otherwise resulted pursuant
to this Subsection 4(d)(iv) from such Dilutive Issuance and from any future
issuances (or deemed issuances) of Additional Shares (other than as described in
Subsections 4(e) and 4(f)), and (ii) the right to receive, upon conversion of
its Preferred Stock pursuant to this Section 4, any additional shares of Common
Stock that would have been issuable as a result of such reductions in the Series
A Conversion Price, Series B Conversion Price, Series C Conversion Price or
Series D Conversion Price, as the case may be; and such waiver shall be binding
upon any transferee of the shares of Preferred Stock held by such holder. A
"Dilutive Issuance" shall mean any issuance of Additional Shares of Common Stock
that results (or would result, except for this paragraph) in a reduction in the
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
or Series D Conversion Price, as the case may be, pursuant to this Subsection
4(d)(iv). A holder's "Pro Rata Portion" of a Dilutive Issuance shall mean the
number of Additional Shares of Common Stock issued in such Dilutive Issuance,
multiplied by a fraction, the numerator of which is the number of shares of
Common Stock then held or issuable upon conversion of all convertible securities
(including the Preferred Stock) of the Corporation then held by such holder, and
the denominator of which is the aggregate number of shares of Common Stock then
outstanding (including shares issuable upon conversion of all convertible
securities of the Corporation then outstanding. For purposes of this paragraph,
the portion of a Dilutive Issuance purchased by a holder of Preferred Stock
shall be deemed to include any portion of such Dilutive Issuance purchased by an
"affiliate" (as defined in Rule 144 under the Securities Act of 1933, as
amended) of such holder.
All certificates representing shares of Preferred Stock shall have affixed
thereto a legend substantially in the following form:
"The shares represented by this certificate are convertible into shares of
common stock at a rate which may vary among different stockholders of the
corporation. Information concerning the conversion rate applicable to the
shares represented by this certificate may be obtained from the Secretary
of the corporation."
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
-----------------
(I) insofar as it consists of cash, be computed
at the aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest;
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(II) insofar as it consists of property other
than cash, be computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) MULTIPLE CLOSING DATES. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Preferred Stock, and such
issuance dates occur within a period of no more than 120 days, then the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price or Series
D Conversion Price, as the case may be, shall be adjusted only once on account
of such issuances, with such adjustment to occur upon the final such issuance
and to give effect to all such issuances as if they occurred on the date of the
final such issuance.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price and Series D Conversion
Price then in effect immediately before that subdivision shall be
proportionately decreased. If the Corporation shall at any time or from time to
time after the Original Issue Date combine the outstanding shares of Common
Stock, the Series A Conversion Price, Series B
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Conversion Price, Series C Conversion Price and Series D Conversion Price then
in effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price and
Series D Conversion Price then in effect shall be decreased as of the time of
such issuance or, in the event such a record date shall have been fixed, as of
the close of business on such record date, by multiplying the respective Series
A Conversion Price, Series B Conversion Price, Series C Conversion Price and
Series D Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the respective Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price and Series D Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter the
respective Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price and Series D Conversion Price shall be adjusted pursuant to
this paragraph as of the time of actual payment of such dividends or
distributions; and provided further, however, that no such adjustment shall be
made if the holders of Preferred Stock simultaneously receive a dividend or
other distribution of shares of Common Stock in a number equal to the number of
shares of Common Stock as they would have received if all outstanding shares of
Preferred Stock had been converted into Common Stock on the date of such event.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of the Preferred
Stock shall receive upon conversion thereof in addition
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to the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation that they would have received had the Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date, retained such securities receivable by them as aforesaid during
such period, giving application to all adjustments called for during such period
under this paragraph with respect to the rights of the holders of the Preferred
Stock; and provided further, however, that no such adjustment shall be made if
the holders of Preferred Stock simultaneously receive a dividend or other
distribution of such securities in an amount equal to the amount of such
securities as they would have received if all outstanding shares of Preferred
Stock had been converted into Common Stock on the date of such event.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification, or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation, or sale of assets provided
for below), then and in each such event the holder of each such share of
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Preferred Stock might
have been converted immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or any Substantial Portion of the assets of the Corporation to
another corporation (other than a consolidation, merger or sale which holders of
the Preferred Stock elect to make subject to Subsection 2(c)), each share of
Preferred Stock shall thereafter be convertible (or shall be converted into a
security which shall be convertible) into the kind and amount of shares of stock
or other securities or property to which a holder of the number of shares of
Common Stock of the Corporation deliverable upon conversion of such Preferred
Stock would have been entitled upon such consolidation, merger or sale; and, in
such case, appropriate adjustment (as determined in good faith by the Board of
Directors) shall be made in the application of the provisions in this Section 4
set forth with respect to the rights and interest thereafter of the holders of
the Preferred Stock, to the end that the provisions set forth in this Section 4
(including provisions with respect to changes in and other adjustments of the
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
and Series D Conversion Price) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Preferred Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
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consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price or Series D Conversion Price, as the case may
be, pursuant to this Section 4, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price, as the
case may be, then in effect, and (iii) the number of shares of Common Stock and
the amount, if any, of other property which then would be received upon the
conversion of Preferred Stock.
(l) Notice of Record Date. In the event:
---------------------
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common
Stock or other securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of
its outstanding shares of Common Stock or a stock
dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with
another corporation, or of the sale of all or
substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Preferred Stock, and shall cause to be
mailed to the holders of the Preferred Stock at their last addresses as shown on
the records of the Corporation or
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such transfer agent, at least ten days prior to the date specified in (A) below
or twenty days before the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to
such dividend, distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger,
sale, dissolution or winding up.
5. Mandatory Conversion.
--------------------
(a) Upon the closing of the sale of shares of Common Stock, at a
price of at least $10.00 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a firm underwritten public offering of the Company's
Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $20,000,000 of gross
proceeds to the Corporation, (i) each outstanding share of Preferred Stock shall
automatically be converted into such number of shares of Common Stock as are
then issuable upon conversion thereof pursuant to the provisions of Section 4,
and (ii) the number of authorized shares of Preferred Stock shall be
automatically reduced by the number of shares of Preferred Stock that had been
designated as Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock, and all provisions included under
the caption "Series Preferred Stock," and all references to the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, shall be deleted and shall be of no further force or effect.
(b) All holders of record of shares of Preferred Stock, as the case
may be, shall be given written notice of the date on which an automatic
conversion will occur pursuant to Section 5(a) ("Mandatory Conversion Date") and
the place designated for mandatory conversion of all such shares of Preferred
Stock, pursuant to this Section 5. Such notice need not be given in advance of
the occurrence of a Mandatory Conversion Date. Such notice shall be sent by
first class or registered mail, postage prepaid, to each record holder of
Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Preferred Stock (or the records of the Corporation, if it
serves as its own transfer agent). Upon receipt of such notice, each holder of
shares of Preferred Stock shall surrender his or its certificate or certificates
for all such shares to
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the Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Section 5. On the Mandatory Conversion Date,
all rights with respect to the Preferred Stock so converted, including the
rights, if any, to receive notices and vote (other than as a holder of Common
Stock) will terminate, except only the rights of the holders thereof, upon
surrender of their certificate or certificates therefor, to receive certificates
for the number of shares of Common Stock into which such Preferred Stock has
been converted. If so required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by written instrument or instruments
of transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his or its attorney duly authorized in writing. As soon
as practicable after the Mandatory Conversion Date and the surrender of the
certificate or certificates for Preferred Stock, the Corporation shall cause to
be issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and cash as
provided in Subsection 4(b) in respect of any fraction of a share of Common
Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Preferred Stock which are
required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after the Mandatory Conversion Date, be deemed to have
been retired and cancelled and the shares of Preferred Stock represented thereby
converted into Common Stock for all purposes, notwithstanding the failure of the
holder or holders thereof to surrender such certificates on or prior to such
date. The Corporation may thereafter take such appropriate action (without the
need for stockholder action) as may be necessary to reduce the authorized
Preferred Stock accordingly.
6. Redemption.
----------
(a) The Corporation will, subject to the conditions set forth below,
on December 31, 2001, December 31, 2002 and December 31, 2003 (each, a
"Mandatory Redemption Date"), upon receipt not less than 30 nor more than 120
days prior to the applicable Mandatory Redemption Date of written request(s) for
redemption from holders of at least a majority of the shares of Series A
Preferred Stock and Series B Preferred Stock then outstanding (a "Redemption
Request"), redeem from each requesting holder of shares of Series A Preferred
Stock and Series B Preferred Stock then outstanding, at a price equal to $1.00
per share of Series A Preferred Stock and $5.33 per share of Series B Preferred
Stock, plus any dividends declared but unpaid thereon (the "Mandatory Redemption
Price"), the following respective portions of the number of shares of Series A
Preferred Stock and Series B Preferred Stock, as the case may be, held by such
requesting holder set forth opposite the applicable Mandatory Redemption Date:
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Portion of Shares of Each of
Mandatory the Series A Preferred Stock and Series B
Redemption Date Preferred Stock to be Redeemed
--------------- ------------------------------
December 31, 2001 33 1/3%
December 31, 2002 50%
December 31, 2003 All shares then held
(b) If the funds of the Corporation legally available for redemption
of Series A Preferred Stock and Series B Preferred Stock on any Mandatory
Redemption Date are insufficient to redeem the number of shares of Series A
Preferred Stock and Series B Preferred Stock required under this Section 6 to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares of Series A Preferred Stock
and Series B Preferred Stock ratably on the basis of the number of shares of
Series A Preferred Stock and Series B Preferred Stock which would be redeemed on
such date if the funds of the Corporation legally available therefor had been
sufficient to redeem all shares of Series A Preferred Stock and Series B
Preferred Stock required to be redeemed on such date. At any time thereafter
when additional funds of the Corporation become legally available for the
redemption of Series A Preferred Stock and Series B Preferred Stock, such funds
will be used, at the end of the next succeeding fiscal quarter, to redeem, to
the extent of the available funds, the balance of the shares which the
Corporation was theretofore obligated to redeem. Until such redemption, holders
of such unredeemed shares shall have the right to receive quarterly in arrears
interest on the applicable Mandatory Redemption Price at the rate of five
percent (5%) per annum.
(c) Unless there shall have been a failure to pay the Mandatory
Redemption Price with respect to shares of Series A Preferred Stock and Series B
Preferred Stock requested to be redeemed on a Mandatory Redemption Date, on such
Mandatory Redemption Date all rights of the holder of such shares as a
stockholder of the Corporation by reason of the ownership of such share will
cease, except the right to receive the Mandatory Redemption Price of such share,
without interest, upon presentation and surrender of the certificate
representing such share, and such share will not from and after such Mandatory
Redemption Date be deemed to be outstanding.
(d) Any Series A Preferred Stock and Series B Preferred Stock
redeemed pursuant to this Section 6 will be cancelled and will not under any
circumstances be reissued, sold or transferred and the Corporation may from time
to time take such appropriate action as may be necessary to reduce the
authorized Preferred Stock accordingly.
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7. Negative Covenants.
------------------
(a) So long as at least 1,600,000 shares of Preferred Stock are
issued and outstanding (subject to appropriate adjustment in the event of any
dividend, stock split, combination or other similar recapitalization affecting
such shares), the Corporation shall not, without the prior written consent of
the holders of at least 66 2/3% of the then outstanding shares of Preferred
Stock, voting together as a single class:
(i) Authorize any class or series of stock having
preference or priority over the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock as to dividends or
liquidation;
(ii) Amend the Corporation's Certificate of Incorporation in
a manner materially adverse to the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock;
(iii) Declare or pay any dividends on Common Stock other than
dividends payable solely in Common Stock;
(iv) Repurchase shares of its capital stock at a price
greater than the price at which they were originally issued, except for shares
of Series A Preferred Stock or Series B Preferred Stock as provided above;
(v) Liquidate or wind-up the Corporation;
(vi) Make any loan or advance to any person, including
without limitation, any employee or director of the Company or any subsidiary,
except advances and similar expenditures in the ordinary course of business or
under the terms of an employee stock or option plan approved by the Board of
Directors;
(vii) (A) Merge with or into or consolidate with any other
corporation, (B) sell, lease, or otherwise dispose of all or substantially all,
or a Significant Portion (as defined below), of its properties or assets, or (C)
acquire all or substantially all of the properties or assets of any other
corporation or entity (except for consideration of less than 35% of the
Corporation's consolidated net worth as of the end of the prior fiscal quarter).
For the purposes of this Certificate of Incorporation, "Significant Portion"
shall mean properties or assets with a fair market value equal to more than 35%
of the book value of the Company's total properties or assets as of the end of
the most recent fiscal quarter; or
(viii) Incur indebtedness for borrowed money in excess of
$250,000, or such greater amount as may be approved by the Board of Directors of
the Company.
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FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
SEVENTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH. 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF
THE CORPORATION. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the
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Indemnitee unless the initiation thereof was approved by the Board of Directors
of the Corporation. Notwithstanding anything to the contrary in this Article,
the Corporation shall not indemnify an Indemnitee to the extent such Indemnitee
is reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was
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unlawful, the Indemnitee shall be considered for the purposes hereof to have
been wholly successful with respect thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter; provided,
however, that the payment of such expenses incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking shall be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
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Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority vote
of the directors of the Corporation consisting of persons who are not at that
time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation), or (e) a court of competent jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
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<PAGE> 26
9. OTHER RIGHTS. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation Law
of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action,
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<PAGE> 27
suit, proceeding or investigation, whether civil, criminal or administrative,
including an action by or in the right of the Corporation, to the fullest extent
permitted by any applicable portion of this Article that shall not have been
invalidated and to the fullest extent permitted by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware is
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
* * * * *
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<PAGE> 28
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its President this ____ day of
____________________, 1999.
SILVERSTREAM SOFTWARE, INC.
-----------------------------------
David A. Litwack
President
<PAGE> 1
EXHIBIT 3.2
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SILVERSTREAM SOFTWARE, INC.
SilverStream Software, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of State of the State of Delaware on May 8, 1996, under the name
Lionheart Software, Inc. An Amended and Restated Certificate of Incorporation
was filed with the Secretary of State of the State of Delaware on July [__],
1999, which Amended and Restated Certificate of Incorporation was amended by a
Certificate of Retirement of Stock filed on even date herewith.
2. At a duly called meeting of the Board of Directors of the Corporation
at which a quorum was present at all times, a resolution was duly adopted,
pursuant to Sections 242 and 245 of the General Corporation Law of the State of
Delaware, setting forth an Amended and Restated Certificate of Incorporation of
the Corporation and declaring said Amended and Restated Certificate of
Incorporation advisable. The stockholders of the Corporation duly approved said
proposed Amended and Restated Certificate of Incorporation by written consent in
accordance with Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware, and written notice of such consent has been given to all
stockholders who have not consented in writing to said restatement. The
resolution setting forth the Amended and Restated Certificate of Incorporation
is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, be and
- -------- hereby is amended and restated in its entirety so that the same
shall read as follows:
FIRST. The name of the Corporation is:
SilverStream Software, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
<PAGE> 2
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 102,000,000 shares, consisting of
(i) 100,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 2,000,000 shares of Preferred Stock, $.001 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
------------
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
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<PAGE> 3
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise provided in this Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Certificate of Incorporation, the right to have such vote being expressly
waived by all present and future holders of the capital stock of the
Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided that the Board of Directors is expressly
authorized to adopt, amend or repeal the By-Laws of the Corporation.
SEVENTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
3
<PAGE> 4
EIGHTH. 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF
THE CORPORATION. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Article, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he
4
<PAGE> 5
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware shall determine upon application that, despite the
adjudication of such liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
(including attorneys' fees) which the Court of Chancery of Delaware shall deem
proper.
3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel
5
<PAGE> 6
to assume the defense of such action, in each of which cases the fees and
expenses of counsel for the Indemnitee shall be at the expense of the
Corporation, except as otherwise expressly provided by this Article. The
Corporation shall not be entitled, without the consent of the Indemnitee, to
assume the defense of any claim brought by or in the right of the Corporation or
as to which counsel for the Indemnitee shall have reasonably made the conclusion
provided for in clause (ii) above.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below, in
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter; provided,
however, that the payment of such expenses incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking shall be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority vote
of the directors of the Corporation consisting of persons who are not at that
time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation), or (e) a court of competent jurisdiction.
7. REMEDIES. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if
6
<PAGE> 7
the Corporation denies such request, in whole or in part, or if no disposition
thereof is made within the 60-day period referred to above in Section 6. Unless
otherwise required by law, the burden of proving that the Indemnitee is not
entitled to indemnification or advancement of expenses under this Article shall
be on the Corporation. Neither the failure of the Corporation to have made a
determination prior to the commencement of such action that indemnification is
proper in the circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the Corporation pursuant to
Section 6 that the Indemnitee has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the Indemnitee has
not met the applicable standard of conduct. The Indemnitee's expenses (including
attorneys' fees) incurred in connection with successfully establishing his right
to indemnification, in whole or in part, in any such proceeding shall also be
indemnified by the Corporation.
8. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. OTHER RIGHTS. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
10. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for
7
<PAGE> 8
the portion of such expenses (including attorneys' fees), judgments, fines or
amounts paid in settlement to which the Indemnitee is entitled.
11. INSURANCE. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation Law
of Delaware.
12. MERGER OR CONSOLIDATION. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of Delaware is
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
TENTH. This Article is inserted for the management of the business and for
the conduct of the affairs of the Corporation.
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<PAGE> 9
1. NUMBER OF DIRECTORS. The number of directors of the Corporation shall
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the Corporation's By-Laws.
2. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
3. ELECTION OF DIRECTORS. Elections of directors need not be by written
ballot except as and to the extent provided in the By-Laws of the Corporation.
4. TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 2000; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 2001; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in 2002; and provided further, that the
term of each director shall be subject to the election and qualification of his
successor and to his earlier death, resignation or removal.
5. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. QUORUM; ACTION AT MEETING. A majority of the directors at any time in
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than
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such a quorum, a majority of those present may adjourn the meeting from time to
time. Every act or decision done or made by a majority of the directors present
at a meeting duly held at which a quorum is present shall be regarded as the act
of the Board of Directors unless a greater number is required by law, by the
By-Laws of the Corporation or by this Certificate of Incorporation.
7. REMOVAL. Directors of the Corporation may be removed only for cause by
the affirmative vote of the holders of at least two-thirds of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote.
8. VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the size of the Board of
Directors, shall be filled only by a vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office, and a director chosen to fill a position resulting from
an increase in the number of directors shall hold office until the next election
of the class for which such director shall have been chosen, subject to the
election and qualification of his successor and to his earlier death,
resignation or removal.
9. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
10. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law,
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article TENTH.
ELEVENTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
TWELFTH. Special meetings of stockholders may be called at any time by only
the Chairman of the Board of Directors, the President or the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
Notwithstanding any other provision of law, this Certificate of Incorporation or
the By-Laws of the
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Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least seventy-five
percent (75%) of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article TWELFTH.
* * * * *
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IN WITNESS WHEREOF, the Corporation has caused this Second Amended and
Restated Certificate of Incorporation to be signed by its President this ____
day of ____________________, 1999.
SILVERSTREAM SOFTWARE, INC.
----------------------------
David A. Litwack
President
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
BY-LAWS
OF
SILVERSTREAM SOFTWARE, INC.
ARTICLE 1 - Stockholders
------------------------
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors, the Chairman of the Board or the President or,
if not so designated, at the registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors, the Chairman of the Board or the President (which date shall not be a
legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Board of Directors, the Chairman of the Board or the
President and stated in the notice of the meeting. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as convenient. If no annual meeting is
held in accordance with the foregoing provisions, a special meeting may be held
in lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and in
such case all references in these By-Laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at
any time only by the Chairman of the Board of Directors, the President or the
Board of Directors. Business transacted at any special meeting of stockholders
shall be limited to matters relating to the purpose or purposes stated in the
notice of meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than ten nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at the stockholder's address as it
appears on the records of the corporation.
<PAGE> 2
1.5 VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, at a place within the city where the meeting is
to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law, the Certificate of Incorporation or these By-Laws. Each stockholder of
record entitled to vote at a meeting of stockholders, or to express consent or
dissent to corporate action in writing without a meeting, may vote or express
such consent or dissent in person or may authorize another person or persons to
vote or act for him by proxy executed in writing (or in such other manner
permitted by the General Corporation Law of the State of Delaware) by the
stockholder or his authorized agent and delivered to the Secretary of the
corporation. No such proxy shall be voted or acted upon after three years from
the date of its execution, unless the proxy expressly provides for a longer
period.
1.9 ACTION AT MEETING. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and
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voting on a matter) shall decide any matter to be voted upon by the stockholders
at such meeting, except when a different vote is required by express provision
of law, the Certificate of Incorporation or these By-Laws. Any election by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election.
1.10 NOMINATION OF DIRECTORS. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors.
Nomination for election to the Board of Directors of the corporation at a
meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by timely notice in writing to the Secretary of the
corporation. To be timely, a stockholder's notice must be delivered to, or
mailed and received by, the Secretary at the principal executive offices of the
corporation not less than 70 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that (i)
in the event that the date of the annual meeting is advanced by more than 20
days, or delayed by more than 70 days, from such anniversary date, notice by the
stockholder to be timely must be so delivered or received not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
tenth day following the day on which notice of the date of such annual meeting
was mailed or public disclosure of the date of such annual meeting was made,
whichever first occurs, and (ii) with respect to the annual meeting of
stockholders of the corporation to be held in the year 2000, to be timely, a
stockholder's notice must be so received not earlier than the ninetieth day
prior to such annual meeting and not later than the close of business on the
later of (A) the sixtieth day prior to such annual meeting and (B) the tenth day
following the day on which notice of the date of such annual meeting was mailed
or public disclosure of the date of such annual meeting was made, whichever
first occurs. A stockholder's notice to the Secretary shall set forth (a) as to
each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. In addition, to be
effective, the stockholder's notice must be accompanied by the written consent
of the proposed nominee to serve as a director if elected. The corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the corporation to determine the eligibility of such proposed
nominee to serve as a director of the corporation.
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The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
1.11 NOTICE OF BUSINESS AT ANNUAL MEETINGS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before an annual meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, if
such business relates to the election of directors of the corporation, the
procedures in Section 1.10 must be complied with. If such business relates to
any other matter, the stockholder must have given timely notice thereof in
writing to the Secretary. To be timely, a stockholder's notice must be delivered
to, or mailed and received by, the Secretary at the principal executive offices
of the corporation not less than 70 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that (i) in the event that the date of the annual meeting is advanced by more
than 20 days, or delayed by more than 70 days, from such anniversary date,
notice by the stockholder to be timely must be so delivered or received not
earlier than the ninetieth day prior to such annual meeting and not later than
the close of business on the later of the seventieth day prior to such annual
meeting or the tenth day following the day on which notice of the date of such
annual meeting was mailed or public disclosure of the date of such annual
meeting was made, whichever first occurs, and (ii) with respect to the annual
meeting of stockholders of the corporation to be held in the year 2000, to be
timely, a stockholder's notice must be so received not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of (A) the sixtieth day prior to such annual meeting and
(B) the tenth day following the day on which notice of the date of such annual
meeting was mailed or public disclosure of the date of such annual meeting was
made, whichever first occurs. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-Laws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section 1.11
and except that any stockholder proposal which complies with Rule 14a-8 of the
proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the corporation's
proxy
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<PAGE> 5
statement for an annual meeting of stockholders shall be deemed to comply with
the requirements of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
1.12 ACTION WITHOUT MEETING. Unless otherwise provided in the Certificate
of Incorporation, any action required or permitted to be taken by stockholders
for or in connection with any corporate action may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the corporation by
delivery to its registered office in Delaware by hand or certified or registered
mail, return receipt requested, to its principal place of business or to an
officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Each such written consent
shall bear the date of signature of each stockholder who signs the consent. No
written consent shall be effective to take the corporate action referred to
therein unless written consents signed by a number of stockholders sufficient to
take such action are delivered to the corporation in the manner specified in
this paragraph within sixty days of the earliest dated consent so delivered.
If action is taken by consent of stockholders and in accordance with the
foregoing, there shall be filed with the records of the meetings of stockholders
the writing or writings comprising such consent.
If action is taken by less than unanimous consent of stockholders, prompt
notice of the taking of such action without a meeting shall be given to those
who have not consented in writing and a certificate signed and attested to by
the Secretary of the corporation that such notice was given shall be filed with
the records of the meetings of stockholders.
In the event that the action which is consented to is such as would have
required the filing of a certificate under any provision of the General
Corporation Law of the State of Delaware, if such action had been voted upon by
the stockholders at a meeting thereof, the certificate filed under such
provision shall state, in lieu of any statement required by such provision
concerning a vote of stockholders, that written consent has been given under
Section 228 of said General Corporation Law and that written notice has been
given as provided in such Section 228.
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<PAGE> 6
Notwithstanding the foregoing, if at any time the corporation shall have a
class of stock registered pursuant to the provisions of the Securities Exchange
Act of 1934, as amended, for so long as such class is registered, any action by
the stockholders of such class must be taken at an annual or special meeting of
stockholders and may not be taken by written consent.
1.13 ORGANIZATION. The Chairman of the Board, or in his absence the Vice
Chairman of the Board designated by the Chairman of the Board, or the President,
in the order named, shall call meetings of the stockholders to order, and shall
act as chairman of such meeting; provided, however, that the Board of Directors
may appoint any stockholder to act as chairman of any meeting in the absence of
the Chairman of the Board. The Secretary of the corporation shall act as
secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting of the stockholders, the presiding officer may appoint
any person to act as secretary of the meeting.
ARTICLE 2 - Directors
---------------------
2.1 GENERAL POWERS. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 CLASSES OF DIRECTORS. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
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<PAGE> 7
2.4 TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
2000; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2001; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2002; and provided further, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
2.5 ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR
DECREASES IN THE NUMBER OF DIRECTORS. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member and (ii) the newly created or eliminated directorships resulting from
such increase or decrease shall be apportioned by the Board of Directors among
the three classes of directors so as to ensure that no one class has more than
one director more than any other class. To the extent possible, consistent with
the foregoing rule, any newly created directorships shall be added to those
classes whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
2.6 VACANCIES. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the size of the Board,
shall be filled only by vote of a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. A director elected
to fill a vacancy shall be elected for the unexpired term of his predecessor in
office, and a director chosen to fill a position resulting from an increase in
the number of directors shall hold office until the next election of the class
for which such director shall have been chosen, subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
2.7 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.8 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the
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determination. A regular meeting of the Board of Directors may be held without
notice immediately after and at the same place as the annual meeting of
stockholders.
2.9 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.10 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 24 hours in
advance of the meeting, (ii) by sending a telegram, telecopy, telex or
electronic mail message, or delivering written notice by hand, to his last known
business or home address at least 24 hours in advance of the meeting, or (iii)
by mailing written notice to his last known business or home address at least 72
hours in advance of the meeting. A notice or waiver of notice of a meeting of
the Board of Directors need not specify the purposes of the meeting.
2.11 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.12 QUORUM. A majority of the total number of the whole Board of Directors
shall constitute a quorum at all meetings of the Board of Directors. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third (1/3)
of the number so fixed constitute a quorum. In the absence of a quorum at any
such meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.13 ACTION AT MEETING. At any meeting of the Board of Directors at which a
quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
2.14 ACTION BY CONSENT. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee of the Board of Directors
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent to the action in writing, and the written consents are
filed with the minutes of proceedings of the Board or committee.
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2.15 REMOVAL. Directors of the corporation may be removed only for cause by
the affirmative vote of the holders of at least two-thirds of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote.
2.16 COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-laws for the Board of Directors.
2.17 COMPENSATION OF DIRECTORS. Directors may be paid such compensation for
their services and such reimbursement for expenses of attendance at meetings as
the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
--------------------
3.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
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<PAGE> 10
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his or
her written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD. The Board of
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. Unless otherwise
provided by the Board of Directors, he shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the Board
of Directors, have general charge and supervision of the business of the
corporation. Unless the Board of Directors has designated the Chairman of the
Board or another officer as Chief Executive Officer, the President shall be the
Chief Executive Officer of
10
<PAGE> 11
the corporation. The President shall perform such other duties and shall have
such other powers as the Board of Directors may from time to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him or
her by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
11
<PAGE> 12
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
-------------------------
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him or her in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or any agreement among any number of stockholders or
among such holders and the corporation shall have conspicuously noted on the
face or back of the certificate either the full text of the restriction or a
statement of the existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the
12
<PAGE> 13
Certificate of Incorporation or by these By-Laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these By-Laws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than ten days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - General Provisions
------------------------------
5.1 FISCAL YEAR. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
13
<PAGE> 14
5.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 VOTING OF SECURITIES. Except as the directors may otherwise designate,
the President or Treasurer may waive notice of, and act as, or appoint any
person or persons to act as, proxy or attorney-in-fact for this corporation
(with or without power of substitution) at any meeting of stockholders or
shareholders of any other corporation or organization, the securities of which
may be held by this corporation.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
5.6 CERTIFICATE OF INCORPORATION. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
14
<PAGE> 15
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of Directors,
a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
5.8 SEVERABILITY. Any determination that any provision of these By-Laws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 PRONOUNS. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 6 - Amendments
----------------------
6.1 BY THE BOARD OF DIRECTORS. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 BY THE STOCKHOLDERS. Except as otherwise provided in Section 6.3,
these ByLaws may be altered, amended or repealed or new by-laws may be adopted
by the affirmative vote of the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
any regular or special meeting of stockholders, provided notice of such
alteration, amendment, repeal or adoption of new by-laws shall have been stated
in the notice of such regular or special meeting.
6.3 CERTAIN PROVISIONS. Notwithstanding any other provision of law, the
Certificate of Incorporation or these By-Laws, and notwithstanding the fact that
a lesser percentage may be specified by law, the affirmative vote of the holders
of at least seventy-five percent (75%) of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with Section 1.3,
Section 1.10, Section 1.11, Section 1.12, Section 1.13, Article 2 or Article 6
of these By-Laws.
15
<PAGE> 1
EXHIBIT 4.1
SHARES
THIS CERTIFICATE IS TRANSFERABLE IN SEE REVERSE FOR
BOSTON, MA OR NEW YORK, NY CERTAIN DEFINITIONS
[SILVERSTREAM LOGO]
SilverStream Software, Inc.
NUMBER
SSSW
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS IS TO CERTIFY THAT CUSIP 827907 10 6
IS THE OWNER OF
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF THE PAR VALUE OF
$0.001 EACH OF
SilverStream Software, Inc.
transferable upon the books of the Company in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of The State of Delaware
and to the Certificate of Incorporation and By-laws of the Company as from time
to time amended.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, SilverStream Software, Inc. has caused its facsimile
corporate seal and facsimile signatures of its duly authorized officers to be
hereunto affixed.
COUNTERSIGNED AND
REGISTERED:
BankBoston, N.A.
Dated:
TRANSFER
AGENT AND
Corporate Seal REGISTRAR
/s/ Craig A. Dynes /s/ David A. Litwack
TREASURER PRESIDENT BY
AUTHORIZED
SIGNATURE
<PAGE> 2
SILVERSTREAM SOFTWARE, INC.
THE CORPORATION WILL FURNISH TO THE HOLDER UPON REQUEST WITHOUT CHARGE THE
DESIGNATIONS, PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ......Custodian.......
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of
survivorship and not as tenants under Uniform Gifts to Minors Act ........
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ___________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
__________________________________________________________ shares of the capital
stock represented by the within Certificate and do hereby irrevocably
constitute and appoint ________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ___________________
- --------------------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 4.2
THIRD AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT, AS AMENDED
This AGREEMENT is made as of this 1st day of March, 1999, by and among
SILVERSTREAM SOFTWARE, INC., a Delaware corporation (the "Company"), the
individuals and entities set forth in Attachment A hereto (the "Investors"), the
individuals set forth in Attachment B hereto (the "Management Stockholders") and
the individuals set forth in Attachment C hereto (the "Other Stockholders").
WHEREAS, certain of the parties hereto purchased an aggregate of
3,683,050 shares (the "Series A Shares") of the Company's Series A Convertible
Preferred Stock, $.001 par value per share (the "Series A Preferred Stock"),
pursuant to the Series A Preferred Stock Purchase Agreement, dated as of July 9,
1996, by and among the Company and certain of the parties hereto (the "Series A
Purchase Agreement");
WHEREAS, certain of the parties hereto purchased an aggregate of
1,500,938 shares (the "Series B Shares") of the Company's Series B Convertible
Preferred Stock, $.001 par value per share (the "Series B Preferred Stock"),
pursuant to the Series B Preferred Stock Purchase Agreement, dated as of June
16, 1997, by and among the Company and certain of the parties hereto (the
"Series B Purchase Agreement");
WHEREAS, certain of the parties hereto purchased an aggregate of
1,922,588 shares (the "Series C Shares") of the Company's Series C Convertible
Preferred Stock, $.001 par value per share (the "Series C Preferred Stock"),
pursuant to the Series C Preferred Stock Purchase Agreement, dated as of
November 6, 1997, by and among the Company and certain of the parties hereto
(the "Series C Purchase Agreement");
WHEREAS, certain of the parties hereto have agreed to purchase an
aggregate of 1,313,158 shares (the "Series D Shares") of the Company's Series D
Convertible Preferred Stock, $.001 par value per share (the "Series D Preferred
Stock"), pursuant to the Series D Preferred Stock Purchase Agreement of even
date herewith (the "Purchase Agreement") by and among the Company and certain of
the parties hereto;
WHEREAS, the Company and certain of the parties hereto deem it
desirable to amend and restate the Second Amended and Restated Investor Rights
Agreement, originally dated as of July 9, 1996 and as amended and restated as of
June 16, 1997 and as of November 6, 1997, by and among the Company and certain
of the parties hereto (the "Second Amended and Restated Investor Rights
Agreement"), in its entirety and to become bound by the terms of this Agreement
in order to induce certain of the Investors and certain of the Other
Stockholders to purchase the Series D Shares; and
WHEREAS, the Company, the Investors, the Management Stockholders and
the Other Stockholders desire to provide for (i) their continuing representation
on the Board of Directors of the Company, (ii) certain arrangements with respect
to the registration
<PAGE> 2
of shares of capital stock of the Company under the Securities Act, and (iii) a
right of first refusal with respect to the sale of any securities of the
Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the receipt and sufficiency of which are acknowledged, it is
hereby agreed that the Second Amended and Restated Investor Rights Agreement is
amended and restated in its entirety to read as follows:
ARTICLE I. DEFINITIONS
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" means the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.
"Common Stock" means the Common Stock, $.001 par value per share,
of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission issued under such Act, as they may, from time to time, be in effect.
"Initial Public Offering" means the initial public offering of
shares of Common Stock pursuant to a Registration Statement at a price to the
public of at least $10.00 per share (adjusted for stock splits, stock dividends
and similar events) resulting in gross proceeds of at least $20,000,000.
"Management Stockholders" means the individuals set forth in
Attachment B hereto, any persons or entities to whom the rights granted and
obligations assumed under this Agreement are transferred by a Management
Stockholder, and their successors or assigns pursuant to Section 2 of Article V
below.
"Registrable Shares" means (i) the shares of Common Stock issued or
issuable upon conversion of the Shares, (ii) with respect to Section 2 of
Article III, shares of Common Stock held by the Management Stockholders, (iii)
any shares of Common Stock, and any shares of Common Stock issued or issuable
upon the conversion or exercise of any other securities, acquired by the
Investors pursuant to Article IV of this Agreement, and (iv) any other shares of
Common Stock issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events); provided,
however, that shares of Common Stock which are Registrable Shares shall cease to
be Registrable Shares (a) upon any sale pursuant to a Registration Statement or
Rule 144 under the Securities Act, or (b) upon any sale in any manner to
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-2-
<PAGE> 3
a person or entity which, by virtue of Section 2 of Article V of this Agreement,
is not entitled to the rights provided by this Agreement. Wherever reference is
made in this Agreement to a request or consent of holders of a certain
Percentage of Registrable Shares, the determination of such Percentage shall
include shares of Common Stock issuable upon conversion of the Shares even if
such conversion has not yet been effected.
"Registration Expenses" means the expenses described in Section 4
of Article III below.
"Registration Statement" means a registration statement filed by
the Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Shares" means collectively the Series A Shares, the Series B
Shares, the Series C Shares and the Series D Shares.
"Stockholders" means the Investors and the Other Stockholders and
any persons or entities to whom the rights granted under this Agreement are
transferred by the Investors and the Other Stockholders, and their successors or
assigns pursuant to Section 2 of Article V below.
ARTICLE II. VOTING RIGHTS
1. Voting of Shares. In any and all elections of directors of the
Company (whether at a meeting or by written consent in lieu of a meeting), each
Stockholder and Management Stockholder shall vote or cause to be voted all
Voting Shares (as defined in Section 2 of Article II below) owned by him or it,
or over which he or it has voting control, and otherwise use his or its
respective best efforts, so as to elect as directors (i) the Chief Executive
Officer of the Company, (ii) one representative designated by North Bridge
Venture Partners, L.P. ("North Bridge"), (iii) one representative designated by
Matrix Partners IV, L.P. ("Matrix"); (iv) one designee approved by North Bridge,
Matrix and the holders of a majority of the then outstanding shares of Common
Stock; and (v) David R. Skok. David R. Skok, for so long as he is willing to
serve, shall be Chairman of the Board of Directors of the Company.
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-3-
<PAGE> 4
2. Voting Shares. "Voting Shares" shall mean and include any and all
shares of the Common Stock, Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and/or shares of capital
stock of the Company, by whatever name called, which carry voting rights
(including voting rights which arise by reason of default) which are now owned
or subsequently acquired by a Stockholder or Management Stockholder, however
acquired, including without limitation stock splits and stock dividends.
3. Restrictive Legend. All certificates representing Voting Shares
owned or hereafter acquired by the Stockholders and Management Stockholders or
any transferee bound by this Agreement shall have affixed thereto a legend
substantially in the following form:
"The shares of stock represented by this certificate are subject to
certain voting agreements as set forth in an Investor Rights
Agreement by and among the registered owner of this certificate,
the Company and certain other stockholders of the Company, a copy
of which is available for inspection at the offices of the
Secretary of the Company."
4. Transfers of Voting Rights. Any transferee to whom Voting Shares are
transferred by a Stockholder or Management Stockholder, whether voluntarily or
by operation of law, shall be bound by the voting obligations imposed upon the
transferor under this Agreement, and shall be entitled to the rights granted to
the transferor under this Agreement, to the same extent as if such transferee
were a Stockholder or Management Stockholder hereunder. Notwithstanding the
foregoing, the rights of North Bridge, Matrix and/or David R. Skok under this
Article II shall terminate at such time as such party owns less than 25% of the
aggregate number of Shares acquired by it pursuant to the Series A Purchase
Agreement, the Series B Purchase Agreement, the Series C Purchase Agreement and
the Purchase Agreement.
ARTICLE III. REGISTRATION RIGHTS
1. Required Registrations.
(a) At any time after the closing of the Company's first
underwritten public offering of shares of Common Stock pursuant to a
Registration Statement, a Stockholder or Stockholders holding in the aggregate
at least 35% of the then outstanding Registrable Shares may request, in writing,
that the Company effect the registration on Form S-1 or Form S-2 (or any
successor form) of Registrable Shares owned by such Stockholders having an
aggregate offering price of at least $10,000,000 (based on the then current
market price or fair value). If the Stockholder or Stockholders
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-4-
<PAGE> 5
initiating the registration intend(s) to distribute the Registrable Shares by
means of an underwriting, such Stockholder or Stockholders shall so advise the
Company in its request. In the event such registration is underwritten, the
right of other Stockholders to participate in such registration shall be
conditioned on such Stockholders' participation in such underwriting. Upon
receipt of any such request, the Company shall promptly give written notice of
such proposed registration to all other Stockholders. Such Stockholders shall
have the right, by giving written notice to the Company within 30 days after the
Company provides its notice, to elect to have included in such registration such
of their Registrable Shares as such Stockholders may request in such notice of
election; provided that if the underwriter (if any) managing the offering
determines that, because of marketing factors, all of the Registrable Shares
requested to be registered by all Stockholders may not be included in the
offering, then all Stockholders who have requested registration shall
participate in the registration pro rata based upon the number of Registrable
Shares which they have requested to be so registered. Thereupon, the Company
shall, as expeditiously as possible, use its reasonable best efforts to effect
the registration on Form S-1 or Form S-2 (or any successor form) of all
Registrable Shares which the Company has been requested to so register.
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), a Stockholder or Stockholders holding in the aggregate at least
200,000 Registrable Shares may request the Company, in writing, to effect the
registration on Form S-3 (or such successor form), of Registrable Shares having
an aggregate offering price of at least $1,000,000 (based on the then current
public market price). Upon receipt of any such request, the Company shall
promptly give written notice of such proposed registration to all other
Stockholders. Such Stockholders shall have the right, by giving written notice
to the Company within 30 days after the Company provides its notice, to elect to
have included in such registration such of their Registrable Shares as such
Stockholders may request in such notice of election; provided that if the
underwriter (if any) managing the offering determines that, because of marketing
factors, all of the Registrable Shares requested to be registered by all
Stockholders may not be included in the offering, then all Stockholders who have
requested registration shall participate in the registration pro rata based upon
the number of Registrable Shares which they have requested to be so registered.
Thereupon, the Company shall, as expeditiously as possible, use its reasonable
best efforts to effect the registration on Form S-3 (or such successor form) of
all Registrable Shares which the Company has been requested to so register.
(c) The Company shall not be required to effect more than two
registrations pursuant to paragraph (a) above; provided, however, that such
obligation shall be deemed satisfied only when a registration statement covering
the applicable Registrable Shares shall have become effective and, if such
method of disposition is a
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firm commitment underwritten public offering, all such Registrable Shares have
been sold pursuant thereto. There shall be no limit on the number of
registrations which may be requested and obtained pursuant to paragraph (b)
above. In addition, the Company shall not be required to effect any registration
(other than on Form S-3 or any successor form relating to secondary offerings)
within six months after the effective date of any other Registration Statement
on Form S-1 of the Company.
(d) If at the time of any request to register Registrable Shares
pursuant to this Section 1, the Company is engaged or has plans to engage within
90 days of the time of the request in a registered public offering of securities
for its own account or is engaged in any other activity which, in the good faith
determination of the Company's Board of Directors, would be adversely affected
by the requested registration to the material detriment of the Company, then the
Company may at its option direct that such request be delayed for a period not
in excess of six months from the effective date of such offering or the date of
commencement of such other material activity, as the case may be, such right to
delay a request to be exercised by the Company not more than once in any
12-month period.
2. Incidental Registration.
(a) Whenever the Company proposes to file a Registration Statement
at any time and from time to time, it will, prior to such filing, give written
notice to all Stockholders and all Management Stockholders of its intention to
do so and, upon the written request of a Stockholder or Stockholders, and/or a
Management Stockholder or Management Stockholders, given within 30 days after
the Company provides such notice (which request shall state the intended method
of disposition of such Registrable Shares), the Company shall use its reasonable
best efforts to cause all Registrable Shares which the Company has been
requested by such Stockholder or Stockholders, or Management Stockholder or
Management Stockholders, to register to be registered under the Securities Act
to the extent necessary to permit their sale or other disposition in accordance
with the intended methods of distribution specified in the request of such
Stockholder or Stockholders, or Management Stockholder or Management
Stockholders; provided, however, that the Company shall have the right to
postpone or withdraw any registration effected pursuant to this Section 2
without obligation to any Stockholder or Management Stockholder.
(b) In connection with any registration under this Section 2
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such registration unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it. If in the opinion of the managing underwriter it is
desirable because of marketing factors to limit the number of Registrable Shares
to be included in the offering, then the Company shall be required to include in
the registration only that number of Registrable Shares, if any,
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which the managing underwriter believes should be included therein; provided,
however, that no persons or entities other than the Company, the Stockholders,
the Management Stockholders and other persons or entities holding registration
rights shall be permitted to include securities in the offering. If the number
of Registrable Shares to be included in the offering in accordance with the
foregoing is less than the total number of shares which the holders of
Registrable Shares have requested to be included, then the holders of
Registrable Shares who have requested registration and other holders of
securities entitled to include them in such registration shall participate in
the registration pro rata based upon their total ownership of shares of Common
Stock (giving effect to the conversion into Common Stock of all securities
convertible thereinto), provided, however, that if the Registration Statement is
filed by the Company upon the exercise of demand registration rights held by
stockholders other than holders of Registrable Shares ("Other Holders") and does
not include shares to be sold for the account of the Company, then the Other
Holders shall be entitled to include all of the shares requested by them to be
included in such Registration Statement before holders of Registrable Shares
shall be entitled to include Registrable Shares therein. If any holder would
thus be entitled to include more securities than such holder requested to be
registered, the excess shall be allocated among other requesting holders pro
rata in the manner described in the preceding sentence.
3. Registration Procedures. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) File with the Commission a Registration Statement with respect
to such Registrable Shares and use its reasonable best efforts to cause that
Registration Statement to become and remain effective;
(b) As expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or 120 days after the effective date thereof;
(c) As expeditiously as possible furnish to each selling
Stockholder or Management Stockholder such reasonable numbers of copies of the
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as the selling
Stockholder or Management Stockholder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Stockholder or Management Stockholder; and
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(d) As expeditiously as possible use its best efforts to register
or qualify the Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as the selling Stockholder or
Management Stockholder shall reasonably request, and do any and all other acts
and things that may be necessary or desirable to enable the selling Stockholder
or Management Stockholder to consummate the public sale or other disposition in
such states of the Registrable Shares owned by the selling Stockholder;
provided, however, that the Company shall not be required in connection with
this paragraph (d) to qualify as a foreign corporation or execute a general
consent to service of process in any jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
selling Stockholder or Management Stockholder and after having done so the
prospectus is amended to comply with the requirements of the Securities Act, the
Company shall promptly notify the selling Stockholders or Management
Stockholders and, if requested, the selling Stockholder or Management
Stockholders shall immediately cease making offers of Registrable Shares and
return all prospectuses then in their possession to the Company. The Company
shall promptly provide each selling Stockholder and Management Stockholder with
revised prospectuses and, following receipt of the revised prospectuses, the
selling Stockholder or Management Stockholder shall be free to resume making
offers of the Registrable Shares.
Notwithstanding the foregoing, each selling Stockholder and Management
Stockholder shall cease making offers or sales pursuant to a Registration
Statement during any period (not to exceed 90 days) in which the Company
determines, by notice to each Selling Stockholder and Management Stockholder,
that it is in possession of material non-public information.
4. Allocation of Expenses. The Company will pay all Registration
Expenses of all registrations under this Agreement; provided, however, that if a
registration under Section 1 of Article III is withdrawn at the request of the
Stockholders requesting such registration (other than as a result of information
concerning the business or financial condition of the Company which is made
known to the Stockholders after the date on which such registration was
requested) and if the requesting Stockholders elect not to have such
registration counted as a registration requested under Article III, Section 1,
the requesting Stockholders shall pay the Registration Expenses of such
registration pro rata in accordance with the number of their Registrable Shares
included in such registration. For purposes of this Section 4, the term
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with Article III, Section 1, including, without limitation, all
registration and filing fees, exchange listing fees, printing expenses, fees and
expenses of counsel for the Company and the fees and expenses of counsel
selected by the selling Stockholder(s) to represent the selling Stockholder(s),
state Blue Sky fees and expenses, and the expense of any special audits incident
to or required by any such registration, but excluding underwriting discounts,
selling commissions and the fees and
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expenses of selling Stockholders' and Management Stockholders' own counsel
(other than the counsel selected to represent all selling Stockholder(s)).
5. Indemnification and Contribution.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or final prospectus, or any such
amendment or Supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or controlling person may become subject
under the Securities Act, Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus
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or final prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information relating to such seller furnished in writing to the Company by or on
behalf of such seller specifically for use in connection with the preparation of
such Registration Statement, prospectus, amendment or supplement; provided,
however, that the obligations of such Stockholders hereunder shall be limited to
an amount equal to the proceeds to each Stockholder of Registrable Shares sold
in connection with such registration.
(c) Each party entitled to indemnification under this Article III,
Section 5 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article III, Section 5. The
Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall pay such expense if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect of such
claim or litigation, and no indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written consent of
the Indemnifying Party.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Registrable Shares exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Article III, Section 5 but it is judicially determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Article III, Section 5 provides for indemnification in such case, or
(ii) contribution under the Securities Act may be required on the part of any
such selling Stockholder or any such controlling person in circumstances for
which indemnification is provided
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under this Article III, Section 5; then, in each such case, the Company and such
Stockholder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportions so that such holder is responsible for the portion represented
by the percentage that the public offering price of its Registrable Shares
offered by the Registration Statement bears to the public offering price of all
securities offered by such Registration Statement, and the Company is
responsible for the remaining portion; provided, however, that, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the proceeds to it of all Registrable Shares sold by it pursuant to such
Registration Statement, and (B) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Securities Act,
shall be entitled to contribution from any person or entity who is not guilty of
such fraudulent misrepresentation
6. Indemnification with Respect to Underwritten Offering. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Article III, Section 1, the Company agrees to
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by the Company of the underwriters of such offering.
7. Information by Holder. Each Stockholder and Management Stockholder
including Registrable Shares in any registration shall furnish to the Company
such information regarding such Stockholder or Management Stockholder and the
distribution proposed by such Stockholder or Management Stockholder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.
8. "Stand-Off" Agreement. Each Stockholder and Management Stockholder,
if requested by the Company and the managing underwriter of an offering by the
Company of Common Stock or other securities of the Company pursuant to a
Registration Statement, shall agree not to sell publicly or otherwise transfer
or dispose of any Registrable Shares or other securities of the Company held by
such Stockholder for a specified period of time (not to exceed 180 days)
following the effective date of such Registration Statement; provided, that:
(a) such agreement shall only apply to the first Registration
Statement covering Common Stock to be sold on its behalf to the public in an
underwritten offering; and
(b) all officers and directors of the Company enter into similar
agreements.
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9. Limitations on Subsequent Registration Rights. The Company shall
not, without the prior written consent of Stockholders holding at least 66 2/3%
of the Registrable Shares held by all Stockholders, enter into any agreement
(other than this Agreement) with any holder or prospective holder of any
securities of the Company which would allow such holder or prospective holder
(a) to include securities of the Company in any Registration Statement, unless
under the terms of such agreement, such holder or prospective holder may include
such securities in any such registration only on terms substantially similar to
the terms on which holders of Registrable Shares may include shares in such
registration, or (b) to make a demand registration which could result in such
registration statement being declared effective prior to June 30, 2005.
10. Rule 144 Requirements. After the earliest of (a) the closing of the
sale of securities of the Company pursuant to a Registration Statement, (b) the
registration by the Company of a class of securities under Section 12 of the
Exchange Act, or (c) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees to:
(i) Comply with the requirements of Rule 144(c) under the
Securities Act with respect to current public information about the Company;
(ii) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(iii) Furnish to any holder of Registrable Shares upon request (A)
a written statement by the Company as to its compliance with the requirements of
said Rule 144(c), and the reporting Requirements of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), (B) a copy of the most recent annual or quarterly report of the
Company, and (C) such other reports and documents of the Company as such holder
may reasonably request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
ARTICLE IV. RIGHT OF FIRST REFUSAL
1. Right of First Refusal
(a) The Company shall not issue, sell or exchange, agree to issue,
sell or exchange, or reserve or set aside for issuance, sale or exchange, (i)
any shares of its Common Stock, (ii) any other equity securities of the Company,
including, without limitation, shares of preferred stock, (iii) any option,
warrant or other right to subscribe
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for, purchase or otherwise acquire any equity securities of the Company, or (iv)
any debt securities convertible into capital stock of the Company (collectively,
the "Offered Securities"), unless in each such case the Company shall have first
complied with Article IV of this Agreement. The Company shall deliver to the
Investors a written notice of any proposed or intended issuance, sale or
exchange of Offered Securities (the "Offer"), which Offer shall (i) identify and
describe the Offered Securities, (ii) describe the price and other terms upon
which they are to be issued, sold or exchanged, and the number or amount of the
Offered Securities to be issued, sold or exchanged, (iii) identify the persons
or entities, if known, to which or with which the Offered Securities are to be
offered, issued, sold or exchanged, and (iv) offer to issue and sell to or
exchange with the Investors (A) such portion of the Offered Securities as the
aggregate number of Shares then held by the Investor bears to the total number
of shares of Common Stock then outstanding (including shares of Common Stock
issuable upon conversion of outstanding convertible securities without the
payment of additional consideration even if such conversion has not been
effected) (the "Basic Amount"), and (B) such additional portion of the Offered
Securities as the Investor indicates it will purchase or acquire should other
prospective investors acquire less than all of the Offered Securities not
initially offered to the Investors (the "Undersubscription Amount"). Each
Investor shall have the right, for a period of 30 days following delivery of the
Offer, to purchase or acquire, at the price and upon the other terms specified
in the Offer, the number or amount of Offered Securities described above. The
Offer by its term shall remain open and irrevocable for such 30-day period.
(b) To accept an Offer, in whole or in part, an Investor must
deliver a written notice to the Company prior to the end of the 30-day period of
the Offer, setting forth the portion of the Investor's Basic Amount that such
Investor elects to purchase and, if such Investor shall elect to purchase all of
its Basic Amount, the Undersubscription Amount (if any) that such Investor
elects to purchase (the "Notice of Acceptance"). If the Basic Amounts subscribed
for by all Investors are less than the total Offered Securities, then each
Investor who has set forth Undersubscription Amounts in its Notice of Acceptance
shall be entitled to purchase, in addition to the Basic Amounts subscribed for,
all Undersubscription Amounts it has subscribed for; provided, however, that
should the Undersubscription Amounts subscribed for exceed the difference
between the Offered Securities and the Basic Amounts subscribed for (the
"Available Undersubscription Amount"), each Investor who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Undersubscription Amount subscribed
for by such Investor bears to the total Undersubscription Amounts subscribed for
by all Investors, subject to rounding by the Board of Directors to the extent it
reasonably deems necessary.
(c) In the event that Notices of Acceptance are not given by the
Investors in respect of all the Offered Securities, the Company shall have 90
days from
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the expiration of the period set forth in Section 1(a) of Article IV to issue,
sell or exchange all or any part of such Offered Securities as to which a Notice
of Acceptance has not been given by the Investors (the "Refused Securities"),
but only to the offerees or purchasers described in the Offer and only upon
terms and conditions (including, without limitation, unit prices and interest
rates) which are not more favorable, in the aggregate, to the acquiring person
or persons or less favorable to the Company than those set forth in the Offer.
(d) In the event the Company shall propose to sell less than all
the Refused Securities (any such sale to be in the manner and on the terms
specified in Section 1(c) of Article IV), then each Investor may, at its sole
option and in its sole discretion, reduce the number or amount of the Offered
Securities specified in its Notice of Acceptance to an amount that shall be not
less than the number or amount of the Offered Securities that the Investor
elected to purchase pursuant to Section 1(b) of Article IV, multiplied by a
fraction, (i) the numerator of which shall be the number or amount of Offered
Securities the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Investors pursuant to Section 1(b) of
Article IV prior to such reduction) and (ii) the denominator of which shall be
the amount of all Offered Securities. In the event that any Investor so elects
to reduce the number or amount of Offered Securities specified in its Notice of
Acceptance, the Company may not issue, sell or exchange more than the reduced
number or amount of the Offered Securities unless and until such securities have
again been offered to the Investors in accordance with Section 1(a) of Article
IV.
(e) Upon the closing of the issuance, sale or exchange of all or
less than all the Refused Securities, the Investors shall acquire from the
Company, and the Company shall issue to the Investors, the number or amount of
Offered Securities specified in the Notices of Acceptance, as reduced pursuant
to Section 1(d) of Article IV if the Investors have so elected, upon the terms
and conditions specified in the Offer. The purchase by the Investors of any
Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Investors of a purchase agreement relating to
such Offered Securities reasonably satisfactory in form and substance to the
Investors and their respective counsel.
(f) Any Offered Securities not acquired by the Investors or other
persons in accordance with Section 1(c) of Article IV may not be issued, sold or
exchanged until they are offered to the Investors under the procedures specified
in this Article.
2. Excluded Issuances. The rights of the Investors under this Article
IV shall not apply to:
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(a) Common Stock issued as a stock dividend to holders of Common
Stock or upon any subdivision or combination of shares of Common Stock;
(b) The issuance of any shares of Common Stock upon conversion of
outstanding shares of convertible preferred stock;
(c) Up to 1,955,719 shares of Common Stock, or options exercisable
therefor (such number to be proportionately adjusted in the event of any stock
splits, stock dividends, recapitalizations or similar events occurring on or
after the date of this Agreement) issuable to officers, directors, consultants
and employees of the Company or any subsidiary pursuant to any plan, agreement
or arrangement approved by a vote of not less than a majority of the Board of
Directors of the Company;
(d) Securities issued solely in consideration for the acquisition
(whether by merger or otherwise) by the Company or any of its subsidiaries of
all or substantially all of the stock or assets of any other entity;
(e) Shares of Common Stock sold by the Company in an underwritten
public offering pursuant to an effective registration statement under the
Securities Act;
(f) Shares of Common Stock issued by the Company, with the approval
of a majority of the Board of Directors, in connection with strategic alliances
and similar arrangements;
(g) Shares of Series A Preferred Stock issued by the Company
pursuant to the Series A Purchase Agreement;
(h) Shares of Series B Preferred Stock issued by the Company
pursuant to the Series B Purchase Agreement;
(i) Shares of Series C Preferred Stock issued by the Company
pursuant to the Series C Purchase Agreement; or
(j) Shares of Series D Preferred Stock issued by the Company
pursuant to the Purchase Agreement.
ARTICLE V. GENERAL
1. Termination. Article II of this Agreement shall terminate on the
closing of an Initial Public Offering. All of the Company's obligations to
register Registrable Shares
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under Article III of this Agreement shall terminate in their entirety on the
tenth anniversary of the Initial Public Offering. Article IV of this Agreement
shall terminate in its entirety upon the earlier of (i) the sale of all or
substantially all of the assets or business of the Company, by merger, sale of
assets or otherwise, and (ii) the closing of an Initial Public Offering.
2. Transfer of Rights. This Agreement, and the rights and obligations
of the Investors, Stockholders and Management Stockholders hereunder, may be
assigned by the Investors, Stockholders and Management Stockholders to any
person or entity to which Registrable Shares are transferred by the Investors,
Stockholders or Management Stockholders, and such transferee shall be deemed an
"Investor," "Stockholder" or "Management Stockholder," as the case may be, for
purposes of this Agreement; provided that (i) the transferee provides written
notice of such assignment to the Company and (ii) no assignee shall be a
customer or competitor of the Company unless the Board of Directors of the
Company otherwise agrees.
3. Severability. The provisions of this Agreement are severable, so
that the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other term or provision of this
Agreement, which shall remain in full force and effect.
4. Specific Performance. In addition to any and all other remedies that
may be available at law in the event of any breach of this Agreement, the
Investors and the Stockholders shall be entitled to specific performance of the
agreements and obligations of the Company and the Investors and the Stockholders
hereunder and to such other injunctive or other equitable relief as may be
granted by a court of competent jurisdiction.
5. Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the Commonwealth of Massachusetts
(without reference to the conflicts of law provisions thereof).
6. Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered by hand or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid:
If to the Company, at SilverStream Software, Inc., One Burlington Woods
Drive, Burlington, MA 01803, Attention: President, or at such other address or
addresses as may
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
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have been furnished in writing by the Company to the Investors, with a copy to
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention: John
H. Chory, Esq.;
If to an Investor, at his address as set forth on Attachment A, or at
such other address or addresses as may have been furnished to the Company in
writing by such Investor;
If to a Management Stockholder, at his address as set forth on
Attachment B, or at such other address or addresses as may have been furnished
to the Company in writing by such Management Stockholder; or
If to an Other Stockholder, at his address as set forth on Attachment
C, or at such other address or addresses as may have been furnished to the
Company in writing by such Other Stockholder.
Notices provided in accordance with this Section 6 shall be deemed
delivered upon personal delivery or five business days after deposit in the
mail.
7. Complete Agreement; Amendments. This Agreement constitutes the full
and complete agreement of the parties hereto with respect to the subject matter
hereof. This Agreement may be amended at any time by a written instrument signed
by the Company, Stockholders holding at least a majority of the Registrable
Shares then held by all Stockholders and at least one of North Bridge or Matrix;
provided that additional persons or entities who become "Purchasers" pursuant to
Section 2 of the Purchase Agreement may become "Other Stockholders" hereunder
and shall be added to Attachment C upon their execution of a counterpart
signature page hereto. No waivers of, or exceptions to, any term, condition or
provision of this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
8. Pronouns. Whenever the content may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one Agreement binding on all the parties hereto.
10. Captions. Captions of sections have been added only for convenience
and shall not be deemed to be a part of this Agreement.
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-17-
<PAGE> 18
11. Confidential Information. Confidential or proprietary information
disclosed by any party under this Agreement or the Purchase Agreement shall be
considered confidential information (the "Confidential Information") and shall
not be disclosed by the Company or any other party to this Agreement to any
third party. Each party shall immediately notify the other parties of any
information that comes to its attention which might indicate that there has been
a loss of confidentiality with respect to the Confidential Information. In the
event that the Company or any other party is requested or becomes legally
compelled (by statute or regulation or by oral questions, interrogatories,
request for information or documents, subpoena, criminal or civil investigative
demand or similar process, including without limitation, in connection with any
public or private offering of the Company's capital stock) to disclose any of
the Confidential Information, such party (the "Disclosing Party") shall provide
to other parties (the "Non-Disclosing Parties") with prompt written notice of
the fact and shall seek (with the cooperation and reasonable efforts of the
Non-Disclosing Parties) a protective order, confidential treatment or other
appropriate remedy. In such event, the Disclosing Parties shall furnish only
that portion of the Confidential Information which is legally required and shall
exercise reasonable efforts to obtain reliable assurance that confidential
treatment will be accorded the Confidential Information to the extent reasonably
requested by the Non-Disclosing Parties. The provisions of this Section 11 shall
be in addition to, and not in substitution for, the provisions of any separate
nondisclosure agreement executed by the parties hereto with respect to the
transactions contemplated hereby.
12. [Intentionally Omitted]
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-18-
<PAGE> 19
[SIGNATURE PAGES TO FOLLOW]
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-19-
<PAGE> 20
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first written above.
COMPANY:
SILVERSTREAM SOFTWARE, INC.
By: /s/ David A. Litwack
------------------------------------
Title: President and CEO
------------------------------------
INVESTORS:
ESSEX PERFORMANCE FUND, L.P.
By: /s/ Joseph McNay
------------------------------------
General Partner
ESSEX HIGH TECHNOLOGY FUND, L.P.
By: /s/ Colin McNay
------------------------------------
General Partner
THE NEW DISCOVERY FUND LIMITED LTD.
By: /s/ Joseph McNay
------------------------------------
Name:
Title:
ROBERTSON FOUNDATION
By:
------------------------------------
Name:
Title:
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-20-
<PAGE> 21
ESSEX PRIVATE PLACEMENT FUND,
LIMITED PARTNERSHIP
By: /s/ Colin McNay
------------------------------------
General Partner
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-20A-
<PAGE> 22
INTEL CORPORATION
By: /s/ Noel Lazo
------------------------------------
Name:
Title:
NORTH BRIDGE VENTURE PARTNERS, L.P.
By: North Bridge Venture Management, L.P.,
its General Partner
By: /s/ Richard A. D'Amore
------------------------------------
General Partner
MATRIX PARTNERS IV, L.P.
By: Matrix IV Management Co., L.P.,
------------------------------------
its General Partner
By: /s/ Timothy Barrows
------------------------------------
General Partner
MATRIX IV ENTREPRENEURS FUND, L.P.
By: Matrix IV Management Co., L.P.,
its General Partner
By: /s/ Timothy Barrows
------------------------------------
General Partner
/s/ David R. Skok
------------------------------------------
David R. Skok
/s/ David A. Litwack
------------------------------------------
David A. Litwack
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-21-
<PAGE> 23
/s/ David Dewan
--------------------------------------
David Dewan
THE LESLIE C. DEWAN TRUST - 1992
By: /s/ James R. Nichols
--------------------------------------
James R. Nichols
Trustee
THE ROBERT W. DEWAN TRUST - 1992
By: /s/ James R. Nichols
--------------------------------------
James R. Nichols
Trustee
MANAGEMENT STOCKHOLDERS:
/s/ David R. Skok
--------------------------------------
David R. Skok
/s/ David A. Litwack
--------------------------------------
David A. Litwack
OTHER STOCKHOLDERS:
JK&B CAPITAL, L.P.
By: JK&B Management, L.L.C.,
its General Partner
By:
--------------------------------------
Member
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-22-
<PAGE> 24
JK&B CAPITAL II, L.P.
By: JK&B Management, L.L.C.,
its General Partner
By:
--------------------------------------
Member
FAIROAKS PARTNERS II, L.P.
By: Fairoaks Asset Management, Inc.,
its Administrative Agent
By: /s/ Jason L. Michel
--------------------------------------
General Partner
WENONAH DEVELOPMENT COMPANY
By: /s/ Clifford L. Michel
--------------------------------------
Name:
Title:
NORTHEASTER INVESTMENT CO.
By: /s/ Peter E. Lacaillade
--------------------------------------
Name:
Title:
ARDENT RESEARCH PARTNERS, L.P.
By: /s/ Francis J. Saldutti
--------------------------------------
General Partner
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-23-
<PAGE> 25
DAVID A. DUFFIELD TRUST DATED
JULY 14, 1988
By:
--------------------------------------
Trustee
/s/ Alan J. Bankart
-------------------------------------------
Alan J. Bankart
/s/ Alan J. Bankart
-------------------------------------------
Alan J. Bankart IRA
/s/ Diane K. Bankart
-------------------------------------------
Diane K. Bankart
-------------------------------------------
Margaret L. Taylor
-------------------------------------------
Martin J. Weber
/s/ Arny Epstein
-------------------------------------------
Arny Epstein
/s/ John Pearce
-------------------------------------------
John Pearce
/s/ Kim Sheffield
-------------------------------------------
Kim Sheffield
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-24-
<PAGE> 26
HYMAN LITWACK TRUST DATED
SEPTEMBER 5, 1990
By: /s/ Hyman Litwack
-------------------------------------
Hyman Litwack
Trustee
By: /s/ Bessie Litwack
-------------------------------------
Bessie Litwack
Trustee
BESSIE LITWACK TRUST DATED
SEPTEMBER 5, 1990
By: /s/ Hyman Litwack
-------------------------------------
Hyman Litwack
Trustee
By: /s/ Bessie Litwack
-------------------------------------
Bessie Litwack
Trustee
/s/ Brian C. Phelan /s/ Diane S. Phelan
-----------------------------------------
Brian C. Phelan and Diane S. Phelan,
JT TEN
/s/ Peter Brumme
-------------------------------------
Peter Brumme
/s/ Edward Clarke
-------------------------------------
Edward Clarke
-------------------------------------
Keith Daniel
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-25-
<PAGE> 27
/s/ Ray Glassmann
-------------------------------------
Ray Glassmann
-------------------------------------
Larry Weatherford
/s/ Martin Chalk
-------------------------------------
Martin Chalk
/s/ Craig Dynes
-------------------------------------
Craig Dynes
/s/ Ellen Freeman
-------------------------------------
Ellen Freeman
/s/ Ben Mayberry
-------------------------------------
Ben Mayberry
-------------------------------------
Stewart Alsop
/s/ Irina Shishov
-------------------------------------
Irina Shishov
/s/ Edward W. Takacs
-------------------------------------
Edward W. Takacs
/s/ Morton Epstein
-------------------------------------
Morton Epstein
/s/ Alice Epstein
-------------------------------------
Alice Epstein
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-26-
<PAGE> 28
/s/ Gary Epstein
-------------------------------------
Gary Epstein
/s/ David Readerman
-------------------------------------
David Readerman
-------------------------------------
Michel Goosens
-------------------------------------
Gerald Goetgeluck
-------------------------------------
Roman Stanek
-------------------------------------
Samuel Rozenberg
-------------------------------------
Henri Misrahi
-------------------------------------
Weslyeh Mohriak
/s/ L. Scott Frantz
-------------------------------------
L. Scott Frantz
DOVREGRUPPEN ASA
-------------------------------------
Name:
Title:
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-27-
<PAGE> 29
IFFS SUPERANNUATION FUND
-------------------------------------
Name:
Title:
NICHIMEN CORPORATION
-------------------------------------
Name:
Title:
NICHIMEN DATA SYSTEMS CORPORATION
-------------------------------------
Name:
Title:
IONA TECHNOLOGIES FINANCE
/s/ Daniel Demmer
-------------------------------------
Name:
Title:
PEQUOT CAPITAL
-------------------------------------
Name:
Title:
-------------------------------------
Joe McCall
/s/ Jonathan Art
-------------------------------------
Jonathan Art
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-28-
<PAGE> 30
/s/ Don Peterson
-------------------------------------
Don Peterson
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-29-
<PAGE> 31
TECHNOLOGY VENTURES, LLC
By: /s/ Joe McCall
-------------------------------------
Member
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-30-
<PAGE> 32
PEQUOT PRIVATE EQUITY FUND, L.P.
By: /s/ David Malat
-------------------------------------
Name:
Title:
PEQUOT OFFSHORE PRIVATE EQUITY FUND,
INC.
By: /s/ David Malat
-------------------------------------
Name:
Title:
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SILVERSTREAM SOFTWARE, INC.
-31-
<PAGE> 1
Exhibit 5.1
-----------
July 16, 1999
SilverStream Software, Inc.
One Burlington Woods
Suite 200
Burlington, MA 01803
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-80553) (as amended, the "Registration
Statement") filed with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), for the
registration of 2,683,333 shares of Common Stock, $.001 par value per share (the
"Shares"), of SilverStream Software, Inc., a Delaware corporation (the
"Company"), including 350,000 Shares issuable upon exercise of an over-allotment
option granted by the Company.
The Shares are to be sold by the Company pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into by and among the
Company and Morgan Stanley & Co. Incorporated, BancBoston Robertson Stephens
Inc. and SG Cowen Securities Corporation, as representatives of the several
underwriters named in the Underwriting Agreement, the form of which will be
filed as Exhibit 1.1 to the Registration Statement.
We are acting as counsel for the Company in connection with the issue and
sale by the Company of the Shares. We have examined signed copies of the
Registration Statement as filed with the Commission. We have also examined and
relied upon the Underwriting Agreement, minutes of meetings of the stockholders
and the Board of Directors of the Company as provided to us by the Company,
stock record books of the Company as provided to us by the Company, the
Certificate of Incorporation and By-Laws of the Company, each as restated and/or
amended to date, and such other documents as we have deemed necessary for
purposes of rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
<PAGE> 2
We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares in accordance with the Underwriting Agreement, to register
and qualify the Shares for sale under all applicable state securities or "blue
sky" laws.
We express no opinion herein as to the laws of any state or jurisdiction
other than the state laws of The Commonwealth of Massachusetts, the Delaware
General Corporation Law statute and the federal laws of the United States of
America. To the extent that any other laws govern the matters as to which we are
opining herein, we have assumed that such laws are identical to the state laws
of The Commonwealth of Massachusetts, and we are expressing no opinion herein as
to whether such assumption is reasonable or correct.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, when the Shares are issued
and paid for in accordance with the terms and conditions of the Underwriting
Agreement, the Shares will be validly issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This opinion
is based upon currently existing statutes, rules, regulations and judicial
decisions, and we disclaim any obligation to advise you of any change in any of
these sources of law or subsequent legal or factual developments which might
affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters." In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
<PAGE> 1
Exhibit 10.3
SILVERSTREAM SOFTWARE, INC.
AMENDED AND RESTATED
1999 EMPLOYEE STOCK PURCHASE PLAN
The purpose of this Amended and Restated 1999 Employee Stock Purchase Plan
(the "Plan") is to provide eligible employees of SilverStream Software, Inc., a
Delaware corporation (the "Company"), and certain of its subsidiaries with
opportunities to purchase shares of the Company's common stock, $.001 par value
(the "Common Stock"). Three hundred thousand (300,000) shares of Common Stock
(prior to giving effect to the stock split approved by the Company's Board of
Directors in June 1999) in the aggregate have been approved for this purpose.
This Plan is intended to qualify as an "employee stock purchase plan" as defined
in Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations promulgated thereunder, and shall be interpreted consistent
therewith.
1. ADMINISTRATION. The Plan will be administered by the Company's Board
of Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. ELIGIBILITY. All employees of the Company, including Board members who
are employees, and all employees of any subsidiary of the Company (as defined in
Section 424(f) of the Code) designated by the Board or the Committee from time
to time (a "Designated Subsidiary"), are eligible to participate in any one or
more of the offerings of Options (as defined in Section 9) to purchase Common
Stock under the Plan provided that:
(a) they are customarily employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in a
calendar year; and
(b) for the first Offering (as defined below), they were employed by
the Company or a Designated Subsidiary on or before June 30, 1999, and for
each subsequent Offering, they have been employed by the Company or a
Designated Subsidiary for at least three months prior to enrolling in the
Plan; and
(c) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
<PAGE> 2
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
3. OFFERINGS. The Company will make one or more offerings ("Offerings")
to employees to purchase stock under this Plan. Offerings will begin on such
date or dates as may be established by the Board from time to time (the
"Offering Commencement Dates"), provided that the first Offering Commencement
Date shall be the date on which trading of the Common Stock commences on the
Nasdaq National Market in connection with an initial public offering of Common
Stock pursuant to an effective registration statement under the Securities Act
of 1933, as amended (the "Securities Act"). Each Offering Commencement Date will
begin a six-month period (a "Plan Period") during which payroll deductions will
be made and held for the purchase of Common Stock at the end of the Plan Period.
The Board or the Committee may, at its discretion, choose a different Plan
Period of twelve (12) months or less for subsequent Offerings.
4. PARTICIPATION. An employee eligible on the Offering Commencement Date
of any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the employee's appropriate payroll
office at least 14 days prior to the applicable Offering Commencement Date. The
form will authorize a regular payroll deduction from the Compensation (as
defined below) received by the employee during the Plan Period. Unless an
employee files a new form or withdraws from the Plan, his or her deductions and
purchases will continue at the same rate for future Offerings under the Plan as
long as the Plan remains in effect. The term "Compensation" means the amount of
money reportable on the employee's Federal Income Tax Withholding Statement,
excluding overtime, shift premium, sales commissions, incentive or bonus awards,
allowances and reimbursements for expenses such as relocation allowances for
travel expenses, income or gains on the exercise of Company stock options or
stock appreciation rights, and similar items, whether or not shown on the
employee's Federal Income Tax Withholding Statement.
5. DEDUCTIONS. The Company will maintain payroll deduction accounts for
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction, as set forth below, from the
Compensation he or she receives during the Plan Period or such shorter period
during which deductions from payroll are made. Payroll deductions may be at the
rate of 1%, 2%, 3%, 4%, 5%, 6%, 7%, 8%, 9% or 10% of Compensation.
-2-
<PAGE> 3
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
6. DEDUCTION CHANGES. An employee may decrease or discontinue his or her
payroll deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his or her payroll
deduction during a Plan Period. If an employee elects to discontinue his or her
payroll deductions during a Plan Period, but does not elect to withdraw his or
her funds pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. INTEREST. Interest will not be paid on any employee accounts, except
to the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. WITHDRAWAL OF FUNDS. An employee may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee.
9. PURCHASE OF SHARES. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, the largest number of whole shares of Common Stock of the Company
as does not exceed the number of shares determined by multiplying $2,083 by the
number of full months in the Offering Period and dividing the result by the
closing price (as defined below) on the Offering Commencement Date of such Plan
Period.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock on
the Nasdaq National Market or (c) the average of the closing bid and
-3-
<PAGE> 4
asked prices in the over-the-counter-market, whichever is applicable, as
published in THE WALL STREET JOURNAL. If no sales of Common Stock were made on
such a day, the price of the Common Stock for purposes of clauses (a) and (b)
above shall be the reported price for the next preceding day on which sales were
made. Notwithstanding the foregoing, for purposes of this Section 9, the closing
price of the Common Stock on the first business day of the first Plan Period
shall be deemed to be the price per share for which the Common Stock was offered
to the public in the Company's initial public offering.
Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of full
shares of Common Stock reserved for the purpose of the Plan that his accumulated
payroll deductions on such date will pay for, but not in excess of the maximum
number determined in the manner set forth above.
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee, except that any
balance which is less than the purchase price of one share of Common Stock will
be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded to the employee.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the name
of a brokerage firm, bank or other nominee holder designated by the employee.
The Company may, in its sole discretion and in compliance with applicable laws,
authorize the use of book entry registration of shares in lieu of issuing stock
certificates.
11. RIGHTS ON RETIREMENT, DEATH OR TERMINATION OF EMPLOYMENT. In the event
of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law), (b) in the absence of such
a designated beneficiary, to the executor or administrator of the employee's
estate or (c) if no such executor or administrator has been appointed to the
knowledge of the Company, to such other person(s) as the Company may, in its
discretion, designate. If, prior to the last business day of the Plan Period,
the Designated Subsidiary by which an employee is employed shall cease to be a
subsidiary of the Company, or if the
-4-
<PAGE> 5
employee is transferred to a subsidiary of the Company that is not a Designated
Subsidiary, the employee shall be deemed to have terminated employment for the
purposes of this Plan.
12. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him or her.
13. RIGHTS NOT TRANSFERABLE. Rights under this Plan are not transferable
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. APPLICATION OF FUNDS. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event of
any stock split, stock dividend, recapitalization, reorganization, merger,
consolidation, combination, exchange of shares, liquidation, spin-off or other
similar change in capitalization or event, or any distribution to holders of
Common Stock other than a normal cash dividend, the number of shares approved
for this Plan, the number of shares subject to any outstanding Option and the
purchase price thereof shall be adjusted proportionately, and such other
adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. MERGER. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Section 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder.
-5-
<PAGE> 6
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, all outstanding Options shall be
cancelled by the Board or the Committee as of the effective date of any such
transaction, provided that notice of such cancellation shall be given to each
holder of an Option, and each holder of an Option shall have the right to
exercise such Option in full based on payroll deductions then credited to his
account as of a date determined by the Board or the Committee, which date shall
not be less than ten (10) days preceding the effective date of such transaction.
17. AMENDMENT OF THE PLAN. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
18. INSUFFICIENT SHARES. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. TERMINATION OF THE PLAN. This Plan may be terminated at any time by
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock exchange
or quotation on the Nasdaq National Market and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of
such stock.
21. GOVERNING LAW. The Plan shall be governed by Delaware law except to
the extent that such law is preempted by federal law.
22. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the
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<PAGE> 7
Option pursuant to which such shares were purchased or one year after the date
of exercise of the Option.
24. EFFECTIVE DATE AND APPROVAL OF STOCKHOLDERS. The Plan shall take
effect upon the effectiveness of the Company's registration statement under the
Securities Act relating to the Company's initial public offering of Common
Stock, subject to approval by the stockholders of the Company as required by
Section 423 of the Code, which approval must occur within twelve months of the
adoption of the Plan by the Board.
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<PAGE> 1
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 10.10
-------------
OEM Master License Agreement Number: 0997-SIL-O-MLA-1
RSA DATA SECURITY(TM)
OEM MASTER LICENSE AGREEMENT
THIS OEM MASTER LICENSE AGREEMENT ("Agreement"), effective as of the later
date of execution ("Effective Date"), is entered into by and between RSA Data
Security, Inc., a Delaware corporation ("RSA"), having a principal address at
100 Marine Parkway, Suite 500, Redwood City, California 94065, and the entity
named below ("OEM"), having a principal address as set forth below.
OEM:
SilverStream Software, Inc., a Delaware corporation
- ---------------------------------------------------
(Name and jurisdiction of incorporation)
One Burlington Woods
- --------------------
(Address)
Burlington, MA 01803
- ---------------------
OEM Legal Contact:
Craig Dynes, Vice President and Chief
-------------------------------------
Financial Officer (617) 238-5471
--------------------------------
(name, telephone and title)
OEM Billing Contact:
Craig Dynes, Vice President and Chief
-------------------------------------
Financial Officer (617) 238-5471
--------------------------------
(name, telephone and title)
OEM Technical Contact:
Kim Sheffield, Vice President of Research
-----------------------------------------
and Development (617) 238-5400
------------------------------
(name, telephone and title)
OEM Commercial Contact:
Craig Dynes, Vice President and Chief
-------------------------------------
Financial Officer (617) 238-5471
--------------------------------
(name, telephone and title)
Territory:
[ ] North America (United States and Canada)
[X] Worldwide, subject to Section 10.7.
Separate Maintenance Agreement:
YES [X] NO [ ]
1. DEFINITIONS
The following terms when used in this Agreement shall have the following
meanings:
1.1 "Bundled Product(s)" means one or more of the products or product
groups described on a License/Product Schedule attached hereto and referencing
this Agreement which has been or will be developed by OEM and which incorporates
in the OEM Product in any manner any portion of the RSA Object Code. A Bundled
Product must represent a significant functional and value enhancement to the
Licensed Software such that the primary reason for an End User Customer to
license such Bundled Product is other than the right to receive a license to the
Licensed Software included in the Bundled Product.
1.2 "Distributor" means a dealer or distributor in the business of
reselling Bundled Products to End User Customers, directly or through one or
more Distributors, by virtue of authority of OEM. Bundled Products resold by a
Distributor shall bear OEM's trademarks and service marks and shall not be
privately labeled by such Distributor or other parties. A Distributor shall have
no right to modify any part of the Bundled Product.
1.3 "End User Customer" means a person or entity licensing RSA Object Code
as part of a Bundled Product from OEM or a Distributor solely for personal or
internal use and without right to license, assign or otherwise transfer such
Bundled Product to any other person or entity.
<PAGE> 2
1.4 "Interface Modification" means a modification to the RSA Source Code
constituting and limited to hooks, ports or Interfaces and similar modifications
necessary to permit the Licensed Software to operate in accordance with the User
Manual in OEM Products.
1.5 "License/Product Schedule" means a schedule substantially in the form
of Exhibit "A" hereto completed and executed with respect to a Bundled Product
and specifying the Licensed Software, Field of Use limitation (if any), license
and maintenance fees, and other matters with respect to such Bundled Product. A
License/Product Schedule can be amended pursuant to Section 10.5 with respect to
a specified Bundled Product; and additional Bundled Products may be added to
this Agreement by executing an additional License/Product Schedule referencing
this Agreement. All such License/Product Schedules are incorporated in this
Agreement by this reference.
1.6 "Field of Use" means a use, method of incorporation or product purpose
limitation with respect to the Licensed Software for a Bundled Product specified
on the License/Product Schedule for such Bundled Product.
1.7 "Licensed Software" means those portions of the RSA Software which
perform the algorithm(s) specified on page 2 of a License/Product Schedule
hereto as having been licensed by OEM with respect to a particular Bundled
Product.
1.8 "New Release" means a version of the RSA Software which shall
generally be designated by a new version number which has changed from the prior
number only to the right of the decimal point (e.g., Version 2.2 to Version
2.3).
1.9 "New Version" means a version of the RSA Software which shall
generally be designated by a new version number which has changed from the prior
number to the left of the decimal point (e.g., Version 2.3 to Version 3.0).
1.10 "OEM Product" means any product developed by OEM into which the
Licensed Software is to be incorporated to create a Bundled Product.
1.11 "RSA Object Code" means the Licensed Software in machine-readable,
compiled object code form.
1.12 "RSA Software" means RSA proprietary software identified on a
License/Product Schedule hereto and as further described in the User Manuals
associated therewith. "RSA Software" shall also include all modifications and
enhancements (including all New Releases and New Versions) to such programs as
may be provided by RSA to OEM pursuant to this Agreement or a maintenance
agreement between RSA and OEM.
1.13 "RSA Source Code" means the mnemonic, high level statement versions of
the Licensed Software written in the source language used by programmers.
1.14 "Territory" means those geographic areas specified on page 1.
1.15 "User Manual" means the most current version of the user manual and/or
reference manual customarily supplied by RSA to OEMs who license the RSA
Software.
2. LICENSES
2.1 LICENSE GRANT. During the term and within the Field of Use limitation
(if any) specified in the applicable License/Product Schedule. RSA hereby grants
OEM a non-exclusive, non-transferable license to:
2.1.1 use, if a source code license is specified in a License/Product
Schedule, a single copy of the RSA Source Code on a single central processing
unit accessed by one user at a time to: (i) modify the RSA Source Code Solely to
create Interface Modifications; (ii) compile the RSA Source Code to create
object code; and (iii) maintain Bundled Products and Support End User Customers.
2.1.2 (i) incorporate the RSA Object Code into an OEM Product to
create a Bundled Product; (ii) reproduce and have reproduced the RSA Object Code
as incorporated in a Bundled Product as reasonably needed for inactive backup or
archival purposes and, if an internal use license
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<PAGE> 3
is specified in a License/Product Schedule, for distribution in the Territory
solely to employees of OEM and solely for use by such employees for OEM's
internal business purposes and (iii) reproduce, have reproduced, and license or
otherwise distribute the RSA Object Code as incorporated in a Bundled Product in
the Territory.
2.1.3 (i) use the User Manual to support End User Customers; (ii)
modify and incorporate portions of the User Manual in Bundled Product document;
and (iii) reproduce, have reproduced and distribute in the Territory such
portions of the User Manual as incorporated in Bundled Product documentation.
2.2 LIMITATION ON LICENSES. The licenses granted in Section 2.1 are
further limited as follows:
2.2.1 LIMITATION ON DISTRIBUTEES. The RSA Object Code shall be
licensed or otherwise distributed only to (i) Distributors and (ii) End User
Customers.
2.2.2 NO EXPOSURE OF RSA SOFTWARE. The RSA Object Code may only be
accessed by the functionality of the Bundled Product in which it is included,
and a Bundled Product shall not make the RSA Object Code directly accessible to
End User Customers or to products other than the Bundled Product.
2.2.3 NO STANDALONE PRODUCT OR SERVICES. OEM may not in any way sell,
lease, rent, license, sublicense or otherwise distribute the RSA Software or any
part thereof or the right to use the RSA Software or any part thereof to any
person or entity except as part of a Bundled Product. Unless a specific grant of
rights is included in the applicable License/Product Schedule, neither OEM nor
any Distributor or End User Customer may use the Bundled Product to operate a
service bureau or other revenue-generating service business.
2.2.4 LICENSE RESTRICTED TO LICENSED SOFTWARE AND FIELD OF USE. OEM
may use or incorporate into a Bundled Product only that portion of the RSA
Software which is identified as Licensed Software in the applicable
License/Product Schedule. The RSA Object Code must be incorporated in a Bundled
Products, and may only be reproduced, licensed or distributed in accordance with
the Field of Use limitation, if any, specified in the applicable License/Product
Schedule.
2.2.5 PROHIBITED ACTIVITIES. OEM shall not modify (except to create
Interface Modifications), translate, reverse engineer, decompile or disassemble
the RSA Software or any part thereof, and shall prohibit Distributors and End
User Customers from doing the same.
2.2.6 RSA ROOT KEYS. OEM may include the RSA/VeriSign, Inc. root keys
(the "RSA Root Keys") in any Bundled Product in which a hierarchy root key is
utilized or incorporated, provided that any such incorporation must make the RSA
Root Keys functional within the Bundled Product and as accessible as any other
hierarchy root key within the Bundled Product.
2.3 TITLE.
2.3.1 IN RSA. Except for the limited licenses expressly granted in
Section 2.1 and as further limited by Section 2.2, RSA does not by this
Agreement grant to OEM any right, title or ownership interest in and to the RSA
Software or in any related patents, trademarks, copyrights or proprietary or
trade secret rights.
2.3.2 IN OEM. Except as expressly provided below, OEM does not by this
Agreement grant to RSA any right, title or ownership interest in and to any
Interface Modifications created by OEM as may be authorized hereunder or any
related patents, copyrights or proprietary or trade secret rights of OEM;
provided, however, that OEM hereby agrees that it will not assert against RSA
any of such patents, copyrights or proprietary or trade secret rights with
respect to any ports or interfaces developed by RSA without reference to the
source code of OEM's Interface Modifications.
3. LICENSE FEES
3.1 LICENSE FEES. In consideration of RSA's grant to OEM of the limited
license rights hereunder, OEM shall pay to RSA the amounts set forth below (the
"License Fees"):
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<PAGE> 4
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
3.1.1 SOURCE CODE LICENSE FEES. If RSA is granting to OEM RSA Source
Code license rights as indicated on a License/Product Schedule, OEM shall pay to
RSA the source code License Fees specified on such License/Product Schedule upon
execution of such License/Product Schedule.
3.1.2 OBJECT CODE LICENSE FEES. In consideration of RSA's grant to OEM
of the RSA Object Code license rights for the Bundled Products described in each
License/Product Schedule, OEM shall pay to RSA the object code License Fees
specified on each such License/Product Schedule in accordance with the terms
contained therein.
3.2 TAXES. All taxes, duties, fees and other governmental charged of any
kind (including sales and use taxes, but excluding taxes based on the gross
revenues or net income of RSA) which are imposed by or under the authority of
any government or any political subdivision thereof on the License Fees or any
aspect of this Agreement shall be borne by OEM and shall not be considered a
part of a deduction form or an offset against License Fees.
3.3 PREPAYMENT OF LICENSE FEES. OEM shall prepay License Fees in the
amount set forth in a License/Product Schedule, if any, upon execution of the
License/Product Schedule. In no event shall such prepayment be refundable. If
OEM has prepaid License Fees with respect to a Bundled Product, all of such
prepaid amounts may be offset against License Fees accrued at a rate of [**] of
License Fees accrued until the prepayments are exhausted. OEM shall show the
application of prepaid License Fees in the licensing reports provided to RSA
pursuant to Section 3.7.
3.4 USE OF NET SALES PRICE. If a License Fee based on Net Sales Price is
specific in a License/Product Schedule, the "Net Sales Price" means the gross
amount of all cash, in-kind or other consideration receivable by OEM at any time
in consideration of the licensing or other distribution of the Bundled Products,
excluding any amounts receivable by OEM for sales and use taxes, shipping,
insurance and duties, and reduced by all discounts, refunds or allowances
granted in the ordinary course of business. For the purposes of determining Net
Sales Price, the amount of in-kind or other non-cash consideration receivable by
OEM shall be deemed to have a dollar value equal to the standard price (as
listed in OEM's published price schedule on the date of the grant of the license
or the sale in question) for such Bundled Product, less all cash paid.
3.5 TERMS OF PAYMENT. Object code License Fees payable on an on-going
basis shall accrue with respect to Bundled Products licensed or otherwise
distributed by OEM or Distributors, as applicable, upon the date of invoice of
the Bundled Product to an End User Customer or Distributor. License Fees due RSA
hereunder shall be paid by OEM to the attention of the Software Licensing
Department at RSA's address set forth above on or before the thirtieth (30) day
after the close of the calendar quarter during which the License Fees accrued. A
late payment penalty on any License Fees not paid when due shall be assessed at
the rate of one percent (1%) per thirty (30) days, beginning on the thirty-first
(31st) day after the last day of the calendar quarter to which the delayed
payment relates.
3.6 U.S. CURRENCY. All payments hereunder shall be made in lawful United
States currency and shall in no case be refundable. If OEM receives payment in
foreign currencies, the amount of its License Fees to RSA shall be calculated
using the closing exchange rate published in The Wall Street Journal, Western
Edition, on the last business day such journal is published in the calendar
quarter immediately preceding the date of payment.
3.7 LICENSING REPORT. A report in reasonably detailed form setting for the
calculation of License Fees due from OEM and signed by a responsible officer of
OEM shall be delivered to RSA on or before the thirtieth (30th) day after the
close of each calendar quarter during the term of this Agreement, regardless of
whether License Fee payments are required to be made pursuant to
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<PAGE> 5
Section 3.5. The report shall include, at a minimum the following information
(if applicable to the method of calculating License Fees designated in a
License/Product Schedule) with respect to the relevant quarter: (i) the total
number of copies/units of Bundled Products licensed or otherwise distributed by
OEM and Distributors indicating the names and versions thereof); (ii) if
applicable, the total Net Sales Price invoiced to Distributors and End User
Customers; and (iii) total License Fees accrued.
3.8 AUDIT RIGHTS. RSA shall have the right, at is sole cost and expense,
to have an independent certified public accountant conduct during normal
business hours and not more frequently than annually, an audit of the
appropriate records of OEM to verify the number of copies/units of Bundled
Products licensed or otherwise distributed by OEM and OEM's calculation of
License Fees. If the License Fees accrued are different than those reported, OEM
will be invoiced or credited for the difference, as applicable. Any additional
License Fees, along with the late payment penalty assessed in accordance with
Section 3.5, shall be payable within thirty (30) days of such invoice. If the
deficiency in License Fees paid by OEM is greater than five percent (5%) of the
License Fees reported by OEM for any quarter, OEM will pay the reasonable
expenses associated with such audit. In addition to the deficiency.
3.9 EVALUATION COPIES. OEM may deliver copies of Bundled Products to
prospective End User Customers on a trial basis for evaluation purposes only
(each, an "Evaluation Copy") provided that each such prospective End User
Customer has received a written or electronic trial license prohibiting the End
User Customer from copying, modifying, reverse engineering, decompiling or
disassembling the RSA Object Code or any part thereof. All Evaluation Copies
licensed shall contain a feature which disables the Evaluation Copy no later
than sixty (60) days after delivery to the prospective End User Customer. No
License Fees shall be reportable or payable with respect to Evaluation Copies
unless and until the Evaluation Copy is replaced with or converted to a standard
Bundled Product or the End User Customer is invoiced for the Bundled Product,
whichever occurs first.
4. LIMITED WARRANTY
4.1 LIMITED WARRANTY. During the initial ninety (90)-day term of each
License/Product Schedule RSA warrants that the Licensed Software specified in
such License/Product Schedule will operate in material conformance to RSA's
published specifications for the Licensed Software. RSA does not warrant that
the RSA Software or any portion thereof is error-free. OEM's exclusive remedy,
and RSA's entire liability in tort, contract or otherwise, shall be correction
of any warranted nonconformity as provided in Section 4.2 below. This limited
warranty and any obligations of RSA hereunder shall not apply to any Interface
Modifications or any nonconformities caused thereby and shall terminate
immediately if OEM makes any modification to the RSA Software other than
Interface Modifications.
4.2 ERROR CORRECTION. In the event OEM discovers an error in the Licensed
Software which causes the Licensed Software not to operate in material
conformance to RSA's published specifications therefor, OEM shall submit to RSA
a written report describing such error in sufficient detail to permit RSA to
reproduce such error. Upon receipt of any such written report, RSA will use its
reasonable business judgment to classify a reported error as either (i) a "Level
1 Severity" error, meaning an error that causes the Licensed Software to fail to
operate in a material manner or to produce materially incorrect results and for
which there is not work around or only a difficult work around; or (ii) a "Level
2 Severity" error, meaning an error that produces a situation in which the
Licensed Software is usable but does not function in the most convenient or
expeditious manner, and the use or value of the Licensed Software suffers no
material impact. RSA will acknowledge receipt of a conforming error report
within two (2) business days and (A) will use its continuing best efforts to
provide a correction for any Level 1 Severity error to OEM as early as
practicable; and (B) will use its reasonable efforts to include a correction for
any Level 2 Severity error in the next release of the RSA Software.
4.3 DISCLAIMER EXCEPT FOR THE EXPRESS LIMITED WARRANTY PROVIDED IN THIS
SECTION 4, THE RSA SOFTWARE IS PROVIDED "AS IS" WITHOUT ANY WARRANTY
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<PAGE> 6
WHATSOEVER. RSA DISCLAIMS ALL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO
ANY MATTER WHATSOEVER, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT OF THIRD PARTY RIGHTS. RSA
DISCLAIMS ANY WARRANTY OR REPRESENTATION TO ANY PERSON OTHER THAN OEM WITH
RESPECT TO THE RSA SOFTWARE. OEM SHALL NOT, AND SHALL TAKE ALL MEASURES
NECESSARY TO INSURE THAT ITS AGENTS AND EMPLOYEES DO NOT, MAKE OR PASS THROUGH
ANY SUCH WARRANTY ON BEHALF OF RSA TO ANY DISTRIBUTOR, END USER OR OTHER THIRD
PARTY.
5. ADDITIONAL OBLIGATIONS OF OEM
5.1 BUNDLED PRODUCT MARKETING. OEM is authorized to represent to
Distributors and End User Customers only such facts about the RSA Software as
RSA states in it published product descriptions, advertising and promotional
materials or as may be stated in other non-confidential written material
furnished by RSA.
5.2 CUSTOMER SUPPORT. OEM shall, at its expense, provide all support for
the Bundled Products to Distributors and End User Customers.
5.3 LICENSE AGREEMENTS. OEM shall cause to be delivered to each
Distributor and End User Customer a license agreement which shall contain, at a
minimum, substantially all of the limitations of rights and the protections for
RSA which are contained in Sections 2.2, 5.4, 7, 10.7 and 10.8 of this
Agreement. OEM shall use commercially reasonable efforts to enforce the terms of
such agreements.
5.4 PROPRIETARY RIGHTS.
5.4.1 COPYRIGHT NOTICES; LICENSEE SEALS. OEM agrees not to remove or
destroy and proprietary, trademark or copyright markings or notices placed upon
or contained within the RSA Source Code, Object Code, User Manuals or any
related materials or documentation. OEM further agrees to insert and maintain:
(i) within every Bundled Product and any related materials or documentation a
copyright notice in the name of OEM; and (ii) within the splash screens, user
documentation, printed product collateral, product packaging and advertisements
for the Bundled Product, the RSA "License Seal" from the form attached as
Exhibit "B" to this Agreement and a statement that the Bundled Product contains
the RSA Software.
5.4.2 TRADEMARKS. By reason of this Agreement or the performance
hereof, OEM shall acquire no rights of any kind in any RSA trademark, trade
name, logo or product designation under which the RSA Software was or is
marketed and OEM shall not make any use of the same for any reason except as
expressly authorized by this Agreement or otherwise authorized in writing by
RSA. OEM shall cease to use the markings, or any similar markings, in any manner
on the expiration or other termination of this Agreement.
6. CONFIDENTIALITY
6.1 CONFIDENTIALITY. Each party acknowledges that in its performance of
its duties hereunder, the other party may communicate to it (or its designees)
certain confidential and proprietary information of such party, including the
RSA Software (in the case of RSA) and know-how, technology, techniques, and
business, product, and marketing plans of each such party (collectively, the
"Know-How"), all of which are confidential and proprietary to, and trade secrets
of, the disclosing party. The receiving party agrees to hold the Know-How
disclosed to it and, in the case of OEM the RSA Software, within its own
organization and shall not, without the specific written consent of the
disclosing party or as expressly authorized herein, utilize in any manner,
published, communicate, or disclose any part of the disclosing party's Know-How
or the RSA Software (in the case of OEM) to third parties. This Section 6.1
shall impose no obligations on either party with respect to any Know-How which:
(i) is in the public domain at the time disclosed by the disclosing party; (ii)
enters the public domain after disclosure other than by a breach of the
receiving party's obligations hereunder or by a breach of another party's
confidentiality obligation; or (iii) is shown by documentary evidence to have
been known by the receiving party prior to its receipt from the disclosing
party. Each party will take
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Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
such steps as are consistent with its protection of its own confidential and
proprietary information (but will in no event exercise less than reasonable
care) to insure that the provisions of this Section 6.1 are not violated by its
End User Customers, Distributors, employees, agents or any other person.
6.2 SOURCE CODE. OEM acknowledges the extreme importance of the
confidentiality and trade secret status of the RSA Source Code and OEM agrees,
in addition to complying with the requirements of Section 6.1 as it relates to
the RSA Source Code to: (i) only use the RSA Source Code at the address set
forth on page 1 hereof or such alternate location specified in the applicable
License/Product Schedule; (ii) inform any employee that is granted access to all
or any portion of the RSA Source Code of the importance of preserving the
confidentiality and trade secret status of the RSA Source Code; and (iii)
maintain a controlled, secure environment for the storage and use of the RSA
Source Code.
6.3 PUBLICITY. Neither party will disclose to third parties, other than
its agents and representatives on a need to know basis, the terms of this
Agreement or any exhibits hereto (including without limitation any
License/Product Schedule) without the prior written consent of the other party,
except (i) either party may disclose such terms to the extent required by law:
(ii) either party may disclose the existence of this Agreement; and (iii) RSA
shall have the right to disclose that OEM is an OEM of the RSA Software and that
any publicly-announced Bundled Product incorporates the RSA Software.
7. LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE LIABLE TO THE
OTHER FOR INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES
ARISING OUT OF OR RELATED TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO LOST
PROFITS, BUSINESS INTERRUPTION OR LOSS OF BUSINESS INFORMATION, EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES REGARDLESS OF WHETHER
ANY ACTION OR CLAIM IS BASED ON WARRANTY, CONTRACT, TORT OR OTHERWISE: (I)
EXCEPT FOR RSA'S OBLIGATIONS ARISING UNDER SECTION 8, UNDER NO CIRCUMSTANCES
SHALL RSA'S TOTAL LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT EXCEED
THE TOTAL AMOUNT PAID BY OEM HEREUNDER, AND (II) EXCEPT FOR OEM'S LIABILITY
RESULTING FROM BREACH OF SECTIONS 2 AND 6. UNDER NO CIRCUMSTANCES SHALL OEM'S
TOTAL LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT EXCEED [**].
8. INTELLECTUAL PROPERTY INDEMNITY
8.1 DUTY TO DEFEND. RSA agrees that it shall, at its own expense, defend,
or at its option settle, any action instituted against OEM, and pay any award or
damages assessed or settled upon against OEM resulting from such action, insofar
as the same is based upon a claim that any Licensed Software used within the
terms of this Agreement and the applicable License/Product Schedule infringes
any United States patent, copyright or trade secret or a claim that RSA has no
right to license the Licensed Software hereunder, provided that OEM gives RSA:
(i) prompt notice in writing of such action, (ii) the right to control and
direct the investigation, preparation, defense and settlement of the action; and
(iii) reasonable assistance and information.
8.2 RSA OPTIONS. If, as a result of any binding settlement among the
parties or a final determination by a court of competent jurisdiction, any of
the Licensed Software is held to infringe and its use in enjoyed, or if RSA
reasonably determines in its sole discretion that the Licensed Software may
become subject to an injunction, RSA shall have the option to: (i) obtain the
right to continue use of the Licensed Software; (ii) replace or modify the
Licensed Software so that it is no longer infringing; or (iii) refund the
License Fees paid by OEM hereunder less depreciation for use
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<PAGE> 8
assuming straight line depreciation over a five (5) year useful life and
terminate the Agreement.
8.3 EXCLUSIONS. Notwithstanding the foregoing, RSA shall have no liability
under this Section 8 if the alleged infringement arises from (i) the use, in the
manner specified in the relevant User Manual, of other than the current
unaltered (including Interface Modifications) release of the Licensed Software,
or (ii) combination of the Licensed Software with other equipment or software
not provided by RSA, if such action would have been avoided but for such use or
combination.
8.4 EXCLUSIVE REMEDY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, THE FOREGOING STATES RSA'S ENTIRE LIABILITY AND OEM'S EXCLUSIVE
REMEDY FOR PROPRIETARY RIGHTS INFRINGEMENT.
9. TERM AND TERMINATION
9.1 TERM. The license rights granted hereunder shall be effective with
respect to each License/Product Schedule as of the date thereof and shall
continue in full force and effect for each item of Licensed Software for the
period set forth on the applicable License/Product Schedule unless sooner
terminated pursuant to the terms of this Agreement.
9.2 TERMINATION. Either party shall be entitled to terminate this
Agreement at any time on written notice to the other in the event of a material
default by the other party and a failure to cure such default within a period of
thirty (30) days following receipt of written notice specifying that a default
has occurred.
9.3 INSOLVENCY. Upon (i) the institution of any proceedings by or against
either party seeking relief, reorganization or arrangement under any laws
relating to insolvency, which proceeding are not dismissed within sixty (60)
days; (iii) the assignment for the benefit of creditors, or the appointment of a
receiver, liquidator or trustee, of any of either party's property or assets; or
(iii) the liquidation, dissolution or winding up of either party's business;
then and in any such events this Agreement may immediately be terminated by the
other party upon written notice.
9.4 TERMINATION FOR CONVENIENCE. The parties acknowledge and agree that
OEM may at any time delay, interrupt or cease use of the Licensed Software, but
this Agreement and all the terms and conditions contained herein or any
applicable License/Product Schedule shall continue in full force, including any
obligations to make quarterly reports. OEM may elect to terminate this Agreement
upon ninety (90) days written notice and it is expressly understood that such
termination shall not discharge any payment obligations accrued as of the date
of such termination or entitle OEM to a refund of any amounts previously paid to
RSA.
9.5 EFFECT OF TERMINATION. Upon the expiration or termination of this
Agreement (or the license rights under a particular License/Product Schedule).
OEM shall cease making copies of using or licensing the RSA Software, User
Manual and Bundled Products, excepting only such copies of Bundled Products
necessary to fill orders placed with OEM prior to such expiration or
termination. OEM shall destroy all copies of the RSA Software User Manual and
Bundled Products not subject to any then-effective license agreement with an End
User Customer and all information and documentation provided by RSA to OEM
(including all Know-How), other than such copies of the RSA Object Code, the
User Manual and the Bundled Products as are necessary to enable OEM to perform
its continuing support obligations in accordance with Section 5.2, if any.
Notwithstanding the foregoing, if OEM has licensed RSA Source Code hereunder,
for a period of one (1) year after the date of expiration or termination of the
license rights granted under this Agreement for any reason other than as a
result of default or breach by OEM. OEM may retain one (1) copy of the RSA
Source Code and is hereby licensed for such term to use such copy solely for the
purpose of supporting End User Customers. Upon the expiration of such one (1)
year period, OEM shall return such single copy of the RSA Source Code to RSA or
certify to RSA that the same has been destroyed. Any expiration or termination
shall not discharge any obligation to pay License Fees which have accrued or are
owing
-8-
<PAGE> 9
as of the effective date of such expiration or termination.
9.6 SURVIVAL OF CERTAIN TERMS. The following provisions shall survive any
expiration or termination: 2.2, 2.3, 3.8, 4.3, 6, 7, 9 and 10.
10. MISCELLANEOUS PROVISIONS
10.1 GOVERNING LAW AND JURISDICTION. This Agreement will be governed by and
constructed in accordance with the laws of the State of California, irrespective
of its choice of law principles. All disputes arising out of this Agreement will
be subject to the exclusive jurisdiction and venue of the California state
courts and the United States District Court for the Northern District of
California, and the parties consent to the personal and exclusive jurisdiction
of these courts. The parties agree that the United Nations Convention on
Contracts for the International Sale of Goods shall not apply to this Agreement.
10.2 BINDING UPON SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall be binding upon, and inure to the benefit of, the
successors, representatives, administrators and assigns of the parties hereto.
Notwithstanding the generality of the foregoing, this Agreement shall not be
assignable by OEM, by operation of law or otherwise, without the prior written
consent of RSA, which shall not be unreasonably withheld; provided, however,
that RSA may withhold its consent to the assignment of this Agreement with
respect to any License/Product Schedule providing for a paid-up License Fee. Any
such purported assignment or delegation without RSA's written consent shall be
void and of no effect.
10.3 SEVERABILITY. If any provision of this Agreement is found to be
invalid or unenforceable, such provision shall be severed from the Agreement and
the remainder of this Agreement shall be interpreted so as best to reasonably
effect the intent of the parties hereto. It is expressly understood and agreed
that each and every provision of this Agreement is intended by the parties to be
severable and independent of any other provision and to be enforced as such.
10.4 ENTIRE AGREEMENT. This Agreement and the exhibits and schedules hereto
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements, representations and understandings between the parties.
10.5 AMENDMENT AND WAIVERS. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived only by
a writing signed by the party to be bound.
10.6 NOTICES. Any notice, demand, or request with respect to this Agreement
shall be in writing and shall be effective only if its is delivered by hand or
mailed, certified or registered mail, postage prepaid, return receipt requested,
addressed to the appropriate party at its address set forth on page 1. Such
communications shall be effective when they are received by the addressee; but
if sent by certified or registered mail in the manner set forth above, they
shall be effective not later than ten (10) days after deposited in the mail. Any
party may change its address for such communications by giving notice to the
other party in conformity with this Section.
10.7 EXPORT COMPLIANCE AND FOREIGN RESHIPMENT LIABILITY. THIS AGREEMENT IS
EXPRESSLY MADE SUBJECT TO ANY LAWS,REGULATIONS, ORDERS OR OTHER RESTRICTIONS ON
THE EXPORT FROM THE UNITED STATES OF AMERICA OF THE RSA SOFTWARE OR BUNDLED
PRODUCTS OR OF INFORMATION ABOUT THE RSA SOFTWARE OR BUNDLED PRODUCTS WHICH MAY
BE IMPOSED FROM TIME TO TIME BY THE GOVERNMENT OF THE UNITED STATES OF AMERICA.
NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, OEM SHALL
NOT EXPORT OR REEXPORT, DIRECTLY OR INDIRECTLY, ANY RSA SOFTWARE OR BUNDLED
PRODUCTS OR INFORMATION PERTAINING THERETO TO ANY COUNTRY TO WHICH SUCH EXPORT
OR REEXPORT IS RESTRICTED OR PROHIBITED, OR AS TO WHICH SUCH GOVERNMENT OR ANY
AGENCY THEREOF REQUIRES AN EXPORT LICENSE OR OTHER GOVERNMENTAL APPROVAL AT THE
TIME OF EXPORT OR
-9-
<PAGE> 10
REEXPORT WITHOUT FIRST OBTAINING SUCH LICENSE OR APPROVAL.
10.8 FEDERAL GOVERNMENT LICENSE. OEM and each of OEM's Distributors shall
in all proposals and agreements with the United States government or any
contractor of the United States government identify and license the Bundled
Product, including the RSA Object Code incorporated therein, as follows: (i) for
acquisition by or on behalf of civilian agencies, as necessary to obtain
protection as "commercial computer software" and related documentation in
accordance with the terms of OEM's or such Distributor's customary license, as
specified in 48 C.F.R. 12.212 of the Federal Acquisition Regulations and its
successor regulations; or (ii) for acquisition by or on behalf of units of the
Department of Defense, as necessary to obtain protection as "commercial computer
software" as defined in 48 C.F.R. 227.7014(a)(l) of the Department of Defense
Federal Acquisition Regulation Supplement (DFARS) and related documentation in
accordance with the terms of OEM's or such Distributor's customary license, as
specified in 48 C.F.R. 227.7202.1 of DFARS and its successor regulations.
10.9 REMEDIES NON-EXCLUSIVE. Except as otherwise expressly provided, any
remedy provided for in this Agreement is deemed cumulative with, and not
exclusive of, any other remedy provided for in this Agreement or otherwise
available at law or in equity. The exercise by a party of any remedy shall not
preclude the exercise by such party of any other remedy.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the data
of the last signature below.
OEM:
SILVERSTREAM SOFTWARE, INC.
By: /s/ Craig Dynes
---------------------------------
Printed Name: Craig Dynes
-----------------------
Title: Chief Financial Officer
------------------------------
Date: September 30, 1997
-------------------------------
RSA DATA SECURITY, INC.
By: /s/ D. James Bidzos
----------------------------------
Printed Name:James Bidzos
------------------------
Title: President
-------------------------------
Date: 9/30/97
--------------------------------
-10-
<PAGE> 11
License/Product Schedule Number: 0997-SIL-0-LPS-1
----------------
EXHIBIT "A"
LICENSE/PRODUCT SCHEDULE
OEM:
SilverStream Software, Inc.
- ----------------------------------------------
OEM Master License Agreement Number:
0997-SIL-O-MLA-1
- ----------------------------------------------
Date of OEM Master License Agreement:
September 30, 1997
- ----------------------------------------------
This License/Product Schedule Amends Schedules
Dated: N/A
- ----------------------------------------------
Term of Agreement for this Bundled Product:
Perpetual
- ----------------------------------------------
Bundled Projects:
OEM'S JAVA-BASED WEB APPLICATION DEVELOPMENT ENVIRONMENT FOR INTERNET, INTRANET
AND EXTRANET APPLICATIONS THAT ACCESS EXISTING RELATIONAL DATABASES, CONSISTING
OF THE MULTI-USER SILVERSTREAM SERVER WHICH IS LICENSED BY OEM EITHER AS PART OF
OEM'S "GROUP STARTER PACK" FOR GROUP DEVELOPMENT OR AS OEM'S "SERVER PACK" FOR
DEPLOYMENT (THE "SERVER BUNDLED PRODUCT") AND THE SINGLE-USER STANDALONE
SILVERSTREAM SERVER WHICH IS LICENSED BY OEM AS PART OF OEM'S "SINGLE USER
STARTER PACK" (THE "SINGLE-USER BUNDLED PROJECT").
RSA Software:
BSAFE v. 3.0 for Windows
- ----------------------------------------------
OEM may obtain copies of the RSA Software on other platforms as may be generally
available at RSA's then current published list price, each additional platform
version of which will be covered RSA Software under this License/Product
Schedule.
Delivery of RSA Software to OEM:
- -------------------------------
One (1) copy of each of the RSA Object Code, the RSA Source Code (if licensed
hereunder) and the User Manual for the RSA Software identified above:
[ ] has been received by OEM, or
[X] will be delivered by RSA as soon as practicable, but not later than
ten (10) business days after the date of execution of this License/Product
Schedule.
-11-
<PAGE> 12
LICENSED SOFTWARE AND FIELD OF USE RESTRICTION FOR THIS BUNDLED PRODUCT
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
RIGHT TO
INCLUDE
SOURCE OBJECT CODE FIELD OF DESCRIBE
CODE IN BUNDLED USE FIELD OF USE
LICENSE PRODUCT RESTRICTION RESTRICTION
BSAFE YES NO YES NO YES NO
<S> <C> <C> <C> <C> <C> <C> <C>
RSA Public Key Cryptosystem [ ] [X] [X] [ ] [X] [ ] *
Diffle-Hellman Key Negotiation [ ] [X] [ ] [X] [ ] [ ]
Bloom-Shamir Secret Sharing [ ] [X] [ ] [X] [ ] [ ]
Data Encryption Standard (DES) [ ] [X] [X] [ ] [X] [ ] *
Extended Data Encryption [ ] [X] [ ] [X] [ ] [ ]
Standard (DESX)
Triple DES (3DES) [ ] [X] [X] [ ] [X] [ ] *
RC2 Variable-Key Size [ ] [X] [ ] [X] [ ] [ ]
Symmetric Block Cipher
RC4 Variable-Key Size [ ] [X] [X] [ ] [X] [ ] *
Symmetric Stream Cipher
RC5 Variable-Key Size [ ] [X] [ ] [X] [ ] [ ]
Symmetric Block Cipher
MD Hashing Algorithm [ ] [X] [ ] [X] [ ] [ ]
MD2 Hashing Algorithm [ ] [X] [X] [ ] [X] [ ] *
MD5 Hashing Algorithm [ ] [X] [X] [ ] [X] [ ] *
Secure Hashing Algorithm (SHA) [ ] [X] [X] [ ] [X] [ ] *
Digital Signature Algorithm [ ] [X] [ ] [X] [ ] [ ]
(DSA)
TIPEM (all set forth below) [ ] [X] [ ] [X] [ ] [ ]
RSA Public Key Cryptosystem
Data Encryption Standard (DES)
RC2 Variable Key Size
Symmetric Block Cipher
MD2 Hashing Algorithm
MD5 Hashing Algorithm
BCERT [ ] [X] [ ] [X] [ ] [ ]
- --------------------------------------
</TABLE>
* Strictly for privacy and authentication of data within the Bundled Product
(including implementation of SSL) between the Server Bundled Product or the
Single-User Bundled Product and off-the-shelf Web browser clients.
-12-
<PAGE> 13
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
LICENSE AND MAINTENANCE FEES
- ----------------------------
Source Code License Fee for this License/product Schedule: N/A
- ---------------------------------------------------------
Object Code License Fees for this License/Product Schedule:
- ----------------------------------------------------------
For the Server Bundled Product:
Percentage of Net Sales Price License Fee: [**] per copy/unit of the Server
Bundled Product licensed or otherwise distributed by or for OEM.
For the Single-User Bundled Product:
Percentage of Net Sales Price License Fee: [**] per copy/unit of the
Single-User Bundled Product licensed or otherwise distributed by or for
OEM.
Prepayment of License Fees under this License/Product Schedule:
- --------------------------------------------------------------
[**] payable as follows:
[**] upon execution of this License/Product Schedule; and [**] within sixty
(60) days after execution of this License/Product Schedule.
Present Annual Maintenance Fee for this License/product Schedule:
- ----------------------------------------------------------------
[**]
SPECIAL TERMS AND CONDITIONS
- ----------------------------
The following Special Terms and Conditions shall apply to the Bundled Product
covered by this License/Product Schedule:
1. DISTRIBUTION MODEL. The parties acknowledge and agree that the Bundled
Product is a development environment and that OEm's distribution channel for the
Bundled Product will include distribution through OEM's VAR partners, [**], who
will license the Server Bundled Product through a shrinkwrap agreement with OEM,
for the purpose of customizing and deploying the Server Bundled Product for a
specific End User Customer application (collectively, "VARs"). RSA agrees that
the last sentence of Section 1.2 of the Agreement shall not prevent OEM from
distributing the Server Bundled Product in the manner set forth above, so long
as VARs are not embedding or similarly modifying the Server Bundled Product (in
which case paragraph 3, below, shall apply to such activities) and so long as
VARs are prohibited from modifying the Licensed Software. RSA and OEM
specifically agree that VARs may add value to the Server Bundled Product through
their consulting, training and integrating services.
2. INTERNAL USE. RSA agrees that Section 1.3 of the Agreement does not prevent
an End User Customer from using the Bundled Product to create and use in the
operation of its own business Web-based applications for the Internet and
extranets.
3. LIMITED RIGHTS TO SUBLICENSE.
a. GRANT OF RIGHTS. Notwithstanding the provisions of Section 2.2.1 of
the Agreement, RSA and OEM acknowledge and agree that OEM may sublicense its
rights with respect to the Server Bundled Product to Independent Software
Vendors (ISVs) and similar resellers in the Territory (each, an "OEM
Sublicensee") for the purpose of integrating and embedding the Server Bundled
Product into their own products in which substantial functionality and value is
added to the Bundled Product (collectively, "Sublicensee Products").
b. CONDITIONS OF GRANT. All sublicenses permitted under this paragraph
shall be subject to all of the following conditions: (i) all such sublicenses
will be granted in a signed writing containing at a minimum all of the
restrictions set forth in Exhibit "A-1" attached hereto, and RSA shall be an
express third party beneficiary of such sublicense agreements; (ii) OEM shall
use its best efforts to enforce the provisions of such sublicenses
-13-
<PAGE> 14
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
as they relate to RSA and the RSA Software; (iii) the Sublicensee Products shall
include substantial added function and value on top of the Bundled Product; (iv)
the OEM Sublicensees shall not be permitted to directly access the API of the
Licensed Software nor expose the API to End User Customers or to software
products other than the Sublicensee Products; (v) the OEM Sublicensees to whom
such rights are sublicensed shall have no further right to sublicense such
rights; and (vi) any rights of any OEM Sublicensee sublicensed by OEM shall
survive only so long as both this License/Product Schedule and the sublicense
between OEM and such OEM Sublicensee remain in effect; provided, however, that
if the Agreement of this License/Product Schedule is terminated, each sublicense
agreement with an OEM Sublicensee shall survive for a period of three (3) months
following the effective date of such termination and, at the written request of
any OEM Sublicensee, RSA will during such three (3)-month period negotiate with
such OEM Sublicensee for a license to use the Licensed Software in the
applicable Sublicensee Product. The foregoing shall not be construed as an
obligation on the part of RSA to enter into a license agreement with any
particular OEM Sublicensee or to enter into a license agreement on any
particular terms.
c. SUBLICENSE FEES AND REPORTING. On or before the date that OEM grants
any sublicense hereunder, OEM shall submit to RSA an Exhibit "A" Extension in
the form attached as Exhibit "A-2" for the applicable OEM Sublicensee. OEM shall
prepay License Fees in the amount of [**] for each OEM Sublicensee at the time
OEM submits the Exhibit "A" Extension for the applicable OEM Sublicensee. OEM
shall make its first prepayment of License Fees and submit its first Exhibit "A"
Extension to RSA upon execution of this License/Product Schedule. OEM shall
report to RSA in its reports delivered pursuant to Section 3.7 of the Agreement
the number of copies of Sublicensee Products which are distributed by each OEM
Sublicensee and OEM's Net Sales Price with respect thereto, and shall pay RSA
License Fees pursuant to Section 3.5 of the Agreement based on such Net Sales
Price and/or number of copies distributed, as applicable, applying a percentage
of Net Sales Price of [**] and a per copy/unit minimum License Fees of [**]. OEM
shall separately show the application of prepaid license fees for OEM and for
each OEM Sublicensee in the reports provided to RSA pursuant to Section 3.7 of
the Agreement.
4. SERVICE BUSINESS. The second sentence of Section 2.2.3 of the Agreement
shall not apply to the Bundled Products covered by this License/Product
Schedule.
5. TITLE IN OEM. The word "related" in the first sentence of Section 2.3.2 of
the Agreement is hereby deleted.
6. NOTICE OF AUDIT. RSA shall give OEM ten (10) days' prior notice of its
intention to conduct an audit as provided for in Section 3.8 of the Agreement.
7. EVALUATION COPIES. With respect to the Bundled Products covered by this
License/Product Schedule, the second sentence of Section 3.9 of the Agreement is
amended in its entirety to read as follows: "All Evaluation Copies licensed (i)
shall contain a feature which disables the Evaluation Copy no later than ninety
(90) days after the first installation of the Evaluation Copy by the prospective
End User Customer, or (ii) in the case of up to a maximum of two hundred (200)
copies in any calendar year delivered only to major consulting businesses who
have signed OEM's VAR Partner agreement, shall contain a feature which disables
the Evaluation Copy on the earlier of the next June 30 or the next December 31."
8. LICENSEE SEAL. Notwithstanding the provisions of Section 5.4.1 (ii) of the
Agreement regarding display of the RSA Licensee Seal in all advertising for the
Bundled Products, OEM shall be required to display the RSA Licensee Seal with
respect to the Bundled Products covered by this License/Product Schedule only in
printed advertising and wherever practicable.
-14-
<PAGE> 15
9. REIMBURSEMENT OF EXPENSES. Section 8.1 of the Agreement is amended by
adding the following at the end thereof: "RSA agrees that it will reimburse
OEM's reasonable out-of-pocket expenses in responding to any claim as to which
RSA has, or may have, an obligation under this Section 8.1 which expenses are
incurred after OEM has notified RSA of the claim but prior to RSA's assuming the
control of the investigation, preparation, defense and settlement of the claim."
10. REPLACEMENT/MODIFIED SOFTWARE. Section 8.2 of the Agreement is amended in
subpart (ii) thereof by adding the following at the end: ". . . but suffers no
material diminution of its functionality or performance."
11. EFFECT OF TERMINATION. Section 9.5 of the Agreement is amended by adding
the following after the first sentence: "Any license agreements with End User
Customers for the Bundled Product entered into prior to the effective date of
termination of this Agreement shall survive such termination in accordance with
their terms."
12. JOINT PRESS RELEASE. As soon as practicable after the announcement of the
Bundled Product, OEM and RSA will issue a joint press release which will
emphasize the security aspects of the Bundled Product.
THE PROVISIONS OF THIS LICENSE/PRODUCT SCHEDULE ARE PROVIDED AS A BASIS OF
DISCUSSION BETWEEN OEM AND RSA AND WILL BECOME BINDING UPON THE PARTIES ONLY IF
(1) OEM HAS EXECUTED AN OEM MASTER LICENSE AGREEMENT AND HAS INDICATED ITS
ACCEPTANCE OF THE TERMS CONTAINED IN THIS LICENSE/PRODUCT SCHEDULE BY SIGNING
BELOW ON OR BEFORE SEPTEMBER 30, 1997 AND (2) RSA HAS EXECUTED THE OEM MASTER
LICENSE AGREEMENT AND THIS LICENSE/PRODUCT SCHEDULE.
OEM:
SILVERSTREAM SOFTWARE, INC.
By: /s/ Craig Dynes
--------------------------------------
Printed Name: Craig Dynes
----------------------------
Title: Chief Financial Officer
-----------------------------------
Date: September 30, 1997
------------------------------------
RSA DATA SECURITY, INC.
By: /s/ D. James Bidzos
---------------------------------------
Printed Name:James Bidzos
-----------------------------
Title: President
------------------------------------
Date: 9/30/97
-------------------------------------
-15-
<PAGE> 16
EXHIBIT "A-1"
MANDATORY SUBLICENSE TERMS
All sublicense agreements for the Server Bundled Product by OEM to OEM
Sublicenses will include all of the following restrictions:
I. The OEM Sublicense will receive no greater rights with respect to the
Server Bundled Product than those permitted in Sections 2.1.2 and 2.1.3 of the
Agreement as limited by Section 2.2 of the Agreement.
II. The OEM Sublicense will agree not to remove or destroy any proprietary,
trademark or copyright markings or confidentiality legends placed upon or
contained within the Server Bundled Product or any related materials or
documentation and will comply with Section 5.4.1(ii) of the Agreement as amended
by this License/Product Schedule.
III. If applicable, the OEM Sublicense will agree that any license of the
Sublicense Product to the United States Government or an agency thereof will
state that such software and related documentation is "commercial computer
software" as that term is defined for purposes of the Federal Acquisition
Regulations (FARs) or the Department of Defense Federal Acquisition Regulations
Supplement (DFARS), as applicable, then in effect.
IV. The OEM Sublicense will agree not to export or reexport any Sublicensee
Product or any part thereof or information pertaining thereto to any country for
which a U.S. government agency requires an export license or other governmental
approval without first obtaining such license or approval.
V. The OEM Sublicensee will agree that, except for the limited licenses
granted under the sublicense agreement, OEM and its licensors will retain full
and exclusive right, title and ownership interest in and to the Server Bundled
Product and in any and all related patents, trademarks, copyrights or
proprietary or trade secret rights.
VI. OEM will have the right to terminate the sublicense agreement for the OEM
Sublicensee's breach of a material term. The OEM Sublicense will agree that,
upon termination of the license, the OEM Sublicensee will return to OEM all
copies of the object code and documentation for the Server Bundled Project or
certify to OEM that the OEM Sublicensee has destroyed all such copies, except
that the OEM Sublicensee may retain one (1) copy of the object code for the
Server Bundled Product solely for the purpose of supporting the OEM
Sublicensee's existing licensees.
VII. The OEM Sublicensee will agree not to reverse engineer, decompile,
dissemble or modify the Server Bundled Product.
VIII. The OEM Sublicenses will agree not to distribute the Sublicense Product or
any part thereof except pursuant to a license agreement meeting the requirements
in Section 5.3 of the Agreement.
IX. The sublicense agreement will state that in no event will OEM or its
licensors be liable for indirect, incidental, special, consequential or
exemplary damages arising out of or related to the Server Bundled Product,
including but not limited to lost profits, business interruption or loss of
business information, even if such party has been advised of the possibility of
such damages.
-16-
<PAGE> 17
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Exhibit A Extension Number: ___________________________
Date of this Exhibit A Extension: _____________________
EXHIBIT "A-2"
EXHIBIT A (LICENSE/PRODUCT SCHEDULE) EXTENSION
OEM:
SilverStream Software, Inc.
- --------------------------------------------------------------------------------
OEM Master License Agreement Number:
0997-SIL-O-MLA-1
- --------------------------------------------------------------------------------
Date of OEM Master License Agreement:
September 30, 1997
- --------------------------------------------------------------------------------
This Extension Extends License/Product Schedule Number:
0997-SIL-O-LPS-1
- --------------------------------------------------------------------------------
Name and Jurisdiction of Incorporation of OEM Sublicensee:
- --------------------------------------------------------------------------------
Sublicensee Product which Incorporates Bundled Product:
- --------------------------------------------------------------------------------
Sublicense Fee:
[**]
- --------------------------------------------------------------------------------
OEM:
SILVERSTREAM SOFTWARE, INC.
By: Craig Dynes
------------------------------------------------
Printed Name: Craig Dynes
--------------------------------------
Title Vice President and Chief Financial Officer
----------------------------------------------
-17-
<PAGE> 18
EXHIBIT "B"
LICENSEE SEALS AND TRADEMARKS
RSA Licensee Seal:
[The graphic depicts a seal in the shape of a rectangle
with the text GENUINE RSA]
Licenses are also permitted to use the following RSA trademarks, as applicable,
in ads, product packaging, documentation or collateral materials, provided that
they use the correct trademark designator, depicted below, and identify RSA as
the owner of the mark.
RCA(R) Symmetric Block Cipher, RC4(R) Symmetric Stream Cipher
RC5(TM) Symmetric Block Cipher,
BSAFE(TM), TIPEM(TM)
RSA Public Key Cryptosystem(TM)
MD(TM), MD2(TM), MD5(TM)
RSA reserves the right to update this Exhibit "B" from time to time upon
reasonable notice to licensee.
-18-
<PAGE> 19
AMENDMENT NUMBER ONE TO RSA DATA SECURITY
OEM MASTER LICENSE AGREEMENT
This Amendment Number One ("Amendment") to the RSA DATA SECURITY OEM MASTER
LICENSE AGREEMENT ("Agreement"), effective as of the later date of execution
("Effective Date"), is entered into by and between RSA Data Security, Inc.
("RSA") and Silverstream Software, Inc. ("OEM").
RSA and OEM entered into the Agreement on September 30, 1997. RSA and OEM
now wish to amend the Agreement. In consideration of the foregoing and the
mutual promises and covenants hereinafter set forth, the parties agree as
follows:
1. Section 1 of the Agreement, DEFINITIONS, is hereby modified by adding
Subsections 1.16 and 1.17 as follows:
1.16 "Licensed Application Services" means one or more services including
an application provided by an Application Service Provider Sublicensee
("ASP") and which uses or is supported by the Server Bundled Products.
1.17 "Service Revenue" means the gross amount of all cash, in-kind or other
consideration receivable by OEM at any time in consideration for an
ASP's Licensed Application Services, whether as use, transaction,
subscription, or service fees, or any comparable fees based on or
involving the use of the Licensed Application Services. For the
purpose of determining Service Revenue, the amount of in-kind or other
non-cash consideration receivable by OEM shall be deemed to have a
dollar value equal to the standard price (as listed in ASP's
published schedule on the date the Licensed Service is provided) for
the Licensed Service, less all cash paid.
2. Capitalized terms used and not otherwise defined in this Amendment shall
have the meanings designated in the Agreement.
3. Section 3a of Exhibit A to the Agreement (License and Maintenance Fees),
GRANT OF RIGHTS, is hereby amended by the following sentence to the end of
such section:
"Notwithstanding the foregoing, OEM may sublicense its rights to ASPs
solely for the use of Licensed Application Services."
<PAGE> 20
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
4. Section 3c of Exhibit A to the Agreement (License and Maintenance Fees),
SUBLICENSE FEES AND REPORTING, is hereby amended by deleting the second,
third and fourth sentence of such section and replacing them with the
following:
"OEM shall pre-pay a one-time License Fee of [**] for all OEM Sublicenses
during the term of this Agreement. [**] of such payment shall be due upon
execution of this Amendment. The remaining [**] shall be due no later than
sixty (60) days after the execution date of the last party to sign this
Amendment. OEM shall report to RSA in its reports delivered pursuant to
Section 3.7 of the Agreement the number of copies of Sublicensee Products
which are distributed or utilized as a Licensed Service by each OEM
Sublicensee and OEM's Net Sales Price or OEM's Service Revenue generated
with respect thereto. OEM shall pay RSA license fees pursuant to Section
3.5 of the Agreement based upon (a) Net Sales Price and/or number of copies
distributed, as applicable by ISVs, applying a percentage of Net Sales
Prices of [**] per copy/unit minimum license fees of [**], and (b) Service
Revenue generated by ASPs, applying a percentage of Service Revenue of [**]
(collectively the "License Fees")."
5. Exhibit A to the Agreement (License and Maintenance Fees) is further
modified by adding to the end of "PREPAYMENT OF LICENSE FEES UNDER THIS
LICENSE/PRODUCT SCHEDULE" the following:
o and [**] payable in accordance with Paragraph number 4 of this
Amendment.
6. Section 3.3 of the Agreement, PREPAYMENT OF LICENSE FEES, is hereby amended
by deleting the third sentence in its entirety and replacing it with the
following:
"Any and all of OEM's prepaid License Fees with respect to a Bundled
Product may be offset against License Fees at a rate of [**] for each
dollar of License Fees accrued until the prepayments are exhausted."
7. Exhibit A, LICENSE/PRODUCT SCHEDULE, is hereby amended by modifying the
title "Bundled Products" to "Bundled Products/Licensed Application
Services" and adding the following to the end of the first full paragraph:
"Bundled Products may be used as Licensed Application Services by OEM
Sublicensees."
-2-
<PAGE> 21
8. The "Maintenance and Support Agreement" Exhibit to the Agreement, dated
September 30, 1997, is hereby superceded in its entirety with the "Support
Agreement" attached to this Amendment and incorporated herein.
IN WITNESS WHEREOF, the parties have caused this Amendment and the attached
Support Agreement to be executed by their duly authorized representatives.
Silverstream Software, Inc. RSA Data Security, Inc.
By: /s/ Craig Dynes By: /s/ Hedy T. Breakfield
------------------------ -------------------------------
Printed Name: Craig Dynes Printed Name: Hedy T. Breakfield
-------------- ---------------------
Title: CFO Title: VP, Finance & Admin.
--------------------- ----------------------------
Date: 30 June 1999 Date: 6/30/99
--------------------- ----------------------------
SILVERSTREAM LEGAL APPROVED
[ILLEGIBLE] 6/30/99
-3-
<PAGE> 22
EXHIBIT A
---------
RSA'S YEAR 2000 READINESS DISCLOSURE
THE YEAR 2000 ISSUE
Application developers and end users are concerned with how their software will
handle the date change to the year 2000. In general, software applications that
rely only on the last two digits of the current date field may behave
erratically in the next century.
As the leader in cryprographic software development components with code
incorporated into hundreds of applications, some of which have date
dependencies, on nearly 400 million systems worldwide, RSA is frequently asked
about how RSA products will handle the Year 2000 date change and what assurances
RSA can provide to software developers.
It is important to note that RSA software only accounts for a portion of any
particular application, and that those applications may introduce Year 2000
problems independent of the RSA code included in that application. Moreover,
those applications may rely on the underlying platform and operating system for
time and date services, which may introduce their own Year 2000 problems, such
that the behavior of an application may be entirely platform dependent.
Therefore, while RSA can make statements about its own software components, Year
2000 problems may arise independent of the RSA code in any applications that use
RSA security components.
RSA'S YEAR 2000 READINESS EFFORT
The Year 2000 compliance plan is divided into the following phases:
1. Inventory phase, in which the RSA identifies all products and systems which
are created or used by RSA in the course of its operations;
2. Analysis phase, in which RSA determines what, if any, Year 2000 Operability
issues may exist with respect to any product or system;
3. Solution development phase, in which RSA designs and/or obtains from
third-party vendors methods to correct any Year 2000 Operability issues
which were identified in the prior phase; and
4. Implementation phase, in which RSA deploys solutions for the identified
problems.
-4-
<PAGE> 23
RSA SECURITY COMPONENTS AND THE YEAR 2000
RSA's most widely used software development components, RSA BSAFE(R) Crypto-C
and RSA BSAFE(R) Crypto-J, do not invoke time and date services and so are not
inherently susceptible to Year 2000 problems.
The RSA components that perform certificate services, namely BCBRT(TM)
TIPEM(TM) RSA BSAFE(R) Com-C, RSA BSAFE(R) S/MIME-C, RSA BSAFE(R) SSL-J
and RSA BSAFE(R) SSL-C include time and date routines to date stamp and
check the validity of certificates within an application. These RSA
security components rely on the underlying operating system services to
provide the GMT date and time information to the application. The X509
certificate standard requires that only the last two digits of the year be
encoded into the date fields within the certificate. The comparisons of
date fields to check the certificate validity are done inside the security
component. Currently, RSA has assumed that no digital certificates were
issued before the year 1970, and that any two-digit year field less than 70
is correctly accounted for within the application as being from the next
century. Implementation of future certificate standards shall specify a
cut-off date of 1950 for two-digit year fields, and all future RSA releases
shall conform to that standard, specifying 2049 as the maximum two-digit
value. Those standards shall also allow for four-digit year fields, so that
standards-compliant certificates issued in the future can be decoded with
complete certainty.
The information here is designated a "Year 2000 Readiness Disclosure" pursuant
to the Year 2000 Information and Readiness Disclosure Act, Public Law 105-271.
-5-
<PAGE> 1
Confidential materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT 10.11
This SUPPORT AGREEMENT ("Support Agreement") is entered into by and between
RSA Data Security, Inc., a Delaware corporation ("RSA"), having a principal
address at 2055 Campus Drive, Suite 400, San Mateo, CA 94409-2507, and:
Enterprise Name ("Yes"): Silverstream Software, Inc.
---------------------------------------------
Jurisdiction of Incorporation: Delaware
---------------------------------------------
Street Address: One Burlington Woods
---------------------------------------------
City: Burlington State & Zip Code: MA 01803
----------- ------------
Enterprise Legal Contact (Name & Title): David Alvin, Director-Legal & Contracts
----------------------------------------
Maintenance and Support Program Elected: Standard [X] Premier [ ]
Initial Annual Support Fee: [**]/year
The Effective Date of this Support Agreement is 6/30/99 shall be contingent upon
the execution of Amendment Number One to OEM Master License Agreement and
payment of the Initial Annual Support Fee of [**], less amounts owed for credit,
if any. This Support Agreement provides support and maintenance services for the
RSA Software licensed under Licensed Product Schedule Exhibit 0987-80.-0-LPS-1
and Amendment Number One to OEM Master License Agreement.
1 DEFINITIONS
All capitalized terms used and not defined herein shall have the meanings set
forth in the License Agreement or the following meanings:
1.1 "License Agreement" means that certain License Agreement between RSA and
You dated 9/30/97 as amended 6/30/99.
---------------------------
1.2 "RSA Software" means RSA proprietary software identified as RSA Software on
page 1 of the License Agreement.
<PAGE> 2
2 MAINTENANCE AND SUPPORT SERVICES
2.1 GENERAL. This Support Agreement sets forth the terms under which RSA will
provide support to You for the RSA Software licensed to You for the Licensed
Products, as set forth under the unamended License Agreement. The use of and
license to any Fixes and Updates provided to You hereunder shall be governed by
the terms of the License Agreement.
2.2 SUPPORT AND MAINTENANCE. RSA agrees to provide the maintenance and support
specified in this Support Agreement and You agree to pay RSA's then-current
mutual support Fee ("Support Fee").
2.3 SUPPORT PROVIDED BY RSA. For the annual period commencing on the Effective
Date hereof, and for future annual periods for which You have paid the Support
Fee, RSA will provide You with the following services in accordance with the
program You have elected above:
2.3.1 SUPPORT UNDER STANDARD PROGRAM. In the event that You have elected
the Standard program, RSA will provide telephone support to You from 8:00
a.m. to 5:00 p.m. (Pacific Time), Monday through Friday, excluding locally
observed holidays. Upon the receipt of a request for support services, RSA
shall respond within one (1) business day from the time of the request. RSA
shall provide the support specified in this Section to Your employees
responsible for developing and maintaining the Licensed Products licensed
under the License Agreement and providing support to End User Customers
thereof. No more than two (2) of Your employees may obtain such support
form RSA at any one time. Upon RSA's request, You will provide a list with
the names of the employees designated to receive support from RSA. You may
change the names on the list at any time by providing written notice to
RSA. Upon Your request, RSA may provide on-site support reasonably
determined to be necessary by RSA at Your location specified on page 1
hereof.
2.3.2 SUPPORT UNDER PREMIER PROGRAM. In the event that You have elected the
Premier program, RSA will provide telephone support to You 24 hours a day,
7 days per week. Upon the receipt for a request for support services, RSA
shall respond within two hours from the time of the request. RSA shall
provide the support specified in this Section to Your employees responsible
for developing and maintaining the Licensed Products licensed under the
License Agreement and providing support to End User Customers thereof. No
more than five (5) of Your employees may obtain such support from RSA at
any one time. Upon RSA's request, You will provide a list with the names of
the employees designated to receive support from RSA. You may change the
-2-
<PAGE> 3
Confidential materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
names on the list at any time by providing written notice to RSA. Upon Your
request, RSA may provide on-site support reasonably determined to be
necessary by RSA at Your location specified on page 1 hereof.
2.4 ERROR CORRECTION. In the event You discover an error in the RSA Software
which causes the RSA Software not to operate in material conformance to RSA's
published specifications therefor, You shall submit to RSA a written report
describing such error in sufficient detail to permit RSA to reproduce such
error. Upon receipt of any such written report, RSA will use its reasonable
efforts to correct such an error or to provide a software patch or bypass around
such an error (collectively, "Fixes") as early as practicable. All Fixes
provided to You shall constitute RSA Software under the License Agreement and
shall be governed by the terms thereof. Under no circumstances does RSA warrant
or represent all errors can or will be corrected. Furthermore, RSA shall not be
responsible for correcting any error if You fail to incorporate in Your Licensed
Product any Fixes or Update that RSA has provided to You.
2.5 UPDATES. RSA will from time to time offer You, at no additional cost,
Updates of the RSA Software during the term of this Support Agreement. You
understand, however, that RSA is not obligated to provide any Update. Absent any
restriction to Your right in use the algorithms contained in RSA Software, as
set forth in the applicable License Agreement in force at the time of execution
of this Support Agreement. Your license rights to any Updates shall also extend
to any new algorithms contained in such Updates. Any Updates acquired by You
shall be governed by all of the terms and provisions of the License Agreement.
3 MAINTENANCE AND SUPPORT FEES
3.1 SUPPORT FEES. In consideration of RSA's providing the maintenance and
support services described herein, You agree to pay RSA the initial Support Fee
set forth on the first page hereof. Such amount shall be payable for the first
year upon the execution of this Support Agreement, and for each subsequent year
in advance of the commencement of such year. The Support Fee may be modified by
RSA for each renewal term by written notice to You at least ninety (90) days
prior to the end of the then-current term. If You elect not to renew this
Support Agreement for successive terms (as provided in Section 6.1 below), You
may re-enroll only upon payment of the annual Support Fee for the coming year
and for all Support Fees that would have been paid had You not ceased
maintenance and support. RSA agrees that during the term of this Agreement and
for any subsequent renewal terms, [**].
-3-
<PAGE> 4
3.2 ADDITIONAL CHARGES. In the event RSA is required to take actions to correct
a difficulty or defect which is traced to Your errors, modifications,
enhancements, software or hardware, then You shall pay to RSA its time and
materials charges at RSA's rates then in effect. In the event that you have
requested RSA's personnel to travel to perform maintenance or on-site support,
You shall reimburse RSA for any reasonable out-of-pocket expenses incurred,
including travel to and from Your sites, lodging, meals and shipping, as may be
necessary in connection with duties performed under this Section 2 by RSA.
3.3 TAXES. All taxes, duties, fees and other governmental charges of any kind
(excluding sales and use taxes, but excluding taxes based on the gross revenues
or net income of RSA) which are imposed by or under the authority of any
government or any political subdivision thereof on the Support Fees or any
aspect of this Support Agreement shall be borne by You and shall not be
considered a part of, a deduction from or an offset against Support Fees.
3.4 TERMS OF PAYMENT. Support Fees due RSA hereunder shall be paid by You to
the attention of the Software Licensing Department at RSA's address set forth
above upon execution and, in the case of renewal terms, prior to each
anniversary thereof. A late payment penalty on any Maintenance Fees not paid
when due shall be assessed at the rate of one percent (1%) per thirty (30) days.
In no event shall Support Fees paid be refundable.
3.5 U.S. CURRENCY. All payments hereunder shall be made in lawful United States
currency.
4 CONFIDENTIALITY.
The parties agree that all obligations and conditions respecting
confidentiality, use of the Source Code (if Licensed to You) and publicity in
Section 7 of the License Agreement shall apply to the parties' performance of
this Support Agreement.
5 USE LIMITATIONS; TITLE; INTELLECTUAL
PROPERTY INDEMNITY; LIMITATION OF LIABILITY.
Any and all Upgrades and Fixes provided to You pursuant to this Support
Agreement shall constitute RSA Software under the License Agreement. As such,
the parties' respective interests and obligations relating to the RSA Software,
including but not limited to license and ownership rights thereto, use
limitations (if any), intellectual property indemnity and limitation of
liability, shall be governed by the terms of the License Agreement.
-4-
<PAGE> 5
6 TERM AND TERMINATION
6.1 TERM. This Support Agreement shall commence on the Effective Date hereof
and shall remain in full force and effect for an initial period of one (1) year,
unless sooner terminated in accordance with this Support Agreement. Upon
expiration of the initial period and each successive period, this Support
Agreement shall automatically renew for an additional one (1) year period,
unless either party has notified the other of its intent to terminate as set
forth in Section 6.2.3 herein.
6.2 TERMINATION.
6.2.1 Either party shall be entitled to terminate this Support Agreement at
any time on written notice to the other in the event of a material default
by the other party of this Support Agreement and a failure to cure such
default within a period of thirty (30) days following receipt of written
notice specifying that a default has occurred.
6.2.2 This Support Agreement shall automatically terminate in the event
that the License Agreement is terminated in accordance with its terms.
6.2.3 This Support Agreement may also be terminated by You for any or no
reason by providing written notice of such intent at least ninety (90) days
prior to the end of the then-current term. RSA may cease to offer support
and maintenance for future maintenance terms by notice delivered to You
ninety (90) days or more before the end of the then-current maintenance
term.
6.2.4 Upon (i) the institution of any proceedings by or against either
party seeking relief, reorganization or arrangement under any laws relating
to insolvency, which proceedings are not dismissed within sixty (60) days;
(ii) the assignment for the benefit of creditors, or upon the appointment
of a receiver, liquidator or trustee, of any of either party's property or
assets; or (iii) the liquidation, dissolution or winding up of either
party's business, then and in any such events this Support Agreement may
immediately be terminated by the other party upon written notice.
-5-
<PAGE> 6
6.3 SURVIVAL OF CERTAIN TERMS. The following provisions shall survive any
expiration or termination of this Support Agreement: Sections 3.1, 4, 6, 8 and
7.
7 MISCELLANEOUS PROVISIONS
This Support Agreement is not an amendment to the License Agreement, but instead
is a separate binding agreement which incorporates certain terms of the License
Agreement for the purposes of brevity and assumed consistency. This Agreement
incorporates by this reference Section 11 of the License Agreement in its
entirety.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date of
the later signature below.
<TABLE>
<CAPTION>
ENTERPRISE NAME: Silverstream Software, Inc. RSA DATA SECURITY, INC.
---------------------------
<S> <C>
By: /s/ Craig Dynes By: /s/ Hedy T. Breakfield
------------------------------------------ --------------------------------------
Printed Name: Craig Dynes Printed Name: Hedy T. Breakfield
-------------------------------- ----------------------------
Title: CFO Title: VP; Finance & Admin.
--------------------------------------- -----------------------------------
Date: 30 June 1999 Date: 6/30/99
---------------------------------------- ------------------------------------
</TABLE>
-6-
<PAGE> 1
EXHIBIT 10.12
SILVERSTREAM SOFTWARE, INC.
VAR BUSINESS PARTNER AGREEMENT
- --------------------------------------------------------------------------------
Partner
- --------------------------------------------------------------------------------
Contact Name
- --------------------------------------------------------------------------------
Partner Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Telephone
- --------------------------------------------------------------------------------
Fax
- --------------------------------------------------------------------------------
e-Mail: URL:
- --------------------------------------------------------------------------------
This Agreement and the Exhibits which form part of it set forth the terms
applicable to you as a SilverStream Business Partner. By signing this Agreement
Partner agrees to the General Terms and the Exhibits applicable to each category
selected below.
Partner Category:
[ ] SilverStream VAR Partner
This Agreement takes effect as of the last date written below.
SilverStream Software, Inc. Partner ________________________
Signature ______________________ Signature ________________________
Name (please print) ______________________ Name (please print) ______________
Title ______________________ Title ________________________
Date ______________________ Date ________________________
SILVERSTREAM SOFTWARE, INC. ONE BURLINGTON WOODS DRIVE, BURLINGTON, MA 01803,
USA. TEL (781) 238 5400, FAX (781) 238 5499
CONFIDENTIAL 1998
<PAGE> 2
- --------------------------------------------------------------------------------
Business Partner Agreement
for SilverStream VAR Partners
- --------------------------------------------------------------------------------
1. APPOINTMENT
SilverStream appoints Partner as a non-exclusive member of the SilverStream
Business Partner Program in the Territory for the category (s) selected
(individually a "Category") on the face page of this Agreement. SilverStream and
Partner acknowledge their respective benefits and obligations as outlined in the
Exhibits attached hereto. SilverStream may in all Categories (but not in the ISV
Category) from time to time change the terms and conditions as outlined in
Exhibits by giving the Partner 30 days notice. Partner represents that it meets
or will meet within 60 days of the date hereof the program requirements
specified in Exhibit B and agrees to maintain such qualification during the
period of this Agreement.
2. TERM
This Agreement shall be for an initial term of one (1) year ("Initial Term")
commencing on the date hereof and this Agreement shall automatically renew for
subsequent one (1) year periods unless terminated as elsewhere herein provided.
3. GRANT OF LICENSES
3.1. Subject to the terms and conditions of the Agreement, SilverStream hereby
grants to the Partner, and the Partner hereby accepts, the license set
forth in Exhibit A for the Products as designated in Exhibit A. To the
extent permitted herein, the distribution of any Product by Partner shall
be subject to the terms and conditions of SilverStream's shrink-wrap
sublicense agreements under which each sublicensee agrees: (i) to operate
and process the Product for its own business purposes only, without the
right to further sublicense; (ii) not to copy or reproduce the Product, in
whole or in part, except as permitted in writing; (iii) not to modify,
adapt, translate, decompile, disassemble or reverse engineer (except to the
extent SilverStream is required by applicable law to allow you to reverse
engineer the software) the Product in any manner, and (iv) that the
sublicense agreement inures to the benefit of SilverStream, and that
SilverStream may directly enforce the terms of the sublicense agreement in
order to protect its interest in the Products.
3.2. Neither Partner nor any persons or entities who directly or indirectly
purchase or license Products from, or who have the Products marketed to
them by, the Partner in accordance with this Agreement ("Customers") shall
have any right to merge or embed the Products into any other computer
program or work or create derivative works of the Products.
3.3. Title to and ownership of the Products, including all patents, copyrights
and property rights applicable thereto, shall at all times remain solely
and exclusively with SilverStream or its licensors, and neither the Partner
nor any Customer shall take any action inconsistent with such title and
ownership.
3.4. SilverStream, may at its option, make available to Partner certain
software, media and/or related documentation for products or versions of
products not generally commercially available ("Pre-released Software).
Partner agrees to use Pre-released Software for testing and evaluation
purposes only, and to treat Pre-released Software as Confidential
Information and trade secrets subject to the provisions of this Agreement.
Partner agrees to abide by the terms of the shrink-wrap license associated
with such Pre-released Software.
4. PRICES, PAYMENT AND AUDIT
4.1. Partner agrees to pay the "Partner Price" as a license fee for each Product
ordered hereunder. The Partner Price shall equal SilverStream's suggested
MSRP ("Base Price") for Products ordered, less the applicable discount (the
"Discount"), set forth on the North American Price List ("Price List") in
Exhibit C. All Base Prices and Partner Prices are in U.S. Dollars and
F.O.B. SilverStream's point of shipment. All payments from Partner to
SilverStream shall be made in U.S. Dollars. Payments from Canadian Partners
may be made in Canadian Dollars if the SilverStream invoice to the Partner
is prepared by SilverStream in Canadian Dollars.
CONFIDENTIAL 1998
<PAGE> 3
4.2. SilverStream in its sole discretion, shall have the right from time to
time, to change the Base Prices and Discounts and/or add or delete products
to or from the Price List by giving 30 days prior written notice to the
Partner. Orders accepted by SilverStream prior to the effective date of any
such change and scheduled for delivery within 30 days following receipt by
SilverStream shall be processed at the lower of (i) the Base Prices and/or
Partner Prices in effect on the date of acceptance of the order or (ii) the
Base Prices and/or Partner Prices in effect on the scheduled shipment date.
4.3. The payment terms for Product ordered shall be net thirty (30) days and if
Partner fails to pay any amounts when due, the Partner shall pay
SilverStream a late payment charge equal to 1.5% per month or if lesser the
maximum amount permitted by law. SilverStream reserves the right to require
full or partial payment in advance, or to revoke any credit previously
extended, if, in SilverStream's judgment, the Partner's financial condition
does not warrant proceeding on the terms specified.
4.4. SilverStream shall have the right, subject to reasonable advance notice, to
have an independent auditor acceptable to Partner (which acceptance shall
not be unreasonably withheld) inspect such books and records of Partner, at
Partner's principal place of business, as are necessary to verify the
reports provided by Partner to SilverStream. Any such audit shall be at the
expense of SilverStream, unless such audit discloses an underpayment by the
Partner in excess of five percent (5%) in any three-month period, in which
case Partner shall reimburse SilverStream for such expenses. Any
underpayment by Partner shall be promptly paid to SilverStream together
with interest as provided in this Section.
5. TAXES AND IMPORT DUTIES
Base Prices and Partner Prices are exclusive of all federal, state, municipal,
excise, sales, use, value added, property or other similar taxes and import
duties, now in force or enacted in the future by any community of nations or any
nation or political subdivision, all of which shall be paid by the Partner,
except for such taxes as are imposed on SilverStream's income, which shall be
paid by SilverStream. The Partner is responsible for obtaining and providing to
SilverStream any certificate of exemption or similar document required to exempt
any sale from sales, use or similar tax liability.
6. PURCHASE ORDERS/SHIPMENT/DELIVERY/TITLE
The Partner shall order Products from SilverStream by submitting a written
purchase order identifying the quantity and Products ordered, prices, ship to
location, requested delivery date(s) and any export/import and shipping
information required to enable SilverStream to fill the order. All purchase
orders for Products are subject to acceptance by SilverStream. All shipping
charges and insurance costs shall be the responsibility of the Partner. Unless
otherwise agreed, SilverStream will select the common carrier on behalf of the
Partner, but such carrier shall not be construed as SilverStream's agent. Risk
of loss shall pass to the Partner upon delivery to the common carrier. Title
shall pass to the Partner upon payment for the Products. Partner acknowledges
that it is responsible for credit and cash collection risks with its customers.
7. OBLIGATIONS OF THE PARTNER
Partner shall undertake all obligations set forth as Program Requirements on
Exhibit B.
8. WARRANTIES
SILVERSTREAM DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, WRITTEN OR
ORAL, WITH RESPECT TO THE PRODUCTS, INCLUDING WITHOUT LIMITATION ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
SILVERSTREAM'S LIABILITY FOR DAMAGES TO THE PARTNER FOR ANY CAUSE WHATSOEVER
REGARDLESS OF THE FORM OF ANY CLAIM OR ACTION, SHALL NOT EXCEED THE AGGREGATE
PAID FOR PRODUCTS UNDER THIS AGREEMENT. SILVERSTREAM SHALL IN NO EVENT BE LIABLE
FOR ANY LOSS OF DATA, PROFITS OR USE OF THE PRODUCTS, OR FOR ANY SPECIAL,
INDIRECT, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL LOSS DAMAGES ARISING HEREUNDER
EVEN IF SILVERSTREAM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO
EVENT WILL SILVERSTREAM BE LIABLE TO CUSTOMERS OR OTHER THIRD PARTIES FOR ANY
DAMAGES, INCLUDING BUT NOT LIMITED TO: (i) DAMAGES CAUSED BY THE PARTNER'S
FAILURE TO PERFORM COVENANTS AND RESPONSIBILITIES, BY REASON OF SILVERSTREAM'S
NEGLIGENCE OR OTHERWISE; (ii) DAMAGES CAUSED BY REPAIRS OR MODIFICATIONS DONE
WITHOUT SILVERSTREAM'S WRITTEN APPROVAL; OR (iii) LOSS OF DATA, PROFITS OR USE
OF THE PRODUCTS OR ANY SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL
LOSS DAMAGES IN
CONFIDENTIAL 1998
<PAGE> 4
CONNECTION WITH THE USE OR PERFORMANCE OF THE PRODUCTS. THE PARTNER SHALL
INDEMNIFY SILVERSTREAM AGAINST ALL SUCH CLAIMS ASSERTED BY ITS CUSTOMERS OR
OTHER THIRD PARTIES AGAINST SILVERSTREAM.
INDEMNIFICATION BY THE PARTNER. To the extent a claim or action is brought
against SilverStream based on or related to the Partner's failure to observe or
perform its obligations under this Agreement, including its obligation to notify
customers of limitations and disclaimers of warranties and liabilities, the
Partner shall defend and hold SilverStream harmless from and against any and all
damages, costs and expenses, including reasonable attorneys' fees, suffered by
or awarded against SilverStream.
9. PATENTS AND TRADEMARKS
9.1. Infringement Indemnification by SilverStream. If notified promptly in
writing of any action brought against the Partner based on a claim that the
Products infringe any valid United States patent or copyright, SilverStream
shall defend such action at its expense and pay all costs and damages
finally awarded in such action or settlement which are attributable to such
claim. SilverStream shall have sole control of the defense of any such
action and all negotiations for its settlement or compromise. The Partner
shall cooperate fully with SilverStream in the defense, settlement or
compromise of any such action. In the event that a final injunction is
obtained against the Partner's use of the Product by reason of infringement
of a valid patent, copyright, trade secret or other intellectual property
right, or if in the opinion of SilverStream the Product is likely to become
the subject of a successful claim of such infringement, SilverStream may,
at its option and expense, (i) procure for the Partner and its Customers
the right to continue using the Product, (ii) replace or modify the Product
so that it becomes non-infringing so long as its functionality is
essentially unchanged, or (iii) if neither (i) and (ii) are reasonably
available to SilverStream, terminate the license for the Product.
9.2. Notwithstanding the foregoing, SilverStream shall have no liability to the
Partner to the extent that any infringement or claim thereof is based upon
(i) use of any Product in combination with equipment or software not
supplied by SilverStream where the Product would not itself be infringing,
(ii) compliance with designs, specifications or instructions of the Partner
or any of its Customers, (iii) use of any Product in an application or
environment for which it was not designed or contemplated hereunder, (iv)
modifications of the Products by anyone other than SilverStream, or (v) any
claims of infringement of any patent, copyright or trade secret in which
the Partner or any affiliate of the Partner has an interest or license.
9.3. The Partner shall not bring any suit or action against SilverStream for any
reason whatsoever more than one year after the related cause of action has
occurred.
9.4. THE FOREGOING INDEMNIFICATION PROVISIONS STATE THE ENTIRE LIABILITY OF
SILVERSTREAM WITH RESPECT TO INFRINGEMENT OR ALLEGED INFRINGEMENT OF
PATENTS, COPYRIGHTS, TRADEMARKS, TRADE SECRETS AND OTHER INTELLECTUAL
PROPERTY OR PROPRIETARY RIGHTS BY THE PRODUCTS.
9.5. Infringement, Indemnification by the Partner. The Partner shall indemnify,
defend and hold harmless SilverStream against all claims, liabilities,
damages, expenses, judgments and losses (including reasonable attorneys'
fees) arising from (i) infringement or alleged infringement of any patent,
copyright, trade secret, trademark or other intellectual property or
proprietary right as a result of compliance by SilverStream with the
designs, specifications or instructions of the Partner or any of its
Customers, (ii) the Partner's breach of any of its obligations hereunder,
and (iii) the Partner's misuse of the Products.
9.6. Ownership of Patents and Trademarks. All patents, trademarks, trade names,
copyrights, domain names and designs in relation to the Products and the
literature supplied in connection therewith shall be and remain the
property of SilverStream, or the owner of such as applicable and no rights
to duplicate such property shall accrue to the Partner unless expressly
provided herein or unless written permission is granted by SilverStream.
9.7. Use of SilverStream's Trade Name and Trademarks. The Partner shall include
and shall not alter, obscure or remove any trademark or trade name used or
claimed by SilverStream, or any markings, colors, logos or other insignia
which are contained on or in or affixed to Products at the time of shipment
(collectively, with any domain name including the word SilverStream, the
"SilverStream Marks").
9.7.1. Subject to the terms and conditions of this Agreement,
SilverStream hereby grants to Partner during the term of this
Agreement a non-assignable and non-transferable right and license
to use the SilverStream Marks in the conduct of its business in a
style and manner approved by SilverStream in
CONFIDENTIAL 1998
<PAGE> 5
writing prior to such use. Partner may, in advertising,
promotional materials, letterheads, invoices, and other
appropriate documents, describe itself as an "Authorized Partner
for SilverStream Software Products." Partner shall forward to
SilverStream for its prompt review and approval any and all forms
of proposed advertising or promotional materials of Partner which
include a SilverStream Mark.
9.7.2. Partner agrees it is not authorized under this Agreement to use
any SilverStream Marks in connection with any business conducted
by the Partner other than the business of reselling Products in
accordance with the terms of this Agreement.
9.7.3. Partner will not, during or after the term of this Agreement,
claim any ownership or similar interest in any of the
SilverStream Marks.
9.7.4. Nothing herein shall give Partner any right, title, or interest
in the SilverStream Marks except the right to use the same during
the term of this Agreement and in accordance with its terms. Any
use of the SilverStream Marks by or with the authority of Partner
shall inure to the benefit of SilverStream.
9.7.5. Partner agrees it shall not, and it shall not cause or assist any
third party to, register or attempt to register, in its own name
or otherwise, any of the SilverStream Marks or any other
trademarks, service marks, or slogans owned by or associated with
SilverStream or any derivative of any of these. In the event that
Partner secures or has secured in any jurisdiction any rights to
any of the SilverStream Marks or any of such other marks or
slogans which are prior to or greater than the rights owned by
SilverStream, then Partner shall immediately notify SilverStream
of same, and, upon written request from SilverStream, hereby
assigns all Partner's right, title, and interest therein to
SilverStream (or its designee).
9.7.6. Partner agrees to notify SilverStream in writing of any apparent
infringement of any of the SilverStream Marks which comes to the
attention of Partner.
9.7.7. Upon termination of this Agreement for any reason, all rights and
licenses granted to Partner hereunder shall terminate and revert
immediately to SilverStream and Partner shall immediately cease
using the SilverStream Marks.
9.7.8. Partner acknowledges and agrees that the SilverStream Marks have
a unique character giving them a peculiar value, the loss of
which cannot reasonably or adequately be compensated for by
monetary damages, and that the violation by Partner of the
provisions hereof concerning the same or of SilverStream's rights
therein are likely to cause SilverStream irreparable damage and
injury. Partner hereby expressly agrees that SilverStream will be
entitled to equitable relief to prevent or cure any violation or
infringement or threatened violation or infringement of
SilverStream's rights in the SilverStream Marks.
9.8. SilverStream shall be entitled to review the Partner's operation from time
to time, and, upon reasonable notice to Partner, conduct periodic quality
reviews of Partner's operation. Partner shall comply with all SilverStream
quality standards established from time to time by SilverStream. This
Agreement may be terminated by SilverStream upon 30 days' written notice in
the event Partner fails to comply with SilverStream's quality standards,
which failure remains uncured for thirty (30) days after notice thereof
from SilverStream.
10. TERMINATION, DEFAULT AND REMEDIES
10.1. After the Initial Term, this Agreement may be terminated by either party,
without cause, upon written notice to the other party giving 90 days
notice at any time during the term of this Agreement.
10.2. Upon the occurrence of any of the following acts or events ("Events of
Default"), the Partner shall be in default and breach of this Agreement.
10.2.1. Where applicable, the failure to meet the financial requirements as
set forth on Exhibit B.
10.2.2. Failure to make any payment when due hereunder which failure
remains uncured for fourteen days (14) days after notice thereof
from SilverStream.
10.2.3. Failure to comply with the terms hereof or to perform any of its
covenants, obligations or
CONFIDENTIAL 1998
<PAGE> 6
responsibilities under this Agreement which failure remains
uncured for fourteen (14) days after notice thereof from
SilverStream.
10.2.4. Dissolution, termination of existence, liquidation, insolvency or
business failure of the Partner or the institution of any
bankruptcy proceeding against or by the Partner, or the
appointment of a custodian or receiver for the Partner or any
part of its property if such bankruptcy proceeding or appointment
is not terminated or dismissed within thirty (30) days.
10.2.5. Assignment or attempted assignment of this Agreement by Partner
in violation of Section 11.3 hereof.
10.3. Upon the occurrence of an Event of Default, SilverStream, in its sole
discretion, shall have the right to (i) immediately terminate, by written
notice, this Agreement and/or any software license granted to the Partner,
(ii) cancel any or all unfilled orders for Products submitted by the
Partner, and (iii) exercise any other remedy which may be available at law
or in equity.
10.4. Upon the termination of this Agreement, the Partner shall (i) cease
immediately from acting as a Partner of SilverStream and abstain from
making further distribution of Products, (ii) pay to SilverStream, in full
within 30 days of such termination, all amounts owed to SilverStream,
(iii) cooperate with SilverStream in completing all outstanding
obligations to Customers, and (iv) cease making use of any printed
material, trademarks, trade name or domain name identified with
SilverStream without the express written consent of SilverStream. Th
provisions set forth in Sections 8, 9.7.7., 9.7.8., 10 and 11 shall
survive the termination of this Agreement.
10.5. SilverStream shall have no liability to the Partner for damages of any
kind, including indirect, incidental or consequential damages, on account
of the termination or expiration of this Agreement. Without limiting the
generality of the foregoing, SilverStream shall not be liable to the
Partner for reimbursement or damages for the loss of goodwill, prospective
profits or anticipated sales, or on account of any expenditures,
investment, leases or commitments made by the Partner or for any other
reason whatsoever based upon, or growing out of, such termination or
expiration.
11. GENERAL
11.1. Proprietary Information. No proprietary information disclosed by either
party to the other in connection with this Agreement shall be disclosed to
any person or entity other than the recipient party's employees directly
involved with the recipient party's use of such information (in accordance
with the terms hereof) who are bound by written agreement to protect the
confidentiality of such information, and such information shall otherwise
be protected by the recipient party from disclosure to others. Information
will not be subject to this provision if it is or becomes a matter of
public knowledge without the fault of the recipient party, if it was a
matter of written record in the recipient party's files prior to
disclosure to it by the other party, or if it was or is received by the
recipient party from a third person under circumstances permitting its
unrestricted disclosure by the recipient party. Upon termination of this
Agreement, each party shall promptly deliver to the other all proprietary
information of the other party in the possession or control of such party
and all copies thereof. The obligations under this Section shall continue
for a period of five (5) years after the termination of this Agreement.
11.2. Force Majeure. In the event that either party fails to perform any of
its obligations under this Agreement due to any act of God, fire,
casualty, flood, war, strike, lock out, failure of public utilities,
injunction or any act, exercise, intervention of governmental
authority, epidemic, insurrection, or any other cause beyond the
reasonable control of the party invoking this provision, then, except
for Partner's obligation to make payments to SilverStream hereunder,
the affected party's performance shall be excused and the time for
performance shall be extended for the period of delay or inability to
perform due to such occurrence.
11.3. Assignment and Corporate Reorganization. The rights granted to the
Partner under this Agreement are personal in character. Neither this
Agreement nor any rights granted hereby may be assigned by the Partner
voluntarily or by operation of law without SilverStream's prior written
consent and any such attempted assignment shall be null and void. For
purposes of this Agreement, "assignment" shall be deemed to include the
transfer of all or substantially all of the assets of, or a majority
interest in the Partner or the voting stock of the Partner, or the
merger of the Partner with one or more entities. This Agreement shall
inure to the benefit of and be binding upon any successor or assign of
SilverStream.
11.4. Compliance with U.S. Government Regulations. The parties agree to comply
with all U.S. state and federal laws, regulations or orders pertaining to
the fulfillment of this Agreement including but not limited to export
control laws, anti-boycott laws, and the Foreign Corrupt Practices Act,
which prohibits certain payments to
CONFIDENTIAL 1998
<PAGE> 7
parties who are not the Partner.
11.5. Applicable Law and Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of
Massachusetts.
11.6. Relationship of the Parties. The Partner acknowledges that both
parties hereto are independent contractors and that the Partner will,
on its own behalf, solicit orders for Products only as an independent
contractor. The Partner shall not represent itself as a partner, joint
venture, agent, employee or general representative of SilverStream.
The Partner acknowledges that it shall have no right, power or
authority to in any way obligate SilverStream to any contract or other
obligation.
11.7. Entire Agreement. This Agreement constitutes the entire agreement
between SilverStream and the Partner with respect to the subject
matter hereof and shall not be amended, altered or changed except by a
written agreement signed by the parties hereto.
11.8. Waivers. No delay or omission on the part of either party to this
Agreement in requiring performance by the other party or in exercising
any right hereunder shall operate as a waiver of any provision hereof
or of any right or rights hereunder; and the waiver, omission or delay
in requiring performance or exercising any right hereunder on any one
occasion shall not be construed as a bar to or waiver of such
performance or right, or of any right or remedy under this Agreement,
on any future occasion.
11.9. Notices. For purposes of this Agreement, and for all notices and
correspondence hereunder, the addresses of the respective parties have
been set out at the beginning of this Agreement, and no change of
address shall be binding upon the other party until written notice
thereof is received by such party at the address shown herein. All
notices shall be effective upon receipt if delivered by courier
service and five days after mailing if sent by registered mail.
11.10. Severability. If any provision of this Agreement shall for any reason
be held illegal or unenforceable, such provision shall be deemed
separable from the remaining provisions of this Agreement and shall in
no way affect or impair the validity or enforceability of the
remaining provisions of this Agreement.
11.11. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which shall constitute
one and the same instrument.
CONFIDENTIAL 1998
<PAGE> 1
EXHIBIT 10.13
SILVERSTREAM SOFTWARE, INC.
BUSINESS PARTNER AGREEMENT
- --------------------------------------------------------------------------------
Partner
- --------------------------------------------------------------------------------
Partner Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Incorporated in the State of:
- --------------------------------------------------------------------------------
Telephone
- --------------------------------------------------------------------------------
Fax
- --------------------------------------------------------------------------------
e-Mail: URL:
- --------------------------------------------------------------------------------
This Agreement and the Exhibits which form part of it set forth the terms
applicable to you as a SilverStream Business Partner. By signing this Agreement
Partner agrees to the General Terms and the Exhibits applicable to each category
selected below.
Partner Category:
[ ] SilverStream Independent Software Vendor (ISV) Partner
This Agreement takes effect as of the last date written below.
<TABLE>
<S> <C>
SilverStream Software, Inc. Partner
------------------------------
Signature Signature
------------------------------ ------------------------------
Name (please print) Name (please print)
------------------------------ ------------------------------
Title Title
------------------------------ ------------------------------
Date Date
------------------------------ ------------------------------
</TABLE>
SILVERSTREAM SOFTWARE, INC. ONE BURLINGTON WOODS DRIVE, BURLINGTON,
MA 01803, USA. TEL (781) 238 5400, FAX (781) 238 5499
CONFIDENTIAL 1998
<PAGE> 2
- --------------------------------------------------------------------------------
Business Partner Agreement
SilverStream ISV Partners
- --------------------------------------------------------------------------------
1. APPOINTMENT
SilverStream appoints Partner as a non-exclusive member of the SilverStream
Business Partner Program in the Territory for the category (s) selected
(individually a "Category") on the face page of this Agreement. SilverStream and
Partner acknowledge their respective benefits and obligations as outlined in the
Exhibits attached hereto. SilverStream may in all Categories (but not in the ISV
Category) from time to time change the terms and conditions as outlined in
Exhibits by giving the Partner 30 days notice. Partner represents that it meets
or will meet within 60 days of the date hereof the program requirements
specified in Exhibit B and agrees to maintain such qualification during the
period of this Agreement.
2. TERM
This Agreement shall be for an initial term of One (1) years ("Initial Term")
commencing on the date hereof and this Agreement shall automatically renew for
subsequent one (1) year periods unless terminated as elsewhere herein provided.
3. GRANT OF LICENSES
3.1. Subject to the terms and conditions of the Agreement, SilverStream hereby
grants to the Partner, and the Partner hereby accepts, the license set
forth in Exhibit A for the Products as designated in Exhibit A. To the
extent permitted herein, the distribution of any Product by Partner shall
be subject to the terms and conditions of SilverStream's shrink-wrap
sublicense agreements under which each sublicensee agrees: (i) to operate
and process the Product for its own business purposes only, without the
right to further sublicense; (ii) not to copy or reproduce the Product, in
whole or in part, except as permitted in writing; (iii) not to modify,
adapt, translate, decompile, disassemble or reverse engineer (except to the
extent SilverStream is required by applicable law to allow you to reverse
engineer the software) the Product in any manner, and (iv) that the
sublicense agreement inures to the benefit of SilverStream, and that
SilverStream may directly enforce the terms of the sublicense agreement in
order to protect its interest in the Products.
3.2. Neither Partner nor any persons or entities who directly or indirectly
purchase or license Products from, or who have the Products marketed to
them by, the Partner in accordance with this Agreement ("Customers") shall
have any right to merge or embed the Products into any other computer
program or work or create derivative works of the Products.
3.3. Title to and ownership of the Products, including all patents, copyrights
and property rights applicable thereto, shall at all times remain solely
and exclusively with SilverStream or its licensors, and neither the Partner
nor any Customer shall take any action inconsistent with such title and
ownership.
3.4. SilverStream, may at its option, make available to Partner certain
software, media and/or related documentation for products or versions of
products not generally commercially available ("Pre-released Software).
Partner agrees to use Pre-released Software for testing and evaluation
purposes only, and to treat Pre-released Software as Confidential
Information and trade secrets subject to the provisions of this Agreement.
Partner agrees to abide by the terms of the shrink-wrap license associated
with such Pre-released Software.
4. PRICES, PAYMENT AND AUDIT
4.1. Partner agrees to pay the "Partner Price" as a license fee for each Product
ordered hereunder. The Partner Price shall equal SilverStream's suggested
MSRP ("Base Price") for Products ordered, less the applicable discount (the
"Discount"), set forth on the North American Price List ("Price List") in
Exhibit C. All Base Prices and Partner Prices are in U.S. Dollars and
F.O.B. SilverStream's point of shipment. All payments from Partner to
SilverStream shall be made in U.S. Dollars. Payments from Canadian Partners
may be made in
CONFIDENTIAL 1998
<PAGE> 3
Canadian Dollars if the SilverStream invoice to the Partner is prepared by
SilverStream in Canadian Dollars.
4.2. SilverStream in its sole discretion, shall have the right from time to
time, to change the Base Prices and Discounts and/or add or delete products
to or from the Price List by giving 30 days prior written notice to the
Partner. Orders accepted by SilverStream prior to the effective date of any
such change and scheduled for delivery within 30 days following receipt by
SilverStream shall be processed at the lower of (i) the Base Prices and/or
Partner Prices in effect on the date of acceptance of the order or (ii) the
Base Prices and/or Partner Prices in effect on the scheduled shipment date.
4.3. The payment terms for Product ordered shall be net thirty (30) days and if
Partner fails to pay any amounts when due, the Partner shall pay
SilverStream a late payment charge equal to 1.5% per month or if lesser the
maximum amount permitted by law. SilverStream reserves the right to require
full or partial payment in advance, or to revoke any credit previously
extended, if, in SilverStream's judgment, the Partner's financial condition
does not warrant proceeding on the terms specified.
4.4. SilverStream shall have the right, subject to reasonable advance notice, to
have an independent auditor acceptable to Partner (which acceptance shall
not be unreasonably withheld) inspect such books and records of Partner, at
Partner's principal place of business, as are necessary to verify the
reports provided by Partner to SilverStream. Any such audit shall be at the
expense of SilverStream, unless such audit discloses an underpayment by the
Partner in excess of five percent (5%) in any three-month period, in which
case Partner shall reimburse SilverStream for such expenses. Any
underpayment by Partner shall be promptly paid to SilverStream together
with interest as provided in this Section.
5. TAXES AND IMPORT DUTIES
Base Prices and Partner Prices are exclusive of all federal, state, municipal,
excise, sales, use, value added, property or other similar taxes and import
duties, now in force or enacted in the future by any community of nations or any
nation or political subdivision, all of which shall be paid by the Partner,
except for such taxes as are imposed on SilverStream's income, which shall be
paid by SilverStream. The Partner is responsible for obtaining and providing to
SilverStream any certificate of exemption or similar document required to exempt
any sale from sales, use or similar tax liability.
6. MASTER DISKS AND AUTHORIZED LICENSE CODES
Master Disks and authorized license codes. Partner is authorized to distribute
Application Deployment Servers and is authorized to make Evaluation Copies and
Demonstrations Copies of the Software and copies of the Software to be licensed
as Application Deployment Servers from the Master Disks ("Master Disks") and
authorized license codes that SilverStream will make available to Partner.
Partner may make a reasonable number of Evaluation and Demonstration copies that
may be distributed without Royalties provided that the partner receives no
revenue associated with the Evaluation and Demonstration Copies and the
Evaluation and Demonstration Copies contain a license code, as provided by
SilverStream, that causes the Software to cease functioning 60 days after
installation.
Partner must maintain adequate security over Master Disks and authorized license
codes and shall allow only a limited number of employees to make copies from
Master Disks. Partner shall fully account for all copies of the Software.
Partner shall not modify or alter and proprietary rights notices contained
within the Software. Partner is strictly prohibited from providing access or
transferring the Masters Disks or license codes to any third party.
7. OBLIGATIONS OF THE PARTNER
Partner shall undertake all obligations set forth as Program Requirements on
Exhibit B.
8. WARRANTIES
SILVERSTREAM DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED, WRITTEN OR
ORAL, WITH RESPECT TO THE PRODUCTS, INCLUDING WITHOUT LIMITATION ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
SILVERSTREAM'S LIABILITY FOR DAMAGES TO THE PARTNER FOR ANY CAUSE WHATSOEVER
REGARDLESS OF THE FORM OF ANY CLAIM OR ACTION, SHALL NOT EXCEED THE AGGREGATE
PAID FOR PRODUCTS UNDER THIS AGREEMENT. SILVERSTREAM SHALL IN NO EVENT BE LIABLE
FOR ANY LOSS OF DATA, PROFITS OR USE OF THE PRODUCTS, OR FOR ANY SPECIAL,
INDIRECT, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL LOSS DAMAGES ARISING HEREUNDER
EVEN IF
CONFIDENTIAL 1998
<PAGE> 4
SILVERSTREAM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT
WILL SILVERSTREAM BE LIABLE TO CUSTOMERS OR OTHER THIRD PARTIES FOR ANY DAMAGES,
INCLUDING BUT NOT LIMITED TO: (i) DAMAGES CAUSED BY THE PARTNER'S FAILURE TO
PERFORM COVENANTS AND RESPONSIBILITIES, BY REASON OF SILVERSTREAM'S NEGLIGENCE
OR OTHERWISE; (ii) DAMAGES CAUSED BY REPAIRS OR MODIFICATIONS DONE WITHOUT
SILVERSTREAM'S WRITTEN APPROVAL; OR (iii) LOSS OF DATA, PROFITS OR USE OF THE
PRODUCTS OR ANY SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL LOSS
DAMAGES IN CONNECTION WITH THE USE OR PERFORMANCE OF THE PRODUCTS. THE PARTNER
SHALL INDEMNIFY SILVERSTREAM AGAINST ALL SUCH CLAIMS ASSERTED BY ITS CUSTOMERS
OR OTHER THIRD PARTIES AGAINST SILVERSTREAM.
INDEMNIFICATION BY THE PARTNER. To the extent a claim or action is brought
against SilverStream based on or related to the Partner's failure to observe or
perform its obligations under this Agreement, including its obligation to notify
customers of limitations and disclaimers of warranties and liabilities, the
Partner shall defend and hold SilverStream harmless from and against any and all
damages, costs and expenses, including reasonable attorneys' fees, suffered by
or awarded against SilverStream.
9. PATENTS AND TRADEMARKS
9.1. Infringement Indemnification by SilverStream. If notified promptly in
writing of any action brought against the Partner based on a claim that the
Products infringe any valid United States patent or copyright, SilverStream
shall defend such action at its expense and pay all costs and damages
finally awarded in such action or settlement which are attributable to such
claim. SilverStream shall have sole control of the defense of any such
action and all negotiations for its settlement or compromise. The Partner
shall cooperate fully with SilverStream in the defense, settlement or
compromise of any such action. In the event that a final injunction is
obtained against the Partner's use of the Product by reason of infringement
of a valid patent, copyright, trade secret or other intellectual property
right, or if in the opinion of SilverStream the Product is likely to become
the subject of a successful claim of such infringement, SilverStream may,
at its option and expense, (i) procure for the Partner and its Customers
the right to continue using the Product, (ii) replace or modify the Product
so that it becomes non-infringing so long as its functionality is
essentially unchanged, or (iii) if neither (i) and (ii) are reasonably
available to SilverStream, terminate the license for the Product.
9.2. Notwithstanding the foregoing, SilverStream shall have no liability to the
Partner to the extent that any infringement or claim thereof is based upon
(i) use of any Product in combination with equipment or software not
supplied by SilverStream where the Product would not itself be infringing,
(ii) compliance with designs, specifications or instructions of the Partner
or any of its Customers, (iii) use of any Product in an application or
environment for which it was not designed or contemplated hereunder, (iv)
modifications of the Products by anyone other than SilverStream, or (v) any
claims of infringement of any patent, copyright or trade secret in which
the Partner or any affiliate of the Partner has an interest or license.
9.3. The Partner shall not bring any suit or action against SilverStream for any
reason whatsoever more than one year after the related cause of action has
occurred.
9.4. THE FOREGOING INDEMNIFICATION PROVISIONS STATE THE ENTIRE LIABILITY OF
SILVERSTREAM WITH RESPECT TO INFRINGEMENT OR ALLEGED INFRINGEMENT OF
PATENTS, COPYRIGHTS, TRADEMARKS, TRADE SECRETS AND OTHER INTELLECTUAL
PROPERTY OR PROPRIETARY RIGHTS BY THE PRODUCTS.
9.5. Infringement, Indemnification by the Partner. The Partner shall indemnify,
defend and hold harmless SilverStream against all claims, liabilities,
damages, expenses, judgments and losses (including reasonable attorneys'
fees) arising from (i) infringement or alleged infringement of any patent,
copyright, trade secret, trademark or other intellectual property or
proprietary right as a result of compliance by SilverStream with the
designs, specifications or instructions of the Partner or any of its
Customers, (ii) the Partner's breach of any of its obligations hereunder,
and (iii) the Partner's misuse of the Products.
9.6. Ownership of Patents and Trademarks. All patents, trademarks, trade names,
copyrights, domain names and designs in relation to the Products and the
literature supplied in connection therewith shall be and remain the
property of SilverStream, or the owner of such as applicable and no rights
to duplicate such property shall accrue to the Partner unless expressly
provided herein or unless written permission is granted by SilverStream.
9.7. Use of SilverStream's Trade Name and Trademarks. The Partner shall include
and shall not alter, obscure or remove any trademark or trade name used or
claimed by SilverStream, or any markings, colors, logos or other
CONFIDENTIAL 1998
<PAGE> 5
insignia which are contained on or in or affixed to Products at the time of
shipment (collectively, with any domain name including the word
SilverStream, the "SilverStream Marks").
9.7.1. Subject to the terms and conditions of this Agreement,
SilverStream hereby grants to Partner during the term of this
Agreement a non-assignable and non-transferable right and license
to use the SilverStream Marks in the conduct of its business in a
style and manner approved by SilverStream in writing prior to
such use. Partner may, in advertising, promotional materials,
letterheads, invoices, and other appropriate documents, describe
itself as an "Authorized Partner for SilverStream Software
Products." Partner shall forward to SilverStream for its prompt
review and approval any and all forms of proposed advertising or
promotional materials of Partner which include a SilverStream
Mark.
9.7.2. Partner agrees it is not authorized under this Agreement to use
any SilverStream Marks in connection with any business conducted
by the Partner other than the business of reselling Products in
accordance with the terms of this Agreement.
9.7.3. Partner will not, during or after the term of this Agreement,
claim any ownership or similar interest in any of the
SilverStream Marks.
9.7.4. Nothing herein shall give Partner any right, title, or interest
in the SilverStream Marks except the right to use the same during
the term of this Agreement and in accordance with its terms. Any
use of the SilverStream Marks by or with the authority of Partner
shall inure to the benefit of SilverStream.
9.7.5. Partner agrees it shall not, and it shall not cause or assist any
third party to, register or attempt to register, in its own name
or otherwise, any of the SilverStream Marks or any other
trademarks, service marks, or slogans owned by or associated with
SilverStream or any derivative of any of these. In the event that
Partner secures or has secured in any jurisdiction any rights to
any of the SilverStream Marks or any of such other marks or
slogans which are prior to or greater than the rights owned by
SilverStream, then Partner shall immediately notify SilverStream
of same, and, upon written request from SilverStream, hereby
assigns all Partner's right, title, and interest therein to
SilverStream (or its designee).
9.7.6. Partner agrees to notify SilverStream in writing of any apparent
infringement of any of the SilverStream Marks which comes to the
attention of Partner.
9.7.7. Upon termination of this Agreement for any reason, all rights and
licenses granted to Partner hereunder shall terminate and revert
immediately to SilverStream and Partner shall immediately cease
using the SilverStream Marks.
9.7.8. Partner acknowledges and agrees that the SilverStream Marks have
a unique character giving them a peculiar value, the loss of
which cannot reasonably or adequately be compensated for by
monetary damages, and that the violation by Partner of the
provisions hereof concerning the same or of SilverStream's rights
therein are likely to cause SilverStream irreparable damage and
injury. Partner hereby expressly agrees that SilverStream will be
entitled to equitable relief to prevent or cure any violation or
infringement or threatened violation or infringement of
SilverStream's rights in the SilverStream Marks.
9.8. SilverStream shall be entitled to review the Partner's operation from time
to time, and, upon reasonable notice to Partner, conduct periodic quality
reviews of Partner's operation. Partner shall comply with all SilverStream
quality standards established from time to time by SilverStream. This
Agreement may be terminated by SilverStream upon 30 days' written notice in
the event Partner fails to comply with SilverStream's quality standards,
which failure remains uncured for thirty (30) days after notice thereof
from SilverStream.
10. TERMINATION, DEFAULT AND REMEDIES
10.1. After the Initial Term, this Agreement may be terminated by either party,
without cause, upon written notice to the other party giving 90 days
notice, at any time during the term of this agreement
10.2. Upon the occurrence of any of the following acts or events ("Events of
Default"), the Partner shall be in default and breach of this Agreement.
10.2.1. Where applicable, the failure to meet the financial requirements as
set forth on Exhibit B.
10.2.2. Failure to make any payment when due hereunder which failure
remains uncured for fourteen days (14) days after notice thereof
from SilverStream.
10.2.3. Failure to comply with the terms hereof or to perform any of its
covenants, obligations or
CONFIDENTIAL 1998
<PAGE> 6
responsibilities under this Agreement which failure remains
uncured for fourteen (14) days after notice thereof from
SilverStream.
10.2.4. Dissolution, termination of existence, liquidation, insolvency or
business failure of the Partner or the institution of any
bankruptcy proceeding against or by the Partner, or the
appointment of a custodian or receiver for the Partner or any
part of its property if such bankruptcy proceeding or appointment
is not terminated or dismissed within thirty (30) days.
10.2.5. Assignment or attempted assignment of this Agreement by Partner in
violation of Section 11.3 hereof.
10.3. Upon the occurrence of an Event of Default, SilverStream, in its sole
discretion, shall have the right to (i) immediately terminate, by written
notice, this Agreement and/or any software license granted to the Partner,
(ii) cancel any or all unfilled orders for Products submitted by the
Partner, and (iii) exercise any other remedy which may be available at law
or in equity.
10.4. Upon the termination of this Agreement, the Partner shall (i) cease
immediately from acting as a Partner of SilverStream and abstain from
making further distribution of Products, (ii) pay to SilverStream, in
full within 30 days of such termination, all amounts owed to
SilverStream, (iii) cooperate with SilverStream in completing all
outstanding obligations to Customers, and (iv) cease making use of any
printed material, trademarks, trade name or domain name identified
with SilverStream without the express written consent of SilverStream.
Th provisions set forth in Sections 8, 9.7.7., 9.7.8., 10 and 11 shall
survive the termination of this Agreement.
10.5. SilverStream shall have no liability to the Partner for damages of any
kind, including indirect, incidental or consequential damages, on
account of the termination or expiration of this Agreement. Without
limiting the generality of the foregoing, SilverStream shall not be
liable to the Partner for reimbursement or damages for the loss of
goodwill, prospective profits or anticipated sales, or on account of
any expenditures, investment, leases or commitments made by the Partner
or for any other reason whatsoever based upon, or growing out of, such
termination or expiration.
11. GENERAL
11.1. Proprietary Information. No proprietary information disclosed by either
party to the other in connection with this Agreement shall be disclosed to
any person or entity other than the recipient party's employees directly
involved with the recipient party's use of such information (in accordance
with the terms hereof) who are bound by written agreement to protect the
confidentiality of such information, and such information shall otherwise
be protected by the recipient party from disclosure to others. Information
will not be subject to this provision if it is or becomes a matter of
public knowledge without the fault of the recipient party, if it was a
matter of written record in the recipient party's files prior to
disclosure to it by the other party, or if it was or is received by
the recipient party from a third person under circumstances permitting
its unrestricted disclosure by the recipient party. Upon termination
of this Agreement, each party shall promptly deliver to the other all
proprietary information of the other party in the possession or
control of such party and all copies thereof. The obligations under
this Section shall continue for a period of five (5) years after the
termination of this Agreement.
11.2. Force Majeure. In the event that either party fails to perform any of its
obligations under this Agreement due to any act of God, fire, casualty,
flood, war, strike, lock out, failure of public utilities, injunction or
any act, exercise, intervention of governmental authority, epidemic,
insurrection, or any other cause beyond the reasonable control of the
party invoking this provision, then, except for Partner's obligation to
make payments to SilverStream hereunder, the affected party's performance
shall be excused and the time for performance shall be extended for the
period of delay or inability to perform due to such occurrence.
11.3. Assignment and Corporate Reorganization. The rights granted to the Partner
under this Agreement are personal in character. Neither this Agreement nor
any rights granted hereby may be assigned by the Partner voluntarily or by
operation of law without SilverStream's prior written consent and any such
attempted assignment shall be null and void. For purposes of this
Agreement, "assignment" shall be deemed to include the transfer of all or
substantially all of the assets of, or a majority interest in the Partner
or the voting stock of the Partner, or the merger of the Partner with one
or more entities. This Agreement shall inure to the benefit of and be
binding upon any successor or assign of SilverStream.
11.4. Compliance with U.S. Government Regulations. The parties agree to comply
with all U.S. state and federal laws, regulations or orders pertaining to
the fulfillment of this Agreement including but not limited to export
control laws, anti-boycott laws, and the Foreign Corrupt Practices Act,
which prohibits certain payments to
CONFIDENTIAL 1998
<PAGE> 7
parties who are not the Partner.
11.5. Applicable Law and Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of
Massachusetts.
11.6. Relationship of the Parties. The Partner acknowledges that both parties
hereto are independent contractors and that the Partner will, on its
own behalf, solicit orders for Products only as an independent
contractor. The Partner shall not represent itself as a partner, joint
venture, agent, employee or general representative of SilverStream. The
Partner acknowledges that it shall have no right, power or authority to
in any way obligate SilverStream to any contract or other obligation.
11.7. Entire Agreement. This Agreement constitutes the entire agreement
between SilverStream and the Partner with respect to the subject matter
hereof and shall not be amended, altered or changed except by a written
agreement signed by the parties hereto.
11.8. Waivers. No delay or omission on the part of either party to this
Agreement in requiring performance by the other party or in exercising
any right hereunder shall operate as a waiver of any provision hereof
or of any right or rights hereunder; and the waiver, omission or delay
in requiring performance or exercising any right hereunder on any one
occasion shall not be construed as a bar to or waiver of such
performance or right, or of any right or remedy under this Agreement,
on any future occasion.
11.9. Notices. For purposes of this Agreement, and for all notices and
correspondence hereunder, the addresses of the respective parties have
been set out at the beginning of this Agreement, and no change of
address shall be binding upon the other party until written notice
thereof is received by such party at the address shown herein. All
notices shall be effective upon receipt if delivered by courier service
and five days after mailing if sent by registered mail.
11.10. Severability. If any provision of this Agreement shall for any reason
be held illegal or unenforceable, such provision shall be deemed
separable from the remaining provisions of this Agreement and shall in
no way affect or impair the validity or enforceability of the remaining
provisions of this Agreement.
11.11. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original but all of which shall constitute one
and the same instrument.
CONFIDENTIAL 1998
<PAGE> 1
EXHIBIT 10.14
SILVERSTREAM SOFTWARE, INC.
CONSULTING PARTNER AGREEMENT
1. APPOINTMENT
SilverStream appoints Partner as a non-exclusive member of the SilverStream
Consulting Partner Program in the Territory as listed on Exhibit A. Consulting
Partner represents that it meets or will meet within sixty (60) days the program
enrollment requirements specified in Exhibit B and agrees to maintain such
qualification during the Term of this Agreement.
2. TERM
This Agreement shall be for an initial term of one (1) year ("Initial Term")
commencing on the date hereof and shall automatically renew for subsequent one
(1) year periods unless terminated as elsewhere herein provided.
3. GRANT OF LICENSES
Subject to the terms and conditions of the Agreement, SilverStream hereby grants
to the Consulting Partner, and the Consulting Partner hereby accepts a
non-exclusive and non-transferable license to:
3.1. provide consulting services relating to SilverStream's software
products ("SilverStream Products");
3.2. use SilverStream documentation ("Documentation") in connection with
providing consulting services; and
3.3. Utilize applicable SilverStream Products, purchased by Consulting
Partner under this Agreement, only in connection with the provision of
consulting services. This Agreement does not provide Consulting
Partner with any right to sell SilverStream Products to its customers
or any third party. In addition, Consulting Partner shall pay
SilverStream the applicable license fee for each SilverStream Product
purchased by Consulting Partner.
4. ANNUAL FEE
For each year of this Agreement, Consulting Partner shall pay SilverStream an
initial enrollment fee or annual renewal fee ("Enrollment Fee") as set forth in
Exhibit B, as such fees may be changed from time to time by SilverStream upon
thirty (30) days prior written notice to Consulting Partner. The initial
Enrollment Fee is due upon execution of this Agreement and renewal fee's are due
upon renewal. All fees stated are payable in US Dollars.
5. TAXES
Enrollment Fees are exclusive of all federal, state, municipal, excise, sales,
use, value added, property or other similar taxes and import duties, all of
which shall be paid by Consulting Partner, except for such taxes as are imposed
on SilverStream's net income, which shall be paid by SilverStream. Consulting
Partner is responsible for obtaining and providing to SilverStream any
certificate of exemption or similar document required to exempt any sale from
sales, use or similar tax liability.
6. OBLIGATIONS OF THE CONSULTING PARTNER
Consulting Partner shall undertake all obligations set forth as Program
Requirements on Exhibit B, including but not limited to:
6.1. Consulting Partner shall arrange for one or more of its employees to
complete a designated training course offered by SilverStream or a
SilverStream Training Partner within sixty (60) days after entering
into this Agreement. Upon completion of the training course, the
employee shall become certified by submitting a certification
application and passing a certification examination. In order to
retain certification status, certified personnel must be re-certified
based upon new versions of SilverStream Products.
6.2. Consulting Partner shall provide, at its own expense, appropriate
computer equipment for the consulting services.
6.3. SilverStream may publish Consulting Partner's name in any directory
SilverStream publishes from time to time.
7. PROTECTION OF PROPRIETARY MATERIAL
7.1. As used herein, "SilverStream Proprietary Material" shall mean any
information or material received by Consulting Partner from
SilverStream and identified by SilverStream as proprietary or
confidential, whether in oral, written, graphic or machine-readable
form, including, but not limited to, manuals, overhead transparencies,
examples, concepts, ideas, know-how and technology, provided that
"SilverStream Proprietary Material" shall not include information and
data which (a) is now or later becomes available in the public domain
without the fault of Consulting Partner; (b) is disclosed or made
available to Consulting Partner by a third party without restrictions
and without breach of any relationship of confidentiality; or (c) is
independently developed by Consulting Partner without access for
reference to SilverStream Proprietary Material. Consulting Partner
shall not disclose any SilverStream Proprietary Material to any third
party except as authorized by this Agreement or by SilverStream in
writing or as required by judicial or governmental process or
procedure.
CONFIDENTIAL 1999
<PAGE> 2
7.2. Consulting Partner acknowledges that SilverStream retains all title,
copyright and other proprietary rights in and to the SilverStream
Products and Documentation including any and all copies, modifications
and translations thereof and derivative works based thereon.
7.3. Consulting Partner shall not make copies of any of the SilverStream
Products and Documentation without the written permission of
SilverStream. Consulting Partner shall not remove any copyright or
proprietary rights notice included in or on any of the SilverStream
Products and Documentation, and shall reproduce all such notices in or
on all copies made by Consulting Partner.
7.4. Consulting Partner agrees that it will not use the SilverStream
Products and Documentation, any portion thereof, or any works derived
therefrom for any purpose other than providing consulting services as
authorized hereunder.
8. LIMITATION OF LIABILITY
Consulting Partner is solely responsible for the proper conduct of the
consulting services by qualified personnel, and all other matters under its
control. In no event shall SilverStream be liable for special, incidental or
consequential damages, including any damages resulting from loss of use, loss of
data, loss of profits or loss of business, even if SilverStream has been advised
of the possibility of such damages. Consulting Partner agrees to indemnify and
hold SilverStream harmless from and against any and all claims, demands, costs
and liabilities (including attorneys' fees) of any kind whatsoever, arising
directly or indirectly out of Consulting Partner's conduct of consulting
services or other actions or omissions of Consulting Partner in connection with
this Agreement
9. PATENTS AND TRADEMARKS
9.1. Ownership of Patents and Trademarks. All patents, trademarks,
tradenames, domain names, copyrights, logos and designs used by
SilverStream in connection with its business shall be and remain the
property of SilverStream, or the owner of such as applicable, and no
rights to duplicate such property shall accrue to Consulting Partner
unless expressly provided herein or unless written permission is
granted by SilverStream.
9.2. Use of SilverStream's Tradenames and Trademarks. Consulting Partner
shall include and shall not alter, obscure or remove any trademark or
tradename used or claimed by SilverStream, or any markings, logos,
colors or other insignia which are contained on or in or affixed to
any Consulting Materials (collectively with any domain name including
the word "SilverStream", the "SilverStream Marks").
9.2.1. Subject to the terms and conditions of this Agreement,
SilverStream hereby grants to Consulting Partner during the
term of this Agreement a non-exclusive, non-assignable and
non-transferable right and license to use the SilverStream
Marks in the conduct of its business in a style and manner
approved by SilverStream in writing prior to such use.
Consulting Partner shall forward to SilverStream for its
prompt review and approval any and all forms of proposed
advertising or promotional materials of Consulting Partner,
which include a SilverStream Mark. Consulting Partner may,
in advertising, promotional materials, letterheads,
invoices, and other appropriate documents, describe itself
as a "Authorized Consulting Partner of SilverStream
Software, Inc."
9.2.2. Consulting Partner agrees it is not authorized under this
Agreement to use any SilverStream Marks in connection with
any business conducted by Consulting Partner other than the
conduct of consulting services in accordance with the terms
of this Agreement.
9.2.3. Consulting Partner will not, during or after the term of
this Agreement, claim any ownership or similar interest in
any of the SilverStream Marks.
9.2.4. Nothing herein shall give Consulting Partner any right,
title, or interest in the SilverStream Marks except the
right to use the same during the term of this Agreement and
in accordance with its terms. Any use of the SilverStream
Marks by or with the authority of Consulting Partner shall
inure to the benefit of SilverStream.
9.2.5. Consulting Partner agrees it shall not, and it shall not
cause or assist any third party to, register or attempt to
register, in its own name or otherwise, any of the
SilverStream Marks or any other trademarks, service marks,
or slogans owned by or associated with SilverStream or any
derivative of any of these. In the event that Consulting
Partner secures or has secured in any jurisdiction any
rights to any of the SilverStream Marks or any of such other
marks or slogans which are prior to or greater than the
rights owned by SilverStream, then Consulting Partner shall
immediately notify SilverStream of same, and, upon written
request from SilverStream, assign all Consulting Partner's
right, title, and interest therein to SilverStream (or its
designee).
9.2.6. Consulting Partner agrees to notify SilverStream in writing
of any apparent infringement of any of the SilverStream
Marks, which comes to the attention of Consulting Partner.
9.2.7. Upon termination of this Agreement for any reason, all
rights and licenses granted to Consulting Partner hereunder
shall terminate and revert immediately to SilverStream and
Consulting Partner shall immediately cease using the
SilverStream Marks.
9.2.8. Consulting Partner acknowledges and agrees that the
SilverStream Marks have a unique character giving them a
peculiar value, the loss of which cannot reasonably or
adequately be compensated for by monetary damages, and that
the violation by Consulting Partner of the provisions hereof
concerning the same or of SilverStream's rights therein are
likely to cause irreparable damage and injury. Consulting
Partner hereby expressly agrees that SilverStream will be
entitled to equitable relief to prevent or cure any
violation or infringement or threatened violation or
infringement of
CONFIDENTIAL 1999
<PAGE> 3
SilverStream's rights in the SilverStream Marks.
9.3. SilverStream shall be entitled to review the Consulting Partner's
operation from time to time, and, upon reasonable notice to Consulting
Partner, conduct periodic quality reviews of Consulting Partner's
operation. Consulting Partner shall comply with all SilverStream
quality standards established from time to time by SilverStream. This
Agreement may be terminated by SilverStream upon thirty (30) days'
written notice in the event Consulting Partner fails to comply with
SilverStream's quality standards, which failure remains uncured for
thirty (30) days after notice thereof from SilverStream.
10. TERMINATION, DEFAULT AND REMEDIES
10.1. After the Initial Term, this Agreement may be terminated by either
party, without cause, upon written notice to the other party giving
ninety (90) days notice at any time during the term of this Agreement.
10.2. Upon the occurrence of any of the following acts or events ("Events of
Default"), Consulting Partner shall be in default and breach of this
Agreement.
10.2.1. Failure to make any payment when due hereunder which failure
remains uncured for fourteen days (14) days after notice
thereof from SilverStream.
10.2.2. Failure to perform any of its covenants, obligations or
responsibilities under this Agreement which failure remains
uncured for fourteen (14) days after notice thereof from
SilverStream.
10.2.3. Dissolution, termination of existence, liquidation,
insolvency or business failure of Consulting Partner or the
institution of any bankruptcy proceeding against or by
Consulting Partner, or the appointment of a custodian or
receiver for Consulting Partner or any part of its property
if such bankruptcy proceeding or appointment is not
terminated or dismissed within thirty (30) days.
10.2.4. Assignment or attempted assignment of this Agreement by
Consulting Partner.
10.3. Upon the occurrence of an Event of Default, SilverStream, in its sole
discretion, shall have the right to immediately terminate this
Agreement by written notice to Consulting Partner.
10.4. Upon the termination of this Agreement, Consulting Partner shall (i)
cease immediately from acting as a Consulting Partner of SilverStream
and return all SilverStream Products used for consulting purposes to
SilverStream, (ii) pay to SilverStream, in full within thirty (30)
days of such termination, all amounts owed to SilverStream, (iii)
cooperate with SilverStream in completing all outstanding obligations
to its customers, and (iv) cease making use of any printed material,
trademarks, trade name or domain name identified with SilverStream
without the express written consent of SilverStream The provisions set
forth in Sections 7, 8, 9, 10, 11, and 12 shall survive the
termination of this Agreement.
10.5. SilverStream shall have no liability to Consulting Partner for damages
of any kind, including indirect, incidental or consequential damages,
on account of the termination of this Agreement. Without limiting the
generality of the foregoing, SilverStream shall not be liable to
Consulting Partner for reimbursement or damages for the loss of
goodwill, prospective profits or anticipated sales, or on account of
any expenditures, investment, leases or commitments made by Consulting
Partner or for any other reason whatsoever based upon, or growing out
of, such termination or expiration.
11. NOTICES
Notices shall be deemed delivered when delivered personally or by telecopier,
three (3) business days after dispatch by overnight delivery services, or five
(5) business days after mailing addressed to the respective party at the address
shown below, or such other address as such party may specify by notice given as
provided herein.
12. GENERAL
This Agreement sets forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supercedes any and all prior oral and
written agreements, understandings and quotations relating thereto, provided,
however, that SilverStream shall also provide to Consulting Partner the benefits
described in Exhibit A if Consulting Partner meets the requirements and performs
its obligations as set forth herein and therein. No waiver, alteration,
modification, or cancellation of any of the provisions of this Agreement shall
be binding unless made in writing and signed by the parties. This Agreement will
be governed by, construed and enforced in accordance with the substantive law of
The Commonwealth of Massachusetts and the courts located in Massachusetts shall
have exclusive jurisdiction to resolve any disputes arising out of or relating
to this Agreement. Each of the parties hereby consents to the jurisdiction of
such courts and waives any defense of inconvenient or improper forum. The
parties hereto shall be considered independent contractors and neither party
shall have any right or authority to act in the name or on behalf of the other
party.
IN WITNESS WHEREOF, the parties have duly executed this Agreement under seal as
of the date first above written.
SilverStream Software, Inc. Consulting Partner
By: By:
----------------------------- ----------------------------
Title: Title:
----------------------------- ----------------------------
Date: Date:
----------------------------- ----------------------------
CONFIDENTIAL 1999
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF SILVERSTREAM SOFTWARE, INC.
Subsidiary Name Jurisdiction of Organization
SilverStream Securities Corporation Massachusetts
SilverStream Netherlands, Inc. Delaware
SilverStream Software Limited United Kingdom
SilverStream Software GmbH Germany
SilverStream Software B.V. The Netherlands
SilverStream Software BVBA/SPRL Belgium
SilverStream Software (Asia) Limited Hong Kong
SilverStream Software (Asia) Pte. Ltd. Singapore
SilverStream s.r.o. Czech Republic
SilverSolutions spol. s.r.o. Czech Republic
SilverStream Norge AS Norway
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
March 5, 1999, (except for Note 13, as to which the date is June 23, 1999) with
respect to the Financial Statements included in the Registration Statement (Form
S-1) and related Prospectus of SilverStream Software, Inc. for the registration
of shares of its common stock.
Our audits also included the financial statement schedule of SilverStream
Software, Inc. listed in Item 16(b). This schedule is the responsibility of
SilverStream Software, Inc.'s management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects, the information set
forth therein.
/s/ Ernst & Young LLP
Boston, Massachusetts
July 15, 1999
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