<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1997.
REGISTRATION NO. 333-32199
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PERVASIVE SOFTWARE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 74-2693793
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
8834 CAPITAL OF TEXAS HIGHWAY
AUSTIN, TEXAS 78759
(512) 794-1719
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
RON R. HARRIS
CHIEF EXECUTIVE OFFICER
PERVASIVE SOFTWARE INC.
8834 CAPITAL OF TEXAS HIGHWAY
AUSTIN, TEXAS 78759
(512) 794-1719
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
ROBERT V. GUNDERSON, JR. CARMELO M. GORDIAN
JAY K. HACHIGIAN S. MICHAEL DUNN
BRIAN K. BEARD BROBECK, PHLEGER & HARRISON LLP
ANTHONY M. ALLEN 301 CONGRESS AVENUE
GUNDERSON DETTMER STOUGH SUITE 1200
VILLENEUVE FRANKLIN & HACHIGIAN, LLP AUSTIN, TEXAS 78701
8911 CAPITAL OF TEXAS HIGHWAY, SUITE (512) 477-5495
4140
AUSTIN, TEXAS 78759
(512) 342-2300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, 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, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, 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. [_]
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 2, 1997
[LOGO OF PERVASIVE SOFTWARE APPEARS HERE]
4,000,000 SHARES
COMMON STOCK
Of the 4,000,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by Pervasive Software Inc. ("Pervasive" or the "Company") and
2,000,000 shares are being sold by the Selling Stockholders. See "Principal and
Selling Stockholders." The Company will not receive any of the proceeds from
the sale of shares by the Selling Stockholders. Prior to this offering, there
has been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $8.00 and
$10.00 per share. See "Underwriting" for information relating to the method of
determining the initial public offering price.
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
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Total(2)........................ $ $ $ $
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</TABLE>
(1) Before deducting expenses payable by the Company estimated at $1,150,000.
(2) The Selling Stockholders have granted to the Underwriters a 30-day option
to purchase up to an additional 600,000 shares of Common Stock solely to
cover over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Stockholders will be $ , $ and
$ , respectively.
-----------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1997.
ROBERTSON, STEPHENS & COMPANY
UBS SECURITIES
FIRST ALBANY CORPORATION
The date of this Prospectus is , 1997
<PAGE>
[DESCRIPTION OF GRAPHIC]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 26
Management............................................................... 38
Certain Transactions..................................................... 46
Principal and Selling Stockholders....................................... 48
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 52
Underwriting............................................................. 54
Legal Matters............................................................ 56
Experts.................................................................. 56
Additional Information................................................... 56
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
The Company intends to furnish to its stockholders annual reports containing
audited consolidated financial statements examined by its independent public
accountants and quarterly reports containing unaudited financial statements
for each of the first three quarters of each fiscal year.
Pervasive Software, Scalable SQL, MicroKernel Database Architecture and
MicroKernel Database Engine are trademarks of the Company and Btrieve is a
registered trademark of the Company. Trade names, service marks or trademarks
of other companies appearing in this Prospectus are the property of their
respective holders.
The Company was incorporated in Delaware in January 1994 under the name
Btrieve Technologies, Inc. and changed its name to Pervasive Software Inc. in
June 1996. The Company's principal executive offices are located at 8834
Capital of Texas Highway, Austin, Texas 78759, and its telephone number is
(512) 794-1719. Unless otherwise indicated, all references in this Prospectus
to "Pervasive" or the "Company" refer to Pervasive Software Inc. and its
subsidiaries.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors."
THE COMPANY
Pervasive is a leading provider of embedded database software designed to
enable the cost-effective development, deployment and support of low-
maintenance, packaged client/server applications. The Company's database
engines, Btrieve and Scalable SQL, are well suited for integration by software
developers into business-critical applications that are reliable and scalable
and can be rapidly deployed. These products enable independent software vendors
("ISVs") and value added resellers ("VARs") to develop, deploy and support
packaged client/server applications that provide robust functionality and low
overall cost of ownership to end users. In addition, the Company's
comprehensive approach to selling, marketing and supporting its products is
designed to address the specific needs of ISVs, VARs, in-house development
organizations and their end users.
Organizations are increasingly recognizing the importance of collecting,
analyzing and disseminating information to obtain competitive advantage. This
information is increasingly generated by sophisticated client/server
applications and managed by underlying database software that allow for
decentralized decision making and broader access to critical business
information. However, client/server computing environments are inherently
complex, typically involving a variety of hardware, operating systems,
networking protocols, applications and database software. As a result of this
complexity, large and costly information technology departments, typically
found in large organizations, are required to develop, deploy and support
client/server applications built on enterprise-scale database software.
Many small and mid-sized organizations, including departments of large
organizations, also face competitive pressures to achieve the benefits
associated with client/server computing. These organizations typically do not
have the information technology budgets, infrastructure, personnel or computing
expertise required to deploy and support client/server applications built on
enterprise-scale database software and consequently have been slow to adopt
client/server computing environments. Because of the relatively low penetration
of client/server applications in small and mid-sized organizations, ISVs and
VARs have a significant market opportunity to develop, deploy and support
packaged client/server applications that meet their customers' robust
functionality needs and run in environments that often lack a well developed
information technology infrastucture. Accordingly, there is a need for
reliable, high-performance, low-maintenance database software that enables ISVs
and VARs to cost-effectively develop, deploy and support robust client/server
applications targeted at small and mid-sized organizations and departments of
larger organizations.
The Company's database software simplifies application development by
enabling developers to write applications that are capable of running on
multiple platforms and that can scale with little or no modification from
single workstation to peer-to-peer and client/server environments. The
Company's products currently operate on the Windows NT, NetWare, Windows 95,
Windows 3.1, OS/2 Warp and DOS operating platforms. In addition, developers can
embed the Company's databases into their applications, enabling organizations
to implement client/server systems and automate critical business functions
without the costs and complexities typically associated with enterprise-class
client/server applications.
The Company's sales and marketing organization focuses exclusively on
indirect channels by targeting ISVs that build packaged client/server
applications and VARs that sell and deploy the applications. The Company's
sales, marketing, training and licensing programs are designed to encourage
ISVs to embed the Company's databases into their own software products and to
stimulate the sales of the applications by VARs to end users. The Company
believes its strong relationships with ISVs and VARs provide the Company with
market visibility and multiple sales opportunities and offer end users
additional sources of service and technical support.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company........... 2,000,000 shares
Common Stock Offered by the Selling Stockhold-
ers.......................................... 2,000,000 shares
Common Stock to be Outstanding after the Of-
fering....................................... 13,104,743 shares(1)
Use of Proceeds............................... For working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol........ PVSW
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 12, 1994 YEAR ENDED JUNE 30,
(INCEPTION) TO ------------------------
JUNE 30, 1994 1995 1996 1997
---------------- ------ ------- -------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues............................ $ 933 $8,601 $13,476 $24,481
Operating income (loss)............. (2,208) (655) (3,109) 2,255
Net income (loss)................... $(2,203) $ (609) $(3,205) $ 1,590
Pro forma net income per
share(2)(3)........................ $ 0.12
Shares used in computing pro forma
net income per share(2)(3)......... 13,368
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------
PRO
ACTUAL FORMA(3) AS ADJUSTED(4)
------- -------- --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................................ $ 1,560 $ 1,560 $17,150
Total assets................................... 10,445 10,445 26,035
Redeemable convertible preferred stock......... 4,026 -- --
Total stockholders' equity (deficit)........... (394) 3,632 19,222
</TABLE>
- --------
(1) Based on the number of shares outstanding as of June 30, 1997. Excludes
2,259,697 shares subject to outstanding options as of June 30, 1997 at a
weighted exercise price of $0.59 per share; and 1,168,914 shares reserved
for issuance under the Company's stock plans. See "Management--1997 Stock
Incentive Plan," "--Employee Stock Purchase Plan" and Note 6 of Notes to
Consolidated Financial Statements.
(2) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in computing pro
forma net income per share.
(3) Reflects the conversion of outstanding Preferred Stock into Common Stock
upon the completion of the offering.
(4) Adjusted to reflect the sale of 2,000,000 shares of Common Stock by the
Company at an assumed initial public offering price of $9.00 per share and
the application of the estimated net proceeds. See "Use of Proceeds" and
"Capitalization."
----------------
Unless otherwise indicated, the information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option and (ii) except in the
Consolidated Financial Statements, reflects the conversion of all outstanding
shares of Preferred Stock into Common Stock upon completion of the offering.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and elsewhere in this Prospectus.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" and elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; MARGINAL PROFITABILITY; FUTURE OPERATING RESULTS
UNCERTAIN
The Company was founded in January 1994. Accordingly, the Company's
prospects must be considered in light of the risks and difficulties frequently
encountered by companies in the early stage of development, particularly
companies in new and rapidly evolving markets. To address these risks, the
Company must, among other things, respond to competitive developments,
continue to attract, retain and motivate qualified personnel and continue to
improve its products. Although the Company has been profitable for the five
most recent fiscal quarters, this profitability has been marginal and, except
for the quarters ended September 30, 1994 and December 31, 1994, the Company
incurred net losses in each quarter from inception through the quarter ended
March 31, 1996 and as of June 30, 1997, the Company had an accumulated deficit
of approximately $4.5 million. The Company's operating losses and marginal
profitability have been due in part to the commitment of significant resources
to the Company's technical support, research and development and sales and
marketing organizations. The Company expects to continue to devote substantial
resources to these areas and as a result will need to recognize significant
quarterly revenues to maintain profitability. In particular, the Company
intends to hire a significant number of sales and research and development
personnel in fiscal 1998 and beyond, which the Company believes is required if
the Company is to achieve significant revenue growth in the future. Although
the Company's revenues have increased in recent periods, there can be no
assurance that the Company's revenues will grow in future periods, that they
will grow at past rates or that the Company will remain profitable on a
quarterly or annual basis in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
OPERATING RESULTS SUBJECT TO SIGNIFICANT FLUCTUATIONS; SEASONALITY
The Company's quarterly revenues, expenses and operating results have varied
significantly in the past and are likely to vary significantly in the future
due to a variety of factors, such as demand for the Company's products, the
size and timing of significant orders and their fulfillment, the number,
timing and significance of product enhancements and new product announcements
by the Company and its competitors, changes in pricing policies by the Company
or its competitors, customer order deferrals in anticipation of enhancements
or new products offered by the Company or its competitors, the ability of the
Company to develop, introduce and market new and enhanced versions of its
products on a timely basis, changes in the Company's level of operating
expenses, budgeting cycles of its customers, product life cycles, software
defects and other product quality problems, the Company's ability to attract
and retain qualified personnel, changes in the Company's sales incentive
plans, changes in the mix of domestic and international revenues, the level of
international expansion, foreign currency exchange rate fluctuations,
performance of indirect channel partners, changes in the mix of indirect
channels through which the Company's products are offered, the impact of
acquisitions of competitors and indirect channel partners, the Company's
ability to control costs and general domestic and international economic and
political conditions. The Company operates with virtually no order backlog
because its software products are shipped shortly after orders are received,
which makes product revenues in any quarter substantially dependent on orders
booked and shipped throughout that quarter. As a result, if orders in the
first month or two of a quarter fall short of expectations, it is unlikely
that the Company will be able to meet its revenue targets for that quarter. In
addition, the Company is substantially reliant upon indirect sales channels
over which the Company has little or no control. Moreover, the Company's
expense levels are based to a significant extent on the Company's expectations
of future revenues and therefore are relatively fixed in the short term. If
revenue levels are below expectations, operating results are likely to be
adversely and disproportionately affected because only a small portion of the
Company's expenses vary with its revenues.
6
<PAGE>
The Company's business has experienced and is expected to continue to
experience seasonality, largely due to customer buying patterns. In recent
years, the Company has had relatively stronger demand for its products during
the quarters ending December 31 and June 30 and demand has been relatively
weaker in the quarters ending March 31 and September 30. The Company believes
that this pattern will continue. To the extent future international operations
constitute a greater percentage of the Company's revenues, the Company
anticipates that the weaker demand in the quarter ending September 30 could be
even more pronounced as a result of reduced sales activity in Europe and Japan
during the summer months.
Based upon all of the factors described above, the Company believes that its
quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its
operating results are not necessarily meaningful and that, in any event, such
comparisons should not be relied upon as indications of future performance.
The Company has limited ability to forecast future revenues, and it is likely
that in some future quarter the Company's operating results will be below the
expectations of public securities analysts and investors. In the event that
operating results are below expectations, or in the event that adverse
conditions prevail or are perceived to prevail generally or with respect to
the Company's business, the price of the Company's Common Stock would likely
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON INDIRECT SALES CHANNEL; DISTRIBUTOR CONCENTRATION
The Company derives substantially all of its revenues from its indirect
sales channel, consisting of ISVs, VARs, system integrators, consultants and
distributors. The Company has invested, and intends to continue to invest,
significant resources to develop this channel, which could adversely affect
the Company's operating margins. There can be no assurance that the Company
will be able to attract additional indirect channel partners that will be able
to market and support the Company's products. In addition, many of the
Company's indirect channel partners offer competing product lines. Therefore,
there can be no assurance that any of the Company's current indirect channel
partners will continue to represent or recommend the Company's products.
Further, the inability to recruit new indirect channel partners, or the loss
of, or a significant reduction in revenues from, any particular indirect
channel partner could materially adversely affect the Company's business,
operating results and financial condition.
Some of the Company's ISVs, VARs and end users place their orders through
distributors. A relatively small number of distributors have accounted for a
significant percentage of the Company's revenues. In fiscal 1996 and 1997, two
distributors accounted for 27% and 29% of revenues, respectively. In
particular, Tech Data Corporation, a U.S. distributor, accounted for 9% and
19% of revenues in fiscal 1996 and 1997, respectively, and AG Tech Corporation
("AG Tech"), a Japanese distributor, accounted for 18% and 10% of revenues in
fiscal 1996 and 1997, respectively. The Company expects that it will continue
to be dependent upon a limited number of distributors for a significant
portion of its revenues in future periods, and such distributors are expected
to vary from period to period. The loss of a major distributor or any
reduction in orders by such distributor, including reductions due to market or
competitive conditions, combined with the inability to replace the distributor
on a timely basis could have a material adverse effect on the Company's
business, operating results and financial condition. The Company's operating
results may in the future be subject to substantial period-to-period
fluctuations as a consequence of such distributor concentration. See
"Business--Sales and Marketing."
SIGNIFICANT COMPETITION
The market for the Company's products is intensely competitive and subject
to rapid change. The Company primarily encounters competition from large,
public companies, including Microsoft Corporation ("Microsoft"), Oracle
Corporation ("Oracle"), Informix Corporation ("Informix"), Sybase, Inc.
("Sybase") and International Business Machines Corporation ("IBM"). Each of
these companies offers database software
7
<PAGE>
products competitive with the Company's products. In particular, Sybase offers
a small memory footprint database software product, SQL Anywhere, which
directly competes with the Company's Scalable SQL product. In addition,
because there are relatively low barriers to entry in the software market, the
Company may encounter additional competition from other established and
emerging companies. Most of the Company's competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources than the Company, significantly greater name recognition and a large
installed base of customers. As a result, the Company's competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of competitive products, than can the Company. There is
also a substantial risk that announcements of competing products by large
competitors such as Microsoft or Oracle could result in the cancellation of
customer orders in anticipation of the introduction of such new products. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
the ability of their products to address customer needs and which may limit
the Company's ability to sell its products through particular distribution
partners. Accordingly, new competitors or alliances among current and new
competitors may emerge and rapidly gain significant market share. The Company
also expects that competition will increase as a result of software industry
consolidation. Increased competition is likely to result in price reductions,
fewer customer orders, reduced margins and loss of market share, any of which
could materially adversely affect the Company. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors or that the competitive pressures faced by the Company will not
materially adversely affect its business, operating results and financial
condition.
RELIANCE ON INSTALLED BASE
In connection with the acquisition of certain software and related
technology from Novell in April 1994, the Company entered into a license
agreement permitting, among other things, the then-current version of Btrieve
to be reproduced and distributed on a royalty-free basis as part of or
together with current and future versions of any Novell products, including
Novell's NetWare operating system ("NetWare"). The Company derives significant
revenues from upgrade sales into the NetWare installed base and sales of the
Company's software operating on NetWare have represented and currently
continue to represent a significant percentage of the Company's revenues. As a
result, sales of the Company's products have been and will continue to be
influenced by the market acceptance of NetWare. NetWare faces substantial
competition from other operating systems, including Microsoft's Windows NT,
which the Company believes has a large and growing share of the worldwide
market for client/server operating systems. If sales of NetWare decrease,
Novell discontinues NetWare or discontinues bundling Btrieve with NetWare or
if ISVs, VARs or their end users migrate to competing client/server operating
system platforms, and the Company is not able to substantially increase sales
of its products that run on competing client/server operating systems, the
Company's business, operating results and financial condition would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Strategy."
PRODUCT CONCENTRATION
Substantially all of the Company's revenues to date have been attributable
to the sale and license of its Btrieve and Scalable SQL products, and these
products are currently expected to account for substantially all of the
Company's revenues for the foreseeable future. The Company's future operating
results are dependent upon continued market acceptance of its Btrieve and
Scalable SQL products and enhancements to these products. Consequently, a
decline in the demand for, or market acceptance of, the Company's Btrieve and
Scalable SQL products as a result of competition, technological change or
other factors, would have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Products."
DEPENDENCE ON CONTINUED GROWTH OF THE MARKET FOR CLIENT/SERVER APPLICATIONS
AND EMBEDDED DATABASES
Although demand for client/server applications and embedded databases has
grown in recent years, this market is still emerging and there can be no
assurance that it will continue to grow or that, even if the market
8
<PAGE>
does grow, organizations will continue to adopt the Company's products. The
Company has spent, and intends to continue to spend, considerable resources
educating potential customers about the Company's embedded database products
and the packaged client/server applications market generally. However, there
can be no assurance that such expenditures will enable the Company's products
to achieve any additional degree of market acceptance. The rate at which
organizations have adopted the Company's products has varied significantly by
market and by product within each market, and the Company expects to continue
to experience such variations with respect to its target markets and products
in the future. There can be no assurance that the market for the Company's
products will continue to develop or that the Company's products will be
widely accepted. Additionally, there can be no assurance that the market for
client/server and other applications in which the Company's products are
embedded will continue to grow. If the markets for the Company's products or
the applications in which they are embedded fail to develop, or develop more
slowly than the Company currently anticipates, the Company's business,
operating results and financial condition would be materially adversely
affected. See "Business--Industry Background," "--Products" and "--Sales and
Marketing."
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions and enhancements,
uncertain product life cycles, changes in customer demands and evolving
industry standards. The introduction of products embodying new technologies
and the emergence of new industry standards can render existing products
obsolete and unmarketable. The Company's future success will depend upon its
ability to continue to enhance its current products and to develop and
introduce new products on a timely basis that keep pace with technological
developments and satisfy increasingly sophisticated customer requirements. As
a result of the complexities inherent in client/server computing environments
and the performance demanded by customers for embedded databases, new products
and product enhancements can require long development and testing periods. As
a result, significant delays in the general availability of such new releases
or significant problems in the installation or implementation of such new
releases could have a material adverse effect on the Company's business,
operating results and financial condition. The Company has experienced delays
in the past in the release of new products and new product enhancements. There
can be no assurance that the Company will be successful in developing and
marketing, on a timely and cost effective basis, new products or new product
enhancements that respond to technological change, evolving industry standards
or customer requirements, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction or
marketing of these products or that the Company's new products and product
enhancements will achieve market acceptance. See "Business--Research and
Development."
RISK OF SOFTWARE DEFECTS
Software products as complex as those offered by the Company may contain
errors or defects, particularly when first introduced or when new versions or
enhancements are released. The Company has in the past discovered software
errors in certain of its new products after their introduction. There can be
no assurance that, despite testing by the Company, defects and errors will not
be found in current versions, new versions or enhancements of its products
after commencement of commercial shipments, resulting in loss of revenues or
delay in market acceptance, which could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Research and Development."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish twenty-first century dates from twentieth century dates. As a
result, in less than three years, computer systems and/or software used by
many companies may need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance. Although the
latest versions of Btrieve and Scalable SQL are
9
<PAGE>
designed to be Year 2000 compliant, an earlier release of Scalable SQL is not
Year 2000 compliant. There can be no assurance that the Company's software
products that are designed to be Year 2000 compliant contain all necessary
date code changes.
The Company believes that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues in a variety of ways. Many
companies are expending significant resources to correct or patch their
current software systems for Year 2000 compliance. These expenditures may
result in reduced funds available to purchase software products such as those
offered by the Company. Potential customers may also choose to defer
purchasing Year 2000 compliant products until they believe it is absolutely
necessary, thus resulting in potentially stalled market sales within the
industry. Conversely, Year 2000 issues may cause other companies to accelerate
purchases, thereby causing an increase in short-term demand and a consequent
decrease in long-term demand for software products. Additionally, Year 2000
issues could cause a significant number of companies, including current
Company customers, to reevaluate their current software needs, and as a result
switch to other systems or suppliers. Any of the foregoing could result in a
material adverse effect on the Company's business, operating results and
financial condition.
MANAGEMENT OF CHANGING BUSINESS
The Company has recently experienced a period of significant revenue growth
and an expansion in the number of its employees, the scope of its operating
and financial systems and geographic area of its operations. In particular,
the Company had a total of 168 employees at June 30, 1997, as compared to 104
at June 30, 1996. This growth has resulted in new and increased
responsibilities for management and has placed a strain upon the Company's
financial and other resources. The Company expects that planned expansion of
international operations will lead to increased financial and administrative
demands, such as increased operational complexity associated with expanded
facilities, administrative burdens associated with managing an increasing
number of relationships with foreign partners and expanded treasury functions
to manage foreign currency risks. The Company's future operating results will
also depend on its ability to expand its sales and marketing organizations,
further develop its sales channels to penetrate different and broader markets
and expand its support organization to accommodate growth in the Company's
installed base. The failure of the Company to manage its expansion effectively
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business--Sales and
Marketing" and "Management."
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
During fiscal 1995, 1996 and 1997, the Company derived approximately 41%,
43% and 34% of its revenues, respectively, from sales outside North America
with revenues from Japan and Europe, respectively, accounting for 19% and 18%,
18% and 20%, and 12% and 19% of the Company's revenues for these periods. The
Company anticipates that for the foreseeable future a significant portion of
its revenues will be derived from sources outside North America and the
Company intends to continue to expand its sales and support operations
internationally. In order to successfully expand international sales, the
Company must establish additional foreign operations, expand its international
sales channel management and support organizations, hire additional personnel,
customize its products for local markets, recruit additional international
resellers and increase the productivity of existing international resellers.
To the extent that the Company is unable to do so in a timely and cost-
effective manner, the Company's sales growth internationally, if any, will be
limited, and the Company's business, operating results and financial condition
could be materially adversely affected. Even if the Company is able to
successfully expand its international operations there can be no assurance
that the Company will be able to maintain or increase international market
demand for its products. See "Business--Sales and Marketing."
The Company's international operations are generally subject to a number of
risks, including costs of customizing products for foreign countries,
protectionist laws and business practices favoring local competition,
dependence on local vendors, compliance with multiple, conflicting and
changing government laws and regulations, longer sales cycles, greater
difficulty or delay in accounts receivable collection, import and export
restrictions and tariffs, difficulties in staffing and managing foreign
operations, foreign currency
10
<PAGE>
exchange rate fluctuations, multiple and conflicting tax laws and regulations
and political and economic instability. To date, a majority of the Company's
revenues and costs have been denominated in U.S. dollars. However, the Company
believes that in the future, an increasing portion of the Company's revenues
and costs will be denominated in foreign currencies. Although the Company may
from time to time undertake foreign exchange hedging transactions to reduce
its foreign currency transaction exposure, the Company does not currently
attempt to eliminate all foreign currency transaction exposure. In the event
the Company is able to increase its international sales, its total revenues
may fluctuate to an even greater extent during the quarter ending September 30
due to weaker European and Japanese demand during the summer months. See "--
Operating Results Subject to Significant Fluctuations; Seasonality" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the efforts of
Ron R. Harris, the Company's President and Chief Executive Officer, and other
key management, sales and marketing, technical support and research and
development personnel, none of whom are bound by an employment contract. The
loss of key management or technical personnel could adversely affect the
Company. The Company believes that its future success will depend in large
part upon its continuing ability to attract and retain highly skilled
managerial, sales and marketing, technical support and research and
development personnel. Like other software companies, the Company faces
intense competition for such personnel, and the Company has at times
experienced and continues to experience difficulty in recruiting qualified
personnel. There can be no assurance that the Company will be successful in
attracting, assimilating and retaining additional qualified personnel in the
future. The loss of the services of one or more of the Company's key
individuals, or the failure to attract and retain additional qualified
personnel, could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Employees" and
"Management."
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT; USE OF
LICENSED TECHNOLOGY
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company licenses its database software
products primarily under "shrink wrap" licenses (i.e., licenses included as
part of the product packaging). Shrink wrap licenses are not negotiated with
or signed by individual licensees, and purport to take effect upon the opening
of the product package. However, the Company believes that such measures
afford only limited protection. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology
or design around the copyrights and trade secrets owned by the Company.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary. Policing unauthorized
use of the Company's products is difficult, and although the Company is unable
to determine the extent to which piracy of its software products exists,
software piracy can be expected to be a persistent problem. Embedded software
products, like those offered by the Company, can be especially susceptible to
software piracy. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights as fully as do the laws of the U.S.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers increasingly will be subject
to infringement claims as the number of products and competitors in the
Company's industry segment grows and the functionality of products in
different industry segments overlaps. Any such claims, with or without
11
<PAGE>
merit, could be time consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
the Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company, if at all. In the event of a successful claim of product
infringement against the Company and failure or inability of the Company to
either license the infringed or similar technology or develop alternative
technology on a timely basis, the Company's business, operating results and
financial condition could be materially adversely affected.
The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in its products to perform key functions. There
can be no assurance that these third-party software licenses will continue to
be available to the Company on commercially reasonable terms. The loss of or
inability to maintain any such software licenses could result in shipment
delays or reductions until equivalent software could be developed, identified,
licensed and integrated which could materially adversely affect the Company's
business, operating results and financial condition.
PRODUCT LIABILITY
Although the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential
product liability claims, it is possible that such limitation of liability
provisions may not be effective as a result of existing or future laws or
unfavorable judicial decisions. The Company has not experienced any material
product liability claims to date; however, the sale and support of the
Company's products may entail the risks of such claims, which may be
substantial in light of the use of the Company's products in business-critical
applications. A successful product liability claim brought against the Company
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Products."
NO PRIOR TRADING MARKET FOR THE COMMON STOCK; POTENTIAL VOLATILITY OF STOCK
PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
will be determined by negotiation among the Company, the Selling Stockholders
and the representatives of the Underwriters, and may not be indicative of the
price that will prevail in the open market. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
The market price of the Common Stock is likely to be highly volatile and may
be significantly affected by factors such as actual or anticipated
fluctuations in the Company's revenues and operating results, announcements of
technological innovations, new or enhanced products by the Company or its
competitors, developments with respect to copyrights or proprietary rights,
conditions and trends in the software and other technology industries,
adoption of new accounting standards affecting the software industry, changes
in financial estimates by securities analysts, general market conditions and
other factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the securities of technology companies. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
the company. There can be no assurance that such litigation will not occur in
the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources,
which could have a material adverse effect upon the Company's business,
operating results and financial condition. See "Underwriting."
CONTROL OF COMPANY BY OFFICERS, DIRECTORS AND FIVE PERCENT STOCKHOLDERS
Upon the consummation of this offering, the executive officers, directors,
five percent or greater stockholders and their affiliates in the aggregate
will beneficially own approximately 64.5% of the outstanding
12
<PAGE>
Common Stock (63.8% if the Underwriters' over-allotment option is exercised in
full). As a result, acting together these stockholders will be able to
exercise effective control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may have the effect of delaying
or preventing a change in control of the Company. See "Principal and Selling
Stockholders."
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
The Company's Restated Certificate of Incorporation and Bylaws contain
certain provisions that may have the effect of discouraging, delaying or
preventing a change in control of the Company or unsolicited acquisition
proposals that a stockholder might consider favorable, including provisions:
authorizing the issuance of "blank check" preferred stock; establishing
advance notice requirements for stockholder nominations for elections to the
Board of Directors or for proposing matters that can be acted upon at
stockholders' meetings; eliminating the ability of stockholders to act by
written consent; requiring super-majority voting to approve certain amendments
to the Restated Certificate of Incorporation; limiting the persons who may
call special meetings of stockholders; and providing for a Board of Directors
with staggered, three-year terms. In addition, certain provisions of Delaware
law and the Company's 1997 Stock Incentive Plan (the "1997 Plan") may also
have the effect of discouraging, delaying or preventing a change in control of
the Company or unsolicited acquisition proposals. See "Management--1997 Stock
Incentive Plan" and "Description of Capital Stock--Preferred Stock" and "--
Anti-takeover Effects of Provisions of the Certificate of Incorporation,
Bylaws and Delaware Law."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock after the offering
could adversely affect the market price of the Common Stock and could impair
the Company's ability to raise capital through the sale of equity securities.
Upon completion of the offering, the Company will have outstanding 13,104,743
shares of Common Stock, assuming no exercise of options after June 30, 1997.
Of these shares, the 4,000,000 shares offered hereby (4,600,000 shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), unless purchased by "affiliates"
of the Company as that term is defined in Rule 144 under the Securities Act
("Rule 144") described below. The remaining 9,104,743 shares of Common Stock
outstanding upon completion of the offering will be "restricted securities" as
that term is defined in Rule 144.
Upon the expiration of lock-up agreements (the "Lock-Up Agreements") between
certain stockholders of the Company (including the Selling Stockholders) and
the representatives of the Underwriters, 180 days after the date of this
Prospectus, 7,715,132 shares will be eligible for sale subject to the timing,
volume and manner of sale restrictions of Rule 144. In addition, upon the
expiration of the lock-up provisions set forth in the stock purchase
agreements used under the 1997 Plan and its predecessor plan (the "Plan Stand-
Off Agreements"), an additional 1,389,611 shares will become eligible for sale
pursuant to Rule 701 under the Securities Act ("Rule 701") beginning 180 days
after the date of this Prospectus subject in certain cases to such shares
becoming eligible for sale from time to time more than 180 days after the date
of this Prospectus as the Company's rights to repurchase such shares expire.
In addition to the foregoing, as of June 30, 1997, there were outstanding
under the 1997 Plan and its predecessor plan options to purchase an aggregate
of 2,259,697 shares of Common Stock. The shares underlying such options will
be eligible for sale upon expiration of the lock-up provisions contained in
the Plan Stand-Off Agreements beginning 180 days after the date of this
Prospectus, subject in certain cases to such shares underlying outstanding
options becoming eligible for sale more than 180 days after the date of this
Prospectus as such options vest. The Company has agreed not to release shares
from the lock-up provisions of the Plan Stand-Off Agreements without the prior
written consent of Robertson, Stephens & Company LLC. The Company intends to
register, 180 days following this offering, all shares of Common Stock subject
to outstanding options or reserved for issuance under the Company's stock and
option plans. Further, certain stockholders holding approximately 9,713,132
shares of Common Stock are entitled to demand registration of their shares of
Common Stock at the expiration of the 180-day lock-up period. By exercising
their demand registration rights, such stockholders
13
<PAGE>
could cause a large number of securities to be registered and sold in the
public market, which could have an adverse effect on the market price of the
Common Stock. See "Description of Capital Stock" and "Shares Eligible for
Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION
The assumed initial public offering price is 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 addition, the Company has issued options to acquire Common Stock
at prices significantly below the assumed initial public offering price. To
the extent such outstanding options are exercised, there will be further
dilution. See "Dilution" and "Shares Eligible for Future Sale."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
to be sold by the Company in this offering are estimated to be $15.6 million,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company. The Company will not receive any of
the proceeds from the sale of shares of Common Stock by the Selling
Stockholders.
The principal purposes of the offering are to increase the Company's equity
capital, to create a public market for the Common Stock, to facilitate future
access by the Company to public equity markets, to provide liquidity for
certain of the Company's existing stockholders and to provide increased
visibility of the Company in a marketplace where many of its competitors are
publicly held companies.
The Company intends to use the proceeds of the offering for working capital
and general corporate purposes. The Company may also use a portion of the net
proceeds for possible acquisition of businesses, products and technologies
that are complementary to those of the Company. Although the Company has not
identified any specific businesses, products or technologies that it may
acquire, nor are there any current agreements or negotiations with respect to
any such transactions, the Company from time to time evaluates such
opportunities. Pending such uses, the Company plans to invest the net proceeds
in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not expect to do so in the foreseeable future. The Company
anticipates that all future earnings, if any, generated from operations will
be retained by the Company to develop and expand its business. Any future
determination with respect to the payment of dividends will be at the
discretion of the Board of Directors and will depend upon, among other things,
the Company's operating results, financial condition and capital requirements,
the terms of then-existing indebtedness, general business conditions and such
other factors as the Board of Directors deems relevant. In addition, the terms
of the Company's current credit facility prohibits the payment of cash
dividends without the lender's consent.
15
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company as of
June 30, 1997, (i) on an actual basis, (ii) on a pro forma basis to reflect
the filing of a Restated Certificate of Incorporation and the conversion of
all outstanding shares of the Company's Preferred Stock into Common Stock and
(iii) on such pro forma basis as adjusted to reflect the sale of the shares of
Common Stock offered hereby at an assumed initial public offering price of
$9.00 per share and the application of the estimated net proceeds therefrom.
See "Use of Proceeds." This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term liabilities, net of current portion... $ -- $ -- $ --
Redeemable Convertible Preferred Stock: $0.001
par value, 3,548,281 shares authorized,
3,548,281 shares issued and outstanding, actu-
al; no shares authorized, issued and outstand-
ing, pro forma and as adjusted................. 4,026 -- --
Stockholders' equity:
Convertible Preferred Stock: $0.001 par value,
6,164,851 shares authorized, 6,164,851 shares
issued and outstanding, actual; 5,000,000
shares authorized, no shares issued and
outstanding, pro forma and as adjusted........ 3,915 -- --
Common Stock: $0.001 par value, 15,000,000
shares authorized, 1,391,611 shares issued and
outstanding, actual; 75,000,000 shares
authorized, 11,104,743 shares issued and
outstanding, pro forma; 75,000,000 shares
authorized, 13,104,743 shares issued and
outstanding, as adjusted(1)................... 205 8,146 23,736
Retained deficit............................... (4,514) (4,514) (4,514)
------- ------- -------
Total stockholders' equity (deficit).......... (394) 3,632 19,222
------- ------- -------
Total capitalization........................ $ 3,632 $3,632 $19,222
======= ======= =======
</TABLE>
- --------
(1) Excludes 2,259,697 shares subject to options outstanding as of June 30,
1997 at a weighted exercise price of $0.59 per share; and 1,168,914 shares
reserved for issuance under the Company's stock plans. See "Management--
1997 Stock Incentive Plan," "--Employee Stock Purchase Plan" and Note 6 of
Notes to Consolidated Financial Statements.
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1997,
giving effect to the conversion of all outstanding shares of Preferred Stock
into Common Stock upon the closing of this offering, was $3.6 million, or
approximately $0.33 per share. "Pro forma net tangible book value" per share
represents the amount of total tangible assets of the Company less total
liabilities, divided by the number of shares of Common Stock outstanding on an
as-converted basis. The pro forma net tangible book value of the Company as of
June 30, 1997 would have been $19.2 million, or $1.47 per share after giving
effect to the conversion of the Preferred Stock and the sale of 2,000,000
shares of Common Stock offered by the Company in this offering at an assumed
initial public offering price of $9.00 per share and the application of the
estimated net proceeds therefrom. This represents an immediate increase in pro
forma net tangible book value of $1.14 per share to existing stockholders and
an immediate dilution of $7.53 per share to investors purchasing shares of
Common Stock in the offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price ......................... $9.00
Pro forma net tangible book value as of June 30, 1997........ $0.33
Increase attributable to new investors....................... 1.14
-----
Adjusted pro forma net tangible book value as of June 30,
1997.......................................................... 1.47
-----
Dilution to new investors...................................... $7.53
=====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1997,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing stockholders and by the new investors (before deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company) at the assumed initial public offering price of $9.00 per
share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 11,104,743 84.7% $ 8,146,000(1) 31.2% $0.73
New investors(2)........ 2,000,000 15.3 18,000,000 68.8 9.00
---------- ----- ----------- -----
Totals................ 13,104,743 100.0% $26,146,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Includes $1.5 million of non-cash consideration attributable to certain
assets transferred by Novell to the Company.
(2) Sales by the Selling Stockholders in this offering will reduce the number
of shares held by existing stockholders to 9,104,743, or 69.5% (8,504,743,
or 64.9%, if the Underwriters' over-allotment option is exercised in
full), and will increase the number of shares held by new investors to
4,000,000, or 30.5% (4,600,000, or 35.1%, if the Underwriters' over-
allotment option is exercised in full), of the total number of shares of
Common Stock outstanding after this offering. See "Principal and Selling
Stockholders."
As of June 30, 1997, there were 2,259,697 shares subject to options
outstanding at a weighted exercise price of $0.59 per share; and an additional
1,168,914 shares were reserved for issuance under the Company's stock plans.
To the extent outstanding options are exercised, there will be further
dilution to new investors. See "Management--1997 Stock Incentive Plan," "--
Employee Stock Purchase Plan" and Note 6 of Notes to Consolidated Financial
Statements.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," which are included elsewhere in this Prospectus. The
consolidated statements of operations data for the fiscal years ended June 30,
1995, 1996 and 1997, and the consolidated balance sheet data at June 30, 1996
and 1997 are derived from audited consolidated financial statements included
elsewhere in this Prospectus. The consolidated statements of operations data
for the period from January 12, 1994 (inception) to June 30, 1994, and the
consolidated balance sheet data at June 30, 1994 and 1995 are derived from
audited consolidated financial statements not included herein.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 12, 1994 YEAR ENDED JUNE 30,
(INCEPTION) TO ------------------------
JUNE 30, 1994 1995 1996 1997
---------------- ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues........................... $ 933 $8,601 $13,476 $24,481
Costs and expenses:
Cost of revenues and technical
support......................... 424 1,997 2,605 3,310
Sales and marketing.............. 216 3,864 6,998 10,034
Research and development......... 2,303 2,399 4,477 5,996
General and administrative....... 198 996 2,505 2,886
------- ------ ------- -------
Total costs and expenses........... 3,141 9,256 16,585 22,226
------- ------ ------- -------
Operating income (loss)............ (2,208) (655) (3,109) 2,255
Interest and other income, net... 5 86 99 55
Provision for income taxes....... -- (129) (170) (593)
Minority interest in (earnings)
loss of subsidiary.............. -- 89 (25) (127)
------- ------ ------- -------
Net income (loss).................. $(2,203) $ (609) $(3,205) $ 1,590
======= ====== ======= =======
Pro forma net income per share(1).. $ 0.12
=======
Shares used in computing pro forma
net income per share(1)........... 13,368
=======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------
1994 1995 1996 1997
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................. $ 1,281 $ 5,740 $ 1,768 $ 1,560
Total assets................................ 2,937 8,480 7,471 10,445
Long-term liabilities, net of current
portion.................................... 958 1,006 621 --
Redeemable convertible preferred stock...... -- 4,026 4,026 4,026
Total stockholders' equity (deficit)........ 1,562 1,061 (2,083) (394)
</TABLE>
- --------
(1) Pro forma net income per share reflects the conversion of all outstanding
shares of Preferred Stock into Common Stock. See Note 2 of Notes to
Consolidated Financial Statements for an explanation of the method used to
determine the number of shares used in computing pro forma net income per
share.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from
the results discussed in the forward-looking statements as a result of certain
factors, including, but not limited to, those discussed in "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
Pervasive is a leading provider of embedded database software designed to
enable the cost-effective development, deployment and support of low-
maintenance, packaged client/server applications. The Company has experienced
significant revenue growth over the last three years and has been profitable
for the five most recent fiscal quarters. The Company markets and sells its
products through indirect channels by targeting both ISVs that build packaged
client/server applications and VARs that recommend and sell applications to
end users. The Company markets, sells and supports its products worldwide
through its principal office in Austin, Texas and through offices in
Frankfurt, Paris, Brussels and Dublin. In May 1995, the Company acquired a
controlling interest in a newly formed entity located in Tokyo, Btrieve
Technologies Japan, Ltd., to further the localization and sale of the
Company's products in Japan.
The Company was founded in January 1994 and, in April 1994, entered into an
Asset Purchase Agreement with Novell (the "Novell Agreement") whereby the
Company acquired certain software and technology related to Btrieve and
Scalable SQL. Since April 1994, the Company has developed and released
multiple Btrieve and Scalable SQL products for multiple operating system
platforms, including Microsoft Windows NT. Significant releases of Btrieve and
Scalable SQL since inception include Btrieve 6.15 server engine for NetWare in
March 1995, Btrieve 6.15 server engine for Windows NT in May 1995, Btrieve
6.15 server engine for OS/2 Warp in December 1996, Scalable SQL 3.0 server
engine for Windows NT in May 1995 and Scalable SQL 4 server engines for
Windows NT and NetWare in February 1997.
The Company derives its revenues primarily from shrink wrap licenses through
ISVs, VARs and distributors and from OEM license agreements with ISVs.
Additionally, the Company generates revenues from user count upgrades as well
as from upgrades to client/server environments from single workstation or
peer-to-peer environments. Shrink wrap license fees depend on both the user
count of the license and whether the license is for the Company's client- or
server-based products. The Company's OEM licensing program offers ISVs volume
discounts and specialized technical support, training and consulting in
exchange for embedding the Company's products in packaged applications and
paying to the Company a royalty based on sales of the applications.
Revenues are generally recognized from the license of software upon the
later of shipment or when all significant vendor obligations have been
satisfied. Revenues related to agreements involving nonrefundable fixed
minimum license fees are generally recognized upon delivery of the product
master or first copy if no significant vendor obligations remain. Per copy
royalties in excess of a fixed minimum amount are recognized as revenues when
such amounts are reported to the Company. The Company operates with virtually
no order backlog because its software products are shipped shortly after
orders are received, which makes product revenues in any quarter substantially
dependent on orders booked and shipped throughout that quarter. The Company
enters into agreements with certain distributors that provide for certain
stock rotation and price protection rights. These rights allow the distributor
to return products in a non-cash exchange for other products or for credits
against future purchases. The Company reserves for the cost of estimated sales
returns, stock rotation and price protection rights, as well as for
uncollectable accounts based on experience. See "Risk Factors--Operating
Results Subject to Significant Fluctuations; Seasonality," "--Dependence on
Indirect Sales Channel; Distributor Concentration" and Note 2 of Notes to
Consolidated Financial Statements.
19
<PAGE>
Although the Company's revenues have increased in recent periods,
profitability has been marginal and, except for the quarters ended September
30, 1994 and December 31, 1994, the Company incurred net losses in each
quarter from inception through the quarter ended March 31, 1996 and as of June
30, 1997, the Company had an accumulated deficit of approximately $4.5
million. There can be no assurance that the Company's revenues will grow in
future periods, that they will grow at past rates, or that the Company will
remain profitable on a quarterly or annual basis in the future. Substantially
all of the Company's revenues to date have been attributable to the sale and
license of its Btrieve and Scalable SQL products, and these products are
currently expected to account for substantially all of the Company's revenues
for the foreseeable future. The Company's future operating results are
dependent upon continued market acceptance of its Btrieve and Scalable SQL
products and enhancements to these products. Consequently, a decline in the
demand for, or market acceptance of, the Company's Btrieve and Scalable SQL
products as a result of competition, technological change or other factors,
would have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors--Limited Operating History;
Marginal Profitability; Future Operating Results Uncertain," "--Operating
Results Subject to Significant Fluctuations; Seasonality" and "--Product
Concentration."
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by certain lines in the Company's consolidated statements
of operations:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Revenues....................................... 100% 100% 100%
Costs and expenses:
Cost of revenues and technical support....... 23 19 14
Sales and marketing.......................... 45 52 41
Research and development..................... 28 33 24
General and administrative................... 12 19 12
------ ------ ------
Total costs and expenses....................... 108 123 91
------ ------ ------
Operating income (loss)........................ (8) (23) 9
Interest and other income, net............... 1 1 --
Provision for income taxes................... (1) (2) (2)
Minority interest in (earnings) loss of sub-
sidiary..................................... 1 -- (1)
------ ------ ------
Net income (loss).............................. (7)% (24)% 6%
====== ====== ======
</TABLE>
Revenues
The Company's revenues increased from $8.6 million in fiscal 1995 to $13.5
million in fiscal 1996 and to $24.5 million in fiscal 1997, representing
growth of 57% in fiscal 1996 and 81% growth in fiscal 1997. The increase in
the Company's revenues in each period was attributable primarily to the
increased revenues from the Company's OEM licensing programs and increased
market acceptance of the Company's new product releases, principally new
product releases for Windows NT. The increase in revenues from fiscal 1996 to
1997 was also attributable to market acceptance of price increases for most
products instituted in June 1996. Although the Company's revenues have
increased in recent periods, there can be no assurance that the Company's
revenues will grow in future periods, that they will grow at past rates or
that the Company will remain profitable on a quarterly or annual basis in the
future. See "Risk Factors--Limited Operating History; Marginal Profitability;
Future Operating Results Uncertain" and "--Operating Results Subject to
Significant Fluctuations; Seasonality."
20
<PAGE>
Prior to April 1994, Novell bundled then-current versions of Btrieve
database technology with its NetWare product. As part of the Novell Agreement,
the Company granted to Novell a worldwide, non-exclusive, perpetual, royalty-
free license to continue to bundle these versions of Btrieve with Novell
operating systems, including NetWare. Shortly thereafter, the Company
developed and released upgraded versions of Btrieve and began charging a
promotional license fee to customers. Effective June 1, 1996, the Company
discontinued its promotional pricing and significantly increased the list
prices of most of its Btrieve products in North America and Europe. The effect
of the list price increase, combined with the effect of changes in product and
channel mix, has been an increase of approximately 97% in average sales price
per shrink wrap unit in fiscal 1997 relative to fiscal 1996. The number of
units sold increased in anticipation of the pricing increase, and decreased in
the quarter immediately subsequent to the price increase. However, the average
sales price per shrink wrap unit has remained relatively constant since the
price increase and the number of units sold in each of the last two fiscal
quarters exceeded the number of units sold in the quarter ended March 31,
1996, the quarter prior to the price increase.
International Revenues. International revenues, consisting of all revenues
from customers located outside of North America, were $3.6 million, $5.7
million and $8.3 million in fiscal 1995, 1996 and 1997, representing 41%, 43%
and 34% of revenues, respectively. The increase in dollar amount in each
period was primarily attributable to increased market acceptance of the
Company's new product releases, principally new product releases for Windows
NT. The decrease in international revenues as a percentage of revenues from
fiscal 1996 to 1997 was primarily due to the increasing contribution to
revenues from the Company's domestic OEM licensing program and, to a lesser
extent, from the June 1996 price increase. The Company believes that revenues
from international markets represent a significant opportunity and expects
that international revenues will account for an increasing portion of its
revenues in the future as the Company expands internationally, primarily in
Europe and Japan but also in other areas of the world. For a discussion of the
risks associated with international sales, see "Risk Factors--Risks Associated
with International Sales and Operations" and Notes 8 and 12 of Notes to
Consolidated Financial Statements.
Costs and Expenses
Cost of Revenues and Technical Support. Cost of revenues and technical
support consists primarily of the cost to manufacture and fulfill orders for
the Company's shrink wrap software products and the cost to provide technical
support, primarily telephone support, which is typically provided within 30
days of purchase. Cost of revenues and technical support was $2.0 million,
$2.6 million and $3.3 million in fiscal 1995, 1996 and 1997, representing 23%,
19% and 14% of revenues, respectively. The dollar increase in cost of revenues
and technical support was primarily due to increased sales volume and
additional investment in personnel and related technical support resources.
The Company anticipates that cost of revenues and technical support will
continue to increase in dollar amount as the Company incurs higher support
costs anticipated with the expansion of international operations and that such
costs could vary as a percentage of revenues relative to fiscal 1997.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
foreign sales office expenses, travel and entertainment and promotional
expenses. Sales and marketing expenses were $3.9 million, $7.0 million and
$10.0 million in fiscal 1995, 1996 and 1997, representing 45%, 52% and 41% of
revenues, respectively. The increases, both in dollar amount and as a
percentage of revenues, from fiscal 1995 to 1996, were primarily due to a
deliberate program of increased investment in most aspects of the Company's
infrastructure, including sales and marketing, following the closing of the
sale of $2.7 million of preferred stock in April 1995. In particular, the
increases in sales and marketing expenses during that period reflect increased
marketing and advertising expenses in the U.S. and Europe targeted at ISVs and
VARs, hiring of additional sales and marketing personnel, as well as costs
associated with expanded lead generation activities. The increases in dollar
amounts from fiscal 1996 to 1997 reflect a continuation of these trends,
including specific marketing activities related to the release of new
21
<PAGE>
products such as Scalable SQL 4 in February 1997. Sales and marketing expenses
decreased as a percentage of revenues in fiscal 1997 primarily because of
significant revenue growth that outpaced sales and marketing expenditures. The
Company expects that sales and marketing expenses will continue to increase in
dollar amount as the Company continues to hire additional sales and marketing
personnel, increase lead generation activities and expand the international
reach of its activities. Sales and marketing expenses are likely to continue
to fluctuate as a percentage of revenues due to the timing of costs associated
with new product releases and international expansion activities.
Research and Development. Research and development expenses primarily
consist of personnel and related costs. Research and development expenses were
$2.4 million, $4.5 million and $6.0 million in fiscal 1995, 1996 and 1997,
representing 28%, 33% and 24% of revenues, respectively. The increases, both
in dollar amount and as a percentage of revenues, from fiscal 1995 to 1996,
are primarily due to the increased investments in the Company's infrastructure
following the April 1995 private financing, in particular the hiring of
additional research and development personnel and the development of new
versions of the Company's products for additional operating system platforms.
The increases in dollar amounts from fiscal 1996 to 1997 reflect a
continuation of these trends. Research and development expenses decreased as a
percentage of revenues in fiscal 1997 primarily because of significant revenue
growth that outpaced research and development expenditures. The Company
anticipates that it will continue to devote substantial resources to research
and development and that such expenses will continue to increase in dollar
amount.
Research and development expenses are generally charged to operations as
incurred. Costs that were eligible for capitalization in accordance with
Statement of Financial Accounting Standards No. 86 were insignificant during
these periods, and accordingly the Company charged all software development
costs to research and development expenses. The Company capitalized certain
costs related to the technology acquired from Novell in 1994, which were fully
amortized as of the end of fiscal 1996. See Note 2 of Notes to Consolidated
Financial Statements.
General and Administrative. General and administrative expenses primarily
consist of the personnel and other costs of the Company's finance, human
resources, information systems and administrative departments. General and
administrative expenses were $1.0 million, $2.5 million and $2.9 million in
fiscal 1995, 1996 and 1997, representing 12%, 19% and 12% of revenues,
respectively. The increases, both in dollar amount and as a percentage of
revenues, from fiscal 1995 to 1996, were primarily due to the increased
investments in the Company's infrastructure following the April 1995 private
financing, in particular the increased staffing and associated expenses
necessary to manage and support the Company's increased scale of operations,
both domestically and internationally. The increases in dollar amounts from
fiscal 1996 to 1997 reflect a continuation of these trends. General and
administrative expenses decreased as a percentage of revenues in fiscal 1997
primarily because of significant revenue growth that outpaced general and
administrative expenditures. The Company believes that its general and
administrative expenses will continue to increase in dollar amount in fiscal
1998 as a result of the expansion of the Company's administrative staff to
support its growing international operations and as a result of an increase in
expense associated with being a public company.
Provision for Income Taxes. Provision for income taxes was approximately
$129,000, $170,000, and $593,000 in fiscal 1995, 1996 and 1997, respectively.
Tax expense in fiscal 1995 and 1996, and an insignificant portion of the tax
expense in fiscal 1997, represents withholding taxes paid or accrued to be
paid to foreign countries on royalties earned by the Company. The Company had
domestic and foreign net operating loss carryforwards of approximately
$422,000 at June 30, 1996, which were fully utilized in fiscal 1997. The
Company believes that, based on a number of factors, it is more likely than
not that a substantial amount of the Company's deferred tax assets may not be
realized. These factors include a limited history of profitability, recent
increases in expense levels to support the Company's growth, the lack of
carryback capacity to realize the deferred tax assets and the fact that the
Company operates in an intensely competitive market subject to rapid change.
Accordingly, the Company has recorded a valuation allowance to the extent
deferred tax assets
22
<PAGE>
exceed the potential benefit from carryback of deferred items to offset
current or prior year taxable income. The Company had an effective tax rate of
26% in fiscal 1997 and expects its effective tax rate to increase in the
future as the Company fully utilized its net operating loss carryforwards in
fiscal 1997. See Note 4 of Notes to Consolidated Financial Statements.
RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("SFAS No. 128"), Earnings per Share, which the Company is required to
adopt by June 30, 1998. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all
prior periods. The impact of SFAS No. 128 on the calculation of pro forma
fully diluted earnings per share for fiscal 1997 is not expected to be
material. Under the new requirements for calculating primary earnings per
share, the dilutive effect of common stock equivalents will be excluded. The
impact is expected to result in an increase in pro forma earnings per share
for fiscal 1997 of $0.77 per share, resulting in a basic pro forma earnings
per share of $0.89.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statements of
operations data for the eight quarters ended June 30, 1997, as well as the
percentage of the Company's revenues represented by each item. This data has
been derived from unaudited interim consolidated financial statements prepared
on the same basis as the audited Consolidated Financial Statements contained
herein and include all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of
such information when read in conjunction with the Consolidated Financial
Statements and Notes thereto.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
1995 1995 1996 1996 1996 1996 1997 1997
-------- ------- ------- ------- -------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 2,483 $ 3,171 $ 3,097 $4,725 $5,090 $5,676 $6,418 $7,297
Costs and expenses:
Cost of revenues and
technical support..... 506 651 665 783 734 744 861 971
Sales and marketing.... 1,675 1,873 1,883 1,567 1,905 2,481 2,651 2,997
Research and develop-
ment.................. 894 1,063 1,304 1,216 1,120 1,204 1,691 1,981
General and administra-
tive.................. 475 733 673 624 709 715 672 790
------- ------- ------- ------ ------ ------ ------ ------
Total costs and ex-
penses................. 3,550 4,320 4,525 4,190 4,468 5,144 5,875 6,739
------- ------- ------- ------ ------ ------ ------ ------
Operating income
(loss)................. (1,067) (1,149) (1,428) 535 622 532 543 558
Interest and other in-
come (expense), net... 39 34 18 8 17 25 16 (3)
Provision for income
taxes................. (29) (51) (45) (45) (164) (144) (143) (142)
Minority interest in
(earnings) loss of
subsidiary............ (12) -- (13) -- (17) (23) (44) (43)
------- ------- ------- ------ ------ ------ ------ ------
Net income (loss)....... $(1,069) $(1,166) $(1,468) $ 498 $ 458 $ 390 $ 372 $ 370
======= ======= ======= ====== ====== ====== ====== ======
AS A PERCENTAGE OF
REVENUES:
Revenues................ 100% 100% 100% 100% 100% 100% 100% 100%
Costs and expenses:
Cost of revenues and
technical support..... 20 21 21 17 14 13 13 13
Sales and marketing.... 68 59 61 33 38 44 42 41
Research and develop-
ment.................. 36 33 42 26 22 21 26 27
General and administra-
tive.................. 19 23 22 13 14 13 11 11
------- ------- ------- ------ ------ ------ ------ ------
Total costs and ex-
penses................. 143 136 146 89 88 91 92 92
------- ------- ------- ------ ------ ------ ------ ------
Operating income
(loss)................. (43) (36) (46) 11 12 9 8 8
Interest and other in-
come (expense), net... 1 1 -- -- -- -- -- --
Provision for income
taxes................. (1) (2) (1) (1) (3) (2) (2) (2)
Minority interest in
(earnings) loss of
subsidiary............ -- -- -- -- -- -- -- (1)
------- ------- ------- ------ ------ ------ ------ ------
Net income (loss)....... (43)% (37)% (47)% 10% 9% 7% 6% 5%
======= ======= ======= ====== ====== ====== ====== ======
</TABLE>
23
<PAGE>
Revenues increased 53% in the quarter ended June 30, 1996 compared to the
quarter ended March 31, 1996. This increase was primarily the result of
increased unit sales of the Company's products prior to the June 1996 price
increase. The significantly increased sales volume during that period led to a
corresponding decrease in sales volume in the following period. Revenues
increased in each quarter since the June 1996 price increase, however, due to
other factors such as increased market acceptance of new product releases,
particularly for the Windows NT platform, and increased market acceptance of
the Company's pricing strategy. Quarterly costs and expenses have generally
increased primarily due to increased staffing levels in the Company's
technical support, sales and marketing, research and development and
administrative organizations, and related increases in costs such as
facilities, equipment and travel.
The Company's quarterly revenues, expenses and operating results have varied
significantly in the past and are likely to vary significantly in the future
due to a variety of factors such as demand for the Company's products, the
size and timing of significant orders and their fulfillment, the number,
timing and significance of product enhancements and new product announcements
by the Company and its competitors, changes in pricing policies by the Company
or its competitors, customer order deferrals in anticipation of enhancements
or new products offered by the Company or its competitors, the ability of the
Company to develop, introduce and market new and enhanced versions of its
products on a timely basis, changes in the Company's level of operating
expenses, budgeting cycles of its customers, product life cycles, software
defects and other product quality problems, the Company's ability to attract
and retain qualified personnel, changes in the Company's sales incentive
plans, changes in the mix of domestic and international revenues, the level of
international expansion, foreign currency exchange rate fluctuations,
performance of indirect channel partners, changes in the mix of indirect
channels through which the Company's products are offered, the impact of
acquisitions of competitors and indirect channel partners, the Company's
ability to control costs and general domestic and international economic and
political conditions. The Company operates with virtually no order backlog
because its software products are shipped shortly after orders are received,
which makes product revenues in any quarter substantially dependent on orders
booked and shipped throughout that quarter. As a result, if orders in the
first month or two of a quarter fall short of expectations, it is unlikely
that the Company will be able to meet its revenue targets for that quarter. In
addition, the Company is substantially reliant upon indirect sales channels
over which the Company has little or no control. Moreover, the Company's
expense levels are based to a significant extent on the Company's expectations
of future revenues and therefore are relatively fixed in the short term. If
revenue levels are below expectations, operating results are likely to be
adversely and disproportionately affected because only a small portion of the
Company's expenses vary with its revenues. In addition, the Company's
quarterly revenues and income may also vary significantly due to seasonal
factors. Although the Company's revenues have increased in recent periods and
the Company was profitable in fiscal 1997, there can be no assurance that the
Company's revenues will grow in future periods, that they will grow at past
rates, or that the Company will remain profitable on a quarterly basis, if at
all. Based upon all of the foregoing, the Company believes that the Company's
quarterly revenues, expenses and operating results are likely to vary
significantly in the future, that period-to-period comparisons of its results
of operations are not necessarily meaningful and that, in any event, such
comparisons should not be relied upon as indications of future performance.
See "Risk Factors--Limited Operating History; Marginal Profitability; Future
Operating Results Uncertain" and "--Operating Results Subject to Significant
Fluctuations; Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has funded its operations and met its
capital expenditure requirements through the private sale of $6.4 million of
Preferred Stock and cash generated from operating activities. Cash generated
from operating activities was insignificant in fiscal 1995 and cash used in
operating activities was $1.5 million in fiscal 1996. Cash generated from
operating activities was $3.7 million in fiscal 1997. For such periods cash
generated by, or used in, operating activities resulted primarily from net
income or net losses, net of changes in working capital.
24
<PAGE>
To date, the Company's investing activities have consisted primarily of
capital expenditures totaling approximately $598,000, $843,000 and $2.2
million in fiscal 1995, 1996 and 1997, respectively, to acquire equipment,
mainly computer hardware and software, for the Company's growing employee
base. The Company expects that its capital expenditures will increase as the
Company's employee base grows. At June 30, 1997, the Company did not have any
material commitments for capital expenditures.
At June 30, 1997, the Company had $4.1 million in cash and cash equivalents
and $1.6 million in working capital. The Company has a $2.0 million revolving
line of credit and a $2.0 million equipment line with Texas Commerce Bank, but
has at no time borrowed under such lines. Total borrowings under the revolving
line are limited generally to 80% of eligible receivables with interest at the
bank's prime lending rate. On June 30, 1997, the Company had approximately
$2.1 million of borrowing capacity under the two lines. The Company's lines of
credit contain certain financial covenants and restrictions as to various
matters including the Company's ability to pay cash dividends and effect
mergers or acquisitions without the bank's prior approval. The Company is
currently in compliance with such financial covenants and restrictions. The
Company has granted a first priority security interest in substantially all of
its tangible assets as security for its obligations under its credit lines.
See Note 9 of Notes to Consolidated Financial Statements.
The Company believes that the net proceeds from the offering, existing cash
and cash equivalents and cash generated from operating activities will be
adequate to meet its cash needs for at least the next 12 months. Thereafter,
the Company may require additional funds to support its working capital
requirements or for other purposes and may seek to raise such additional funds
through public or private equity financing or from other sources. There can be
no assurance that additional financing will be available at all or that if
available, such financing will be obtainable on terms favorable to the Company
or that any additional financing would not be dilutive.
25
<PAGE>
BUSINESS
The following description of the Company's business should be read in
conjunction with the information included elsewhere in this Prospectus. This
description contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from
the results discussed in the forward-looking statements as a result of certain
of the risk factors set forth below and elsewhere in this Prospectus.
OVERVIEW
Pervasive is a leading provider of embedded database software designed to
enable the cost-effective development, deployment and support of low-
maintenance, packaged client/server applications. The Company's database
engines, Btrieve and Scalable SQL, are well suited for integration by software
developers into business-critical applications that are reliable and scalable
and can be rapidly deployed. These products enable independent software
vendors ("ISVs") and value added resellers ("VARs") to develop, deploy and
support packaged client/server applications that provide robust functionality
and low overall cost of ownership to end users. In addition, the Company's
comprehensive approach to selling, marketing and supporting its products is
designed to address the specific needs of ISVs, VARs, in-house development
organizations and their end users. The Company markets, sells and supports its
products worldwide through its principal office in Austin, Texas and through
offices in Frankfurt, Paris, Brussels, Dublin and Tokyo.
INDUSTRY BACKGROUND
Organizations are increasingly recognizing the importance of collecting,
analyzing and disseminating information to obtain competitive advantage. This
information is increasingly generated by sophisticated client/server
applications and managed by underlying database software that allow for
decentralized decision making and broader access to critical business
information. The benefits of client/server systems and computing trends such
as improved hardware price performance and the proliferation of application
development tools, have resulted in significant growth in the market for
packaged client/server applications and underlying database software.
According to Business Research Group, the domestic market for client/server
software was approximately $25 billion in 1996, and is projected to grow to
over $60 billion in 2000. In addition, according to Dataquest, the worldwide
database software market was approximately $5.7 billion in 1996, and is
projected to grow to approximately $9.4 billion in 2000.
Client/server computing environments are inherently complex, typically
involving a variety of hardware, operating systems, networking protocols,
applications and database software. It is likely that this complexity will
increase over time as organizations seek to exploit new technologies, such as
the Internet, intranets and mobile computing. As a result of this complexity,
large and costly information technology departments, typically found in large
organizations, are required to develop, deploy and support applications built
on enterprise-scale database software.
Many small and mid-sized organizations, including departments of large
organizations, also face competitive pressures to achieve the benefits
associated with client/server computing. These organizations typically do not
have the information technology budgets, infrastructure, personnel or
computing expertise required to deploy and support client/server applications
built on enterprise-scale database software. Consequently, these organizations
have been slow to adopt client/server computing environments. Business
Research Group estimates that, in 1997 approximately 22% of domestic
organizations with less than 1,000 employees have deployed client/server
applications while more than 90% of larger organizations have deployed such
applications. According to 1990 U.S. Census data, in the U.S. alone there were
over 6 million organizations with less than 1,000 employees, not including
departments of larger organizations whose needs often mirror those of smaller
organizations.
This relatively low penetration of client/server applications in small and
mid-sized organizations has created a market opportunity for ISVs and VARs. To
effectively capitalize on this market opportunity, ISVs
26
<PAGE>
and VARs must develop, deploy and support packaged client/server applications
that meet their customers' robust functionality needs and run in environments
that often lack a well developed information technology infrastucture. Only
then can ISVs and VARs provide the benefits of client/server computing, ease
of implementation and low overall cost of ownership that small and mid-sized
organizations require. ISVs and VARs must also be able to develop, deploy and
support their applications without having to become an expert in the
complexities of client/server computing.
To provide these benefits, ISVs and VARs require embeddable database
software that facilitates the development, deployment and support of packaged
client/server applications. ISVs require database software that enables them
to develop these applications with minimal investments in networking,
communications or client/server database expertise. VARs require reliable,
high-performance, low-maintenance database software that they can cost-
effectively deploy and support. Low-end desktop database products do not meet
the needs of this market because they typically lack the scalability and
functionality required for developing full featured client/server applications
and are often sold through retail channels that provide minimal deployment or
support to their customers. Likewise, enterprise-scale database software fails
to meet the needs of this market because it typically either requires a large
and costly information technology department or results in prohibitively high
implementation and support costs. Accordingly, there is a need for reliable,
high-performance, low-maintenance database software that enables ISVs and VARs
to cost-effectively develop, deploy and support robust client/server
applications targeted at small and mid-sized organizations and departments of
larger organizations.
THE PERVASIVE SOLUTION
Pervasive is a leading provider of embedded database software designed to
enable the cost-effective development, deployment and support of low-
maintenance, packaged client/server applications. The Company's database
engines, Btrieve and Scalable SQL, are well suited for integration by software
developers into business-critical applications that are reliable and scalable
and can be rapidly deployed. These products enable the Company's ISV and VAR
customers to develop, deploy and support packaged client/server applications
that, in turn, provide robust functionality and low overall cost of ownership
to their small and mid-sized customers. In addition, the Company's
comprehensive approach to selling, marketing and supporting its products is
designed to address the specific needs of ISVs, VARs, in-house development
organizations and their end users.
The Company's database software simplifies application development by
enabling developers to write applications that are capable of running on
multiple platforms and that can scale with little or no modification from
single workstation to peer-to-peer and client/server environments. The
Company's products currently operate on the Windows NT, NetWare, Windows 95,
Windows 3.1, OS/2 Warp and DOS operating platforms. In addition, the software
is designed to allow developers to exercise a high degree of control over the
database engine, enabling the tight integration, or embedding, of the database
into their applications. As a result, packaged applications built on the
Company's embedded databases enable organizations to implement client/server
systems and automate critical business functions without the costs and
complexities typically associated with enterprise-class client/server
applications. In addition, the architecture of the Company's products
incorporates network and communications protocols which monitor and manage the
client/server connection. Further, the small memory footprint of the Company's
software requires significantly smaller investments in memory and computing
power than enterprise-class database software and permits portability to a
wide range of PC desktop and server systems as well as personal digital
assistant and hand-held devices.
The Company's sales and marketing organization focuses exclusively on
indirect channels by targeting ISVs that build packaged client/server
applications and VARs that sell and deploy the applications. The Company's
sales, marketing, training and licensing programs are designed to encourage
ISVs to embed the Company's databases into their own software products and to
stimulate the sales of the applications by VARs to end users. The Company
believes its strong relationships with ISVs and VARs provide the Company with
market visibility and multiple sales opportunities and offer end users
additional sources of service and technical support.
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STRATEGY
Pervasive's objective is to be the leading provider of embedded database
products for packaged client/server applications. The Company has tailored its
database software products to meet the specific needs of ISVs and VARs that
are developing solutions for small and mid-sized organizations and departments
of larger organizations. Key elements of the Company's strategy include:
Extend Technology Leadership into New Markets. The Company intends to extend
its leadership position in embedded databases for packaged client/server
applications. The Company continually upgrades its technology to ensure
increased database functionality and reliable, low-maintenance connections
between clients and servers to meet the needs of changing technological
environments. As the Company's customers extend the use of client/server
applications to Internet and intranet applications, the Company intends to
further enhance the functionality of its products to exploit these
opportunities. In addition, the Company is evaluating opportunities to utilize
the technological advantages of its small memory footprint, highly reliable,
low-maintenance databases for use in new and emerging markets, such as
applications designed for hand-held devices, network computers, mobile
computing and electronic commerce.
Continue to Leverage Indirect Channel Model. The Company intends to continue
to sell its embeddable database products exclusively through ISVs and VARs.
The Company believes that its past investments in training and educating its
channel partners, its long-term relationships with the diverse ISV and VAR
communities and its success in encouraging them to embed the Company's
products into their applications has created competitive advantage in the
marketplace. The Company's channel approach is designed to further the
integration of its products into client/server applications and to stimulate
sales of the applications themselves. The Company intends to continue to
leverage its large investment in U.S. channel programs by expanding its U.S.
channels and replicating this success internationally.
Focus on Microsoft Platforms. The Company has adopted the Windows NT
platform as its development reference platform, and intends to expand its
support for Microsoft technologies, including further integration with
Microsoft Back Office products, and to provide products complementary to
Windows NT. The Company believes that Microsoft's operating system platforms,
which include Windows NT, Windows 95 and Windows CE, have emerged as the
dominant platforms for client/server computing, and the adoption of Windows NT
as its reference platform makes its products applicable to the broadest range
of customers.
Leverage Installed Base. A significant element of the Company's strategy is
to leverage its large installed base. The Company has a large installed base
in accounting and financial applications, which are often the first
client/server applications purchased by small and mid-sized organizations.
Once an end user standardizes on a functional application and embedded
database, additional applications can be more easily integrated. Accordingly,
the Company intends to leverage this strong position to penetrate additional
application markets, such as sales force automation and others.
In addition, since April 1994, Novell has bundled an older version of the
Company's Btrieve product on a royalty-free basis with every copy of NetWare.
The Company derives revenues from upgrade sales of its subsequent versions of
Btrieve. The Company intends to leverage this large, worldwide installed base
of NetWare users by providing incentives to upgrade to the most recent
versions of Btrieve.
Continue Client-Based "Seeding" Strategy. The Company's seeding strategy
stimulates high-volume deployment of its client-based shrink wrap products.
This strategy enables ISVs to develop client-based applications and to deploy
them broadly with minimal incremental cost. The Company then works with its
ISVs and VARs through a combination of promotional and lead referral programs
to upgrade these applications to client/server environments. The Company
intends to continue its seeding strategy in order to generate upgrade revenues
while enabling ISVs and VARs to sell higher margin server products as end
users upgrade from single workstation or peer-to-peer to client/server
environments.
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Expand Global Distribution Capabilities. The Company intends to expand its
global sales capabilities by increasing the size of its channel and strategic
sales organizations and continuing to leverage distribution partners in
selected markets. In fiscal 1997, the Company derived 34% of its revenues from
sales of its products in more than 30 countries outside North America, and the
Company believes that significant opportunities exist for its products in
international markets. The Company has established offices in Tokyo,
Frankfurt, Paris, Brussels and Dublin and intends to continue to increase its
international indirect sales and marketing activities.
PRODUCTS
The Company offers a range of embedded database products that enable
commercial developers to combine the sophistication of client/server computing
with the low cost of ownership and convenience of packaged software. The
resulting applications enable small and mid-sized organizations and the
departments of large organizations to automate business-critical functions in
client/server environments. The following table provides an overview of these
products and the platforms on which they operate:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION PLATFORMS
- ------------------------------------------------------------------------------
<C> <S> <C>
BTRIEVE Navigational, record-oriented database software Windows NT
targeted at high volume transaction applications NetWare
Windows 95
Windows 3.1
OS/2 Warp
DOS
- ------------------------------------------------------------------------------
SCALABLE SQL Relational database software optimized for Windows NT
reporting, ad hoc query and decision support NetWare
systems Windows 95
Windows 3.1
DOS
- ------------------------------------------------------------------------------
</TABLE>
The Company's primary products are the Btrieve navigational database and the
Scalable SQL relational database. Btrieve allows users to navigate quickly
through data at the individual record level, while Scalable SQL leverages the
relational data model and industry standard Structured Query Language (SQL),
which is better suited for reporting, query and decision support applications.
Because the Company's products are all built on its MicroKernel Database
Engine ("MKDE"), developers and end users can simultaneously access common
data sets through either Btrieve or Scalable SQL.
Btrieve is a leading navigational client/server database offering high
performance in high volume transaction processing environments such as
accounting, banking and insurance. Btrieve offers a high degree of programming
control through its record-oriented, navigational interface and delivers low-
maintenance operation through self-tuning algorithms for index balancing, disk
space allocation and cache management. Btrieve-based applications can scale
from single workstation to peer-to-peer and client/server configurations
without the need to modify the application or database.
Scalable SQL is a leading relational client/server database built for high
volume client/server applications with flexible reporting, ad hoc query and
decision support requirements. Scalable SQL delivers SQL capabilities in an
engine that shares many Btrieve characteristics, including high performance,
multi-platform support, low maintenance operation, and application scalability
from single workstations to peer-to-peer and client/server configurations. The
Company also offers Inscribe, a Visual Basic compatible scripting tool that is
currently supported by Scalable SQL.
In addition, the Company offers Btrieve and Scalable SQL software developer
kits, which include tools, documentation and licenses to enable programmers to
develop, test and deploy applications that embed the Company's databases.
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<PAGE>
The Company has designed its Btrieve and Scalable SQL products with a number
of common characteristics as set forth in the table below:
<TABLE>
<CAPTION>
PRODUCT CHARACTERISTICS DESCRIPTION BENEFITS
- ----------------------------------------------------------------------------------------------
<C> <S> <C>
Embeddable Designed to be "hidden" inside Allows broad deployment of
an application, permitting complex distributed
development of a tightly applications into environments
integrated application. with minimal or no information
technology infrastructure.
- ----------------------------------------------------------------------------------------------
Small Memory Footprint Btrieve requires less than 350 Maximizes resources available
KB of internal memory and to the application and enables
Scalable SQL requires less than operation on a wide range of
4 MB. hardware.
- ----------------------------------------------------------------------------------------------
Low Maintenance Administrative functions, such Requires low level of
as disk space allocation, information technology support
memory and index management are making complex applications
automated, which eliminates the available to small and mid-
need for regular maintenance. sized organizations and the
departments of large
organizations.
- ----------------------------------------------------------------------------------------------
Reliability Btrieve and Scalable SQL are Provides high degree of data
based on industry-proven integrity and stability to
technology. business applications.
- ----------------------------------------------------------------------------------------------
Configurability Btrieve and Scalable SQL can Enables the storage and
access local and distributed processing of databases to be
data simultaneously. distributed throughout the
network.
- ----------------------------------------------------------------------------------------------
Application Scalability Applications can run in any Offers cost savings for
configuration from single developers and end users
workstation to peer-to-peer to because a single application
supporting hundreds of can be deployed in multiple
concurrent users in configurations without
client/server environments. modification.
- ----------------------------------------------------------------------------------------------
Open Database Connectivity Industry standard interface Allows ODBC-compliant
("ODBC") enabling any application to applications to access data
communicate with any database. stored in any Btrieve or
Scalable SQL database.
- ----------------------------------------------------------------------------------------------
Common MicroKernel Navigational Btrieve and Allows developers to choose the
Database Engine relational Scalable SQL-based appropriate data access method:
applications can simultaneously navigational access for high
share common databases. volume transactions and
relational access for
reporting, queries and decision
support.
- ----------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
CUSTOMERS
The Company has over 1,000 ISV and VAR customers worldwide. The Company
believes that the following list is representative of the Company's larger ISV
customers and the markets into which the Company's products are deployed:
<TABLE>
<CAPTION>
<S> <C>
HEALTHCARE ADMINISTRATION
ACCOUNTING
AtWork Corporation
Abacus Research AG ComCotec Inc.
ACCPAC International Enterprise Systems
AGRIS Corporation IMPAC Medical Systems, Inc.
Dexter & Cheney Inc.
DITEC Informationstechnologie MANUFACTURING
GmbH & Co. KG
Exact International Development B.V. Bergen Computer
Great Plains Software, Inc. Expandable Software, Inc.
KHK Software GmbH & Co. KG Micro MRP
Macola Software, Incorporated
Matrix International B.V. NETWORK ADMINISTRATION
Platinum Software Corporation
Scala ECE Overseas Ltd. Cheyenne Software
Solomon Software Intel Corporation
SU-A/S Systemutvikling Sterling Software, Inc.
Systems Union Group, Ltd.
SALES FORCE AUTOMATION
DOCUMENT IMAGING
Maximizer Technologies Inc.
Cardiff Software, Inc. Software of the Future, Inc.
Document Solutions
Ingenieurgesellschaft Pliete- OTHER
Gukelberger GmbH
MACESS Corporation ADC Labs, Inc.
American Computer Software, LLC
FINANCE Apollo Travel Services
CAM Data Systems, Inc.
Associated Software Consultants, Inc. Josten's Learning Corporation
basoft Neue Bankensoftware AG La Societe de Programmation COBA
Estweeka B.V. inc.
Fair Isaac and Company Magic Software Enterprises, Ltd.
Kindle Banking Systems Ltd. Rapattoni Corporation
royalblue technologies plc
Smith, Abbott & Company, Inc.
Software 4 Retail Solutions
</TABLE>
The following illustrates the selection, implementation and use of Btrieve
and Scalable SQL by certain of the Company's customers.
Accounting ISV
A leading provider of Windows, Windows NT and NetWare-based SQL accounting
systems for small and mid-size organizations serves over 45,000 customers in
100 countries worldwide. Prior to adopting Scalable SQL, the vendor marketed a
character-based product built on the DOS version of Btrieve. While moving to
the graphical environment, the vendor pursued an opportunity to build the new
system around industry-standard SQL database technology. The vendor required a
SQL database that would be affordable to its small and mid-sized customers,
that would be scalable to support a broad mix of customer configurations from
single-user implementations to full client/server systems and that would
provide a high level of data security and performance across LANs and WANs.
The vendor's familiarity with the Company's Btrieve product assisted in the
transition to Scalable SQL. The vendor was able to release a Windows-based
client/server application only a few months following commencement of
development. To date the vendor has installed over 7,000 client/server
applications using Scalable SQL.
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<PAGE>
Retailing Software ISV
A retailing software vendor develops comprehensive supermarket systems that
manage checkout operations, receiving, inventory labeling, vendor management,
accounts receivable, and price modeling. This vendor sells its products
through a network of over 100 resellers, as well as through a direct sales
team, to customers including over 5,000 independently owned supermarkets and
regional grocery chains.
This vendor desired to migrate from proprietary systems into an open
environment that would enable it to integrate all the information access needs
of its customers' operations. Previously, the proprietary system required it
to constantly synchronize two separate files of inventory items, one at the
point-of-sale and the second on the back office PC.
This vendor now offers systems built on Btrieve running on Microsoft Windows
NT. The new system simplifies and streamlines supermarket operations by
allowing every employee access to a single unified dataset with the assurance
that the information is reliable, complete and up to date. In addition, this
vendor has implemented dual server "hot file mirroring," which enables
continuous operation in the event of the failure of one server. Btrieve also
provides the ability to process in excess of 100 scans per minute, which this
vendor believes provides it with a competitive advantage.
Property Management VAR
A VAR specializing in property management and real estate applications has
utilized Scalable SQL in the design and implementation of a database-driven
sales guide providing Internet access to hundreds of properties listed in the
Manhattan area.
The site features extensive property search capabilities including price
range, number of rooms, amenities, location and school district. The user
specifies the property search criteria and the application formulates a
Scalable SQL database query that returns a list of suitable properties. The
system has enabled customers to quickly search through thousands of listings
and focus their search on the relevant properties.
Division Within a Large Organization
A division of a large national moving company specializes in transporting
valuable commodities such as mainframe computers, electronics, and medical
equipment. Prior to implementing its client/server mobile tracking system,
this division used a mainframe system with a terminal in each distribution
center. Clerks manually entered tracking information each time a shipment
reached a check-in point. As the business expanded, the margin for manual
tracking errors increased. In addition, real-time updates of the status and
location of shipments was not feasible.
The division selected Btrieve as the foundation for its new mobile wireless
tracking system because Btrieve offers the performance required to process up
to 25 million data transactions per year and the stand-alone reliability to
operate 24 hours a day, 7 days a week. The distribution centers can now handle
more shipments in less time with greater accuracy. In addition, customers
receive real-time, highly accurate information about the location of shipments
via telephone or dial-in connection.
SALES AND MARKETING
Pervasive's sales and marketing organization focuses exclusively on indirect
channels by targeting the ISVs that build packaged client/server applications
and the VARs that sell and implement the applications to the end user. The
Company's marketing group has primary responsibility for product direction and
has developed a number of programs utilized by the sales organization to
support the ISV and VAR channels, such as the manufacturing partner program
and VAR partner programs. These programs are worldwide in scope and capture
leads from a variety of additional marketing programs including direct
response marketing and advertising, joint marketing and public relations. The
Company's sales organization consists of a strategic sales
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<PAGE>
group focusing on larger ISVs and VARs, an inside sales group targeting small
and mid-sized ISVs and VARs, and an international sales group, all of which
are supported by the Company's marketing organization.
The strategic sales group focuses on recruiting large ISVs to embed the
Company's database products on an OEM basis through the Company's
manufacturing partner program. This program is designed to generate mutually
beneficial strategic relationships between the Company and its ISVs and
ongoing royalties for the Company through licensing contracts, which are
typically for three-year terms. Through this program, the Company offers its
manufacturing partners specialized technical support, training and consulting,
enabling delivery of tightly integrated solutions to end users. The strategic
sales group administers education and training programs for the VARs that work
directly with large ISVs. These programs reduce the burden on the ISVs and
allow the Company to access and influence the ISVs' reseller channel.
The inside sales group recruits small and mid-sized ISVs to develop
applications that are designed to be deployed with shrink wrap versions of the
Company's database products. In addition, the inside sales group develops,
supports and trains VARs to facilitate the deployment of packaged
applications. As ISVs grow, the inside sales group also manages the transition
of smaller ISVs to its manufacturing partner program.
The international sales group utilizes distribution partners in 30 countries
worldwide to implement its sales and marketing programs for a particular
region, typically using the Company's business alliance, distributor or master
distributor programs. In addition to managing these distributor relationships,
the international sales group recruits and supports ISVs with the same
programs as the domestic strategic and inside sales groups. The Company
currently has sales offices in Frankfurt, Paris, Brussels and Tokyo.
The Company's sales and marketing organization utilizes a seeding strategy
for sales of its client-based shrink wrap products to stimulate high-volume
deployment of these products. This strategy enables ISVs to develop client-
based applications and to deploy them broadly with minimal incremental cost.
The Company then works with its ISVs and VARs through a combination of
promotional and lead referral programs to upgrade these applications to
client/server environments. As a result, the Company generates upgrade
revenues while enabling ISVs and VARs to sell higher margin server products as
end users upgrade from single workstation or peer-to-peer networks to
client/server environments.
Although the Company focuses its sales and marketing efforts on ISVs and
VARs, it often sells its products through distributors. Aggregate purchases by
two distributors totaled $2.3 million in 1995, and purchases by two different
distributors totaled $3.6 million and $7.1 million in fiscal 1996 and 1997,
representing 27%, 27% and 29% of revenues, respectively. No other customers
accounted for more than 10% of the Company's revenues in fiscal 1995, 1996 or
1997.
CUSTOMER SERVICE AND SUPPORT
The Company offers two levels of customer service. First level support
responds to customer inquiries via telephone, electronic mail and fax. Second
level support responds to higher level technical needs and supports the
manufacturing partner accounts. To provide high quality customer support, the
Company has established a specialized customer engineering group, consisting
of both support and engineering personnel. The Company believes that combining
support and engineering expertise in one group provides customers with more
rapid resolution of software support issues. The Company's customer service
and support organization also provides training and consulting services to its
channel partners.
Customer service is provided at no charge for the first 30 days after
initial purchase and at any time via electronic mail or the Company's World
Wide Web site. After the 30 days, the Company offers contract and fee-based
premium support programs. Worldwide customer support is provided through the
corporate offices in Austin, Texas, through a support and development center
in Dublin, Ireland and through AG Tech, a company based in Nagoya, Japan. From
the Company's inception in January 1994 through June 30, 1997, revenues from
customer service and support were not significant.
33
<PAGE>
RESEARCH AND DEVELOPMENT
The Company has made substantial investments in research and development
through both internal development and technology acquisition. Although the
Company will evaluate on an ongoing basis externally developed technologies
for integration into its product lines, the Company expects that most
enhancements to existing and new products will be developed internally.
The Company has invested the majority of its research and development
activity on developing feature extensions to its Btrieve, Scalable SQL and
ODBC Interface products. This development consists primarily of adding new
competitive product features, expanding the number of computer and network
operating systems on which the products can be installed and maintaining the
ability to run in mixed operating system environments. Development activities
continue to focus on developing database software characterized by a small
memory footprint, high-performance and low-maintenance requirements, to better
serve the ISVs, VARs and their end users. Recent developments are focused on
further simplifying the installation and maintenance of the Company's database
software while maintaining an emphasis on performance.
The Company's research and development expenditures for fiscal 1995, 1996
and 1997 were $2.4 million, $4.5 million and $6.0 million, respectively. The
Company expects that it will continue to commit significant resources to
research and development in the future. To date, all research and development
expenses have been expensed as incurred.
The market for the Company's products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards, and rapidly changing customer requirements. The
introduction of products incorporating new technologies and the emergence of
new industry standards could render existing products obsolete and
unmarketable. The Company's future success will depend in part upon its
ability to anticipate changes, enhance its current products, develop and
introduce new products that keep pace with technological advancements and
address the increasingly sophisticated needs of its customers. See "Risk
Factors--Rapid Technological Change and New Products."
34
<PAGE>
TECHNOLOGY
Both Btrieve and Scalable SQL are based on Pervasive's MicroKernel Database
Architecture. Within this architecture, the MKDE provides a modular foundation
that enables Btrieve applications and Scalable SQL applications to share
common data sets. A primary advantage of this architecture is that
applications using new data access methods can work in conjunction with
existing applications. For example, Btrieve customers that wish to add
Scalable SQL for reporting, ad hoc queries and decision support can do so with
minimal modification to the Btrieve applications.
The following diagram depicts the modular nature of the MicroKernel Database
Architecture:
[DIAGRAM OF MICROKERNEL DATABASE ARCHITECTURE APPEARS HERE]
Key functions of the Company's modular components include:
MicroKernel Database Engine. The MKDE is a full 32-bit, multi-threaded
implementation that is readily portable to new operating environments and
that provides low level data management services for the access modules
including: transaction processing, logging and roll forward, data
integrity enforcement, referential integrity enforcement, data caching
and physical data access.
Data Access Modules: Btrieve, Scalable SQL and ODBC. Implements specific
data models and appropriate data structures and access techniques
including: data definition functions, schema (rows, columns, tables,
etc.) and data operations (select, join, etc.).
MicroKernel Extensions. The MKDE itself is extensible through direct
interfaces to modular components such as Inscribe, a Visual Basic
compatible scripting engine that is currently supported by Scalable SQL.
Inscribe and future scripting engines enable the developer to write
business rules and implement them through stored procedures and triggers.
The business rules are enforced at the MKDE level and cannot be violated
by any application.
The modular architecture also enables Pervasive's database products to be
highly configurable and allows configuration changes without affecting the
applications. Applications can scale from single workstation to peer-to-peer
and client/server environments with minimal code changes or relinking. Network
environments can be customized to minimize network traffic and to balance
resource loading by distributing database files and data processing throughout
multi-platform computer networks.
The configuration options for the Company's products include the following:
Single Workstation. The single workstation configuration provides mobile
and stand-alone operation. All access modules and MKDE components reside
locally, and data files are stored on the workstation's disk drive. This
configuration is used when the workstation is not connected to a network
or when data files do not need to be shared.
Peer-to-Peer. Peer-to-peer networks, such as Windows 95, Windows for
Workgroups and LANtastic, enable database files stored on one workstation
to be accessed by multiple users running applications on other
workstations.
35
<PAGE>
Client/Server. In a client/server configuration, database requests made
by an application are typically processed on a server. A small requester
module on the workstation routes requests from the application to a
server database engine. Since all data processing and data files reside
on the server, this configuration minimizes both network traffic and the
use of workstation resources.
COMPETITION
The market for the Company's products is intensely competitive and subject
to rapid change. The Company primarily encounters competition from large,
public companies, including Microsoft, Oracle, Informix, Sybase and IBM. Each
of these companies offers database software products competitive with the
Company's products. In particular, Sybase offers a small memory footprint
database software product, SQL Anywhere, which directly competes with the
Company's Scalable SQL product. In addition, because there are relatively low
barriers to entry in the software market, the Company may encounter additional
competition from other established and emerging companies. Most of the
Company's competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources than the Company,
significantly greater name recognition and a larger installed base of
customers. As a result, the Company's competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements,
or to devote greater resources to the development, promotion and sale of
competitive products, than can the Company. There is also a substantial risk
that announcements of competing products by large competitors such as
Microsoft or Oracle could result in the cancellation of customer orders in
anticipation of the introduction of such new products. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability
of their products to address customer needs and which may limit the Company's
ability to sell its products through particular distribution partners.
Accordingly, new competitors or alliances among current and new competitors
may emerge and rapidly gain significant market share. The Company also expects
that competition will increase as a result of software industry consolidation.
Increased competition is likely to result in price reductions, fewer customer
orders, reduced margins and loss of market share, any of which could
materially adversely affect the Company. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that the competitive pressures faced by the Company will not
materially adversely affect its business, operating results and financial
condition.
PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company licenses its database software
products primarily under "shrink wrap" licenses (i.e., licenses included as
part of the product packaging). Shrink wrap licenses are not negotiated with
or signed by individual licensees, and purport to take effect upon the opening
of the product package. However, the Company believes that such measures
afford only limited protection. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology
or design around the copyrights and trade secrets owned by the Company.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain and
use information that the Company regards as proprietary. Policing unauthorized
use of the Company's products is difficult, and although the Company is unable
to determine the extent to which piracy of its software products exists,
software piracy can be expected to be a persistent problem. Embedded software
products, like those offered by the Company, can be especially susceptible to
software piracy. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights as fully as do the laws of the U.S.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will not
claim infringement by the Company of their intellectual
36
<PAGE>
property rights. The Company expects that software product developers
increasingly will be subject to infringement claims as the number of products
and competitors in the Company's industry segment grows and the functionality
of products in different industry segments 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 the Company to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company, if at all. In the event of a successful claim of
product infringement against the Company and failure or inability of the
Company to either license the infringed or similar technology or develop
alternative technology on a timely basis, the Company's business, operating
results and financial condition could be materially adversely affected.
The Company relies upon certain software that it licenses from third
parties, including software that is integrated with the Company's internally
developed software and used in its products to perform key functions. There
can be no assurance that these third-party software licenses will continue to
be available to the Company on commercially reasonable terms. The loss of or
inability to maintain any such software licenses could result in shipment
delays or reductions until equivalent software could be developed, identified,
licensed and integrated which could materially adversely affect the Company's
business, operating results and financial condition.
EMPLOYEES
As of June 30, 1997, the Company employed 168 full-time employees, including
68 in sales and marketing, 49 in research and development, 25 in technical
support and 26 in general and administrative. The Company believes that its
future success will depend in large part upon its continuing ability to
attract and retain highly skilled managerial, sales, marketing, customer
support and research and development personnel. Like other software companies,
the Company faces intense competition for such personnel, and the Company has
at times experienced and continues to experience difficulty in recruiting
qualified personnel. There can be no assurance that the Company will be
successful in attracting, assimilating and retaining other qualified personnel
in the future. The Company is not subject to any collective bargaining
agreement and it believes that its relationships with its employees are good.
FACILITIES
The Company's principal offices are located in approximately 33,700 square
feet of office space in Austin, Texas. Approximately 30,000 square feet of
this office space is leased pursuant to a lease and amendment that expire on
November 30, 1999, at which time the Company has the option to extend the
lease for an additional five-year term. The remaining 3,700 square feet of
office space is subleased pursuant to an agreement that expires on December
31, 1997, at which time the Company has the option to enter into a primary
lease for the space for two consecutive three-year periods beginning on
January 1, 1998. The Company will assume the remaining term of a lease
beginning on August 1, 1997 and ending on March 31, 1998 for approximately
3,000 square feet of office space in the same complex as its principal offices
in Austin, Texas. The Company believes that its existing facilities are
adequate to meet its current needs; however, the Company believes that it will
need additional office space at its principal offices in Austin, Texas in the
near future. The Company believes that adequate facilities will be available
on commercially reasonable terms, as needed.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
August 31, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------ --- -------------------------------------
<C> <C> <S>
Ron R. Harris....................... 44 President, Chief Executive Officer
and Director
James R. Offerdahl.................. 41 Chief Financial Officer, Vice
President, Finance and Administration
and Secretary
Timothy Abels....................... 38 Chief Technical Officer
Robert J. Adams, Jr. ............... 38 Vice President, Marketing and Inside
Sales
Theodule J. (Ted) Doucet, Jr. ...... 40 Vice President, Strategic Sales
Gordon A. (Casey) Leaman............ 50 Vice President, International Sales
Marcus D. Marshall.................. 45 Vice President, Customer Engineering
Nancy R. Woodward(1)................ 41 Director and Chairman of the Board
Joseph C. Aragona(1)................ 40 Director
David A. Boucher(2)................. 46 Director
David R. Bradford................... 46 Director
Shelby H. Carter, Jr.(1)(2)......... 66 Director
</TABLE>
- --------
(1)Member of Compensation Committee
(2) Member of Audit Committee
Ron R. Harris has served as President and Chief Executive Officer since its
inception and as a director since June 1995. He has also served as the
Company's acting Vice President of Research and Development since May 1997.
Prior to joining the Company, Mr. Harris served as a Vice President of Citrix
Systems, Inc., a developer of thin-client/server software, from October 1990
to May 1993. Mr. Harris received his B.S. in Computer Science from Vanderbilt
University and an M.B.A. from the University of Texas at Austin.
James R. Offerdahl has served as the Company's Chief Financial Officer, Vice
President, Finance and Administration and Secretary since October 1996. From
May 1993 to September 1996, Mr. Offerdahl served as Chief Financial Officer
and Vice President, Administration of Tivoli Systems Inc., a provider of
enterprise systems management solutions, acquired by IBM in March 1996. From
April 1991 to May 1993, Mr. Offerdahl served as Vice President, Finance and
Administration of InterFlo Medical, a medical device company that was acquired
by Baxter Healthcare Corporation in April 1992. Mr. Offerdahl received a B.S.
in Accounting from Illinois State University and an M.B.A. from the University
of Texas at Austin.
Timothy Abels has served as the Company's Chief Technical Officer since
March 1997. Prior to joining the Company, Mr. Abels served as Director of
Development Tools for Microsoft Corporation from July 1996 to February 1997.
From June 1989 to July 1997, Mr. Abels held several positions at CompuServe,
Inc., a network services company, including Senior Manager of Internet
Products and Senior Manager of Research & Development. Mr. Abels received a
B.S. in Computer Science from Bowling Green State University and an M.S. in
Computer Science from Purdue University.
Robert J. Adams, Jr. has served as the Company's Vice President, Marketing
since April 1996 and Vice President, Marketing and Inside Sales since August
1996. Prior to joining the Company, Mr. Adams served as
38
<PAGE>
President and Chief Executive Officer of Adams & Co., Inc., a consulting
company, from October 1995 to April 1996. From January 1993 to October 1995,
Mr. Adams served as President and Chief Executive Officer of Business Matters,
Inc., a software development company. From March 1984 to January 1993, Mr.
Adams served in various capacities at Lotus Development Corporation, a
software development company, most recently as Director of the Database
Products Group. Mr. Adams currently serves as a director of PC Build, Inc., a
privately held hardware manufacturing company. Mr. Adams received a B.S. in
Industrial Engineering from Purdue University and an M.B.A. from Babson
College.
Theodule J. (Ted) Doucet, Jr. has served as the Company's Vice President,
Strategic Sales since September 1995. From September 1995 to August 1996, Mr.
Doucet also served as Vice President of Inside Sales. Prior to joining the
Company, Mr. Doucet was a consultant from March 1995 to August 1995 for
SunRiver Data Systems, Inc., an Internet software company, and Human Code,
Inc., an interactive multimedia software company. From May 1993 to February
1995, Mr. Doucet served as Director of Business Development for
Microelectronics and Computer Technology Corporation ("MCC"), an industrial
research and development consortium. Prior to joining MCC, Mr. Doucet served
as District Sales Manager of Edify Corporation, a supplier of self-service
software products, from April 1992 to May 1993. From December 1989 to March
1992, Mr. Doucet was a sales representative for Sybase, Inc., a database
software company. Mr. Doucet received a B.B.A. in General Business from
Stephen F. Austin State University.
Gordon A. (Casey) Leaman has served as the Company's Vice President,
International Sales since February 1997. Prior to joining the Company, Mr.
Leaman served as Vice President, International Sales of CenterLine Software,
Inc., a developer of compilers and software testing tools, from October 1995
to October 1996. Prior to that time, Mr. Leaman served as a director of
Kanishka Systems PTE Ltd. (Singapore), a developer of document management
software, from March 1994 to May 1995 and as President and Chief Operating
Officer from January 1995 to May 1995. From August 1992 to January 1994, Mr.
Leaman served as Regional Managing Director-Asia for a division of ASK
Computer Systems Inc., a software developer. From March 1989 through June
1992, Mr. Leaman served in various roles at Lotus Development Corporation,
including Regional General Manager-Asia & Australia. Mr. Leaman received a
B.S. in Agricultural Business Management from Penn State University and an
M.S. in Agricultural Economics from Purdue University.
Marcus D. Marshall has served as the Company's Vice President, Customer
Engineering since May 1997. He served as the Company's Vice President,
Research and Development from November 1995 to May 1997 and as Vice President,
Engineering and Technical Support from June 1995 to November 1995. Prior to
joining the Company, Mr. Marshall served as Director of Engineering (U.S.) of
Computer Resources International, a developer of software engineering
environments, from February 1994 to June 1995. From November 1991 to February
1994, Mr. Marshall served as Vice President, Development of International
Software Systems, Inc., a developer of software engineering and simulation
software. Mr. Marshall received a B.S. and an M.S. in Electrical Engineering
from Rice University.
Nancy R. Woodward is a founder of the Company and has served as a director
and Chairman of the Board since its inception. Ms. Woodward also serves as a
director of Scientific Measurement Systems, Inc., a technology-based,
industrial measurement tool company. Ms. Woodward received a B.S. in Computer
Science from the University of Michigan.
Joseph C. Aragona has served as a director of the Company since June 1995.
Since June 1982, Mr. Aragona has served as a General Partner of Austin
Ventures, a venture capital firm. He also serves as a director for various
private companies. Mr. Aragona received a B.A. from Harvard College and an
M.B.A. from the Harvard University Graduate School of Business.
David A. Boucher has served as a director of the Company since October 1995.
Mr. Boucher has served as a General Partner of Applied Technology, a venture
capital firm, since January 1993. From January 1981 to August 1992, Mr.
Boucher served as President and Chief Executive Officer of Interleaf, Inc., an
electronic
39
<PAGE>
publishing software developer. Mr. Boucher also serves as director of Wang
Laboratories, Inc., a network integration services company, Interleaf, Inc.
and various private companies.
David R. Bradford has served as a director of the Company since October
1995. Mr. Bradford has served as Senior Vice President, General Counsel of
Novell, a networking software company, since 1985. Mr. Bradford also serves as
a director of a private company. Mr. Bradford received a B.A. in Political
Science and a J.D. from Brigham Young University and an M.B.A. from Pepperdine
University.
Shelby H. Carter, Jr. has served as a director of the Company since August
1996. Since January 1986, Mr. Carter has served as an adjunct professor at the
University of Texas Graduate School of Business and College of Business
Administration. Mr. Carter also serves as a director of Bay Networks, Inc., a
computer network equipment and management system company, InPut/OutPut, Inc.,
a manufacturer of seismic data acquisition systems, and several private
companies. Mr. Carter received a B.B.A. from the University of Texas at
Austin.
BOARD COMPOSITION
The Company currently has authorized seven directors. Upon the completion of
the offering, the terms of office of the Board of Directors will be divided
into three classes: Class I, whose term will expire at the annual meeting of
stockholders to be held in 1998; Class II, whose term will expire at the
annual meeting of stockholders to be held in 1999; and Class III, whose term
will expire at the annual meeting of stockholders to be held in 2000. The
Class I directors are Joseph C. Aragona and David R. Bradford, the Class II
directors are Shelby H. Carter, Jr. and Nancy R. Woodward, and the Class III
directors are Ron R. Harris and David A. Boucher. At each annual meeting of
stockholders after the initial classification, the successors to directors
whose term will then expire will be elected to serve from the time of election
and qualification until the third annual meeting following election. This
classification of the Board of Directors may have the effect of delaying or
preventing changes in control or management of the Company.
Each officer is elected by and serves at the discretion of the Board of
Directors. Each of the Company's officers and directors, other than
nonemployee directors, devotes substantially full time to the affairs of the
Company. The Company's nonemployee directors devote such time to the affairs
of the Company as is necessary to discharge their duties. There are no family
relationships among any of the directors, officers or key employees of the
Company.
COMMITTEES OF THE BOARD
The Audit Committee reviews, acts on and reports to the Board of Directors
with respect to various auditing and accounting matters, including the
selection of the Company's independent accountants, the scope of the annual
audits, fees to be paid to the independent accountants, the performance of the
Company's independent accountants and the accounting practices of the Company.
The Compensation Committee establishes salaries, incentives and other forms
of compensation for officers and other employees of the Company and
administers the incentive compensation and benefit plans of the Company.
DIRECTOR COMPENSATION
Directors receive no cash remuneration for serving on the Board of Directors
but are reimbursed for reasonable expenses incurred by them in attending Board
and Committee meetings. The Company's 1997 Stock Incentive Plan provides for
automatic grants of non-qualified stock options to certain non-employee
directors of the Company. See "Management--1997 Stock Incentive Plan."
40
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following Summary Compensation Table sets
forth the compensation earned by the Company's Chief Executive Officer and the
four other most highly compensated officers whose salary and bonus for fiscal
1997 were in excess of $100,000 (collectively, the "Named Officers"), for
services rendered in all capacities to the Company and its subsidiaries for
that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
AWARDS
---------------
ANNUAL
COMPENSATION SECURITIES
----------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(1) BONUS OPTIONS(#) COMPENSATION(2)
- --------------------------- --------- ------- ---------- ---------------
<S> <C> <C> <C> <C>
Ron R. Harris.................. $150,587 $50,000 0 $510
President, Chief Executive Of-
ficer and Director
James R. Offerdahl(3).......... 105,000 15,000 200,000 352
Chief Financial Officer, Vice
President,
Finance and Administration and
Secretary
Robert J. Adams, Jr. .......... 142,654 24,200 50,000 308
Vice President, Marketing and
Inside Sales
Theodule J. Doucet, Jr. ....... 104,112 56,281(4) 40,000 314
Vice President, Strategic
Sales
Marcus D. Marshall............. 115,390 10,000 20,000 603
Vice President, Customer Engi-
neering
</TABLE>
- --------
(1) Salary includes amounts deferred under the Company's 401(k) Plan.
(2) All Other Compensation consists of life insurance premiums.
(3) Mr. Offerdahl commenced employment with the Company on October 1, 1996;
Mr. Offerdahl's annual salary is currently $140,000.
(4) Represents sales commissions.
41
<PAGE>
Option Grants in Last Fiscal Year. The following table contains information
concerning the stock option grants made to each of the Named Officers in the
fiscal year ended June 30, 1997. No stock appreciation rights were granted to
these individuals during such year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(4)
-------------------------------------------- ----------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED(1) 1997(2) SHARE(3) DATE 5% 10%
- ---- ---------- ------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ron R. Harris........... 0 -- -- -- -- --
James R. Offerdahl...... 200,000 18.3% $0.13 8/21/06 $ 16,351 $ 41,437
Robert J. Adams, Jr. ... 50,000 4.6 3.60 5/22/07 113,201 286,873
Theodule J. Doucet,
Jr. ................... 30,000 2.7 3.60 5/22/07 67,920 172,122
10,000 0.9 0.30 10/25/06 1,886 4,781
Marcus D. Marshall...... 10,000 0.9 3.60 5/22/07 22,640 57,374
10,000 0.9 0.20 9/25/06 1,257 3,187
</TABLE>
- --------
(1) Each of the options listed in the table is immediately exercisable, but
any shares purchased under the options are subject to vesting requirements
and may be repurchased by the Company at the original exercise price paid
per share upon the optionee's cessation of service prior to vesting in
such shares. The repurchase right lapses and the optionee vests in the
option shares in a series of four equal annual installments. Upon a merger
or other change in control, the option shares shall become vested as if
the optionee had been employed for an additional 12 months. In addition,
the option shares shall vest in full if outstanding options are not
assumed by the acquiring entity. Should options be assumed but the
optionee's employment be involuntarily terminated within 12 months of such
a change in control, then the option shares shall vest in full. Each
option has a maximum term of ten years, subject to earlier termination in
the event of the optionee's cessation of employment with the Company.
(2) Based on an aggregate of 1,094,018 options granted in fiscal 1997.
(3) The exercise price may be paid in cash or through a cashless exercise
procedure.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of
the Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock
appreciates over the option term, no value will be realized from the
option grants made to the executive officers.
42
<PAGE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values. The following table sets forth information concerning the shares
acquired and the value realized upon the exercise of stock options during
fiscal 1997 and the year-end number and value of unexercised options with
respect to each of the Named Officers. No stock appreciation rights were
exercised by the Named Officers in fiscal 1997 or were outstanding at the end
of that year.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
SHARES AT JUNE 30, 1997(#)(2) AT JUNE 30, 1997(3)
ACQUIRED ON VALUE ------------------------ ---------------------
NAME EXERCISE(#) REALIZED(1) VESTED(3) UNVESTED VESTED UNVESTED
---- ----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ron R. Harris........... 250,000 $ 7,500 642,021 693,795 $2,889,095 $3,122,078
James R. Offerdahl...... 200,000(4) 14,000 0 0 -- --
Robert J. Adams, Jr. ... 100,000(4) 17,000 0 50,000 -- 50,000
Theodule J. Doucet,
Jr. ................... 32,500(4) 60,350 0 67,500 -- 196,350
Marcus D. Marshall...... 60,000(4) 42,500 0 10,000 -- 10,000
</TABLE>
- --------
(1) Market price at exercise less exercise price.
(2) Each of the options listed in the table is immediately exercisable, but
any shares purchased under the options will be subject to vesting
requirements and may be repurchased by the Company at the original
exercise price per share upon the optionee's cessation of service prior to
vesting in such shares.
(3) Based on the fair market value of the Company's Common Stock at fiscal
year end (June 30, 1997) ($4.60 per share), as determined by the Company's
Board of Directors less the exercise price payable for such shares.
(4) The acquired shares include options exercised for vested and unvested
shares. As of June 30, 1997, the repurchase right had lapsed with respect
to shares acquired during the fiscal year as follows: Mr. Harris
(250,000); Mr. Offerdahl (no shares); Mr. Adams (25,000); Mr. Doucet
(15,000) and Mr. Marshall (12,500).
BONUS PLAN
The Company has adopted a bonus program pursuant to which all full-time,
non-commissioned employees are eligible for annual cash bonuses based upon a
combination of the Company achieving specified objectives and the employee
meeting specified individual performance objectives.
1997 STOCK INCENTIVE PLAN
The Company's 1997 Stock Incentive Plan (the "1997 Plan") was adopted by the
Board of Directors on May 22, 1997, subject to approval by the stockholders,
as the successor to the First Amended and Restated 1994 Incentive Plan
("1994 Plan"). The Company has reserved 3,428,611 shares of Common Stock for
issuance under the 1997 Plan, plus an additional number of shares equal to 5%
of the number of shares of Common Stock and Common Stock equivalents
outstanding on July 1 of each year beginning July 1, 1998 and ending July 1,
2000. As of July 1, 1997, no shares had been issued under the 1997 Plan,
options for 2,259,697 shares were outstanding (including options incorporated
from the 1994 Plan) and 1,168,914 shares remained available for future grant.
Shares of Common Stock subject to outstanding options, including options
granted under the 1994 Plan, which expire or terminate prior to exercise will
be available for future issuance under the 1997 Plan. Outstanding options
under the 1994 Plan will be incorporated into the 1997 Plan effective July 1,
1997 and no further option grants will be made under the 1994 Plan. The
incorporated options will continue to be governed by their existing terms,
unless the Plan Administrator elects to extend one or more features of the
1997 Plan to those options. Except as otherwise noted below, the outstanding
options under the 1994 Plan contain substantially the same terms and
conditions specified below for the Discretionary Option Grant Program in
effect under the 1997 Plan.
43
<PAGE>
Under the 1997 Plan, employees, officers, directors and independent
consultants may, at the discretion of the plan administrator, be granted
options or awarded shares of Common Stock. Non-employee members of the Board
of Directors, other than individuals who are preferred stockholders or who own
5% or more of the voting power of the Company or individuals who represent
entities that own preferred stock or 5% or more of the voting power of the
Company, will also be eligible for automatic option grants under the 1997
Plan.
The 1997 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals may, at
the discretion of the plan administrator, be granted options to purchase
shares of Common Stock at an exercise price per share not less than 85% of
fair market value on the grant date; (ii) the Stock Issuance Program under
which eligible individuals may, at the discretion of the plan administrator,
be issued shares of Common Stock directly, through the purchase of such shares
at a price per share not less than 85% of fair market value at the time of
issuance or as a fully-paid bonus for services rendered the Company; and (iii)
the Automatic Option Grant Program under which option grants will
automatically be made at periodic intervals to eligible non-employee Board
members to purchase shares of Common Stock at an exercise price equal to the
fair market value of the option shares on the grant date.
The 1997 Plan will be administered by the Board or the Compensation
Committee of the Board after this Offering. The plan administrator has
complete discretion to determine which eligible individuals are to receive
option grants or stock awards, the number of shares subject to each such
grant, the status of any granted option as either an incentive option or a
non-statutory option under the Federal tax laws, the vesting schedule to be in
effect for each option grant or stock award and the maximum term for which
each granted option is to remain outstanding. In no event, however, may any
one participant in the 1997 Plan acquire shares of Common Stock under the 1997
Plan in excess of 500,000 shares each calendar year over the term of the Plan.
The exercise price for options or purchase price for shares granted under
the 1997 Plan may be paid in cash or in outstanding shares of Common Stock.
Options may also be exercised on a cashless basis through the same-day sale of
the purchased shares. The plan administrator may also permit the participant
to pay the exercise price or purchase price through a promissory note payable
in installments over a period of years. The amount financed may include any
Federal or state income and employment taxes incurred by reason of the option
exercise or share purchase.
The plan administrator has the authority to effect, from time to time, the
cancellation of outstanding options under the 1997 Plan in return for the
grant of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Common Stock
on the new grant date.
In the event the Company is acquired by merger or consolidation, or the sale
of all or substantially all of the Company's assets or by a tender offer for
50% or more of the outstanding voting stock, the vesting of each option then
outstanding under the 1994 Plan and 1997 Plan will accelerate as if the
optionee remained in service an additional 12 months and will accelerate in
full to the extent the options are not assumed or replaced with a cash
incentive program by the successor or acquiring entity. Should the successor
or acquiring entity assume an outstanding option and the optionee be
involuntarily terminated within 12 months following the date of the
transaction, the assumed options will become fully vested upon termination.
The foregoing acceleration provisions apply both to options outstanding and
shares issued under the 1994 Plan and the 1997 Plan. In addition, the plan
administrator has the discretion to accelerate the vesting of outstanding
options.
Under the Automatic Option Grant Program, each individual who first joins
the Board as an eligible non-employee director on or after the effective date
of the 1997 Plan will receive at that time, an automatic option grant for
20,000 shares of Common Stock. In addition, at each annual stockholders
meeting, beginning with the first annual meeting after June 30, 1998, each
eligible non-employee director, whether or not he or she is standing for re-
election at that particular meeting, will be granted a stock option to
purchase 5,000 shares of
44
<PAGE>
Common Stock. The optionee will vest in each automatic option grant in a
series of four annual installments over the optionee's period of Board
service, beginning one year from the grant date. Each option will have an
exercise price equal to the fair market value of the Common Stock on the
automatic grant date and a maximum term of ten years, subject to earlier
termination following the optionee's cessation of Board service. Vesting of
the automatic option shares will automatically accelerate and the options
become fully exercisable upon (i) a change in control of the Company by merger
or consolidation, sale of all or substantially all of its assets or tender
offer for 50% or more of the Company's outstanding voting stock or (ii) the
death or disability of the optionee while serving as a Board member.
The Board may amend or modify the 1997 Plan at any time within limits
prescribed by law. The 1997 Plan will terminate on June 30, 2007, unless
sooner terminated by the Board.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan"), was
adopted by the Board on July 18, 1997, subject to approval by the
stockholders. A total of 500,000 shares of Common Stock will be reserved for
issuance under the Purchase Plan. The Purchase Plan, which is intended to
qualify under Section 423 of the Internal Revenue Code, will be implemented by
overlapping offering periods, each with a maximum duration of 24-months, with
purchases occurring at six-month intervals. The initial offering period will
commence on the closing of this offering and will end on October 29, 1999,
with the first purchase date to be April 30, 1998. The Purchase Plan will be
administered by the Board or the Compensation Committee of the Board.
Employees will be eligible to participate if they are employed by the Company
for more than 20 hours per week. The Purchase Plan permits eligible employees
to purchase Common Stock through payroll deductions, which may not exceed 10%
of an employee's cash compensation. No more than 500 shares may be purchased
by each participant on the initial purchase date and 250 shares per
participant on each subsequent purchase date. The price of stock purchased
under the Purchase Plan will be 85% of the lower of the fair market value of
the Common Stock at the beginning of the 24-month offering period or on the
applicable semi-annual purchase date. Employees may end their participation in
the offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company. Each outstanding
purchase right will be exercised immediately prior to a merger or
consolidation. The Board may amend or terminate the Purchase Plan immediately
after the close of any purchase date. However, under current tax law the Board
may not, without stockholder approval, materially increase the number of
shares of Common Stock available for issuance or materially modify the
eligibility requirements for participation. The Purchase Plan will in all
events terminate in April 2007.
CHANGE OF CONTROL ARRANGEMENTS
The Compensation Committee of the Board of Directors, as plan administrator
of the 1997 Plan, has the authority to provide for accelerated vesting of the
shares of Common Stock subject to outstanding options held by the Named
Officers and any other executive officer, employee or director in connection
with certain changes in control of the Company or the subsequent termination
of the officer's employment following the change in control event. None of the
Named Officers have employment agreements with the Company, and their
employment may be terminated at any time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board was formed in March 1997,
and the members of the Compensation Committee are Joseph C. Aragona, Shelby H.
Carter, Jr. and Nancy R. Woodward. Other than Nancy R. Woodward, who has
served as Secretary of the Company and is currently Chairman of the Board,
none of these individuals was at any time during fiscal 1997, or at any other
time, an officer or employee of the Company. No member of the Compensation
Committee of the Company serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board or Compensation Committee.
45
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND OFFICERS
The Company loaned Nancy R. Woodward, a director of the Company, and Douglas
W. Woodward $1,485,000 pursuant to a promissory note dated April 25, 1994. The
proceeds of the loan were used to purchase Preferred Stock of the Company. The
loan was repaid by the Woodwards, and the promissory note canceled by the
Company, on April 26, 1995.
In October 1995, the Company granted David R. Bradford, a director of the
Company and General Counsel of Novell, a greater than 5% stockholder of the
Company, options to purchase 10,000 shares of its Common Stock at an exercise
price of $.013 per share. In August 1996, the Company granted options to
purchase 10,000 shares of its Common Stock at an exercise price of $0.13 per
share to Shelby H. Carter, Jr., a director of the Company. In March 1997, the
Company granted Mr. Carter options to purchase 10,000 shares of its Common
Stock at an exercise price of $2.00 per share.
The Company has granted Novell a non-exclusive, perpetual, royalty-free,
irrevocable license to reproduce and distribute an earlier version of Btrieve
and to reproduce and use internally Btrieve-licensed products and source code.
The Company has also entered into a Joint Venture Agreement with Novell Japan,
Ltd. to form Btrieve Technologies Japan, Ltd.
In April 1995, the Company sold 2,213,132 shares of Series C Preferred Stock
to the following stockholders for $1.23 per share:
<TABLE>
<S> <C>
Austin Ventures IV-A, L.P. ...................................... 469,110
Austin Ventures IV-B, L.P. ...................................... 984,192
Technologies for Information and Entertainment, L.P. ............ 189,957
Technologies for Information and Publishing, L.P. ............... 189,958
Triad Ventures Limited, II....................................... 379,915
---------
2,213,132
</TABLE>
Pursuant to the Series C Stock Purchase Agreement, Joseph C. Aragona and
David A. Boucher became directors of the Company. Mr. Aragona is a General
Partner of AV Partners IV, L.P., which is the General Partner of Austin
Ventures IV-A, L.P. and Austin Ventures IV-B, L.P. Mr. Boucher is a General
Partner of the entities that are the general partners of Technologies for
Information and Entertainment, L.P. and Technologies for Information and
Publishing, L.P. See "Principal and Selling Stockholders" for more information
regarding securities held by these purchasers.
INDEMNIFICATION
The Company's Restated Certificate of Incorporation limits the liability of
its directors for monetary damages arising from a breach of their fiduciary
duty as directors, except to the extent otherwise required by the Delaware
General Corporation Law. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under
Delaware law. The Company has also entered into indemnification agreements
with its officers and directors containing provisions that may require the
Company, among other things, to indemnify such officers and directors against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.
46
<PAGE>
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans between
the Company and its 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 outside directors on the Board
of Directors, and will continue to be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties.
47
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of its Common Stock as of June 30, 1997, and as
adjusted to reflect the sale of shares offered hereby, by (i) each person who
is known by the Company to own beneficially more than five percent of the
Company's Common Stock, (ii) each of the Company's directors, (iii) each of
the Named Officers and (iv) all current executive officers and directors as a
group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING(2)
NAME AND ADDRESS OF ------------------------------ SHARES BEING ------------------------------
BENEFICIAL OWNER(1) NUMBER PERCENT(3) OFFERED(2) NUMBER PERCENT(3)
- ------------------- --------------- -------------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
Funds affiliated with Austin Ventures (4)..... 2,330,057 21.0% -- 2,330,057 17.8%
114 West Seventh Street
1300 Norwood Tower
Austin, TX 78701
Novell, Inc (5)............................... 1,500,000 13.5 1,153,846 346,154 2.6
122 East 1100 South
Provo, UT 84606
Triad Ventures Limited, II (6)................ 609,112 5.5 468,548 140,564 1.1
4600 Post Oak Place, Suite 100
Houston, TX 77027
Funds affiliated with Applied Technology (7).. 609,112 5.5 234,274 374,838 2.9
1001 West Avenue
Austin, TX 78701
Ron R. Harris (8)............................. 1,585,816 12.8 -- 1,585,816 11.0
Robert J. Adams, Jr. (9)...................... 150,000 1.3 -- 150,000 1.1
Theodule J. Doucet, Jr. (10).................. 100,000 * -- 100,000 *
Marcus D. Marshall (11)....................... 70,000 * -- 70,000 *
James R. Offerdahl............................ 200,000 1.8 -- 200,000 1.5
Nancy R. and Douglas W. Woodward (12)......... 4,666,851 42.0 143,332 4,523,519 34.5
Joseph C. Aragona (4)......................... 2,330,057 21.0 -- 2,330,057 17.8
David A. Boucher (5).......................... 609,112 5.5 234,274 374,838 2.9
David R. Bradford (13)........................ 10,000 * -- 10,000 *
Shelby H. Carter, Jr. (14).................... 20,000 * -- 20,000 *
All directors and executive officers as a
group (12 persons) (15)...................... 9,881,836 77.6% 377,606 9,504,230 64.5%
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment
power with respect to securities. Unless otherwise indicated, the address
for each listed stockholder is c/o Pervasive Software Inc., 8834 Capital
of Texas Highway, Austin, Texas 78759. To the Company's knowledge, except
as indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting
and investment power with respect to the shares of Common Stock
indicated.
(2) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(3) Percentage of beneficial ownership is based on 11,104,743 shares of
Common Stock outstanding as of June 30, 1997, and 13,104,743 shares of
Common Stock outstanding after the completion of this offering. The
number of shares of Common Stock beneficially owned includes the shares
issuable pursuant to stock options that are exercisable within 60 days of
June 30, 1997. Shares issuable pursuant to stock options are deemed
outstanding for computing the percentage of the person holding such
options but are not outstanding for computing the percentage of any other
person. The number of shares of Common Stock outstanding after this
offering includes 2,000,000 shares of Common Stock being offered for sale
by the Company in this offering.
48
<PAGE>
(4) Includes 752,117 shares held by Austin Ventures IV-A, L.P. and 1,577,940
shares held by Austin Ventures IV-B, L.P. Mr. Aragona, a director of the
Company, is a General Partner of AV Partners IV, L.P., which is the
general partner of Austin Ventures IV-A, L.P. and Austin Ventures IV-B,
L.P. Mr. Aragona disclaims beneficial ownership of the shares held by
Austin Ventures IV-A, L.P. and Austin Ventures IV-B, L.P. except to the
extent of his pecuniary interest therein arising from his general
partnership interest in AV Partners IV, L.P.
(5) If the over-allotment option is exercised in full, Novell, Inc. will sell
an additional 346,154 shares.
(6) If the over-allotment option is exercised in full, Triad Ventures
Limited, II will sell an additional 140,564 shares.
(7) Includes 304,556 shares held by Technologies for Information and
Publishing, L.P. and 304,556 shares held by Technologies for Information
and Entertainment, L.P. Mr. Boucher, a director of the Company, is a
General Partner of the entities that are the general partners of
Technologies for Information and Publishing, L.P. and Technologies for
Information and Entertainment, L.P. Mr. Boucher disclaims beneficial
ownership of the shares held by Technologies for Information and
Publishing, L.P. and Technologies for Information and Entertainment, L.P.
except to the extent of his pecuniary interest therein arising from his
general partnership interest in Technologies for Information and
Publishing, L.P. and Technologies for Information and Entertainment, L.P.
All of the shares being sold in the offering are being sold by
Technologies for Information and Publishing, L.P. If the over-allotment
option is exercised in full, Technologies for Information and Publishing,
L.P. will sell an additional 70,282 shares.
(8) Includes options immediately exercisable for 1,335,816 shares of Common
Stock.
(9) Includes options immediately exercisable for 50,000 shares of Common
Stock.
(10) Includes options immediately exercisable for 67,500 shares of Common
Stock.
(11) Includes options immediately exercisable for 10,000 shares of Common
Stock.
(12) If the over-allotment option is exercised in full, Mr. and Mrs. Woodward
will sell an additional 43,000 shares.
(13) Includes options immediately exercisable for 10,000 shares of Common
Stock.
(14) Includes options immediately exercisable for 10,000 shares of Common
Stock.
(15) Includes options immediately exercisable for 1,623,316 shares of Common
Stock. If the over-allotment option is exercised in full, the number and
percentage of shares beneficially owned will be 9,390,948 and 63.8%,
respectively.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 75,000,000 shares of Common Stock, $0.001 par value,
and 5,000,000 shares of Preferred Stock, $0.001 par value.
COMMON STOCK
As of June 30, 1997, there were 1,391,611 shares of Common Stock outstanding
that were held of record by approximately 95 stockholders. There will be
13,104,743 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and assuming no exercise after June 30,
1997, of outstanding options) after giving effect to the sale of the shares of
Common Stock to the public offered hereby and the conversion of the Company's
Preferred Stock into Common Stock at a one-to-one ratio.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of the liquidation, dissolution,
or winding up of the Company, the holders of Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities, subject to
prior distribution rights of Preferred Stock, if any, then outstanding. The
Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Common Stock. All outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be issued upon completion of
this offering will be fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the Preferred Stock in one
or more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and
the number of shares constituting any series or the designation of such
series, without further vote or action by the stockholders. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders
and may adversely affect the voting and other rights of the holders of Common
Stock. The issuance of Preferred Stock with voting and conversion rights may
adversely affect the voting power of the holders of Common Stock, including
the loss of voting control to others. At present, the Company has no plans to
issue any of the Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW
Certificate of Incorporation and Bylaws
The Company's Restated Certificate of Incorporation provides that, upon the
closing of this offering, the Board of Directors will be divided into three
classes of directors, with each class serving a staggered three-year term. The
classification of the Board of Directors has the effect of generally requiring
at least two annual stockholder meetings, instead of one, to replace a
majority of the Board members. The Restated Certificate of Incorporation also
provides that, effective upon the closing of this offering, all stockholder
actions must be effected at a duly called meeting and not by a consent in
writing. Provisions of the Bylaws and the Restated Certificate of
Incorporation provide that the stockholders may amend the Bylaws or certain
provisions of the Restated Certificate of Incorporation only with the
affirmative vote of 75% of the Company's capital stock. Further, the Bylaws
(i) provide that only the Board of Directors may call special meetings of the
stockholders and (ii) establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of stockholders of the
Company, including proposed nominations of persons for election to the Board
of Directors. These provisions of the Restated Certificate of Incorporation
and Bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors
and to discourage certain types of transactions that may involve an actual or
threatened change of control of the Company. These provisions are
50
<PAGE>
designed to reduce the vulnerability of the Company to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for the Company's
shares and, as a consequence, they also may inhibit fluctuations in the market
price of the Company's shares that could result from actual or rumored
takeover attempts. Such provisions also may have the effect of preventing
changes in the management of the Company. See "Risk Factors--Anti-takeover
Effects of Certificate of Incorporation, Bylaws and Delaware Law."
Delaware Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
REGISTRATION RIGHTS
After this offering, the holders of approximately 9,713,132 shares of Common
Stock will be entitled to certain rights with respect to the registration of
such shares under the Securities Act. Under the terms of the agreement between
the Company and the holders of such registrable securities, if the company
proposes to register any of its securities under the Securities Act, either
for its 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 share of such Common Stock therein. Additionally,
such holders are also entitled to certain demand registration rights pursuant
to which they may require the Company to file a registration statement under
the Securities Act at its expense with respect to their shares of Common
Stock, and the Company is required to use its best efforts to effect such
registration. Further, holders may require the Company to file additional
registration statements on Form S-3 at the Company's expense. All of these
registration rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of
shares included in such registration and the right of the Company not to
effect a requested registration within six months following an offering of the
Company's securities, including the offering made hereby.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Securities
Transfer and Trust, Inc., and its telephone number is (303) 234-5300.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 13,104,743 shares of
Common Stock outstanding (assuming no exercise of the Underwriter's over-
allotment option or of outstanding options after June 30, 1997). Of this
amount, the 4,000,000 shares offered hereby (4,600,000 if the Underwriter's
over-allotment option is exercised in full) will be available for immediate
sale in the public market as of the date of this Prospectus. Approximately
9,104,743 additional shares will be available for sale in the public market
following the expiration of 180-day lock-up agreements with the
Representatives of the Underwriters or the Company, subject in some cases to
compliance with the volume and other limitations of Rule 144.
<TABLE>
<CAPTION>
DAYS AFTER DATE OF APPROXIMATE SHARES
THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
------------------ ------------------------ -------
<S> <C> <C>
Upon Effectiveness...... 4,000,000 Freely tradeable shares sold in offering
and shares salable under Rule 144(k) that
are not subject to 180-day lock-up
180 days................ 9,104,743 Lock-up released; shares salable under Rule
144, 144(k) or 701
Thereafter.............. 0 Restricted securities held for one year or
less
</TABLE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least
one year is entitled to sell within any three-month period commencing 90 days
after the date of this Prospectus a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 131,000 shares immediately after the offering) or (ii) the
average weekly trading volume during the four calendar weeks preceding such
sale, subject to the filing of a Form 144 with respect to such sale. A person
(or persons whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the 90 days immediately preceding
the sale who has beneficially owned his or her shares for at least two years
is entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above. Persons deemed to be affiliates must always sell
pursuant to Rule 144, even after the applicable holding periods have been
satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, since this will depend on the market price for the Common
Stock of the Company, the personal circumstances of the sellers and other
factors. Prior to this offering, there has been no public market for the
Common Stock, and there can be no assurance that a significant public market
for the Common Stock will develop or be sustained after the offering. Any
future sale of substantial amounts of the Common Stock in the open market may
adversely affect the market price of the Common Stock offered hereby.
The Company, its directors, executive officers, stockholders with
registration rights and certain other stockholders have agreed pursuant to the
Underwriting Agreement and other agreements that they will not sell any Common
Stock without the prior consent of Robertson, Stephens & Company LLC for a
period of 180 days from the date of this Prospectus (the "180-day Lock-up
Period"), except that the Company may, without such consent, grant options and
sell shares pursuant to the Company's stock plans.
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding
period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their Rule 701 shares without having to comply with the
Rule 144 holding period restrictions, in each case commencing 90 days after
the date of this Prospectus. As of the date of this Prospectus, the holders of
options exercisable into approximately 2,259,697 shares of Common Stock will
be eligible to sell their shares upon the expiration of the 180-day Lockup
Period, or subject in certain cases to vesting of such options.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock issued or reserved for
issuance under the Company's stock plans within 180 days after the date of
this Prospectus, thus permitting the resale of such shares by nonaffiliates in
the public market
52
<PAGE>
without restriction under the Securities Act. The Company intends to register
these shares on Form S-8, along with options that have not been issued under
the Company's stock plans as of the date of this Prospectus.
In addition, after this offering, the holders of approximately 9,713,132
shares of Common Stock will be entitled to certain rights with respect to
registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by affiliates of the Company) immediately upon the effectiveness of
such registration. See "Description of Capital Stock--Registration Rights."
53
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, UBS Securities LLC and First Albany
Corporation (the "Representatives"), have severally agreed with the Company
and the Selling Stockholders, subject to the terms and conditions of the
Underwriting Agreement, to purchase the number of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Robertson, Stephens & Company LLC..................................
UBS Securities LLC.................................................
First Albany Corporation...........................................
---------
Total............................................................ 4,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession of not in excess of $ per share, of
which $ may be reallowed to other dealers. After the initial public
offering, the public offering price, concession, and reallowance to dealers
may be reduced by the Representatives. No such reduction shall change the
amount of proceeds to be received by the Company as set forth on the cover
page of this Prospectus.
The Selling Stockholders have granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 600,000 additional shares of Common Stock at the same price per
share as the Company and Selling Stockholders will receive for the 4,000,000
shares that the Underwriters have agreed to purchase. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
shares that the number of shares of Common Stock to be purchased by it shown
in the above table represents as a percentage of the 4,000,000 shares offered
hereby. If purchased, such additional shares will be sold by the Underwriters
on the same terms as those on which the 4,000,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
Each officer and director who holds shares of the Company and holders
(including such officers and directors) of 9,104,743 shares of Common Stock
have agreed, for the 180-day Lockup Period, subject to certain exceptions, not
to offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge, or grant any rights with respect to any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock owned as of the
date of this Prospectus directly by such holders or with respect to which they
have the power of disposition, without the prior written consent of Robertson,
Stephens & Company LLC. However, Robertson, Stephens & Company LLC may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to lock-up agreements. There are no agreements between
the Representatives and any of the Company's stockholders providing consent by
the Representatives to the sale of shares prior to the expiration of the 180-
day Lockup Period. In addition, the Company has agreed that during the 180-day
Lockup Period, the Company will not, without the prior written consent of
Robertson, Stephens & Company
54
<PAGE>
LLC, subject to certain exceptions, issue, sell, contract to sell, or
otherwise dispose of, any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than the
Company's sale of shares in this offering, the issuance of Common Stock upon
the exercise of outstanding options, and the Company's issuance of options and
shares under existing employee stock option and stock purchase plans. See
"Shares Eligible for Future Sale."
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby will be determined through negotiations among the
Company, the Selling Stockholders and the Representatives. Among the factors
to be considered in such negotiations are prevailing market conditions,
certain financial information of the Company, market valuations of other
companies that the Company and the Representatives believe to be comparable to
the Company, estimates of the business potential of the Company, the present
state of the Company's development and other factors deemed relevant.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the Common Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Common
Stock. A "syndicate covering transaction" is the bid for or the purchase of
the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with the offering. A "penalty bid"
is an arrangement permitting the Representatives to reclaim the selling
concession otherwise accruing to an Underwriter or syndicate member in
connection with the offering if the Common Stock originally sold by such
Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed
by such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
55
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and certain of the Selling Stockholders by Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, Austin, Texas. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by
Brobeck, Phleger & Harrison LLP, Austin, Texas.
EXPERTS
The consolidated financial statements and the related financial schedule of
Pervasive Software Inc. at June 30, 1996 and 1997 and for each of the three
years ended June 30, 1995, 1996 and 1997, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules to the Registration
Statement. For further information with respect to the Company and such Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part of the Registration Statement.
Statements contained in this Prospectus concerning the contents of any
contract or any other document referred to are not necessarily complete;
reference is made in each instance to the copy of such contract or document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Commission's principal office in Washington, D.C., and copies of
all or any part thereof may be obtained from such office after payment of fees
prescribed by the Commission. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at
http://www.sec.gov.
56
<PAGE>
PERVASIVE SOFTWARE INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of 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>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Pervasive Software Inc.
We have audited the accompanying consolidated balance sheets of Pervasive
Software Inc. as of June 30, 1997 and 1996, and the related consolidated
statements of operations, changes in redeemable convertible preferred stock
and stockholders' equity (deficit) and cash flows for each of the three years
in the period ended June 30, 1997. 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 Pervasive
Software Inc. at June 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Austin, Texas
July 24, 1997
F-2
<PAGE>
PERVASIVE SOFTWARE INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
STOCKHOLDERS'
JUNE 30, EQUITY
---------------- AT JUNE 30, 1997
1996 1997 (NOTE 14)
------- ------- ----------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 2,739 $ 4,058
Trade accounts receivable, net of
allowance for doubtful accounts of
$100 in 1997......................... 2,568 2,803
Inventory............................. 89 105
Deferred income taxes................. -- 157
Prepaid expenses and other current
assets............................... 695 555
------- -------
Total current assets.................... 6,091 7,678
Property and equipment, net............. 1,232 2,664
Other assets............................ 148 103
------- -------
Total assets............................ $ 7,471 $10,445
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Trade accounts payable................ $ 735 $ 1,052
Accrued payroll and payroll related
costs................................ 459 517
Other accrued expenses................ 916 2,273
Deferred revenue...................... 1,792 1,267
Income taxes payable.................. -- 301
Deferred royalty payable--Novell,
current portion...................... 421 708
------- -------
Total current liabilities.............. 4,323 6,118
Deferred royalty payable--Novell, net
of current portion.................... 621 --
Minority interest in subsidiary........ 584 695
COMMITMENTS AND CONTINGENCIES
Redeemable convertible preferred
stock................................. 4,026 4,026 $ --
Stockholders' equity (deficit):
Convertible preferred stock........... 3,915 3,915 --
Common stock, $0.001 par value;
authorized--15,000,000 shares; issued
and outstanding--2,000 shares in
1996, 1,391,611 shares in 1997, and
11,104,743 shares on a pro forma
basis............................... -- 205 8,146
Retained deficit...................... (5,998) (4,514) (4,514)
------- ------- -------
Total stockholders' equity (deficit).... (2,083) (394) $ 3,632
------- ------- =======
Total liabilities and stockholders'
equity (deficit)....................... $ 7,471 $10,445
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
PERVASIVE SOFTWARE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1995 1996 1997
------ -------- -------
<S> <C> <C> <C>
Revenues............................................ $8,601 $ 13,476 $24,481
Costs and expenses:
Cost of revenues and technical support............ 1,997 2,605 3,310
Sales and marketing............................... 3,864 6,998 10,034
Research and development.......................... 2,399 4,477 5,996
General and administrative........................ 996 2,505 2,886
------ -------- -------
Total costs and expenses............................ 9,256 16,585 22,226
------ -------- -------
Operating income (loss)............................. (655) (3,109) 2,255
Interest and other income, net.................... 86 99 55
------ -------- -------
Income (loss) before income taxes and minority
interest........................................... (569) (3,010) 2,310
Provision for income taxes........................ (129) (170) (593)
Minority interest in (earnings) loss of
subsidiary, net of tax........................... 89 (25) (127)
------ -------- -------
Net income (loss)................................... $ (609) $ (3,205) $ 1,590
====== ======== =======
Pro forma net income per share...................... $ 0.12
=======
Shares used in computing pro forma net income per
share.............................................. 13,368
=======
</TABLE>
See accompanying notes.
F-4
<PAGE>
PERVASIVE SOFTWARE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
-----------------------------------------------------
REDEEMABLE TOTAL
CONVERTIBLE CONVERTIBLE STOCKHOLDERS'
PREFERRED PREFERRED NOTE COMMON RETAINED EQUITY
STOCK STOCK RECEIVABLE STOCK DEFICIT (DEFICIT)
----------- ----------- ---------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 1,
1994................... $ -- $ 5,250 $(1,485) $ -- $(2,203) $ 1,562
Issuance of Series C
Preferred Stock
(Note 7).............. 2,691 -- -- -- -- --
Conversion of Series B
Preferred Stock
(Note 7).............. 1,335 (1,335) -- -- -- (1,335)
Payment received on
note receivable....... -- -- 1,485 -- -- 1,485
Foreign currency
translation
adjustment............ -- -- -- -- (42) (42)
Net loss............... -- -- -- -- (609) (609)
------ ------- ------- ------ ------- -------
Balances at June 30,
1995................... 4,026 3,915 -- -- (2,854) 1,061
Foreign currency
translation
adjustment............ -- -- -- -- 61 61
Net loss............... -- -- -- -- (3,205) (3,205)
------ ------- ------- ------ ------- -------
Balances at June 30,
1996................... 4,026 3,915 -- -- (5,998) (2,083)
Issuance of 1,389,611
shares of common stock
pursuant to the
exercise of stock
options............... -- -- -- 205 -- 205
Foreign currency
translation
adjustment, cumulative
amount of $(87) at
June 30, 1997 ........ -- -- -- -- (106) (106)
Net income............. -- -- -- -- 1,590 1,590
------ ------- ------- ------ ------- -------
Balances at June 30,
1997................... $4,026 $ 3,915 $ -- $ 205 $(4,514) $ (394)
====== ======= ======= ====== ======= =======
Unaudited Pro Forma
Stockholders' Equity at
June 30, 1997 (Note
14).................... $ -- $ -- $ -- $8,146 $(4,514) $ 3,632
====== ======= ======= ====== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
PERVASIVE SOFTWARE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
CASH FROM OPERATING ACTIVITIES
Net income (loss).................................. $ (609) $(3,205) $ 1,590
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization..................... 884 575 749
Other non cash items.............................. (112) 132 6
Change in current assets and liabilities:
Increase in current assets....................... (1,171) (1,663) (173)
Increase in accounts payable and accrued liabili-
ties............................................ 986 878 2,085
Increase (decrease) in deferred revenue.......... (62) 1,738 (525)
------- ------- -------
Net cash provided by (used in) operating
activities......................................... (84) (1,545) 3,732
CASH FROM INVESTING ACTIVITIES
Purchase of property and equipment................. (598) (843) (2,161)
Purchase of investment securities.................. (500) -- --
Proceeds from maturity of investment securities.... 500 -- --
------- ------- -------
Net cash used in investing activities............... (598) (843) (2,161)
CASH FROM FINANCING ACTIVITIES
Proceeds from issuance of redeemable convertible
preferred stock .................................. 2,691 -- --
Proceeds from payment on note receivable........... 1,485 -- --
Proceeds from minority interest investment in sub-
sidiary........................................... 813 -- --
Payment of royalty to Novell....................... -- -- (370)
Proceeds from exercise of stock options............ -- -- 205
------- ------- -------
Net cash provided by (used in) financing
activities......................................... 4,989 -- (165)
Effect of exchange rate on cash and cash
equivalents........................................ (42) 31 (87)
------- ------- -------
Increase (decrease) in cash and cash equivalents.... 4,265 (2,357) 1,319
Cash and cash equivalents at beginning of year...... 831 5,096 2,739
------- ------- -------
Cash and cash equivalents at end of year............ $ 5,096 $ 2,739 $ 4,058
======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. THE COMPANY
Pervasive Software Inc. (the Company), formerly Btrieve Technologies, Inc.,
was incorporated in Delaware on January 12, 1994. The Company is a leading
provider of embedded database software designed to enable the cost-effective
development, deployment and support of low-maintenance packaged client/server
applications. The consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company licenses its software through OEM license agreements with
independent software vendors (ISVs) and through shrink-wrap software licenses,
sold through ISVs, value-added resellers (VARs) and distributors. Revenues are
generally recognized from the license of software upon the later of shipment
or when all significant vendor obligations have been satisfied. Revenues
related to agreements involving nonrefundable fixed minimum license fees are
generally recognized upon delivery of the product master or first copy if no
significant vendor obligations remain. Per copy royalties in excess of a fixed
minimum amount are recognized as revenue when such amounts are reported to the
Company. The Company generally provides telephone support to customers and end
users in the 30 days immediately following the sale at no additional charge
and at a minimal cost per call. When material, the Company accrues the cost of
providing this support. Revenue from training is recognized when the related
services are performed. The Company enters into agreements with certain
distributors that provide for certain stock rotation and price protection
rights. These rights allow the distributor to return products in a non-cash
exchange for other products or for credits against future purchases. The
Company reserves for the cost of estimated sales returns, rotation and price
protection rights as well as uncollectible accounts based on experience.
Software Development Costs and Purchased Technology
Software development costs incurred by the Company in connection with its
long-term development projects are accounted for in accordance with Statement
of Financial Accounting Standards No. 86, Accounting for the Cost of Computer
Software to be Sold, Leased or Otherwise Marketed (Statement 86). The Company
has not capitalized any internal costs through June 30, 1997 related to its
software development activities.
The Company recorded purchased technology resulting from the acquisition of
certain software and related technology from Novell, Inc. (Novell) in April
1994. These costs have been allocated among the Company's various product
lines and amortized over the estimated life of each product line, (six months
to thirty-three months). Amortization expense related to purchased technology
was approximately $639,000 and $83,000 for the years ended June 30, 1995 and
1996, respectively, and is reflected in the costs of revenues and technical
support. Purchased technology was fully amortized as of June 30, 1996.
Advertising Costs
The Company expenses costs of producing advertising and sales related
collateral materials as incurred. Other production costs associated with
direct mail programs, placement costs associated with magazine or
F-7
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
other printed media and all direct costs associated with trade shows and other
sales related events are expensed when the related direct mail is sent,
advertising space is used or the event is held. These expenses in 1995, 1996
and 1997 were approximately $1,300,000, $1,900,000 and $700,000, respectively.
Income Taxes
Under the asset and liability method of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (Statement 109), deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and net
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Cash and Cash Equivalents
Cash and cash equivalents in the statement of cash flows includes cash,
certificates of deposit, and securities with original maturities less than
thirty days.
Inventory
Inventories, consisting primarily of finished goods, are stated at the lower
of cost (first in, first out) or market. The Company utilizes the services of
a fulfillment house to manufacture, store, and ship inventory and process
returned product. The Company does not take title to product in inventory
until the point at which the product is packaged by the fulfillment house and
is available for shipping.
Property and Equipment
Property and equipment are stated at cost and are being depreciated over
their estimated useful lives (2 to 5 years) using the straight-line method.
Leasehold improvements are amortized over the life of the lease or the
estimated useful life, whichever is shorter.
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less
than the carrying amounts of those assets. As of June 30, 1997 there were no
events or circumstances which indicated that long-lived assets of the Company
might be impaired.
Foreign Currency Transactions
For the Company's foreign subsidiaries, the functional currency has been
determined to be the local currency, and therefore, assets and liabilities are
translated at year end exchange rates, and income statement items are
translated at average exchange rates prevailing during the year. Such
translation adjustments are recorded in aggregate as a component of
stockholders' equity. Gains and losses from foreign currency denominated
transactions are included in other income (expense) and were not material in
1995, 1996 or 1997.
Financial instruments, principally forward pricing contracts, are used by
the Company in the management of its foreign currency exposures. Gains and
losses on foreign currency transaction hedges are recognized in income and
offset the foreign exchange gains and losses on the underlying transactions.
The Company does not hold or issue derivative financial instruments for
trading purposes.
F-8
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable, accrued liabilities and other
liabilities are stated at cost which approximates fair value due to the short-
term maturity of these instruments.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of short-term investments and trade
receivables. The Company's short-term investments, which are included in cash
and cash equivalents for reporting purposes, are placed with high credit
quality financial institutions and issuers. The Company performs periodic
credit evaluations of its customers' financial condition and generally does
not require collateral. Estimated credit losses are provided for in the
financial statements and historically have been within management's
expectations.
For the year ended June 30, 1995, Customers A and B accounted for $973,000
and $1,335,000, respectively, of the Company's total revenues. For the year
ended June 30, 1996, Customer C accounted for $2,390,000 of the Company's
total revenues. For the year ended June 30, 1997, Customers C and D accounted
for $2,530,000 and $4,530,000, respectively, of the Company's total revenues.
No other customers accounted for more than 10% of the Company's revenues
during the years ended June 30, 1995, 1996 or 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Net Income (Loss) Per Share
The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
convertible preferred stock into common stock concurrent with the closing of
the Company's anticipated initial public offering. Accordingly, historical net
income (loss) per share is not considered meaningful and has not been
presented herein. Instead, a pro forma calculation assuming the conversion of
all outstanding shares of convertible preferred stock into common stock upon
the Company's initial public offering using the if-converted method is
presented.
Pro forma net income (loss) per share is computed using the weighted average
number of shares of common stock and dilutive common equivalent shares from
convertible preferred stock (using the if-converted method) and from stock
options (using the treasury stock method). Pursuant to Securities and Exchange
Commission Staff Accounting Bulletins, common stock and common equivalent
shares issued by the Company during the 12-month period prior to the proposed
offering (See Note 14) have been included in the calculation (using the
treasury stock method at an assumed public offering price) as if they were
outstanding for all periods presented regardless of whether they are dilutive.
Recently Issued Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share (Statement 128), which is required to be adopted
for financial statements issued for periods ending after December 15, 1997. At
that time, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements, the presentation of primary earnings per share is replaced with
a presentation of basic earnings per share, the calculation of which excludes
the dilutive effect of common stock equivalents. The adoption of Statement 128
is expected to result in a basic earnings (loss) per share of $0.89 for the
year ended June 30, 1997. Compared to pro forma earnings per share as
currently presented, the adoption of Statement 128 results in an increase of
$0.77 per share for 1997. There is no impact on the fully diluted earnings per
share calculation for the year presented.
F-9
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Reclassifications
Certain reclassifications have been made to prior period's financial
statements to conform to the 1997 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------
1996 1997
------ -------
<S> <C> <C>
Computer equipment and purchased software................... $1,238 $ 2,881
Office equipment, furniture and fixtures.................... 538 932
Leasehold improvements...................................... 135 213
------ -------
1,911 4,026
Less accumulated depreciation and amortization.............. (679) (1,362)
------ -------
$1,232 $ 2,664
====== =======
</TABLE>
4. INCOME TAXES
The components of income (loss) before income taxes and minority interest
consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1995 1996 1997
----- ------- ------
<S> <C> <C> <C>
Domestic income (loss).............................. $(311) $(3,083) $1,384
Foreign income (loss)............................... (258) 73 926
----- ------- ------
Income (loss) before taxes and minority interest.... $(569) $(3,010) $2,310
===== ======= ======
Details of the income tax provision consist of the following (in thousands):
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1995 1996 1997
----- ------- ------
<S> <C> <C> <C>
Income tax provision:
Current:
Federal......................................... $ 71 $ (61) $ 185
Foreign......................................... 129 160 551
State........................................... -- -- 14
----- ------- ------
Total current................................. 200 99 750
Deferred:
Federal......................................... (71) 71 (157)
----- ------- ------
Total deferred................................ (71) 71 (157)
----- ------- ------
$ 129 $ 170 $ 593
===== ======= ======
</TABLE>
The foreign taxes incurred in the years ended June 30, 1995 and 1996 are
predominantly withholdings on royalties from foreign countries.
F-10
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES--(CONTINUED)
The Company's provision for income taxes differs from the expected provision
(benefit) amount computed by applying the statutory federal income tax rate of
34% to income before income taxes and minority interest for 1995, 1996 and
1997 as a result of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1995 1996 1997
----- ------- -----
<S> <C> <C> <C>
Computed at statutory rate of 34%..................... $(193) $(1,023) $ 785
Foreign income taxed at different rates............... 129 159 236
Future benefits not currently recognized.............. 189 1,023 (285)
Utilization of tax loss and credit carryforward....... -- -- (170)
Other................................................. 4 11 27
----- ------- -----
$ 129 $ 170 $ 593
===== ======= =====
</TABLE>
The components of deferred income taxes at June 30, 1996 and 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Purchased technology, net................................ $ 868 $ 799
Net operating loss carryforwards......................... 168 --
Tax credit carryforwards................................. 288 308
Accrued expenses not deductible for tax purposes......... 114 352
Revenue deferred for financial purposes.................. 671 296
Other.................................................... 17 100
------- -------
Total deferred tax assets.............................. 2,126 1,855
Valuation allowance for deferred tax assets................ (2,126) (1,698)
------- -------
Net deferred tax assets................................ $ -- $ 157
======= =======
</TABLE>
Management believes that, based on a number of factors, it is more likely
than not that a substantial amount of the Company's deferred tax assets may
not be realized. These factors include the lack of a significant history of
profits, recent increases in expense levels to support the Company's growth,
the lack of carryback capacity to realize the deferred tax asset and the fact
that the Company operates in an intensely competitive market subject to rapid
change. Accordingly, the Company has recorded a valuation allowance to the
extent deferred tax assets exceed the potential benefit from carryback of
deferred items to offset current or prior year taxable income.
As of June 30, 1997, the Company has a foreign tax credit carryforward of
approximately $308,000, which will begin to expire in the year ending June 30,
1999.
5. EMPLOYEE BENEFITS
Effective January 1, 1995, the Company's employees were offered health and
dental coverage under a partially self-funded plan in which the Company
purchases specific stop-loss insurance coverage at $30,000 per year, per
employee. The Company has also purchased an aggregate stop-loss insurance
coverage at approximately $212,000 per year to limit its maximum annual
exposure to claims funded. The Company pay s a fixed fee per individual
covered for administrative costs of the administrator and the cost of the
stop-loss
F-11
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. EMPLOYEE BENEFITS--(CONTINUED)
insurance purchased on the Company's behalf. The Company contributes 100%
toward the cost to insure each employee and 75% toward the cost to insure
dependents for which coverage is requested by the employee. Expenses for the
partially self-funded plan including premiums and claims funded for the years
ended June 30, 1995, 1996 and 1997 were approximately $87,000, $255,000 and
$311,000, respectively.
The Company adopted a 401(k) retirement plan which is available to all
domestic, full-time employees beginning in April, 1995. The Company's expenses
related to the plan were not significant in the years ended June 30, 1995,
1996 or 1997.
6. COMMON STOCK AND STOCK OPTIONS
The Company has adopted the Pervasive Software Inc., First Amended and
Restated 1994 Incentive Plan (the 1994 Plan), under which incentive stock
options may be granted to employees of the Company entitling them to purchase
shares of common stock for a maximum of ten years (five years in the case of
options granted to a person possessing more than 10% of the combined voting
power of the Company as of the date of grant). The exercise price for
incentive stock options may not be less than fair market value of the common
stock on the date of the grant (110% of fair market value in the case of
options granted to a person possessing more than 10% of the combined voting
power of the Company). Nonqualified stock options may be granted to employees,
officers, directors, independent contractors and consultants of the Company
under the 1994 Plan. The exercise price for nonqualified stock options may not
be less than 85% of the fair market value of the common stock on the date of
the grant (110% of fair market value in the case of options granted to a
person possessing more than 10% of the combined voting power of the Company).
The Company may also award Restricted Stock and Stock Appreciation Rights
subject to provisions in the Plan.
The vesting period for stock options is generally a four-year period. The
stock options are exercisable by the holder prior to vesting, however,
unvested shares are subject to repurchase by the Company at the exercise price
should the employee be terminated or leave the Company prior to vesting in
such options.
The Company's 1997 Stock Incentive Plan (the 1997 Plan) was adopted by the
Board of Directors on May 22, 1997, subject to approval by the stockholders as
the successor to the 1994 Plan. Outstanding options under the 1994 Plan will
be incorporated into the 1997 Plan and no further option grants will be made
under the 1994 Plan. The incorporated options will continue to be governed by
their existing terms, unless the Plan Administrator elects to extend one or
more features of the 1997 Plan to those options.
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25), and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, Accounting for Stock-Based Compensation (Statement 123),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options
granted subsequent to June 30, 1995 under the fair value method prescribed by
Statement 123. The Company has evaluated the effects of Statement 123 and
determined that it does not have a material effect on the Company's statement
of operations or earnings per share.
F-12
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. COMMON STOCK AND STOCK OPTIONS--(CONTINUED)
A summary of changes in common stock options during the year ended June 30,
1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
EXERCISE EXERCISE
SHARES PRICES PRICE
---------- ----------- --------
<S> <C> <C> <C>
Options outstanding, July 1, 1994........... -- $ -- $ --
Granted................................... 2,297,316 0.10- 0.13 0.10
Exercised................................. -- -- --
Surrendered............................... (42,250) 0.10 0.10
---------- ----------- -----
Options outstanding, June 30, 1995.......... 2,255,066 0.10- 0.13 0.10
Granted................................... 644,510 0.13 0.13
Exercised................................. -- -- --
Surrendered............................... (108,600) 0.10- 0.13 0.11
---------- ----------- -----
Options outstanding, June 30, 1996.......... 2,790,976 0.10- 0.13 0.11
Granted................................... 1,094,018 0.13- 4.60 1.17
Exercised................................. (1,389,611) 0.10- 2.00 0.15
Surrendered............................... (235,686) 0.10- 2.00 0.15
---------- ----------- -----
Options outstanding, June 30, 1997.......... 2,259,697 $0.10-$4.60 $0.59
========== =========== =====
</TABLE>
The following is additional information relating to options outstanding at
June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------------------------
WEIGHTED-
WEIGHTED- AVERAGE
NUMBER AVERAGE REMAINING
RANGE OF OF EXERCISE CONTRACTUAL
EXERCISE PRICE OPTIONS PRICE LIFE OF OPTIONS
-------------- --------- -------------- ---------------
<S> <C> <C> <C>
$0.10 to $0.30 1,676,172 $0.11 7.96
0.60 to 0.90 294,200 0.52 9.53
2.00 to 4.60 289,325 3.21 9.85
-------------- --------- -------------- ----
$0.10 to $4.60 2,259,697 $0.11 to $3.21 8.39
============== ========= ============== ====
</TABLE>
Of the options exercised, 670,699 shares remain unvested at June 30, 1997
and may be repurchased by the Company should vesting requirements not be
fulfilled.
Common stock reserved at June 30, 1997 consists of the following:
<TABLE>
<S> <C>
For conversion of Preferred Stock................................. 9,713,132
For exercise of stock options..................................... 3,428,611
----------
13,141,743
==========
</TABLE>
F-13
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. PREFERRED STOCK
At June 30, 1996 and 1997 preferred stock outstanding is as follows (in
thousands, except share data):
<TABLE>
<CAPTION>
JUNE 30,
-------------
1996 1997
------ ------
<S> <C> <C>
Redeemable convertible preferred stock:
Series B; $0.001 par value; 1,335,149 shares authorized,
issued and outstanding in 1996 and 1997................... $1,335 $1,335
Series C; $0.001 par value; 2,213,132 shares authorized,
issued and outstanding in 1996 and 1997................... 2,691 2,691
------ ------
$4,026 $4,026
====== ======
Convertible preferred stock:
Series A; $0.001 par value; 1,500,000 shares authorized,
issued and outstanding in 1996 and 1997................... $1,500 $1,500
Series B; $0.001 par value; 4,664,851 shares authorized,
issued and outstanding in 1996 and 1997................... 2,415 2,415
------ ------
$3,915 $3,915
====== ======
</TABLE>
During the year ended June 30, 1995, the Company issued 2,213,132 shares of
Series C Preferred Stock at $1.23 per share resulting in net proceeds of
$2,691,000 including $34,000 of expenses. Concurrent with the issuance of
Series C Preferred Stock, the Series C Preferred shareholders also purchased
1,335,149 shares of Series B Preferred Stock from existing Series B Preferred
shareholders. There was no preferred stock activity during the years ended
June 30, 1996 and 1997.
Series A, B and C Preferred shares are subject to the rights, preferences,
restrictions and other matters set forth in the Company's Second Amended and
Restated Certificate of Incorporation (Articles), effective April 1995, and
the Series B and C Preferred Stock Purchase Agreements, Investors' Rights
Agreement, Voting Agreement, Amendment to Co-Sale Agreement and Management
Rights Agreement, all effective April 1995. The holders of preferred shares
are entitled to, among other things, voting rights, non-cumulative dividend
rights, liquidation rights and conversion rights. The Series C Preferred
shares and the 1,335,149 shares of Series B Preferred shares held by Series C
Preferred shareholders are redeemable at the Series C Preferred and Series B
Preferred Preference Amount, respectively, as defined in the following
paragraph, on or after April 19, 2001 by written notice given to the Company
executed by a majority of the holders of Series C Preferred shares. Series A
Preferred shares and Series B Preferred shares not held by holders of Series C
Preferred shares are not redeemable.
The holders of each share of Series A, B and C Preferred have the right to
one vote for each share of voting common stock into which such Preferred Stock
could then be converted, subject to the provisions in the Articles. Holders of
Series A, B and C Preferred shares may receive dividends as may be declared by
the Board of Directors. In the event of a voluntary or involuntary
liquidation, dissolution, or winding up the affairs of the Company, the
holders of shares of Series A, B or C Preferred shall be entitled to receive,
out of available assets, an amount equal to $1.00 per share for each share of
Series A Preferred held (the Series A Preferred Preference Amount), an amount
equal to $0.4855 per share for each share of Series B Preferred held (the
Series B Preferred Preference Amount) and an amount equal to $1.6812 per share
for each share of Series C Preferred held (the Series C Preferred Preference
Amount). In each case, the Preferred Preference
F-14
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. PREFERRED STOCK--(CONTINUED)
Amount is subject to adjustments in the future related to certain events
defined in Articles. Further, Series A, B and C Preferred shares may be
converted, at the option of the holder, at any time into shares of voting
common stock at a rate, presently on a one-to-one basis, subject to formula
antidilution adjustments as defined in the Articles. Conversion is automatic
upon the closing of a public offering that results in aggregate cash proceeds
to the Company of at least $15,000,000 (prior to underwriters commissions and
expenses) and that has a public offering price of not less than $3.75 per
share.
8. INVESTMENT IN BTRIEVE TECHNOLOGIES JAPAN, LTD.
In May 1995, the Company acquired a 65.5% controlling interest in a newly
formed entity, Btrieve Technologies Japan, Ltd. (Btrieve Japan). Btrieve Japan
was formed for the purpose of localization, support and marketing in Japan of
the Company's embedded database products for packaged client/server
applications. Btrieve Japan's net assets before elimination of intercompany
balances at June 30, 1996 and 1997 were approximately $1,700,000 and
$2,000,000, respectively.
Btrieve Japan has entered into various operating agreements with certain of
its minority shareholders in which these certain shareholders provide
localization, pre- and post-sales support, management and marketing services.
Expenses related to these agreements were $100,000, $590,000 and $616,000 in
1995, 1996 and 1997, respectively. One of the minority shareholders is also a
distributor for Btrieve Japan. Sales to this distributor were approximately
$320,000, $2,390,000 and $2,530,000 in 1995, 1996 and 1997, respectively.
Receivables from this shareholder were $390,000 and $530,000 as of June 30,
1996 and 1997, respectively.
9. LINES OF CREDIT
At June 30, 1997, the Company has a $2,000,000 revolving line of credit and
a $2,000,000 equipment line of credit with a bank, but at no time has borrowed
under such lines. Total borrowings under the revolving line of credit are
generally limited to 80% of eligible accounts receivable. The revolving line
of credit will expire on March 31, 1998. Borrowings under the equipment line
of credit are limited to 80% of eligible equipment purchases during the 1997
calendar year and must be borrowed prior to December 31, 1997. The equipment
line of credit must be repaid in 24 equal installments beginning January 31,
1998. Both lines of credit are collateralized by substantially all accounts
receivable, inventory and equipment and bear interest at the bank's prime
lending rate. On June 30, 1997, the Company had approximately $2,100,000 of
borrowing capacity under the two lines.
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space under a lease with an unrelated party. The
Company is obligated for its proportionate share of utilities and other
defined operating expenses of the building. Office rent expense for the year
ended June 30, 1995, 1996 and 1997, was approximately $318,000, $451,000 and
$573,000, respectively.
Future minimum lease payments at June 30, 1997 under the operating lease for
office space are as follows (in thousands):
<TABLE>
<S> <C>
1998.................... $ 539
1999.................... 528
2000.................... 224
------
$1,291
======
</TABLE>
The lease for office space includes one option to renew the lease for an
additional five year period and is partially collateralized by a letter of
credit in the amount of $126,000 to and in favor of the landlord.
F-15
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
In connection with the acquisition of technology rights and other intangible
assets from Novell, the Company agreed to pay a deferred royalty equal to 5%
of the Company's net revenues, up to a maximum royalty of $1,100,000. Payments
for royalties earned in each calendar quarter are due two years after the end
of each calendar quarter. The total estimated royalty of $950,000, net of an
imputed interest discount of $150,000, was recorded at the acquisition date.
Royalty payments to be paid to Novell will be approximately $708,000 in 1998
at which time the Company will have paid the maximum amount and will have no
further obligations.
11. FOREIGN CURRENCY SWAP AGREEMENT
The Company has entered into foreign currency swap contracts to minimize
foreign exchange exposure related to yen-denominated intercompany
transactions.
At June 30, 1995, the notional amount of the foreign currency contract
outstanding was approximately $1.4 million and matured in 1996. At June 30,
1996, there were no foreign currency contracts outstanding. At June 30, 1997,
the notional amount of the foreign currency contract outstanding was
approximately $224,000 and matures in 1999. Gains and losses on currency swaps
were not material to the consolidated financial statements as of June 30,
1995, 1996 and 1997.
12. SEGMENTS OF BUSINESS AND GEOGRAPHIC AREA INFORMATION
The Company is engaged in the design, development and marketing of embedded
database products for packaged client/server applications. The Company
considers its business activities to constitute a single segment of business.
A summary of the Company's operations by geographic area follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1995 1996 1997
------ -------- -------
<S> <C> <C> <C>
Revenue:
United States
Domestic...................................... $5,050 $ 7,747 $16,135
Export
Europe....................................... 1,591 2,716 4,693
Japan........................................ 1,335 -- --
Rest of World................................ 304 588 790
------ -------- -------
Total United States......................... 8,280 11,051 21,618
Europe......................................... -- -- --
Japan.......................................... 321 2,425 2,863
------ -------- -------
Total....................................... $8,601 $13,476 $24,481
====== ======== =======
Operating income (loss):
United States.................................. $ (397) $ (267) $ 5,054
Europe......................................... -- (2,918) (3,562)
Japan.......................................... (258) 76 763
------ -------- -------
Total....................................... $ (655) $ (3,109) $ 2,255
====== ======== =======
Identifiable assets:
United States.................................. $5,814 $ 5,646 $ 6,644
Europe......................................... -- 392 810
Japan.......................................... 2,666 1,433 2,991
------ -------- -------
Total....................................... $8,480 $ 7,471 $10,445
====== ======== =======
</TABLE>
F-16
<PAGE>
PERVASIVE SOFTWARE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. STATEMENTS OF CASH FLOWS
The increase in current assets reflected in the statements of cash flows is
comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
1995 1996 1997
------- ------- -----
<S> <C> <C> <C>
Increase in trade accounts receivable............. $(1,036) $(1,485) $(259)
Decrease in Novell receivable..................... 593 -- --
Decrease (increase) in inventory.................. (126) 123 (19)
Decrease (increase) in prepaid expenses and
other............................................ (602) (301) 105
------- ------- -----
$(1,171) $(1,663) $(173)
======= ======= =====
</TABLE>
The increase in accounts payable and accrued liabilities reflected in the
statements of cash flows is comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE
30,
--------------------
1995 1996 1997
----- ----- ------
<S> <C> <C> <C>
Increase (decrease) in trade accounts payable......... $ 721 $(126) $ 342
Increase in accrued payroll and payroll related
costs................................................ 181 213 57
Increase in income taxes refundable/payable........... (321) 311 301
Increase in accrued expenses.......................... 405 480 1,385
----- ----- ------
$ 986 $ 878 $2,085
===== ===== ======
Supplemental disclosures:
Interest paid during the year....................... $ -- $ -- $ --
===== ===== ======
Income taxes paid (refunded) during the year:
Domestic.......................................... $ 392 $(316) $ 376
===== ===== ======
Foreign........................................... $ 129 $ 159 $ --
===== ===== ======
</TABLE>
14. SUBSEQUENT EVENT
On July 18, 1997, the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
permitting the Company to sell shares of its common stock to the public. If the
offering is consummated under the terms presently anticipated, all of the
currently outstanding preferred stock will convert to 9,713,132 shares of
common stock. Unaudited pro forma stockholders' equity as adjusted for the
conversion of the preferred stock is set forth in the accompanying consolidated
balance sheet and Consolidated Statements of Changes in Redeemable Convertible
Preferred Stock and Stockholders' Equity (Deficit). The shareholders of the
Company will consider an amendment to the Articles to change the number of
authorized shares of common stock to 75,000,000 shares of common stock and
5,000,000 shares of preferred stock upon closing of the offering.
F-17
<PAGE>
PERVASIVE SOFTWARE
WORLDWIDE CHANEL MODEL
[Graphic of globe with concentric circles, with the Company's logo in the
center circle, "ISVs" in the next circle "VARs" in the next circle and "End
Users" in the next circle]
Pervasive software focuses its efforts exclusively on indirect channels
by targeting Independent Software Vendors (ISVs) that build packaged
client/server applications and Value Added Resellers (VARs) that sell and
deploy the applications. This highly leveraged approach broadly disseminates
Pervasive Software's database engines to end users throughout the world.
Pervasive Software's channel relationships are strengthened by a number of
channel programs including:
Manufacturing Partner Program
Business Alliance Partner Program
Strategic Partner Reseller Program
Solution Partner Program
Distribution Partner Program
Master Distributor Partner Program
<PAGE>
[LOGO OF PERVASIVE SOFTWARE APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee............................................. $ 13,939
NASD fee......................................................... 5,100
Nasdaq National Market listing fee............................... 50,000
Printing and engraving expenses.................................. 155,000
Legal fees and expenses.......................................... 350,000
Accounting fees and expenses..................................... 150,000
Directors and Officers Liability Insurance....................... 271,200
Blue sky fees and expenses....................................... 5,000
Transfer agent fees.............................................. 15,000
Miscellaneous fees and expenses.................................. 134,761
----------
Total........................................................ $1,150,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII, Section 6, of the Registrant's
Bylaws provides for mandatory indemnification of its directors and officers
and permissible indemnification of employees and other agents to the maximum
extent permitted by the Delaware General Corporation Law.
The Registrant's Certificate of Incorporation provides that, pursuant to
Delaware law, its directors shall not be liable for monetary damages for
breach of the directors' fiduciary duty as directors to the Company and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Company for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision also does not affect a director's responsibilities under
any other law, such as the federal securities laws or state or federal
environmental laws. The Registrant has entered into Indemnification Agreements
with its officers and directors, a form of which is attached as Exhibit 10.1
hereto and incorporated herein by reference. The Indemnification Agreements
provide the Registrant's officers and directors with further indemnification
to the maximum extent permitted by the Delaware General Corporation Law." The
Registrant maintains directors and officers liability insurance. Reference is
made to Section 8 of the Underwriting Agreement contained in Exhibit 1.1
hereto, indemnifying officers and directors of the Registrant against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On April 19, 1995, the Company issued and sold 2,213,132 shares of its
Series C Preferred Stock to Austin Ventures IV-A, L.P., Austin Ventures IV-B,
L.P., Technologies for Information and Publishing, L.P.,
II-1
<PAGE>
Technologies for Information and Entertainment, L.P. and Triad Ventures
Limited, II for an aggregate purchase price of $2,725,029.42.
The issuance described above was deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of such Act as a transaction by
an issuer not involving any public offering. In addition, the recipients of
securities in such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates issued in such transaction. To the Registrant's
knowledge, all recipients had adequate access, through their relationships
with the Registrant, to information about the Registrant.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
---------- -----------
<C> <S>
1.1 Form of Underwriting Agreement (preliminary form)
3.1+ Certificate of Incorporation of the Registrant, as amended to date
3.2+ Form of Restated Certificate of Incorporation to be filed upon the
closing of the offering made hereby
3.3+ Bylaws of the Registrant
3.4+ Form of Bylaws to be filed upon the closing of the offering made
hereby
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 4.3
4.2* Specimen Common Stock certificate
4.3+ Investors' Rights Agreement dated April 19, 1995, between the
Registrant and the investors named therein
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP
10.1+ Form of Indemnification Agreement
10.2 1997 Stock Incentive Plan
10.3 Employee Stock Purchase Plan
10.4+ First Amended and Restated 1994 Incentive Plan
10.5+ Amendment and Restatement of Credit Agreement dated March 31, 1997
between the Registrant and Texas Commerce Bank National Association
10.6+ Lease Agreement dated October 5, 1994 between the Registrant and
Colina West Limited
10.7+ First Amendment to Lease Agreement dated September 8, 1995 between
the Registrant and Colina West Limited
10.8+ Sublease Agreement dated December 10, 1996 between the Registrant
and Reynolds, Loeffler & Dowling, P.C.
10.9 Joint Venture Agreement dated March 26, 1995 between the Registrant
and Novell Japan, Ltd., AG Tech Corporation and Empower Ltd.
11.1+ Computation of Earnings Per Share
21.1+ Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Counsel. Reference is made to Exhibit 5.1
24.1+ Power of Attorney (see page II-5)
27.1+ Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
Report of Ernst & Young, LLP, Independent Auditors, on Financial Statement
Schedule
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate
of Incorporation or the Bylaws 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 Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF AUSTIN, STATE OF TEXAS, ON THIS 2ND DAY OF SEPTEMBER, 1997.
Pervasive Software Inc.
By: /s/ Ron R. Harris
-----------------------------------
RON R. HARRIS
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
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>
/s/ Ron R. Harris President, Chief September 2,
- ------------------------------------ Executive Officer 1997
RON R. HARRIS and Director
(Principal
Executive Officer)
/s/ James R. Offerdahl Chief Financial September 2,
- ------------------------------------ Officer, Vice 1997
JAMES R. OFFERDAHL President,
Administration and
Secretary
(Principal
Financial and
Accounting
Officer)
* Director September 2,
- ------------------------------------ 1997
NANCY R. WOODWARD
* Director September 2,
- ------------------------------------ 1997
JOSEPH C. ARAGONA
* Director September 2,
- ------------------------------------ 1997
DAVID A. BOUCHER
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director
* September 2,
- ------------------------------------- 1997
DAVID R. BRADFORD
Director
* September 2,
- ------------------------------------- 1997
SHELBY H. CARTER, JR.
*By:
/s/ Ron R. Harris
-----------------------------------
RON R. HARRIS
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT 1.1
4,000,000 Shares/1/
PERVASIVE SOFTWARE INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
_________ ___, 1997
ROBERTSON, STEPHENS & COMPANY LLC
UBS SECURITIES LLC
FIRST ALBANY CORPORATION
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Pervasive Software Inc., a Delaware corporation (the "Company"), and
certain stockholders of the Company named in Schedule B hereto (hereafter called
the "Selling Stockholders") address you as the Representatives of each of the
persons, firms and corporations listed in Schedule A hereto (herein collectively
called the "Underwriters") and hereby confirm their respective agreements with
the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
---------------------
2,000,000 shares of its authorized and unissued Common Stock, par value $0.001
per share, to the several Underwriters. The Selling Stockholders, acting
severally and not jointly, propose to sell an aggregate of 2,000,000 shares of
the Company's authorized and outstanding Common Stock, par value $0.001 per
share, to the several Underwriters. The 2,000,000 shares of Common Stock, par
value $0.001 per share, of the Company to be sold by the Company are hereinafter
called the "Company Shares" and the 2,000,000 shares of Common Stock, par value
$0.001 per share, to be sold by the Selling Stockholders are hereinafter called
the "Selling Stockholder Shares." The Company Shares and the Selling
Stockholder Shares are hereinafter collectively referred to as the "Firm
Shares." The Selling Stockholders also propose to grant, severally and not
jointly, to the Underwriters an option to purchase up to 600,000 additional
shares of the Company's Common Stock, par value $0.001 per share (the "Option
Shares"), as provided in Section 7 hereof. As used in this Agreement, the term
"Shares" shall include the Firm Shares and the Option Shares. All shares of
Common Stock, par value $0.001 per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby, including the Shares, are
hereinafter referred to as "Common Stock."
- --------------------
/1/ Plus an option to purchase up to 600,000 additional shares from certain
stockholders of the Company to cover over-allotments.
<PAGE>
2. Representations, Warranties and Agreements of the Company.
---------------------------------------------------------
I. The Company represents and warrants to and agrees with each
Underwriter and each Selling Stockholder that:
(a) A registration statement on Form S-1 (File No. 333-32199) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company will
file such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
as may hereafter be required. Copies of such registration statement and
amendments, of each related prospectus subject to completion (the "Preliminary
Prospectuses") and of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and promptly
file with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) or, if Robertson, Stephens & Company LLC, on behalf of
the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the information required to be included in any term sheet
filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Robertson,
Stephens & Company LLC, on behalf of the several Underwriters, shall agree to
the utilization of Rule 434 of the Rules and Regulations, the information
required to be included in any term sheet filed pursuant to Rule 434(b) or (c),
as applicable, of the Rules and Regulations. The term "Registration Statement"
as used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the Company omitted information from the Registration
Statement pursuant to Rule 430A(a) of the Rules and Regulations, the information
deemed to be a part of the Registration Statement at the time it became
effective pursuant to Rule 430A(b) of the Rules and Regulations); provided,
--------
however, that if in reliance on Rule 434 of the Rules and Regulations and with
- -------
the consent of Robertson, Stephens & Company LLC, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term sheet
pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
term "Prospectus" shall mean the "prospectus subject to completion" (as defined
in Rule 434(g) of the Rules and Regulations) last provided to the Underwriters
by the Company and circulated by the Underwriters to all prospective purchasers
of the Shares (including the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 434(d) of the Rules
and Regulations). Notwithstanding the foregoing, if any revised prospectus
shall be provided to the Underwriters by the Company for use in connection with
the offering of the Shares that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations), the term "Prospectus" shall refer
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to such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, the Company shall have provided to the Underwriters
a term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time
that a confirmation is sent or given for purposes of Section 2(10)(a) of the
Act, the Prospectus and the term sheet, together, will not be materially
different from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus or instituted proceedings for that
purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased, (i)
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
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warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or Prospectus, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
(c) Each of the Company and Btrieve Technologies Japan, Ltd.,
Pervasive Software GmbH, and Pervasive Software N.V. (the "Subsidiaries") has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation with full power and
authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; except as described in the
Registration Statement and Prospectus, the Company owns all of the outstanding
capital stock of the Subsidiaries free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; each of the Company and the
Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and the subsidiaries
considered as one enterprise; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; each of the Company and the
Subsidiaries is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities which are material to the conduct of
its business, all of which are valid and in full force and effect; neither the
Company nor any of the Subsidiaries is in violation of its respective charter or
bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company or any of the Subsidiaries is
a party or by which it or any of the Subsidiaries or their respective properties
may be bound; and neither the Company nor any of the Subsidiaries is in material
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of the Subsidiaries or over
their respective properties of which it has knowledge. The Company does not own
or control, directly or indirectly, any corporation, association or other entity
other than Btrieve Technologies Japan, Ltd., Pervasive Software GmbH and
Pervasive Software N.V.
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(d) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
(i) any material bond, debenture, note or other evidence of indebtedness, or
under any material lease, contract, indenture, mortgage, deed of trust, loan
agreement, license agreement, joint venture or other agreement or instrument to
which the Company or any of the Subsidiaries is a party or by which it or any of
the Subsidiaries or their respective properties may be bound, (ii) the charter
or bylaws of the Company or any of the Subsidiaries, or (iii) any law, order,
rule, regulation, writ, injunction, judgment or decree of any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or any of the Subsidiaries or over their respective properties. No
consent, approval, authorization or order of or qualification with any court,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of the Subsidiaries or over their
respective properties is required for the execution and delivery of this
Agreement and the consummation by the Company or any of the Subsidiaries of the
transactions herein contemplated, except such as may be required under the Act
or under state or other securities or Blue Sky laws, all of which requirements
have been satisfied in all material respects.
(e) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company, any
of the Subsidiaries or any of their respective officers or any of their
respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of the Subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and the Subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets or
rights, (ii) might prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no agreements, contracts, leases or
documents of the Company or any of the Subsidiaries of a character required to
be described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement by the Act or the Rules and
Regulations which have not been accurately described in all material respects in
the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(f) All outstanding shares of capital stock of the Company (including
the Selling Stockholder Shares) have been duly authorized and validly issued and
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase securities,
and the authorized and outstanding capital stock of the Company is as set forth
in the Prospectus under the caption "Capitalization" and conforms in all
material respects to the statements relating thereto contained in the
Registration Statement and the Prospectus (and such statements correctly state
the substance of the instruments defining the capitalization of the Company);
the Company Shares and the Option Shares have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the terms
of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right, co-
sale right, registration right, right of first refusal or other similar right of
stockholders to which the Company is a party exists with respect to any of the
Company Shares or Option Shares or the issuance and sale thereof other than
those that have been expressly waived prior to the date hereof and those that
will automatically expire upon and will not apply to the consummation of the
transactions contemplated on the Closing Date. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except as
may be required under the Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or under state or other securities or Blue Sky laws. All
issued and outstanding shares of capital stock of each Subsidiary have been duly
authorized and validly issued and are fully paid and nonassessable, and were not
issued in violation of or subject to any preemptive right, or
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<PAGE>
other rights to subscribe for or purchase shares and, except as described in the
Registration Statement and Prospectus, are owned by the Company free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest. Except as disclosed in the Prospectus and the financial statements of
the Company, and the related notes thereto, included in the Prospectus, neither
the Company nor any Subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(g) Ernst & Young LLP, which has examined the consolidated financial
statements of the Company, together with the related schedules and notes, as of
June 30, 1996 and 1997 and for each of the years in the three (3) years ended
June 30, 1997 filed with the Commission as a part of the Registration Statement,
which are included in the Prospectus, are independent accountants within the
meaning of the Act and the Rules and Regulations; the audited consolidated
financial statements of the Company, together with the related schedules and
notes, and the unaudited consolidated financial information, forming part of the
Registration Statement and Prospectus, fairly present the financial position and
the results of operations of the Company and its subsidiaries at the respective
dates and for the respective periods to which they apply; and all audited
consolidated financial statements of the Company, together with the related
schedules and notes, and the unaudited consolidated financial information, filed
with the Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the Registration
Statement present fairly the information shown therein and have been compiled on
a basis consistent with the audited financial statements presented therein. No
other financial statements or schedules are required to be included in the
Registration Statement.
(h) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and the Subsidiaries
considered as one enterprise, (ii) any transaction that is material to the
Company and the Subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (iii) any obligation, direct or
contingent, that is material to the Company and the Subsidiaries considered as
one enterprise, incurred by the Company or the Subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of the Subsidiaries that
is material to the Company and the Subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of the Subsidiaries, or (vi) any loss or
damage (whether or not insured) to the property of the Company or any of the
Subsidiaries which has been sustained which has a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and the Subsidiaries considered as one enterprise.
(i) Except as set forth in the Registration Statement and Prospectus,
(i) each of the Company and the Subsidiaries has good and marketable title to
all properties and assets described in the Registration Statement and Prospectus
as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, other than such as would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and the Subsidiaries
considered as one enterprise, (ii) the agreements to which the Company or any
of the Subsidiaries is a party described in the Registration Statement and
Prospectus are valid agreements, enforceable by the Company and the Subsidiaries
(as applicable), except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and, to the Company's knowledge, the other contracting party or
parties thereto are not in material breach or material default under any of such
agreements, and (iii) each of the Company and the Subsidiaries has valid and
enforceable leases for all properties described in the Registration Statement
and Prospectus as leased by it, except as the enforcement thereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles. Except as set forth in the Registration Statement and
Prospectus, the
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<PAGE>
Company owns or leases all such properties as are necessary to its operations as
now conducted or as proposed to be conducted.
(j) The Company and the Subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the Company's knowledge, might be asserted against the Company or any of the
Subsidiaries that might have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and the Subsidiaries considered as one enterprise; and all tax
liabilities are adequately provided for on the books of the Company and the
Subsidiaries.
(k) The Company and the Subsidiaries maintain insurance with insurers
of recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased by
the Company or the Subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect; neither the Company nor any such
Subsidiary has been refused any insurance coverage sought or applied for; and
neither the Company nor any such Subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially adversely
affect the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and the Subsidiaries considered as one
enterprise.
(l) To the Company's knowledge, no labor disturbance by the
employees of the Company or any of the Subsidiaries exists or is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, subassemblers, value added
resellers, independent software vendors, original equipment manufacturers,
authorized dealers or distributors that might be expected to result in a
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and the Subsidiaries
considered as one enterprise. No collective bargaining agreement exists with
any of the Company's employees and, to the Company's knowledge, no such
agreement is imminent.
(m) Each of the Company and the Subsidiaries owns or possesses
adequate rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as described in the Registration Statement
and Prospectus; provided, however, that the Company's representations and
warranties herein with respect to patents, patent rights, trademarks, service
marks and trade names are given to the Company's knowledge; the expiration of
any patents, patent rights, trade secrets, trademarks, service marks, trade
names or copyrights would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and the Subsidiaries considered as one enterprise; the Company
has not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of the Company by others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights; and the Company has not received any notice
of, and has no knowledge of, any infringement of or conflict with asserted
rights of others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and the Subsidiaries considered as one enterprise.
(n) The Common Stock has been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance.
(o) The Company has been advised concerning the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to
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conduct, its affairs in such a manner as to ensure that it will not become an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not distribute prior to
the later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.
(q) Neither the Company nor any of the Subsidiaries has at any time
during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company, each Selling
Stockholder and each other person named in the table under the caption
"Principal and Selling Stockholders" in the Prospectus, has agreed in writing
that such person will not, for a period of 180 days from the date that the
Registration Statement is declared effective by the Commission (the "Lock-up
Period"), offer to sell, contract to sell, or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to (collectively, a "Disposition") any
shares of Common Stock, any options or warrants to purchase any shares of Common
Stock or any securities convertible into or exchangeable for shares of Common
Stock (collectively, "Securities") now owned directly by such person or with
respect to which such person has the power of disposition, otherwise than (i) as
a bona fide gift or gifts, provided the donee or donees thereof agree in writing
to be bound by this restriction, (ii) as a distribution to partners or
stockholders of such person, provided that the distributees thereof agree in
writing to be bound by the terms of this restriction, or (iii) with the prior
written consent of Robertson, Stephens & Company LLC. The foregoing restriction
has been expressly agreed to preclude the holder of the Securities from engaging
in any hedging or other transaction which is designed to or reasonably expected
to lead to or result in a Disposition of Securities during the Lock-up Period,
even if such Securities would be disposed of by someone other than such holder.
Such prohibited hedging or other transactions would include, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a broad-
based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Such person has also agreed and
consented to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with this restriction. Furthermore, each such person has also agreed
that, without the prior written consent of Robertson, Stephens & Company LLC,
such person will not, during the period ending with the conclusion of the Lock-
Up Period, make any demand for or exercise any right with respect to, the
registration of any Securities, except pursuant to the Registration Statement to
the extent set forth in Exhibit B hereto. The Company has provided to counsel
for the Underwriters a complete and accurate list of all securityholders of the
Company and the number and type of securities held by each securityholder. The
Company has provided to counsel for the Underwriters true, accurate and complete
copies of all of the agreements pursuant to which its officers, directors and
stockholders have agreed to such or similar restrictions (the "Lock-up
Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that, prior to the conclusion of the Lock-Up Period, it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of Robertson, Stephens & Company LLC.
(t) Except as set forth in the Registration Statement and Prospectus,
(i) the Company is in compliance with all rules, laws and regulations relating
to the use, treatment, storage and disposal of toxic substances and protection
of health or the environment ("Environmental Laws") which are applicable to its
business, (ii) the Company has received no notice from any governmental
authority or third party of an asserted claim under
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Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) to the Company's knowledge, the Company will
not be required to make future material capital expenditures to comply with
Environmental Laws and (iv) to the Company's knowledge, no property which is
owned, leased or occupied by the Company has been designated as a Superfund site
pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. (S) 9601, et seq.), or otherwise designated as a
-- ---
contaminated site under applicable state or local law.
(u) The Company and each of the Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(v) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or with
any person or affiliate located in Cuba.
(x) The Company has given notice of the filing of the Registration
Statement and the offering contemplated thereby and taken such other actions as
may be required by (i) the Investors' Rights Agreement, dated April 19, 1995, by
and among the Company and certain of its stockholders, to lawfully invoke, for a
period of 180 days after the date of the Prospectus, the "Market Stand-Off"
provisions of Section 1.15 of such Investors' Rights Agreement and (ii) the
Company's 1994 Incentive Plan, as amended, and 1997 Stock Incentive Plan to
lawfully invoke, for a period of 180 days after the date of the Prospectus, the
"Market Stand-Off" provisions of the Stock Purchase Agreements and Stock
Issuance Agreements pursuant to which shares of Common Stock have been or may be
purchased under such Plans.
II. Each Selling Stockholder, severally and not jointly, represents
and warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Stockholder now has and on the Closing Date, and on
any later date on which Option Shares are purchased, will have valid marketable
title to the Shares to be sold by such Selling Stockholder, free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest
other than pursuant to this Agreement; and upon delivery of such Shares
hereunder and payment of the purchase price as herein contemplated, each of the
Underwriters will obtain valid marketable title to the Shares purchased by it
from such Selling Stockholder, free and clear of any pledge, lien, security
interest pertaining to such Selling Stockholder or such Selling Stockholder's
property, encumbrance, claim or equitable interest, including any liability for
estate or inheritance taxes, or any liability to or claims of any creditor,
devisee, legatee or beneficiary of such Selling Stockholder.
(b) Such Selling Stockholder has duly authorized (if applicable),
executed and delivered, in the form heretofore furnished to the Representatives,
an irrevocable Power of Attorney (the "Power of Attorney") appointing Ron R.
Harris and James R. Offerdahl as attorneys-in-fact (collectively, the
"Attorneys" and individually, an "Attorney") and a Letter of Transmittal and
Custody Agreement (the "Custody Agreement") with American Securities Transfer
and Trust, Inc., as custodian (the "Custodian"); each of the Power of Attorney
and the Custody Agreement constitutes a valid and binding agreement on the part
of such Selling Stockholder, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and each of such
Selling Stockholder's Attorneys, acting alone, is authorized to execute and
deliver this Agreement and the certificate referred
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to in Section 6(h) hereof on behalf of such Selling Stockholder, to determine
the purchase price to be paid by the several Underwriters to such Selling
Stockholder as provided in Section 3 hereof, to authorize the delivery of the
Selling Stockholder Shares and the Option Shares to be sold by such Selling
Stockholder under this Agreement and to duly endorse (in blank or otherwise) the
certificate or certificates representing such Shares or a stock power or powers
with respect thereto, to accept payment therefor, and otherwise to act on behalf
of such Selling Stockholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders required for
the execution and delivery by such Selling Stockholder of the Power of Attorney
and the Custody Agreement, the execution and delivery by or on behalf of such
Selling Stockholder of this Agreement and the sale and delivery of the Selling
Stockholder Shares and the Option Shares to be sold by such Selling Stockholder
under this Agreement (other than, at the time of the execution hereof (if the
Registration Statement has not yet been declared effective by the Commission),
the issuance of the order of the Commission declaring the Registration Statement
effective and such consents, approvals, authorizations or orders as may be
necessary under state or other securities or Blue Sky laws) have been obtained
and are in full force and effect; such Selling Stockholder, if other than a
natural person, has been duly organized and is validly existing in good standing
under the laws of the jurisdiction of its organization as the type of entity
that it purports to be; and such Selling Stockholder has full legal right, power
and authority to enter into and perform its obligations under this Agreement and
such Power of Attorney and Custody Agreement, and to sell, assign, transfer and
deliver the Shares to be sold by such Selling Stockholder under this Agreement.
(d) Such Selling Stockholder will not, during the Lock-up Period,
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock now owned directly by such
Selling Stockholder or with respect to which such Selling Stockholder has the
power of disposition, otherwise than (i) as a bona fide gift or gifts, provided
the donee or donees thereof agree in writing to be bound by this restriction,
(ii) as a distribution to partners or stockholders of such Selling Stockholder,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, or (iii) with the prior written consent of Robertson,
Stephens & Company LLC. The foregoing restriction is expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than the Selling Stockholder. Such
prohibited hedging or other transactions would including, without limitation,
any short sale (whether or not against the box) or any purchase, sale or grant
of any right (including, without limitation, any put or call option) with
respect to any Securities or with respect to any security (other than a broad-
based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Such Selling Stockholder also
agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the securities held by such
Selling Stockholder except in compliance with this restriction. Furthermore,
such Selling Stockholder also agrees that, without the prior written consent of
Robertson, Stephens & Company LLC, such Selling Stockholder will not, during the
period ending with the conclusion of the Lock-Up Period, make any demand for or
exercise any right with respect to, the registration of any Securities, except
pursuant to the Registration Statement to the extent set forth in Exhibit B
hereto.
(e) Certificates in negotiable form for all Shares to be sold by such
Selling Stockholder under this Agreement, together with a stock power or powers
duly endorsed in blank by such Selling Stockholder, have been placed in custody
with the Custodian for the purpose of effecting delivery hereunder.
(f) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by applicable law
and except as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; and the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms and
provisions of or constitute a default under
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any bond, debenture, note or other evidence of indebtedness, or under any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder, or any Shares to be sold by such Selling
Stockholder hereunder, may be bound or, to the best of such Selling
Stockholders' knowledge, result in any violation of any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over such
Selling Stockholder or over the properties of such Selling Stockholder, or, if
such Selling Stockholder is other than a natural person, result in any violation
of any provisions of the charter, bylaws or other organizational documents of
such Selling Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Selling Stockholder
Shares that is contained in the representations and warranties of such Selling
Stockholder in such Selling Stockholder's Power of Attorney or set forth in the
Registration Statement or the Prospectus is, and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date, and on any later date on which
Option Shares are to be purchased, was or will be, true, correct and complete,
and does not, and at the time the Registration Statement became or becomes, as
the case may be, effective and at all times subsequent thereto up to and on the
Closing Date, and on any later date on which Option Shares are to be purchased,
will not, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make such
information not misleading in light of the circumstances under which they were
made.
(j) Such Selling Stockholder will review the Prospectus and will
comply with all agreements and satisfy all conditions on its part to be complied
with or satisfied pursuant to this Agreement on or prior to the Closing Date, or
any later date on which Option Shares are to be purchased, as the case may be,
and will advise one of its Attorneys and Robertson, Stephens & Company LLC prior
to the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, if any statement to be made on behalf of such
Selling Stockholder in the certificate contemplated by Section 6(h) would be
inaccurate if made as of the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be.
(k) Such Selling Stockholder does not have, or has waived prior to
the date hereof, any preemptive right, co-sale right or right of first refusal
or other similar right to purchase any of the Shares that are to be sold by the
Company or any of the other Selling Stockholders to the Underwriters pursuant to
this Agreement; such Selling Stockholder does not have, or has waived prior to
the date hereof, any registration right or other similar right to participate in
the offering made by the Prospectus, other than such rights of participation as
have been satisfied by the participation of such Selling Stockholder in the
transactions to which this Agreement relates in accordance with the terms of
this Agreement; and such Selling Stockholder does not own any warrants, options
or similar rights to acquire, and does not have any right or arrangement to
acquire, any capital stock, rights, warrants, options or other securities from
the Company, other than those described in the Registration Statement and the
Prospectus.
(l) Such Selling Stockholder is not aware (if such Selling
Stockholder is not an officer or director of the Company, without having
conducted any investigation or inquiry) that any of the representations and
warranties of the Company set forth in Section 2.I. above is untrue or
inaccurate in any material respect.
3. Purchase, Sale and Delivery of Shares. On the basis of the
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representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Stockholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to
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purchase from the Company and the Selling Stockholders, respectively, at a
purchase price of $_____ per share, the respective number of Company Shares as
hereinafter set forth and Selling Stockholder Shares set forth opposite the
names of the Company and the Selling Stockholders in Schedule B hereto. The
obligation of each Underwriter to the Company and to each Selling Stockholder
shall be to purchase from the Company or such Selling Stockholder that number of
Company Shares or Selling Stockholder Shares, as the case may be, which (as
nearly as practicable, as determined by you) is in the same proportion to the
number of Company Shares or Selling Stockholder Shares, as the case may be, set
forth opposite the name of the Company or such Selling Stockholder in Schedule B
hereto as the number of Firm Shares which is set forth opposite the name of such
Underwriter in Schedule A hereto (subject to adjustment as provided in Section
10) is to the total number of Firm Shares to be purchased by all the
Underwriters under this Agreement.
The certificates in negotiable form for the Selling Stockholder Shares
have been placed in custody (for delivery under this Agreement) under the
Custody Agreement. Each Selling Stockholder agrees that the certificates for
the Selling Stockholder Shares of such Selling Stockholder so held in custody
are subject to the interests of the Underwriters hereunder, that the
arrangements made by such Selling Stockholder for such custody, including the
Power of Attorney, is to that extent irrevocable and that the obligations of
such Selling Stockholder hereunder shall not be terminated by the act of such
Selling Stockholder or by operation of law, whether by the death or incapacity
of such Selling Stockholder or the occurrence of any other event, except as
specifically provided herein or in the Custody Agreement. If any Selling
Stockholder should die or be incapacitated, or if any other such event should
occur, before the delivery of the certificates for the Selling Stockholder
Shares hereunder, the Selling Stockholder Shares to be sold by such Selling
Stockholder shall, except as specifically provided herein or in the Custody
Agreement, be delivered by the Custodian in accordance with the terms and
conditions of this Agreement as if such death, incapacity or other event had not
occurred, regardless of whether the Custodian shall have received notice of such
death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company with regard to the Shares being purchased from the Company, and
to the order of the Custodian for the respective accounts of the Selling
Stockholders with regard to the Shares being purchased from such Selling
Stockholders (and the Company and such Selling Stockholders agree not to deposit
and to cause the Custodian not to deposit any such check in the bank on which it
is drawn, and not to take any other action with the purpose or effect of
receiving immediately available funds, until the business day following the date
of its delivery to the Company or the Custodian, as the case may be, and, in the
event of any breach of the foregoing, the Company or the Selling Stockholders,
as the case may be, shall reimburse the Underwriters for the interest lost and
any other expenses borne by them by reason of such breach), at the offices of
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, 8911 Capital of
Texas Highway, Suite 4140, Austin, Texas (or at such other place as may be
agreed upon among the Representatives and the Company), at 7:00 A.M., San
Francisco time (a) on the third (3rd) full business day following the first day
that Shares are traded, (b) if this Agreement is executed and delivered after
1:30 P.M., San Francisco time, the fourth (4th) full business day following the
day that this Agreement is executed and delivered or (c) at such other time and
date not later than seven (7) full business days following the first day that
Shares are traded as the Representatives and the Company may determine (or at
such time and date to which payment and delivery shall have been postponed
pursuant to Section 10 hereof), such time and date of payment and delivery being
herein called the "Closing Date"; provided, however, that if the Company has not
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made available to the Representatives copies of the Prospectus within the time
provided in Section 4(d) hereof, the Representatives may, in their sole
discretion, postpone the Closing Date until no later than two (2) full business
days following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location including, without limitation, in New
York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representatives so elect,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representatives.
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It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares to be purchased by such Underwriter or Underwriters.
Any such payment by you shall not relieve any such Underwriter or Underwriters
of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), on the inside
front cover concerning stabilization and over-allotment by the Underwriters, and
under the _____ and _____ paragraphs under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf of
the respective Underwriters, represent and warrant to the Company and the
Selling Stockholders that the statements made therein do not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
---------------------------------
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but
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at the expense of such Underwriter, such amendment or amendments to the
Registration Statement and such prospectus or prospectuses as may be necessary
to permit compliance with the requirements of Section 10(a)(3) of the Act; and
it will file no amendment or supplement to the Registration Statement or
Prospectus, or, prior to the end of the period of time in which a prospectus
relating to the Shares is required to be delivered under the Act, which shall
not previously have been submitted to you a reasonable time prior to the
proposed filing thereof or to which you shall reasonably object in writing,
subject, however, to compliance with the Act and the Rules and Regulations and
the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available, and, in
the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if Robertson, Stephens & Company LLC, on behalf
of the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
(e) The Company will make generally available to its securityholders
as soon as practicable, but in any event not later than the forty-fifth (45th)
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
(f) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and will make available unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
stockholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's stockholders, (ii)
concurrently with furnishing to its stockholders, a balance sheet of the Company
as of the end of such fiscal year, together with statements of operations, of
stockholders' equity, and of cash flows of the Company for such fiscal year,
accompanied by a copy of the certificate or report thereon of independent
certified public accountants, (iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders, (iv) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, any securities exchange or the National Association of
Securities Dealers, Inc. ("NASD"), (v) every material press release and every
material news item or article in respect of the Company or its affairs which was
generally released to stockholders or prepared by the Company or any of its
subsidiaries, and (vi) any additional information of a public nature concerning
the Company or its subsidiaries, or its business which you may reasonably
request. During such five (5) year period, if the Company shall have active
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subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
(g) The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
(i) The Company will file a Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company or any
Selling Stockholder to perform any agreement on their respective parts to be
performed hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to Section
11(a) hereof, or if the Underwriters shall terminate this Agreement pursuant to
Section 11(b)(i), the Company will reimburse the several Underwriters for all
out-of-pocket expenses (including fees and disbursements of Underwriters'
Counsel) incurred by the Underwriters in investigating or preparing to market or
marketing the Shares.
(k) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith consult with you concerning the substance of and advisability
of disseminating a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication or
event.
(l) During the Lock-up Period, the Company will not, without the
prior written consent of Robertson Stephens & Company LLC, effect the
Disposition of, directly or indirectly, any Securities other than the sale of
the Company Shares hereunder and the Company's issuance of options or Common
Stock under the Company's presently authorized 1994 Incentive Plan, as amended,
1997 Stock Incentive Plan and Employee Stock Purchase Plan (collectively, the
"Employee Plans").
(m) During a period of ninety (90) days from the effective date of
the Registration Statement, the Company will not file a registration statement
registering shares under the Employee Plans or other employee benefit plan.
5. Expenses.
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(a) The Company and the Selling Stockholders agree with each
Underwriter that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and
exhibits), Preliminary Prospectuses and the Prospectus and any
amendments or supplements thereto; the printing of this Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreement, the
Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the
Underwriters' Questionnaire and Power of Attorney, and any instruments
related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer
taxes, if any, the cost of all certificates representing the Shares
and transfer agents' and registrars' fees; the fees and disbursements
of counsel for the Company; all fees and other charges of
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the Company's independent certified public accountants; the cost of
furnishing to the several Underwriters copies of the Registration
Statement (including appropriate exhibits), Preliminary Prospectus and
the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and the cost of qualifying the Shares
under the laws of such jurisdictions as you may designate (including
filing fees and fees and disbursements of Underwriters' Counsel in
connection with such NASD filings and Blue Sky qualifications); and
all other expenses directly incurred by the Company in connection with
the performance of their obligations hereunder. Any additional
expenses incurred as a result of the sale of the Shares by the Selling
Stockholders will be borne collectively by the Company and the Selling
Stockholders. The provisions of this Section 5(a)(i) are intended to
relieve the Underwriters from the payment of the expenses and costs
which the Selling Stockholders and the Company hereby agree to pay,
but shall not affect any agreement which the Selling Stockholders and
the Company may make, or may have made, for the sharing of any of such
expenses and costs. Such agreements shall not impair the obligations
of the Company and the Selling Stockholders hereunder to the several
Underwriters.
(ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(a) hereof, it will reimburse the
Underwriters on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Company's obligation to reimburse
the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of
the prime rate (or other commercial lending rate for borrowers of the
highest credit standing) listed from time to time in The Wall Street
Journal which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks (the
"Prime Rate"). Any such interim reimbursement payments which are not
made to the Underwriters within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of
such request.
(iii) In addition to their other obligations under Section 8(b)
hereof, each Selling Stockholder agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(b) hereof relating to such
Selling Stockholder, it will reimburse the Underwriters on a monthly
basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and
enforceability of such Selling Stockholder's obligation to reimburse
the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the
Underwriters shall promptly return such payment to the Selling
Stockholders, together with interest, compounded daily, determined on
the basis of the Prime Rate. Any such interim reimbursement payments
which are not made to the Underwriters within thirty (30) days of a
request for reimbursement shall bear interest at the Prime Rate from
the date of such request.
(b) In addition to their other obligations under Section 8(c) hereof,
the Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(c) hereof, they will reimburse the Company and
each Selling Stockholder on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the absence
of a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and each such Selling
Stockholder for such expenses and the possibility that such payments might later
be held to have been improper by a court of
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competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Company and each such Selling
Stockholder shall promptly return such payment to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate. Any such
interim reimbursement payments which are not made to the Company and each such
Selling Stockholder within thirty (30) days of a request for reimbursement shall
bear interest at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5(a)(ii), 5(a)(iii)
and 5(b) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts shall
be apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii), 5(a)(iii)
and 5(b) hereof and will not resolve the ultimate propriety or enforceability of
the obligation to indemnify for expenses which is created by the provisions of
Sections 8(a), 8(b) and 8(c) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
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several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the Selling Stockholders
herein, to the performance by the Company and the Selling Stockholders of their
respective obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 P.M., San Francisco time, on the date following the date of this
Agreement, or such later date as shall be consented to in writing by you; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company, any Selling Stockholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, the following
opinion of counsel for the Company and the Selling Stockholders, dated the
Closing Date or such later date on which Option Shares are to be purchased
addressed to the Underwriters and with reproduced copies or signed counterparts
thereof for each of the Underwriters, to the effect that:
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(i) The Company and each Significant Subsidiary (as that term is
defined in Regulation S-X of the Act) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;
(ii) The Company and each Significant Subsidiary has the corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus;
(iii) Each Significant Subsidiary is duly qualified to do business as
a foreign corporation and is in good standing in_______. To such counsel's
knowledge, the Company does not own or control, directly or indirectly, any
corporation, association or other entity other than Btrieve Technologies
Japan, Ltd., Pervasive Software GmbH and Pervasive Software N.V.;
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, and the issued and
outstanding shares of capital stock of the Company (including the Selling
Stockholder Shares) have been duly and validly issued and, to such
counsel's knowledge, are fully paid and nonassessable;
(v) All issued and outstanding shares of capital stock of each
Significant Subsidiary of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and, to such counsel's
knowledge, have not been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal
or other similar right and are owned by the Company free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement have been
duly authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully
paid and nonassessable, and will not have been issued in violation of or
subject to any preemptive right, set forth in the Certificate of
Incorporation or Bylaws or, any contractual preemptive right, co-sale
right, registration right, right of first refusal or other similar right
known to such counsel;
(vii) The Company has the corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except that no opinion need be
expressed as to indemnification provisions and except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting creditors' rights generally or by general
equitable principles;
(ix) The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and other financial or statistical data
contained therein as to which such counsel need express no opinion), as of
the effective date of the Registration Statement, complied as to form in
all material respects with the requirements of the Act and the applicable
Rules and Regulations;
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<PAGE>
(xi) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters
of law or legal conclusions, has been reviewed by such counsel and is a
fair summary in all material respects of such matters and conclusions; and
the form of certificate evidencing the Common Stock and filed as an exhibit
to the Registration Statement complies with Delaware law;
(xii) The discussion under "Risk Factors--Anti-takeover Effects of
Certificate of Incorporation, Bylaws and Delaware Law", "Description of
Capital Stock" and "Shares Eligible for Future Sale" in the Registration
Statement and the Prospectus of the charter and bylaws of the Company and
of statutes are accurate and fairly present the information required to be
presented by the Act and the applicable Rules and Regulations;
(xiii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as
required;
(xiv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) result in a material breach or violation of any of the terms
and provisions of, or constitute a default under, any agreement or
instrument filed as an exhibit to the Registration Statement and to which
the Company is a party or by which its properties are bound, or any
applicable statute, rule or regulation or any order, writ or decree known
to such counsel of any court, government or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries, or over
any of their properties or operations;
(xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company or over any of their properties or
operations is necessary in connection with the consummation by the Company
of the transactions herein contemplated, except such as have been obtained
under the Act or such as may be required under state or other securities or
Blue Sky laws in connection with the purchase and the distribution of the
Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or any
of its subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules and
Regulations, other than those described therein;
(xvii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of Common Stock
or other securities, because of the filing of the Registration Statement by
the Company have, with respect to the offering contemplated thereby, waived
such rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the Registration
Statement or have included securities in the Registration Statement
pursuant to the exercise of and in full satisfaction of such rights;
(xviii) Each Selling Stockholder which is not a natural person has
full right, power and authority to enter into and to perform its
obligations under the Power of Attorney and Custody Agreement to be
executed and delivered by it in connection with the transactions
contemplated herein;
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the Power of Attorney and Custody Agreement of each Selling Stockholder
that is not a natural person has been duly authorized by such Selling
Stockholder; the Power of Attorney and Custody Agreement of each Selling
Stockholder has been duly executed and delivered by or on behalf of such
Selling Stockholder; and the Power of Attorney and Custody Agreement of
each Selling Stockholder constitutes the valid and binding agreement of
such Selling Stockholder, enforceable in accordance with its terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles;
(xix) Each of the Selling Stockholders has full power, authority and
to such counsel's knowledge, right to enter into and to perform its
obligations under this Agreement and to sell, transfer, assign and deliver
the Shares to be sold by such Selling Stockholder hereunder;
(xx) This Agreement has been duly authorized by each Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of each Selling Stockholder; and
(xxi) Upon the delivery of and payment for the Shares as contemplated
in this Agreement, each of the Underwriters will receive valid marketable
title to the Shares purchased by it from such Selling Stockholder, free and
clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest known to counsel. In rendering such opinion, such
counsel may assume that the Underwriters are without notice of any defect
in the title of the Shares being purchased from the Selling Stockholders.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not verified the accuracy or completeness of
the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement became effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on which
Option Shares are to be purchased, the Registration Statement and any amendment
or supplement thereto (other than the financial statements including supporting
schedules and other financial and statistical information derived therefrom or
contained therein, as to which such counsel need express no comment) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or at the Closing Date or any later date on which the Option Shares
are to be purchased, as the case may be, the Registration Statement, the
Prospectus and any amendment or supplement thereto (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the States of California and
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, an opinion of
Brobeck, Phleger & Harrison LLP, in form and substance satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other legal
matters relating to this Agreement and the transactions contemplated hereby as
you may reasonably require, and the Company shall have
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furnished to such counsel such documents as they may have requested for the
purpose of enabling them to pass upon such matters.
(f) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter from
Ernst & Young LLP addressed to the Underwriters, dated the Closing Date or such
later date on which Option Shares are to be purchased, as the case may be,
confirming that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations and based upon the procedures described in such letter delivered
to you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in your sole judgment, is material and adverse and that makes it, in your
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus. The Original Letter from Ernst
& Young LLP shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations, (ii) set forth their opinion with respect to their examination
of the consolidated balance sheet of the Company as of June 30, 1997 and related
consolidated statements of operations, stockholders' equity, and cash flows for
the twelve (12) months ended June 30, 1997, [(iii) state that Ernst & Young LLP
has performed the procedures set out in Statement on Auditing Standards No. 71
("SAS 71") for a review of interim financial information and providing the
report of Ernst & Young LLP as described in SAS 71 on the financial statements
for the quarter ended September 30, 1997 (the "Quarterly Financial Statements"),
(iv) state that in the course of such review, nothing came to their attention
that leads them to believe that any material modifications need to be made to
any of the Quarterly Financial Statements in order for them to be in compliance
with generally accepted accounting principles consistently applied across the
periods presented,] and (v) address other matters agreed upon by Ernst & Young
LLP and you. In addition, you shall have received from Ernst & Young LLP a
letter addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of June 30, 1997, did not disclose any weaknesses in internal controls that they
considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or
any later date on which Option Shares are to be purchased, as the case may
be, and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to the
Closing Date or any later date on which Option Shares are to be purchased,
as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the Act;
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(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations and in all
material respects conformed to the requirements of the Act and the Rules
and Regulations, the Registration Statement, and any amendment or
supplement thereto, did not and does not include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does not
include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has
not been so set forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been (a)
any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, (b) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (c)
any obligation, direct or contingent, that is material to the Company and
its subsidiaries considered as one enterprise, incurred by the Company or
its subsidiaries, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding indebtedness
of the Company or any of its subsidiaries that is material to the Company
and its subsidiaries considered as one enterprise, (e) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company or any of its subsidiaries, or (f) any loss or damage (whether or
not insured) to the property of the Company or any of its subsidiaries
which has been sustained or will have been sustained which has a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(h) You shall be satisfied that, and you shall have received a
certificate, dated the Closing Date, or any later date on which Option Shares
are to be purchased, as the case may be, from the Attorneys for each Selling
Stockholder to the effect that, as of the Closing Date, or any later date on
which Option Shares are to be purchased, as the case may be, they have not been
informed that:
(i) The representations and warranties made by such Selling
Stockholder herein are not true or correct in any material respect on the
Closing Date or on any later date on which Option Shares are to be
purchased, as the case may be; or
(ii) Such Selling Stockholder has not complied with any obligation or
satisfied any condition which is required to be performed or satisfied on
the part of such Selling Stockholder at or prior to the Closing Date or any
later date on which Option Shares are to be purchased, as the case may be.
(i) The Company shall have obtained and delivered to you an agreement
from each officer and director of the Company, each Selling Stockholder and each
other person named in the table under the caption "Principal and Selling
Stockholders" in the Prospectus, in writing prior to the date hereof that such
person will not, during the Lock-up Period, effect the Disposition of any
Securities now owned directly by such person or with respect to which such
person has the power of disposition, otherwise than (i) as a bona fide gift or
gifts, provided the donee or donees thereof agree in writing to be bound by this
restriction, (ii) as a distribution to partners or stockholders of such person,
provided that the distributees thereof agree in writing to be bound by the terms
of this restriction, or (iii) with the prior written consent of Robertson,
Stephens & Company LLC. The foregoing restriction shall have been expressly
agreed to preclude the holder of the Securities from engaging in any hedging or
other transaction which is designed to or reasonably
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expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
such holder. Such prohibited hedging or other transactions would including,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Such person will have
also agreed and consented to the entry of stop transfer instructions with the
Company's transfer agent against the transfer of the Securities held by such
person except in compliance with this restriction. Furthermore, such person will
have also agreed that, without the prior written consent of Robertson, Stephens
& Company LLC, such person will not, during the period ending with the
conclusion of the Lock-Up Period, make any demand for or exercise any right with
respect to, the registration of any Securities, except pursuant to the
Registration Statement to the extent set forth in Exhibit B hereto.
(j) The Company and the Selling Stockholders shall have furnished to
you such further certificates and documents as you shall reasonably request
(including certificates of officers of the Company, the Selling Stockholders or
officers of the Selling Stockholders (when the Selling Stockholder is not a
natural person)) as to the accuracy of the representations and warranties of the
Company and the Selling Stockholders herein, as to the performance by the
Company and the Selling Stockholders of their respective obligations hereunder
and as to the other conditions concurrent and precedent to the obligations of
the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company and the Selling Stockholders will furnish
you with such number of conformed copies of such opinions, certificates, letters
and documents as you shall reasonably request.
7. Option Shares.
-------------
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Selling Stockholders, severally and not jointly, hereby grant to the several
Underwriters, for the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares only, a nontransferable option to
purchase up to an aggregate of 600,000 Option Shares at the purchase price per
share for the Firm Shares set forth in Section 3 hereof. Such option may be
exercised by the Representatives on behalf of the several Underwriters on one
(1) or more occasions in whole or in part during the period of thirty (30) days
after the date on which the Firm Shares are initially offered to the public, by
giving written notice to the Company. The number of Option Shares to be
purchased by each Underwriter from each Selling Stockholder upon the exercise of
such option shall be the same proportion of the total number of Option Shares to
be purchased by the several Underwriters pursuant to the exercise of such option
as the number of Firm Shares purchased by such Underwriter (set forth in
Schedule A hereto) bears to the total number of Firm Shares purchased by the
several Underwriters (set forth in Schedule A hereto), adjusted by the
Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Custodian for the
respective accounts of the Selling Stockholders (and the Custodian agrees not to
deposit any such check in the bank on which it is drawn, and not to take any
other action with the purpose or effect of receiving immediately available
funds, until the business day following the date of its delivery to the
Custodian). In the event of any breach of the foregoing, the Custodian shall
reimburse the Underwriters for the interest lost and any other expenses borne by
them by reason of such breach. Such delivery and payment shall take place at
the offices of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
8911 Capital of Texas Highway, Suite 4140, Austin, Texas, or at such other place
as may be agreed upon among the Representatives and the Company (i) on the
Closing Date, if written notice of the exercise of such option is received by
the Company at least two (2) full business days prior to the Closing Date, or
(ii) on a date which shall not be later than the third (3rd) full business day
following the date the
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Company receives written notice of the exercise of such option, if such notice
is received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may be
made by credit through full fast transfer to the accounts at The Depository
Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose funds shall not have been received by you prior to the date of payment and
delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company and the Selling Stockholders herein, to
the accuracy of the statements of the Company, the Selling Stockholders and
officers of the Company made pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder, to the conditions set forth in Section 6 hereof, and to
the condition that all proceedings taken at or prior to the payment date in
connection with the sale and transfer of such Option Shares shall be
satisfactory in form and substance to you and to Underwriters' Counsel, and you
shall have been furnished with all such documents, certificates and opinions as
you may request in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company and the Selling Stockholders or the
satisfaction of any of the conditions herein contained.
8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
-------- -------
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or any
such amendment or supplement thereto, in reliance upon, and in conformity with,
written information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, provided further, that the indemnity agreement provided in this
-------- -------
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
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such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject
(including, without limitation, in its capacity as an Underwriter or as a
"qualified independent underwriter" within the meaning of Schedule E or the
Bylaws of the NASD) under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Selling Stockholder
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in the case of subparagraphs (ii) and (iii) of this Section 8(b) to
the extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company or such Underwriter
by such Selling Stockholder, directly or through such Selling Stockholder's
representatives, specifically for use in the preparation thereof, and agrees to
reimburse each Underwriter for any legal or other expenses reasonably incurred
by it in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
-------- -------
provided in this Section 8(b) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
losses, claims, damages, liabilities or actions based upon any untrue statement
or alleged untrue statement of a material fact or omission or alleged omission
to state therein a material fact purchased Shares, if a copy of the Prospectus
in which such untrue statement or alleged untrue statement or omission or
alleged omission was corrected had not been sent or given to such person within
the time required by the Act and the Rules and Regulations, unless such failure
is the result of noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
such Selling Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and each Selling Stockholder against any losses,
claims, damages or liabilities, joint or several, to which the Company or such
Selling Stockholder may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and each such Selling
-24-
<PAGE>
Stockholder for any legal or other expenses reasonably incurred by the Company
and each such Selling Stockholder in connection with investigating or defending
any such loss, claim, damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company, each Selling Stockholder and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which
each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 8, notify the indemnifying party in writing of the commencement
thereof but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party otherwise than
under this Section 8. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
-------- -------
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a),
8(b) or 8(c) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
--------
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on all
claims that are the subject matter of such proceeding.
(e) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
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 Section 8 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that, except as set forth
in Section 8(f) hereof, the Underwriters severally and not jointly are
responsible pro rata for the portion represented by the percentage that the
underwriting discount bears to the initial public offering price, and the
Company and the Selling Stockholders are responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute any
- -------- -------
amount in excess of the amount by which the underwriting discount applicable to
the Shares purchased by such Underwriter exceeds the amount of damages which
such Underwriter has otherwise required to pay and (ii) no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution
-25-
<PAGE>
from any person who is not guilty of such fraudulent misrepresentation. The
contribution agreement in this Section 8(e) shall extend upon the same terms and
conditions to, and shall inure to the benefit of, each person, if any, who
controls any Underwriter, the Company or any Selling Stockholder within the
meaning of the Act or the Exchange Act and each officer of the Company who
signed the Registration Statement and each director of the Company.
(f) The liability of each Selling Stockholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the initial public offering price of the Selling
Stockholder Shares sold by such Selling Stockholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by such
Selling Stockholder. The Company and such Selling Stockholders may agree, as
among themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act.
9. Representations, Warranties, Covenants and Agreements to Survive
----------------------------------------------------------------
Delivery. All representations, warranties, covenants and agreements of the
- --------
Company, the Selling Stockholders and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Stockholder, or
any of their officers, directors or controlling persons within the meaning of
the Act, and shall survive the delivery of the Shares to the several
Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
----------------------------
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another underwriter
or underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24) hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement, supplements to the Prospectus
-26-
<PAGE>
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or substitute another underwriter or underwriters as aforesaid
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in Sections 5
and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Stockholders and the other Underwriters for damages, if any, resulting from such
default) be liable to the Company or any Selling Stockholder (except to the
extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco time, on the first business day following the effective date
of the Registration Statement, or (ii) the time of the initial public offering
of any of the Shares by the Underwriters after the Registration Statement
becomes effective. The time of the initial public offering shall mean the time
of the release by you, for publication, of the first newspaper advertisement
relating to the Shares, or the time at which the Shares are first generally
offered by the Underwriters to the public by letter, telephone, telegram or
telecopy, whichever shall first occur. By giving notice as set forth in Section
12 before the time this Agreement becomes effective, you, as Representatives of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective without liability of any party to any other party, except as
provided in Sections 4(j), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
or any Selling Stockholder shall have failed, refused or been unable to perform
any agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse, or (ii) if additional material governmental restrictions, not in
force and effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such exchange or in the over the counter
market by the NASD, or if a banking moratorium shall have been declared by
federal, New York or California authorities, or (iii) if the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as to interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured, or (iv) if there shall have been a material adverse change in the
general political or economic conditions or financial markets as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have been an
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency which,
in the reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. In the event of termination pursuant to subparagraph (i) above,
the Company shall remain obligated to pay costs and expenses pursuant
-27-
<PAGE>
to Sections 4(j), 5 and 8 hereof. Any termination pursuant to any of
subparagraphs (ii) through (v) above shall be without liability of any party to
any other party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
-------
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to 8834 Capital of Texas Highway, Austin,
Texas 78759, telecopier number (512) 794-1762, Attention: Ron R. Harris,
President and Chief Executive Officer; if sent to one or more of the Selling
Stockholders, such notice shall be sent mailed, delivered, telegraphed (and
confirmed by letter) or telecopied (and confirmed by letter) to Ron R. Harris or
James R. Offerdahl, as Attorney-in-Fact for the Selling Stockholders, at 8834
Capital of Texas Highway, Suite 300, Austin, Texas 78759, telecopier number
(512) 794-1762.
13. Parties. This Agreement shall inure to the benefit of and be binding
-------
upon the several Underwriters and the Company and the Selling Stockholders and
their respective executors, administrators, successors and assigns. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling persons
within the meaning of the Act or the Exchange Act, officers and directors
referred to in Section 8 hereof, any legal or equitable right, remedy or claim
in respect of this Agreement or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders under
this Agreement, you shall act on behalf of each of the several Underwriters, and
the Company and the Selling Stockholders shall be entitled to act and rely upon
any statement, request, notice or agreement made or given by you jointly or by
Robertson, Stephens & Company LLC on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and construed in
--------------
accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
------------
each of which will constitute an original.
[Signature page follows]
-28-
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling Stockholders
and the several Underwriters.
Very truly yours,
PERVASIVE SOFTWARE INC.
By
-----------------------------------------
SELLING STOCKHOLDERS
By
-----------------------------------------
Attorney-in-Fact for the Selling
Stockholders named in Schedule B
hereto
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY LLC
UBS SECURITIES LLC
FIRST ALBANY CORPORATION
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By ROBERTSON, STEPHENS & COMPANY LLC
By ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By
-----------------------------------
Authorized Signatory
-29-
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
- --------------------------- ------------
<S> <C>
Robertson, Stephens & Company LLC...........................
UBS Securities LLC..........................................
First Albany Corporation....................................
[NAMES OF OTHER UNDERWRITERS]...............................
---------
Total................................................. 4,000,000
=========
</TABLE>
-1-
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Company
Shares To
Company Be Sold
- ------------------------- ------------
<S> <C>
-----------
Total................................................. 2,000,000
===========
<CAPTION>
Number of
Selling
Stockholder
Shares
Name of Selling Stockholder To Be Sold
- -------------------------------------------------------------------------
<S> <C>
-----------
Total................................................. 2,000,000
===========
</TABLE>
-1-
<PAGE>
September 2, 1997
Exhibit 5.1
Pervasive Software Inc.
8834 Capital of Texas Highway, Suite 300
Austin, TX 78759
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333-
32199) originally filed by Pervasive Software Inc. (the "Company") with the
Securities and Exchange Commission (the "Commission") on July 28, 1997, as
thereafter amended or supplemented (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of up to
4,600,000 shares of the Company's Common Stock (the "Shares"). The Shares,
which include an over-allotment option granted by certain stockholders of the
Company to the Underwriters to purchase up to 600,000 additional shares of the
Company's Common Stock, are to be sold to the Underwriters by the Company and
certain stockholders of the Company as described in the Registration Statement
for resale to the public. As your counsel in connection with this transaction,
we have examined the proceedings taken and are familiar with the proceedings
proposed to be taken by you in connection with the sale and issuance of the
Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement and in accordance with the
resolutions adopted by the Board of Directors of the Company, will be legally
and validly issued, fully paid and non-assessable. The Shares being sold by the
stockholders of the Company have been validly issued, are non-assessable and, to
our knowledge, are fully paid. Our opinion with respect to the Shares being
sold by the stockholders of the Company being fully paid is based solely upon
your written representations to us with respect to the consideration received
for such Shares.
We consent to the use of this opinion as an exhibit to said Registration
Statement, and further consent to the use of our name wherever appearing in said
Registration Statement, including the prospectus constituting a part thereof,
and in any amendment or supplement thereto.
Very truly yours,
/s/ Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
<PAGE>
EXHIBIT 10.2
PERVASIVE SOFTWARE INC.
1997 STOCK INCENTIVE PLAN
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE ONE - GENERAL PROVISIONS............................... 1
I. PURPOSE OF THE PLAN.................................. 1
II. STRUCTURE OF THE PLAN................................ 1
III. ADMINISTRATION OF THE PLAN........................... 1
IV. ELIGIBILITY.......................................... 2
V. STOCK SUBJECT TO THE PLAN............................ 3
ARTICLE TWO - DISCRETIONARY OPTION GRANT PROGRAM............... 4
I. OPTION TERMS......................................... 4
A. Exercise Price.................................... 4
B. Exercise and Term of Options...................... 5
C. Effect of Termination of Service.................. 5
D. Stockholder Rights................................ 6
E. Repurchase Rights................................. 6
F. Limited Transferability of Options................ 6
II. INCENTIVE OPTIONS.................................... 7
A. Eligibility....................................... 7
B. Exercise Price.................................... 7
C. Dollar Limitation................................. 7
D. 10% Stockholder................................... 7
III. CORPORATE TRANSACTION/CHANGE IN CONTROL.............. 7
IV. STOCK APPRECIATION RIGHTS............................ 9
ARTICLE THREE - STOCK ISSUANCE PROGRAM......................... 10
I. STOCK ISSUANCE TERMS................................. 10
A. Purchase Price.................................... 10
B. Vesting Provisions................................ 10
II. CORPORATE TRANSACTION/CHANGE IN CONTROL.............. 12
III. SHARE ESCROW/LEGENDS................................. 12
ARTICLE FOUR - AUTOMATIC OPTION GRANT PROGRAM.................. 12
</TABLE>
2
<PAGE>
<TABLE>
<S>............................................................ <C>
I. OPTION TERMS......................................... 12
A. Grant Dates........................................ 12
B. Exercise Price..................................... 13
C. Option Term........................................ 13
D. Exercise and Vesting of Options.................... 13
E. Effect of Termination of Board Service............. 13
II. CORPORATE TRANSACTION/CHANGE IN CONTROL.............. 14
III. REMAINING TERMS...................................... 14
ARTICLE FIVE - MISCELLANEOUS.................................... 15
I. FINANCING............................................ 15
II. CANCELLATION AND REGRANT OF OPTIONS.................. 15
III. TAX WITHHOLDING...................................... 15
IV. EFFECTIVE DATE AND TERM OF THE PLAN.................. 16
V. AMENDMENT OF THE PLAN................................ 17
VI. USE OF PROCEEDS...................................... 17
VII. REGULATORY APPROVALS................................. 17
VIII. NO EMPLOYMENT/SERVICE RIGHTS......................... 17
</TABLE>
3
<PAGE>
PERVASIVE SOFTWARE INC.
1997 STOCK INCENTIVE PLAN
-------------------------
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Incentive Plan is intended to promote the interests of
Pervasive Software Inc., a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares
or as a bonus for services rendered the Corporation (or any Parent or
Subsidiary), and
(iii) the Automatic Option Grant Program under which Eligible
Directors shall automatically receive option grants at periodic intervals
to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have authority to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders. Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee. In addition, the Board may retain the power
to administer the Plan with respect to all persons. The members of the
Secondary Committee may be Board members who are Employees eligible to receive
discretionary option grants or stock issuances
<PAGE>
under the Plan or any stock option, stock appreciation, stock bonus or other
stock plan of the Corporation (or any Parent or Subsidiary).
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any time terminate the
functions of any committee and reassume all powers and authority previously
delegated to such committee.
C. The Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority to
establish such rules and regulations as it may deem appropriate for proper
administration of the Plan and to make such determinations under, and issue such
interpretations of, the provisions of any program and any outstanding options
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the Plan under
its jurisdiction or any option thereunder.
D. Service on the Primary Committee or Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary or
Secondary Committee shall be liable for any act or omission made in good faith
with respect to the Plan or any option grants or stock issuances made under the
Plan.
E. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program; however, the Plan
Administrator (other than the Secondary Committee) may exercise any
discretionary functions it deems advisable with respect to option grants made
thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or of the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Nonstatutory Option, the time or times at which each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain
2
<PAGE>
outstanding and (ii) with respect to stock issuances under the Stock Issuance
Program, which eligible persons are to receive stock issuances, the time or
times when such issuances are to be made, the number of shares to be issued to
each Participant, the vesting schedule (if any) applicable to the issued shares
and the consideration to be paid by the Participant for such shares.
C. The individuals eligible to receive option grants under the
Automatic Option Grant Program shall be (i) those individuals who are first
elected or appointed as non-employee Board members after the Automatic Option
Grant Program Effective Date, whether through appointment by the Board or
election by the Corporation's stockholders, and (ii) those individuals who
continue to serve as non-employee Board members after one or more Annual
Stockholders Meetings held after the Automatic Option Grant Program Effective
Date. A non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
initial option grant under the Automatic Option Grant Program at the time he or
she first becomes a non-employee Board member, but such individual shall be
eligible to receive periodic option grants under the Automatic Option Grant
Program.
D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall initially not exceed
3,428,611 shares. Such authorized share reserve is comprised of (i) the number
of shares which remained available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's stockholders
prior to such date, including the shares subject to the outstanding options
incorporated into the Plan, plus (ii) an additional increase of 1,168,914 shares
authorized by the Board under the Plan, subject to stockholder approval. If
shares of Common Stock issued upon the exercise of Options or issued directly
are repurchased, then such shares of Common Stock shall again become available
for issuance pursuant to option grants or share awards under the Plan. The
foregoing notwithstanding, the aggregate number of shares of Common Stock that
may be issued under the Plan upon the exercise of incentive stock options shall
not exceed 3,428,611.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on July 1 each calendar year beginning
July 1, 1998 and ending July 1, 2000, by an amount equal to five percent (5%) of
the shares of Common Stock outstanding on the trading day immediately preceding
July 1; but in no event shall any such annual increase exceed 1,000,000 shares.
C. No one person participating in the Plan may receive options and
separately exercisable stock appreciation rights for more than 500,000 shares of
Common Stock in the aggregate each calendar year.
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<PAGE>
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
canceled in accordance with the cancellation-regrant provisions of Article Four.
E. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the maximum number and/or class of securities for which the
share reserve is to increase automatically each year, (iii) the number and/or
class of securities for which any one person may be granted options over the
term of the Plan, (iv) the number and/or class of securities for which automatic
option grants are to be subsequently made per Eligible Director under the
Automatic Option Grant Program and (v) the number and/or class of securities and
the exercise price per share in effect under each outstanding option (including
any option incorporated from the Predecessor Plan) in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Five and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
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<PAGE>
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable written instructions to
(a) a Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
----------------------------
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent it is not exercisable for vested shares on
the date of such cessation of Service.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
5
<PAGE>
(v) In the event of a Corporate Transaction, the provisions
of Section III of this Article Two shall govern the period for which the
outstanding options are to remain exercisable following the Optionee's
cessation of Service and shall supersede any provisions to the contrary in
this section.
2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from the
period otherwise in effect for that option to such greater period of time
as the Plan Administrator shall deem appropriate, but in no event beyond
the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the Optionee
would have vested under the option had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the document evidencing
such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
----------------------------------
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Nonstatutory Option may
be assigned (i) to a member of the immediate family of the Optionee or to a
trust established for the benefit of one or more members of the immediate family
of the Optionee, provided that the assignment shall not be effective until
written notice of the assignment is received by the Plan Administrator, or (ii)
in accordance with terms approved in advance by the Plan Administrator. The
terms applicable to the assigned option (or portion thereof) shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four shall
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<PAGE>
be applicable to Incentive Options. Options which are specifically designated as
Nonstatutory Options when issued under the Plan shall not be subject to the
---
terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
-----------
B. EXERCISE PRICE. The exercise price per share shall not be less
--------------
than 100% of the Fair Market Value per share of Common Stock on the option grant
date.
C. DOLLAR LIMITATION. To the extent required by Code Section 422,
-----------------
the aggregate Fair Market Value of the shares of Common Stock (determined as of
the respective date or dates of grant) for which one or more options granted to
any Employee under the Plan (or any other option plan of the Corporation or any
Parent or Subsidiary) may for the first time become exercisable as Incentive
Options during any one (1) calendar year shall not exceed the sum of $100,000.
To the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation shall be applied on the basis of the order in which such options are
granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then to the extent required by Code Section 422,
the exercise price per share shall not be less than 110% of the Fair Market
Value per share of Common Stock on the option grant date, and the option term
shall not exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction or Change in Control,
each outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction or
Change in Control, vest and become exercisable for an additional number of
shares of Common Stock as if the optionee had been in Service for an additional
twelve (12) months. In addition, each such option shall, immediately prior to
the effective date of the Corporate Transaction or Change in Control, vest and
become fully exercisable for all of the shares of Common Stock at the time
subject to such option except that an outstanding option shall NOT fully
accelerate if and to the extent: (i) such option is, in connection with the
Corporate Transaction or Change in Control, either to be assumed by the
successor corporation (or parent thereof) or to be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation (or
parent thereof), (ii) such option is to be replaced with a cash incentive
program of the successor corporation which preserves the Spread (as defined
below) existing on the unvested option shares at the time of the Corporate
Transaction or Change in Control and provides for subsequent payout in
accordance with the same vesting schedule applicable to such option or (iii)
the acceleration of such option is subject to other limitations imposed by the
Plan Administrator at the time of the option grant. The determination of option
comparability under clause (i) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive. Spread shall mean
the difference between the Fair Market Value of the underlying shares and the
option exercise price on the date of the transaction.
7
<PAGE>
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest, as if the optionee had been in Service for an additional
twelve (12) months immediately prior to the effective date of the Corporate
Transaction or Change in Control. In addition, outstanding repurchase rights
shall terminate in full, in the event of any Corporate Transaction or Change in
Control, except to the extent: (i) those repurchase rights are to be assigned to
the successor corporation (or parent thereof) in connection with such Corporate
Transaction or Change in Control or (ii) such accelerated vesting is precluded
by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof). Any options accelerated in connection with a Change in Control
shall remain fully exercisable until the expiration or sooner termination of the
option term.
D. Each option which is assumed in connection with a Corporate
Transaction or Change in Control shall be appropriately adjusted, immediately
after such transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction or Change in Control had the option been exercised immediately prior
to such transaction. Appropriate adjustments shall also be made to (i) the
number and class of securities available for issuance under the Plan on both an
aggregate and per Optionee basis following the consummation of such Corporate
Transaction or Change in Control and (ii) the exercise price payable per share
under each outstanding option, provided the aggregate exercise price payable for
--------
such securities shall remain the same.
E. Any options which are assumed or replaced in the Corporate
Transaction or Change in Control and do not otherwise accelerate at that time,
shall automatically accelerate to vest in full (and any of the Corporation's
outstanding repurchase rights which do not otherwise terminate at the time of
the Corporate Transaction or Change in Control shall automatically terminate and
the shares of Common Stock subject to those terminated rights shall immediately
vest in full) in the event the Optionee's Service should subsequently terminate
by reason of an Involuntary Termination within twelve (12) months following the
effective date of such Corporate Transaction or Change in Control. Any options
so accelerated shall remain exercisable for all of the shares which are then
exercisable and/or vested until the earlier of (i) the expiration of the option
-------
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination.
F. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction or
Change in Control or (ii) condition any such option acceleration (and the
termination of any outstanding repurchase rights) upon the subsequent
Involuntary Termination of the Optionee's Service within a specified period
following the effective date of such Corporate Transaction or Change in Control.
8
<PAGE>
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable $100,000 limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Nonstatutory Option under the
Federal tax laws.
H. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect between
the exercise of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (A) the Fair Market Value
(on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall be entitled may be made in
shares of Common Stock valued at Fair Market Value on the option surrender
date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (A) five (5) business days after the receipt of the rejection
-----
notice or (B) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
9
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. PURCHASE PRICE
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the stock issuance date.
2. Subject to the provisions of Section I of Article Four,
shares of Common Stock may be issued under the Stock Issuance Program for one or
both of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS
------------------
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives or any combination thereof. The elements of the vesting schedule
applicable to any unvested shares of Common Stock issued under the Stock
Issuance Program, namely:
(i) the Service period to be completed by the Participant or
the performance objectives to be attained,
(ii) the number of installments in which the shares are to
vest,
(iii) the interval or intervals (if any) which are to lapse
between installments, and
(iv) the effect which death, Permanent Disability or other
event designated by the Plan Administrator is to have upon the vesting
schedule, shall be determined by the Plan Administrator and incorporated
into the Stock Issuance Agreement.
10
<PAGE>
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares. However,
unvested shares may, in the Plan Administrator's discretion, be held in escrow
by the Corporation until the optionee's interest in such shares vests or may be
issued directly to the optionee with restrictive legends on the certificates
evidencing those unvested shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock (or
other assets attributable thereto) which would otherwise occur upon the non-
completion of the vesting schedule applicable to such shares. Such waiver shall
result in the immediate vesting of the Participant's interest in the shares of
Common Stock as to which the waiver applies. Such waiver may be effected at any
time, whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. Immediately prior to the effective date of a Corporate
Transaction or Change in Control, the Corporation's outstanding repurchase
rights under the Stock Issuance Program shall terminate and the Participant
shall vest as if the Participant had been in Service for an additional twelve
(12) months. In addition, outstanding repurchase rights shall terminate
automatically, and all the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Corporate Transaction
or Change in Control, except to the extent (i) those repurchase rights are
assigned to the successor corporation (or parent thereof) in connection with
11
<PAGE>
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's repurchase right remains outstanding, to provide for the automatic
termination of one or more outstanding repurchase rights, and the immediate
vesting of the shares of Common Stock subject to those rights, upon the
occurrence of a Corporate Transaction or Change in Control, whether or not those
repurchase rights are assigned in connection with the Corporate Transaction or
Change in Control.
C. Any repurchase rights that are assigned in the Corporate
Transaction or Change in Control shall automatically terminate, and all the
shares of Common Stock subject to those terminated rights shall immediately vest
in full, in the event the Optionee's Service should subsequently terminate by
reason of an Involuntary Termination within twelve (12) months following the
effective date of such Corporate Transaction or Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
-----------
below:
1. Each Eligible Director who is first elected or appointed as
a non-employee Board member after the Plan Effective Date shall automatically be
granted on the date of such initial election or appointment (as the case may
be), a Nonstatutory Option to purchase 20,000 shares of Common Stock.
2. On the date of each Annual Stockholders Meeting, beginning
with the first Annual Meeting after June 30, 1998, each individual who is to
continue to serve as an Eligible Director after such meeting, shall
automatically be granted, whether or not such individual is standing for re-
election as a Board member at that Annual Meeting, a Nonstatutory Option to
purchase 5,000 shares of Common Stock, provided such individual has served as a
non-employee Board member for at least six (6) months prior to the date of such
Annual Meeting. There shall be no limit on the number of such 5,000-share
option grants any one Eligible Director may receive over his or her period of
Board service.
12
<PAGE>
B. EXERCISE PRICE.
--------------
1. The exercise price per share shall be equal to 100% of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall become
-------------------------------
exercisable for the option shares in a series of four (4) equal and successive
annual installments over the Optionee's period of continued service as a Board
member, with the first such installment to vest upon the Optionee's completion
of one (1) year of Board service measured from the option grant date.
E. EFFECT OF TERMINATION OF BOARD SERVICE. The following provisions
--------------------------------------
shall govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution) shall have a twelve
(12)-month period following the date of such cessation of Board service in
which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option may
not be exercised in the aggregate for more than the number of shares of
Common Stock for which the option is exercisable at the time of the
Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then the option shall immediately
vest so that such option may, during the twelve (12)-month exercise period
following such cessation of Board service, be exercised for all or any
portion of such shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12)-
month exercise period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be outstanding for any shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Board service, terminate and
cease to be outstanding to the extent it is not exercisable on the date of
such cessation of Board service.
<PAGE>
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction or Change in Control,
each outstanding automatic option shall, immediately prior to the effective date
of the Corporate Transaction or Change in Control, vest and become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of such shares of Common
Stock. Immediately following the consummation of the Corporate Transaction or
Change in Control, each automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
<PAGE>
ARTICLE FIVE
MISCELLANEOUS
-------------
I. FINANCING
A. The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price or the purchase price of shares by delivering a
promissory note payable in one or more installments. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. Promissory
notes may be authorized with or without security or collateral. In all events,
the maximum credit available to the Optionee may not exceed the sum of (i) the
aggregate option exercise price or purchase price payable for the purchased
shares plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or Participant in connection with the
acquisition of shares.
B. The Plan Administrator may, in its discretion, determine that one
or more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.
II. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan (including
outstanding options incorporated from the Predecessor Plan) and to grant in
substitution new options covering the same or different number of shares of
Common Stock but with an exercise price per share based on the Fair Market Value
per share of Common Stock on the new option grant date
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or upon the issuance or vesting of such shares
under the Plan shall be subject to the satisfaction of all applicable Federal,
state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Nonstatutory Options or unvested shares of Common Stock under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Taxes incurred by such holders in connection with the exercise of their
options. Such right may be provided to any such holder in either or both of the
following formats:
(i) Stock Withholding: The election to have the Corporation
-----------------
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Nonstatutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed 100%) designated by the holder.
<PAGE>
(ii) Stock Delivery: The election to deliver to the Corporation,
--------------
at the time the Nonstatutory Option is exercised or the shares vest, one or
more shares of Common Stock previously acquired by such holder (other than
in connection with the option exercise triggering the Taxes) with an
aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed 100%) designated by the holder.
IV. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant Program and Stock Issuance Program
shall become effective on the Plan Effective Date and options may be granted
under the Discretionary Option Grant Program from and after the Plan Effective
Date. The Automatic Option Grant Program shall become effective on the
Automatic Option Grant Program Effective Date. However, no options granted
under the Plan may be exercised until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then all options previously granted under
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan as of such date shall, immediately upon approval of the
Plan by the Corporation's stockholders, be incorporated into the Plan and
treated as outstanding options under the Plan. However, each outstanding option
so incorporated shall continue to be governed solely by the terms of the
documents evidencing such option, and no provision of the Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. The option/share vesting acceleration provisions of Article Two
relating to Corporate Transactions and Changes in Control shall be extended to
all options incorporated from the Predecessor Plan and shall also apply to all
shares purchased upon exercise of options granted under the Predecessor Plan.
The foregoing shall not be deemed to extend the period of time available to an
optionee to exercise an option following a termination of Service or an
Involuntary Termination.
D. The Plan shall terminate upon the earliest of (i) June 30, 2007,
--------
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options or issuance of shares
under the Plan or (iii) the termination of all outstanding options in connection
with a Corporate Transaction. Upon such Plan termination, all options
outstanding on such date shall thereafter continue to have force and effect in
accordance with the provisions of the documents evidencing such options.
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to options or stock appreciation rights or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the
<PAGE>
Participant consents to such amendment or modification. Notwithstanding the
foregoing, the Plan Administrator may amend an outstanding option to reduce the
number of option shares previously granted to an optionee provided the reduction
applies solely to unvested shares or shares which have not yet become
exercisable as of the date of the amendment. An amendment of the Plan shall be
subject to the approval of the Corporation's stockholders only to the extent
required by applicable laws, regulations or rules.
B. Options to purchase shares of Common Stock may be granted under
the Plan and shares of Common Stock may be issued under the Stock Issuance
Program that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued are held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained
within twelve (12) months after the date the first such excess issuances are
made, then (i) any unexercised options granted on the basis of such excess
shares shall terminate and cease to be outstanding and (ii) the Corporation
shall promptly refund to the Optionees or Participants the exercise price or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically canceled and cease to be outstanding.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VII. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option or stock
appreciation right under the Plan and the issuance of any shares of Common Stock
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options and stock appreciation rights granted under it and the shares of Common
Stock issued pursuant to it.
VIII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
------------------------------
grant program in effect under the Plan.
B. AUTOMATIC OPTION GRANT PROGRAM EFFECTIVE DATE shall mean the
---------------------------------------------
Section 12(g) Registration Date.
C. BOARD shall mean the Corporation's Board of Directors.
-----
D. CHANGE IN CONTROL shall mean a change in ownership or control of
-----------------
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
E. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
F. COMMON STOCK shall mean the Corporation's common stock.
------------
G. CORPORATE TRANSACTION shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
<PAGE>
H. CORPORATION shall mean Pervasive Software Inc., a Delaware
-----------
corporation.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
----------------------------------
option grant program in effect under the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible
-----------------
to participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall
-------------
have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of option grants made on the date the
Underwriting Agreement is executed and the initial public offering price of
the Common Stock is established, the Fair Market Value shall be deemed to
be equal to the established initial offering price per share. For purposes
of option grants made prior to such date, the Fair Market Value shall be
determined by the Plan Administrator after taking into account such factors
as the Plan Administrator shall deem appropriate.
N. INCENTIVE OPTION shall mean an option which satisfies the
----------------
requirements of Code Section 422.
<PAGE>
O. INVOLUNTARY TERMINATION shall mean the termination of the Service
-----------------------
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
bonus or incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than fifty (50)
miles, provided and only if such change, reduction or relocation is
effected by the Corporation without the individual's consent.
P. MISCONDUCT shall mean the commission of any act of fraud,
----------
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or other person in the Service of the Corporation (or any Parent
or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
--------
amended.
R. NONSTATUTORY OPTION shall mean an option not intended to satisfy
-------------------
the requirements of Code Section 422.
S. OPTIONEE shall mean any person to whom an option is granted under
--------
the Discretionary Option Grant or Automatic Option Grant Program.
T. PARENT shall mean any corporation (other than the Corporation) in
------
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PARTICIPANT shall mean any person who is issued shares of Common
-----------
Stock under the Stock Issuance Program.
V. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
--------------------------------------------
inability of the Optionee to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.
<PAGE>
W. PLAN shall mean the Corporation's 1997 Stock Incentive Plan, as
----
set forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
------------------
Committee or the Board, which is authorized to administer the Plan with respect
to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under the Plan with respect to the
persons under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean July 1, 1997.
-------------------
Z. PREDECESSOR PLAN shall mean the Corporation's existing First
----------------
Amended and Restated 1994 Incentive Plan.
AA. PRIMARY COMMITTEE shall mean the committee of two (2) or more
-----------------
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant Program with respect to Section 16 Insiders.
BB. SECONDARY COMMITTEE shall mean a committee of one (1) or more
-------------------
Board members appointed by the Board to administer the Discretionary Option
Grant Program with respect to eligible persons other than Section 16 Insiders.
CC. SECTION 16 INSIDER shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
DD. SECTION 12(G) REGISTRATION DATE shall mean the first date on
-------------------------------
which the Common Stock is registered under Section 12(g) of the 1934 Act.
EE. SERVICE shall mean the provision of services to the Corporation
-------
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
FF. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
GG. STOCKHOLDER shall mean the owner of stock (as determined under
-----------
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
HH. SUBSIDIARY shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
<PAGE>
II. TAXES shall mean the Federal, state and local income and
-----
employment tax liabilities incurred by the holder of Nonstatutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
JJ. UNDERWRITING AGREEMENT shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
<PAGE>
Exhibit 10.3
PERVASIVE SOFTWARE INC.
EMPLOYEE STOCK PURCHASE PLAN
(AS ADOPTED EFFECTIVE SEPTEMBER __, 1997)
<PAGE>
PERVASIVE SOFTWARE INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of Pervasive Software Inc. by providing eligible employees with the opportunity
to acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under
Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 500,000
shares.
B. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive or overlapping Offering Periods until such
time as (i) the maximum number of shares of Common Stock available for issuance
under the Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
B. Each Offering Period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date. The
<PAGE>
initial Offering Period shall commence at the Effective Time and terminate on
the last business day in October 1999. The next Offering Period shall commence
on the first business day in May 1998, and subsequent Offering Periods shall
commence every six (6) months thereafter on the first business day in November
and May each year unless otherwise designated by the Plan Administrator. The
Plan Administrator shall have complete discretion to change the start date and
the duration of an Offering Period provided a notification to Eligible Employees
is distributed prior to the start date of any Purchase Period within an Offering
Period for which such change is to be effective and provided, further, that no
Offering Period shall have a duration exceeding twenty-seven (27) months.
C. Each Offering Period shall be comprised of a series of one or
more successive Purchase Periods. Purchase Periods shall begin on the first
business day in May and November each year and terminate on the last business
day in the following October and April, respectively. However, the first
Purchase Period under the initial Offering Period shall commence at the
Effective Time and terminate on the last business day in April 1998. The Plan
Administrator shall have complete discretion to change the start date and the
duration of a Purchase Period provided a notification to Eligible Employees is
distributed prior to the start date of the Purchase Period and provided,
further, that no Purchase Period within an Offering Period shall have a duration
exceeding the scheduled expiration date of that Offering Period.
D. For purposes of calculating the purchase price under Paragraph
VII.C, the applicable Offering Period shall be determined as follows:
-- Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her until
the earliest of (A) the end of such Offering Period, (B) the end of his or
her participation under Paragraph V.A above or (C) re-enrollment in a
subsequent Offering Period under subparagraph (2) below.
-- In the event that the Fair Market Value of the Common Stock
on the last trading day before the commencement of the Offering Period in
which the Participant is enrolled is higher than on the last trading day
before the commencement of any subsequent Offering Period, the Participant
shall automatically be re-enrolled for such subsequent Offering Period.
-- When a Participant reaches the end of an Offering Period but
his or her participation is to continue, then such Participant shall
automatically be re-enrolled for the Offering Period that commences
immediately after the end of the prior Offering Period.
V. ELIGIBILITY
A. Each Eligible Employee of a Participating Corporation shall be
eligible to participate in the Plan in accordance with the following provisions:
2
<PAGE>
-- An individual who is an Eligible Employee on the start date
of any Offering Period under the Plan shall be eligible to commence
participation in that Offering Period on such start date.
-- An individual who first becomes an Eligible Employee after
the start date of any Offering Period under the Plan may enter any
subsequent Offering Period on which he/she remains an Eligible Employee.
B. To participate in the Plan for a particular Offering Period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization form) and file such forms with the Plan Administrator (or its
designate) on or before the start date for the Offering Period.
C. A Participant shall continue to participate in the Plan until he
or she ceases to be an Eligible Employee or withdraws from the Plan under
Paragraph VII. F(i) below. A Participant who discontinues payroll deductions or
withdraws from the Plan may again become a Participant by following the
procedure described in Paragraph V. B above.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Cash Compensation paid to the Participant during each
Purchase Period within that Offering Period, up to a maximum of ten percent
(10%). However, if the Plan Administrator authorizes participation in more than
one Offering Period at any one time, the maximum authorized payroll deduction
remains ten percent (10%) per Participant. The deduction rate so authorized
shall continue in effect for the remainder of the Offering Period, except to the
extent such rate is changed in accordance with the following guidelines:
(i) The Participant may, at any time during the Offering
Period, reduce his or her rate of payroll deduction to become effective as soon
as possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than two (2) such reductions per
Purchase Period (or such lesser or greater number authorized by the Plan
Administrator prior to the start of any Purchase Period).
(ii) The Participant may, prior to the commencement of any new
Purchase Period within the Offering Period, increase the rate of his or her
payroll deduction by filing the appropriate form with the Plan Administrator.
The new rate (which may not exceed the ten percent (10%) maximum) shall become
effective as of the start date of the Purchase Period following the filing of
such form.
B. Payroll deductions shall begin on the first pay day following
the start date for the Purchase Period in the Offering Period and shall (unless
sooner terminated by the Participant) continue through the pay day ending with
or immediately prior to the last day of that Offering Period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such
3
<PAGE>
account. The amounts collected from the Participant shall not be held in any
segregated account or trust fund and may be commingled with the general assets
of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of the
Plan.
D. The Participant's acquisition of Common Stock under the Plan on
any Purchase Date shall neither limit nor require the Participant's acquisition
of Common Stock on any subsequent Purchase Date, whether within the same or a
different Offering Period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
-----------------------
separate purchase right for each Offering Period in which he or she
participates. The purchase right shall be granted on the start date of the
Offering Period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive installments over the
remainder of such Offering Period, upon the terms set forth below. If
authorized by the Plan Administrator then Participants may participate in more
than one (1) Offering Period at any one time. The purchase right shall be
granted on the date such individual first joins an Offering Period, shall
continue until the end of the Offering Period, and shall be automatically
exercised in successive semi-annual installments on the last business day of the
Purchase Period each year (April and October or such other date selected by the
Plan Administrator as the ending date for the Purchase Period) until the
Offering Period ends. Accordingly, each purchase right may be exercised up to
two (2) times each year it remains outstanding. The Participant shall execute a
stock purchase agreement embodying such terms and such other provisions (not
inconsistent with the Plan) as the Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Corporation or any Corporate
Affiliate. For purposes of this subparagraph, the following rules shall apply:
ownership of stock shall be determined after applying the attribution rules of
Section 424(d) of the Code; each Participant shall be deemed to own any stock
that he or she has a right or option to purchase under this or any other plan;
and each Participant shall be deemed to have the right to purchase 500 shares of
Common Stock under this Plan in the initial Purchase Period and 250 shares of
Common Stock under this Plan in each subsequent Purchase Period.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
------------------------------
automatically exercised in installments on each successive Purchase Date within
the Offering Period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant (other than any Participant whose payroll
deductions have previously been refunded in accordance with the Termination of
Purchase Right provisions below) on each such Purchase Date. The purchase shall
be effected by applying the Participant's payroll deductions for the Purchase
Period ending on such Purchase Date (together with any carryover deductions from
the preceding Purchase Period) to the purchase of whole shares of Common Stock
(subject to the
4
<PAGE>
limitation on the maximum number of shares purchasable per Participant on any
one Purchase Date) at the purchase price in effect for the Participant for that
Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which Common
--------------
Stock will be purchased on the Participant's behalf on each Purchase Date within
the Offering Period shall be equal to eighty-five percent (85%) of the lower of
-----
(i) the Fair Market Value per share of Common Stock on the start date for that
Offering Period or (ii) the Fair Market Value per share of Common Stock on that
Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
----------------------------
Stock purchasable by a Participant on each Purchase Date during the Offering
Period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Period ending with that Purchase Date (together with any carryover deductions
from the preceding Purchase Period) by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed FIVE HUNDRED (500) SHARES on the initial Purchase Date under the Plan and
shall not exceed TWO HUNDRED FIFTY HUNDRED (250) shares on any subsequent
Purchase Date, subject in each case to periodic adjustments in the event of
certain changes in the Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied to
-------------------------
the purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable by the Participant on the
Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next Purchase
Date in the Offering Period, terminate his or her outstanding purchase right by
filing the appropriate form with the Plan Administrator (or its designate), and
no further payroll deductions shall be collected from the Participant with
respect to the terminated purchase right. Any payroll deductions collected
during the Purchase Period in which such termination occurs shall, at the
Participant's election, be immediately refunded or held for the purchase of
shares on the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected with respect
to the terminated right shall be refunded as soon as possible. No partial refund
shall be permitted.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the Offering Period
for which the terminated purchase right was granted. In order to resume
participation in any subsequent Offering Period, such individual must re-enroll
in the Plan (by making a timely filing of the prescribed enrollment forms) on or
before the start date for that Offering Period.
5
<PAGE>
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status) while
his or her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for the
Purchase Period in which the purchase right so terminates shall be immediately
refunded. However, should the Participant cease to remain in active service by
reason of an approved unpaid leave of absence, then the Participant shall have
the election, exercisable up until the last business day of the Purchase Period
in which such leave commences, to (a) withdraw all the funds in the
Participant's payroll account at the time of the commencement of such leave or
(b) have such funds held for the purchase of shares at the end of such Purchase
Period. In no event, however, shall any further payroll deductions be added to
the Participant's account during such leave. Upon the Participant's return to
active service, his or her payroll deductions under the Plan shall automatically
resume at the rate in effect at the time the leave began, provided the
Participant returns to service prior to the expiration date of the Offering
Period in which such leave began.
G. CORPORATE TRANSACTION. Each outstanding purchase right shall
---------------------
automatically be exercised, immediately prior to the effective date of any
Corporate Transaction, by applying the payroll deductions of each Participant
for the Purchase Period in which such Corporate Transaction occurs to the
purchase of whole shares of Common Stock at a purchase price per share equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share of
-----
Common Stock on the start date for the applicable Offering Period in which each
Participant is enrolled and in which such Corporate Transaction occurs or (ii)
the Fair Market Value per share of Common Stock immediately prior to the
effective date of such Corporate Transaction. However, the applicable
limitation on the number of shares of Common Stock purchasable per Participant
shall continue to apply to any such purchase.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate Transaction,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares
----------------------------
of Common Stock which are to be purchased pursuant to outstanding purchase
rights on any particular date exceed the number of shares then available for
issuance under the Plan, the Plan Administrator shall make a pro-rata allocation
of the available shares on a uniform and nondiscriminatory basis, and the
payroll deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. During the Participant's lifetime, the purchase
-------------
right shall be exercisable only by the Participant and shall not be assignable
or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the
6
<PAGE>
Participant has become a holder of record of the purchased shares. The Plan
Administrator may impose such market stand-off and other restrictions on
transfer of shares acquired under this Plan as it deems reasonable.
VIII. ACCRUAL LIMITATIONS
A. Any other provision of the Plan notwithstanding, no Participant
shall purchase Common Stock with a Fair Market Value in excess of the following
limit:
(1) In the case of Common Stock purchased during an Offering
Period that commenced in the current calendar year, the limit shall be equal to
(A) $25,000 minus (B) the Fair Market Value of the Common Stock that the
Participant previously purchased in the current calendar year (under this Plan
and all other employee stock purchase plans of the Corporation or any parent or
subsidiary of the Corporation).
(2) In the case of Common Stock purchased during an Offering
Period that commenced in the immediately preceding calendar year, the limit
shall be equal to (A) $50,000 minus (B) the Fair Market Value of the Common
Stock that the Participant previously purchased (under this Plan and all other
employee stock purchase plans of the Corporation or any parent or subsidiary of
the Corporation) in the current calendar year and in the immediately preceding
calendar year.
(3) In the case of Common Stock purchased during an Offering
Period that commenced in the second preceding calendar year, the limit shall be
equal to (A) $75,000 minus (B) the Fair Market Value of the Common Stock that
the Participant previously purchased (under this Plan and all other employee
stock purchase plans of the Corporation or any parent or subsidiary of the
Corporation) in the current calendar year and in the two preceding calendar
years.
B. For purposes of this Article VIII, the Fair Market Value of Common
Stock shall be determined in each case as of the beginning of the Offering
Period in which such Common Stock is purchased. Employee stock purchase plans
not described in Section 423 of the Code shall be disregarded. If a Participant
is precluded by this Article VIII from purchasing additional Common Stock under
the Plan, then any payroll deductions which the Participant has made to date
during that Purchase Period shall be promptly refunded and the Participant's
payroll deductions shall automatically be discontinued and shall resume at the
beginning of the earliest Purchase Period ending in the next calendar year (if
he or she then is an Eligible Employee).
C. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
7
<PAGE>
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on July 18, 1997 and shall
become effective at the Effective Time, provided no purchase rights granted
--------
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect and all sums collected from Participants during
the initial Offering Period hereunder shall be refunded.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in April 2007, (ii) the date on
--------
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following its termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any
time to become effective immediately following the close of any Purchase Period.
Except for permissible adjustments under Paragraph III. B, any increase in the
aggregate number of shares of Common Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Corporation. In
addition, any other amendment of the Plan shall be subject to approval by a vote
of the stockholders of the Corporation to the extent required by an applicable
law or regulation.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right
to continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
8
<PAGE>
C . The provisions of the Plan shall be governed by the laws of the
State of Delaware without resort to that State's conflict-of-laws rules.
9
<PAGE>
SCHEDULE A
----------
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
------------------------
Pervasive Software Inc.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
-----
B. CASH COMPENSATION shall mean the (i) regular base salary paid to
-----------------
a Participant by one or more Participating Companies during such individual's
period of participation in the Plan, plus (ii) any pre-tax contributions made by
the Participant to any Code Section 401(k) salary deferral plan or any Code
Section 125 cafeteria benefit program now or hereafter established by the
Corporation or any Corporate Affiliate, plus (iii) all of the following amounts
to the extent paid in cash: overtime payments, bonuses, commissions, profit-
sharing distributions and other incentive-type payments. However, Eligible
Earnings shall not include any contributions (other than Code Section 401(k) or
Code Section 125 contributions) made on the Participant's behalf by the
Corporation or any Corporate Affiliate to any deferred compensation plan or
welfare benefit program now or hereafter established.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
D. COMMON STOCK shall mean the Corporation's common stock.
------------
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation.
G. CORPORATION shall mean Pervasive Software Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Pervasive Software Inc. which shall by appropriate
action adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting
--------------
Agreement is executed and finally priced. Any Corporate Affiliate which becomes
a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
A-1
<PAGE>
I. ELIGIBLE EMPLOYEE shall mean any person who is engaged, on a
-----------------
regularly-scheduled basis of more than twenty (20) hours per week for more than
five (5) months per calendar year, in the rendition of personal services to any
Participating Corporation as an employee for earnings considered wages under
Code Section 3401(a).
J. FAIR MARKET VALUE per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National Market or
any successor system. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(iii) For purposes of the initial Offering Period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock is sold in the initial public offering
pursuant to the Underwriting Agreement.
K. 1933 ACT shall mean the Securities Act of 1933, as amended.
--------
L. OFFERING PERIOD shall mean each successive 24-month period with
---------------
respect to which the right to purchase shares of Common Stock may be granted
under the Plan to each Participant.
M. PARTICIPANT shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
O. PLAN shall mean the Corporation's Employee Stock Purchase Plan,
----
as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of one (1) or more
------------------
Board members appointed by the Board to administer the Plan.
A-2
<PAGE>
Q. PURCHASE DATE shall mean the last business day of each Purchase
-------------
Period. The initial Purchase Date shall be April 30, 1998.
R. PURCHASE PERIOD shall mean each successive period within the
---------------
Offering Period at the end of which there shall be purchased shares of Common
Stock on behalf of each Participant.
S. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
T. UNDERWRITING AGREEMENT shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3
<PAGE>
PERVASIVE SOFTWARE INC.
EMPLOYEE STOCK PURCHASE PLAN
(AS ADOPTED EFFECTIVE SEPTEMBER __, 1997)
<PAGE>
Exhibit 10.9
JOINT VENTURE AGREEMENT
THIS AGREEMENT, made and entered into this 26th day of March, 1995, by
and among BTRIEVE TECHNOLOGIES, INC., a corporation organized and existing under
the laws of the State of Delaware, the United States of America, and having its
principal place of business at Suite 300, 8834 Capital of Texas Highway N.
Austin, Texas 78759, the United States of America (hereinafter referred to as
"BTI"), NOVELL JAPAN, LTD., a corporation organized and existing under the laws
of Japan, and having its principal place of business at 13-1, Mishuku 1-chome,
Setagaya-ku, Tokyo, Japan (hereinafter referred to as "NOVELL"), AG TECH
CORPORATION, a corporation organized and existing under the laws of Japan, and
having its principal place of business at 10-9, Higashi Sakura 1-chome, Higashi-
ku, Nagoya, Japan (hereinafter referred to as "AG TECH"), and EMPOWER LTD., a
corporation organized and existing under the laws of Japan, and having its
principal place of business at 15-8, Iwamotocho 2-chome, Chiyoda-ku, Tokyo,
Japan (hereinafter referred to as "EMPOWER") (NOVELL, AG TECH and EMPOWER
hereinafter sometimes to be collectively referred to as "MINORITY
SHAREHOLDER(S)");
WITNESSETH
WHEREAS, BTI is engaged in the development, manufacture and sale of
the PRODUCTS (as hereinafter defined) and has accumulated unique knowledge and
experience relative to the PRODUCTS;
WHEREAS, the parties hereto have decided and mutually agreed to
establish a corporation (kabushiki kaisha) under the laws of
----------------
<PAGE>
Japan, in which each of them will be shareholders, for the purpose of the
manufacture, distribution and sale of the PRODUCTS as provided herein;
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants herein contained, the parties hereto hereby set forth their agreement
as follows:
SECTION 1.00 DEFINITIONS
-----------
When used in this AGREEMENT, each of the terms set forth in this
SECTION 1.00 shall have the meaning indicated:
1.01 "NEWCO"
-------
The stock corporation (kabushiki kaisha) to be incorporated under the
----------------
laws of Japan by the parties hereto in the manner provided in SECTION 2.00
hereof, and to be known in the Japanese language as "BTRIEVE TECHNOLOGIES
KABUSHIKI KAISHA" and in the English language as "BTRIEVE TECHNOLOGIES JAPAN,
LTD."
1.02 "PRODUCTS"
----------
Computer software products to be manufactured and sold by NEWCO
pursuant to this AGREEMENT.
1.03 "ASSOCIATED AGREEMENTS"
-----------------------
Those agreements related to this AGREEMENT which are to be entered into
between NEWCO and BTI, AG TECH or EMPOWER, as the case may be, pursuant to
SECTION 3.00 hereof.
(Page 2)
<PAGE>
1.04 "SHARES"
--------
Those shares of par value common voting stock having the par value of
Fifty Thousand Yen (~50,000-) each, which are to be issued by NEWCO to the
parties hereto in exchange for their respective contributions which are to be
made pursuant to SECTION 2.00 hereof, as well as any additional shares of the
capital stock of NEWCO which may be issued in exchange for any contributions
which may be made by the parties hereto.
1.05 "TERRITORY"
-----------
Japan.
1.06 "AFFILIATE"
-----------
Any corporation, partnership or other entity which qualifies for any
one of the following:
1.06.1 Which owns or controls, or which shall own or control,
directly or indirectly, fifty percent (50%) or more of the voting rights with
respect to the election of directors of any of the parties to this AGREEMENT; or
1.06.2 Of which fifty percent (50%) or more of the voting rights with
respect to the election of directors is owned or controlled, or shall become
owned or controlled, directly or indirectly, by any party to this AGREEMENT.
1.07 "EFFECTIVE DATE"
----------------
The date on which this AGREEMENT shall have been executed by all the
parties hereof.
(Page 3)
<PAGE>
SECTION 2.00 FORMATION OF NEWCO
------------------
2.01 ORGANIZATION AND REGISTRATION
-----------------------------
Promptly after the EFFECTIVE DATE, the parties hereto shall cause
NEWCO to be organized and registered under the laws of Japan. The parties hereto
shall closely cooperate and consult with each other with respect to the
procedures and particulars of the organization of NEWCO.
2.02 ARTICLES OF INCORPORATION OF NEWCO
----------------------------------
At the time of the organization and registration of NEWCO, the
parties hereto shall cause NEWCO to adopt as its Articles of Incorporation a
fully accurate Japanese language translation of the English language version of
the form of Articles of Incorporation attached hereto and marked "Exhibit I."
2.03 TOTAL PAID-IN CAPITAL OF NEWCO
------------------------------
At the time of the organization and registration of NEWCO, NEWCO
shall have an initial paid-in capital of Two Hundred Million Yen
((Yen)200,000,000-) and an authorized capital of Eight Hundred Million Yen
((Yen)800,000,000-).
2.04 CAPITAL CONTRIBUTIONS OF THE PARTIES
------------------------------------
Each of the parties hereto shall contribute to NEWCO, as its
contribution to the initial paid-in capital of NEWCO, sums in accordance with
the following schedule:
2.04.1 Contribution of BTI
-------------------
One Hundred Thirty One Million Yen ((Yen)131,000,000-) in cash, in
exchange for Two Thousand, Six Hundred Twenty (2,620) SHARES;
(Page 4)
<PAGE>
2.04.2 Contribution of NOVELL
----------------------
Thirty Nine Million Yen ((Yen)39,000,000-) in cash, in exchange for
Seven Hundred Eighty (780) SHARES;
2.04.3 Contribution of AG TECH
-----------------------
Twenty Million Yen ((Yen)20,000,000-) in cash, in exchange for Four
Hundred (400) SHARES; and
2.04.4 Contribution of EMPOWER
-----------------------
Ten Million Yen ((Yen)10,000,000-) in cash, in exchange for Two
Hundred (200) SHARES.
SECTION 3.00 ASSOCIATED AGREEMENTS
---------------------
3.01 GENERAL
-------
Immediately after the EFFECTIVE DATE, the agreements contemplated
by the provisions of this SECTION 3.00 shall be concluded between NEWCO and BTI,
AG TECH and EMPOWER, respectively.
3.02 BTI AGREEMENT
-------------
BTI and NEWCO shall execute a Letter of Intent the form of which is
attached hereto as Exhibit III.
3.03 AG TECH AGREEMENT
-----------------
AG TECH and NEWCO shall execute a Letter of Intent the form of
which is attached hereto as Exhibit III.
(Page 5)
<PAGE>
3.04 EMPOWER AGREEMENT
-----------------
EMPOWER and NEWCO shall execute a Letter of Intent the form of
which is attached hereto as Exhibit IV.
3.05 NOVELL AGREEMENT
----------------
NOVELL and NEWCO shall execute a Letter of Intent the form of which
is attached hereto as Exhibit V.
SECTION 4.00 MANAGEMENT OF NEWCO
-------------------
4.01 MEETING OF THE SHAREHOLDERS OF NEWCO
------------------------------------
Each shareholder of NEWCO shall be given timely notice of the time,
date and place of general meetings of shareholders, in no event later than
fourteen (14) days prior to the date of convocation of each such meeting, in
each case; provided, however, that such period of notice may be shortened for
any particular meeting with the unanimous consent of all the shareholders of
record. The Chairman (and Chief Executive Officer) elected pursuant to Sub-
Paragraph 4.05.1 hereof shall send a notice of convocation of the general
meeting of shareholders based upon a decision of the Board of Directors.
4.02 RESOLUTION OF SHAREHOLDERS
--------------------------
Except as otherwise required by mandatory provisions of law: (a) a
quorum for a general meeting of the shareholders of NEWCO shall require the
presence, in person or by proxy, of shareholders of NEWCO holding a majority of
the total issued and outstanding SHARES of NEWCO entitled to vote; and (b)
resolutions of general meetings of the shareholders of NEWCO shall be adopted by
the affirmative vote of a majority of the SHARES represented in person or by
proxy at a meeting at which a quorum is present. The Chairman of NEWCO shall act
as chairperson of each general meeting of shareholders.
(Page 6)
<PAGE>
4.03 DIRECTORS
---------
NEWCO shall have seven (7) Directors who shall constitute the
Board of Directors of NEWCO. BTI shall have the right to nominate four (4)
Directors and NOVELL, AG TECH and EMPOWER shall each have the right to nominate
one (1) Director, respectively. In the event of death, incapacity, resignation
or other removal of a Director prior to the end of his/her term, each of the
parties hereto agrees to vote its shares so as to appoint his/her replacement a
Director nominated by the party hereto who nominated the Director whose death,
incapacity, resignation or removal was the cause of such vacancy.
4.04 REPRESENTATIVE DIRECTORS
------------------------
NEWCO shall have two (2) Representative Directors who shall be
elected by the Board of Directors of NEWCO from among the members of the Board,
provided that one of the Representative Directors shall always be an individual
- --------
nominated by BTI.
4.05 OFFICERS
--------
NEWCO shall have the following officers:
4.05.1 THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER (CEO) OF NEWCO
WHO SHALL BE THE REPRESENTATIVE DIRECTOR NOMINATED BY BTI IN ACCORDANCE WITH
PARAGRAPH 4.04 HEREOF;
4.05.2 The President who shall be the other Representative
Director nominated in accordance with Paragraph 4.04 hereof; and
4.05.3 Such other officers as the Board of Directors may choose
to elect from time to time.
(Page 7)
<PAGE>
Except as otherwise required by mandatory provisions of law, the Chairman shall
exercise responsibilities for the management, direction and control of NEWCO.
The President shall carry out day-to-day operations of NEWCO in accordance
with instructions of the Chairman.
4.06 MEETING OF THE BOARD OF DIRECTORS
---------------------------------
Meetings of the Board of Directors shall be held at least once in three (3)
months at the head office of NEWCO or at such other place in Japan or the United
States of America as may be decided by the Chairman. The Chairman shall convene
a meeting of the Board of Directors and act as chairperson at the meeting,
provided, however, that in case the Chairman shall be unable to so act, the
President or any one of the other Directors shall act in his place in the order
previously determined by the Board of Directors.
Each of the Directors of NEWCO shall be given timely written notice of the
time, date and place of the meetings of the Board of Directors of NEWCO, in no
event later than seven (7) days prior to the date of convocation of such
meetings, in each case; provided, however, that such period of notice may be
shortened or dispensed with for any particular meeting by the unanimous consent
of all the Directors and the statutory auditor, in office.
The quorum of the Board meeting shall be majority of the directors.
Except as otherwise required by mandatory provisions of law, resolutions of
the Board Of Directors shall be adopted by the affirmative vote of a majority of
the Directors present at the meeting.
(Page 8)
<PAGE>
4.07 STATUTORY AUDITOR
-----------------
NEWCO shall have one (1) Statutory Auditor (kansayaku), who shall
---------
be nominated by BTI.
4.08 REMUNERATION
------------
Salaries, bonuses and other emoluments, if any, of directors,
statutory auditor and employees of NEWCO will be reviewed annually by the Board
of Directors, and the general practice in Japan will be taken into
consideration. Non-standing directors will not receive any remuneration unless
otherwise agreed. The compensation, if any, of standing directors and the
statutory auditor will be approved at a shareholders' meeting.
4.09 ACCOUNTING PERIOD AND BOOKS OF ACCOUNT
--------------------------------------
4.09.1 ACCOUNTING PERIOD
-----------------
The accounting period of NEWCO shall commence on July 1st of each
year and end on June 30th of the next succeeding year; provided, however, that
the first accounting period of NEWCO shall commence as of the date of
organization of NEWCO pursuant to Paragraph 2.01 hereof and end on June 30,
1995.
4.09.2 BOOKS OF ACCOUNT
----------------
NEWCO shall keep true and accurate books of account and records in
accordance with sound accounting practices, employing standards, procedures and
form in conformity with generally accepted accounting principles (GAAP) as
determined by the firm of accountants designated pursuant to Paragraph 4.10
hereof.
(Page 9)
<PAGE>
4.010 INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
At the end of each accounting period of NEWCO, the books of
account and records of NEWCO shall be audited, at the expense of NEWCO, by a
certified public accountant, or accountants, licensed to practice in Japan, and
selected by BTI and acceptable to the other parties hereto. Such independent
public accountant, or accountants, shall prepare and supply to NEWCO certified
financial reports suitable for use by each of the parties hereto in connection
with its financial and tax reports.
4.011 REPORTING AND INSPECTION OF NEWCO RECORDS
-----------------------------------------
NEWCO shall submit to its shareholders, in both the Japanese and
English languages, copies of all financial reports (in which amounts shall be
expressed in Japanese Yen) which it prepares, including, but not limited to, the
following:
4.011.1 Monthly balance sheets;
4.011.2 Monthly profit-loss statements which include end-of-month
and year-to-date balances;
4.011.3 Monthly cash-flow statements which include end-of-month
and year-to-date balances; and
4.011.4 Monthly budget to actual comparisons and analyses which
include end-of-month and year-to-date balances.
Further, NEWCO shall make available to each of the parties hereto, or to its
authorized representatives, its books of account and records, if and when the
party hereto shall so request.
(Page 10)
<PAGE>
4.012 INSURANCE
---------
The parties hereto will cause NEWCO, at NEWCO's cost, to obtain
all insurance coverage customarily obtained by persons or entities engaged in a
similar business in Japan.
SECTION 5.00 FINANCING
---------
5.01 MANNER OF PROVIDING ADDITIONAL CAPITAL
--------------------------------------
Unless otherwise determined by the parties, the parties are not
required to provide the additional capital.
5.02 PREEMPTIVE RIGHTS
-----------------
The parties hereto, as shareholders of NEWCO, shall have preemptive
rights to acquire any SHARES which NEWCO may issue subsequent to its
organization and registration, each in proportion to its equity interest in
NEWCO. Should any of the parties hereto decline such right, the other parties
hereto shall have preemptive rights to all such additional SHARES so declined by
such party in proportion to their respective equity interests in NEWCO.
SECTION 6.00 TRANSFER OF SHARES
------------------
6.01 GENERAL RESTRICTION OF TRANSFER
-------------------------------
Except as otherwise expressly provided for in this SECTION 6.00,
each of the parties hereto covenants and agrees not to sell, assign, pledge or
in any other manner transfer title or rights to, or otherwise encumber, any of
the SHARES held by it, or to take any action leading to or likely to result in
any of the foregoing.
(Page 11)
<PAGE>
6.02 PROVISION IN THE ARTICLES OF INCORPORATION
------------------------------------------
Each of the parties hereto agrees that it shall not transfer any
SHARES held by it without the prior approval of the Board of Directors of NEWCO.
In implementation of the foregoing undertaking, the parties hereto
agree that the Articles of Incorporation of NEWCO shall at all times contain a
fully accurate translation in the Japanese language the following provision:
"Any transfer of the shares of stock of the Company represented by
this Certificate shall be subject to the prior approval of the
Board of Directors of the Company."
6.03 BTL'S RIGHT OF FIRST REFUSAL
----------------------------
BTI shall have the right of first refusal, pursuant to the terms
of this Paragraph 6.03, to purchase all or any portion of the SHARES which any
of the MINORITY SHAREHOLDERS intends to sell or otherwise transfer. Accordingly,
if at any time, any MINORITY SHAREHOLDER (hereinafter referred to as the
"OFFEROR SHAREHOLDER") desires to transfer all or any portion of the SHARES held
by it, it shall first offer to sell such SHARES to BTI by giving a written
notice to BTI of the identity of the third party to whom the OFFEROR SHAREHOLDER
proposes to transfer the SHARES if BTI fails to exercise the right of first
refusal and the number of SHARES proposed to be transferred. Immediately after
BTI receives such notice from the OFFEROR SHAREHOLDER, the parties shall take
steps to cause the purchase price per SHARE (hereinafter referred to as the
"PURCHASE PRICE") to be determined in accordance with the provisions of
Paragraph 6.05 within a period to be agreed upon by the OFFEROR SHAREHOLDER and
BTI. BTI shall exercise the right of first refusal to acquire the SHARES offered
by the OFFEROR SHAREHOLDER at the PURCHASE PRICE determined in accordance with
the procedures provided above within thirty (30) days from the date on which the
PURCHASE PRICE has been so determined. If BTI has failed to exercise
(Page 12)
<PAGE>
the right of first refusal within said thirty (30) day period, the OFFEROR
SHAREHOLDER shall be free to sell, assign or otherwise transfer the SHARES to
the third party stated in the notice as aforesaid at such PURCHASE PRICE and on
such terms as shall be no more favorable to such third party than those offered
to BTI, provided that such third party shall assume and be bound by all the
obligations of the OFFEROR SHAREHOLDER and be subject to all the terms of this
AGREEMENT.
6.04 BTL'S BUY-OUT RIGHT
-------------------
BTI shall have the right to buy out all or any portion of the
SHARES held by the shareholders who own ten percent or less of the outstanding
shares of NEWCO (hereinafter referred to as the "SPECIAL SHAREHOLDERS") at any
time during the term of this AGREEMENT. BTI may initiate the buy-out procedure
by giving written notice to all the SPECIAL SHAREHOLDERS, setting forth the
number of SHARES it intends to purchase from each SPECIAL SHAREHOLDER, provided,
however, that such number of SHARES shall be in proportion to the number of
SHARES held by each SPECIAL SHAREHOLDER against the total number of SHARES held
by all the SPECIAL SHAREHOLDERS, unless otherwise agreed upon by BTI and all the
SPECIAL SHAREHOLDERS. Within thirty (30) days from the date of receipt of BTl's
notice by the SPECIAL SHAREHOLDERS, the parties shall take steps to have the
PURCHASE PRICE determined in accordance with the provisions of Paragraph 6.05.
Within ten (10) days from the date of determination of the PURCHASE PRICE, BTI
shall send to each SPECIAL SHAREHOLDER a written notice stating its firm
commitment to purchase the number of SHARES as aforesaid from the SPECIAL
SHAREHOLDER at the PURCHASE PRICE so determined, and the date on which BTI shall
pay the PURCHASE PRICE to the SPECIAL SHAREHOLDER. Such notice shall constitute
a purchase agreement between BTI and each of the SPECIAL SHAREHOLDERS with
respect to the sale of the SHARES stated therein.
(Page 13)
<PAGE>
6.05 PURCHASE PRICE PER SHARE
------------------------
The PURCHASE PRICE of each SHARE to be sold or otherwise
transferred from any party or parties hereto (hereinafter referred to as the
"TRANSFEROR") to the other party or parties hereto (hereinafter referred to as
the "TRANSFEREE") under this AGREEMENT, shall be the fair market value of NEWCO
(hereinafter referred to as the "VALUE") as of the last day of the last calendar
quarter immediately preceding the day on which the transfer procedures in
question have been initiated. If the TRANSFEROR and the TRANSFEREE shall not
have agreed on a mutually acceptable procedure to determine the VALUE within
sixty (60) days, then each of the TRANSFEROR and the TRANSFEREE shall select an
internationally recognized investment banking firm (or firm of certified public
accountant) agreed by the parties, which two investment banking firms (or firms
of certified public accountant) shall determine the VALUE in writing delivered
to each party. The VALUE shall be the mean of such two determinations.
SECTION 7.00 ADDITIONAL UNDERTAKINGS AND COVENANTS
-------------------------------------
7.01 PERFORMANCE OF ASSOCIATED AGREEMENTS
------------------------------------
The parties hereto agree to exercise their best efforts to cause
the full, timely and faithful performance by NEWCO of all the terms and
conditions of the ASSOCIATED AGREEMENTS to which NEWCO shall become a party
pursuant to SECTION 3.00 hereof.
7.02 NON-CONTESTABILITY
------------------
The parties hereto shall not, directly or indirectly, themselves or
through any other person or firm controlled (directly or indirectly) by them,
contest or aid others in contesting or do anything which is likely to impair or
tend to impair the value or validity in the TERRITORY of any patent rights,
secret technology or trademarks and trade names licensed or disclosed by BTI
pursuant to this AGREEMENT or any of the ASSOCIATED AGREEMENTS.
(Page 14)
<PAGE>
SECTION 8.00 PAYMENT AND TAXES
-----------------
8.01 MANNER AND PLACE OF PAYMENTS
----------------------------
Any and all payments to be made to BTI by NEWCO in consequence of
or in connection with the acts or transactions comprehended or contemplated by
this AGREEMENT or an ASSOCIATED AGREEMENT shall be made in Japanese currency at
a bank in Japan to be designated in writing by BTI, or in United States currency
at such bank as BTI may from time to time designate in writing.
8.02 WITHHOLDING TAXES
-----------------
Any sum required under Japanese income tax laws to be withheld by
NEWCO for the account of BTI shall be withheld and shall be promptly paid by
NEWCO to the appropriate tax authorities, and the parties hereto agree that they
shall cause NEWCO to furnish BTI with official tax receipts or other appropriate
evidence issued by the Japanese tax authorities sufficient to enable BTI to
support a claim for income tax credit in respect of any sum so withheld.
SECTION 9.00 CONFIDENTIALITY OF INFORMATION
------------------------------
9.01 DUTY OF SECRECY AND CONFIDENTIALITY
-----------------------------------
The parties hereto agree to keep strictly secret and confidential
and not to disclose to any third party, except to the extent that disclosures to
NEWCO may be required by this AGREEMENT or by any of the ASSOCIATED AGREEMENTS,
any and all valuable and proprietary information including, but not limited to,
technical, economic, and marketing information, acquired from any of the parties
hereto, or from NEWCO, (unless disclosure of any such information is expressly
permitted by this AGREEMENT or by any ASSOCIATED AGREEMENT). To that end,
without limiting the generality of the foregoing, the parties hereto agree to
cause all written material relating to or containing such information
(Page 15)
<PAGE>
which is marked "Confidential" obtained from the other parties hereto or from
NEWCO, to be plainly marked in the Japanese and English languages to indicate
the secret and confidential nature thereof and to prevent unauthorized use or
reproduction thereof.
9.02 RESTRICTION ON USE
------------------
The parties hereto agree that they shall not use any valuable and
proprietary information which is marked "Valuable and Proprietary" obtained from
the other parties hereto or from NEWCO for any purpose whatsoever except in a
manner expressly provided for in this AGREEMENT or in any of the ASSOCIATED
AGREEMENTS, or upon the written consent of the party disclosing such valuable
and proprietary information.
9.03 MAINTENANCE OF SECRECY AND CONFIDENTIALITY BY EMPLOYEES
-------------------------------------------------------
OF THE PARTIES
--------------
The parties hereto agree to cause any of their respective
employees who shall be given access to valuable and proprietary information
obtained from the other party hereto to treat such information in accordance
with the obligations of secrecy and confidentiality assumed by the parties
pursuant to Paragraphs 9.01 and 9.02 hereof.
9.04 DUTY TO ENFORCE SECRECY COMMITMENTS
-----------------------------------
Each party hereto agrees to take at its own expense all
reasonable action including court proceedings to compel compliance by its
respective employees with the provisions of Paragraph 9.03 hereof.
9.05 LIMITATION AND SURVIVAL OF OBLIGATIONS
--------------------------------------
The obligations undertaken by the parties hereto pursuant to this
SECTION 9.00 shall not apply to any information obtained from the other parties
hereto or from NEWCO which is or becomes published or
(Page 16)
<PAGE>
otherwise generally available to the public, other than in consequence of the
willful or negligent act or omission of any of the parties hereto or NEWCO or
any of their or its employees, or which is, at the time of disclosure, in the
possession of the party to which such information is furnished, and such
obligations, as so limited, shall survive termination of this AGREEMENT.
SECTION 10.00 TERM AND TERMINATION
--------------------
10.01 TERM
----
This AGREEMENT shall become effective as of the EFFECTIVE DATE and
shall continue in force and effect for an indefinite term thereafter, until
NEWCO shall be dissolved or otherwise cease to exist as a separate entity,
unless this AGREEMENT is sooner terminated pursuant to the following provisions
of this SECTION 10.00.
10.02 BANKRUPTCY, ETC. OF A PARTY OR NEWCO
------------------------------------
BTI may terminate this AGREEMENT by written notice to the
MINORITY SHAREHOLDERS in the event that any of them shall:
10.02.1 Be declared insolvent or bankrupt;
10.02.2 Have all or any substantial portion of its capital stock
or assets expropriated by any government; or
10.02.3 Be dissolved or liquidated, except in consequence of a
merger, amalgamation or other corporate reorganization to which it may be a
party.
In case any party hereto is involved in any of the events in Sub-Paragraphs
10.02.1 through 10.02.3, such party shall be obligated to notify the other
parties hereto of the occurrence of such event.
(Page 17)
<PAGE>
Any MINORITY SHAREHOLDER may terminate this AGREEMENT by written
notice to BTI in the event that BTI shall be involved in any of the events in
Sub-Paragraphs 10.02.1 through 10.02.3. Any party hereto may terminate this
AGREEMENT by written notice to the other parties hereto in the event that NEWCO
shall be involved in any of the events in Sub-Paragraphs 10.02.1 through
10.02.3.
10.03 BREACH BY A PARTY OR NEWCO
--------------------------
In the event of a material breach of this AGREEMENT (including the
representations made in SECTION 11.00) or of any ASSOCIATED AGREEMENT, in any of
the cases set forth below, a party hereto not in breach of this AGREEMENT or of
any ASSOCIATED AGREEMENT to which it is a party shall be entitled to terminate
this AGREEMENT by written notice to the other parties hereto if, within sixty
(60) days after written notice is given by such party not in breach complaining
of a breach of this AGREEMENT or of any ASSOCIATED AGREEMENT, the breach as
aforesaid shall not have been corrected by the party in breach:
10.03.1 A material breach by any party hereto of this AGREEMENT;
10.03.2 A material breach by any party hereto of any ASSOCIATED
AGREEMENT to which it is a party; or
10.03.3 A material breach by NEWCO of any ASSOCIATED AGREEMENT to
which it is a party.
10.04 TERMINATION OF ANY ASSOCIATED AGREEMENT
---------------------------------------
In the event of termination of any ASSOCIATED AGREEMENT under
circumstances which materially and adversely affect a party to this AGREEMENT
which is not a party in breach, such party shall, unless the parties hereto
otherwise mutually agree, be entitled forthwith to terminate
(Page 18)
<PAGE>
this AGREEMENT by dispatch of written notice thereof to the other parties
hereto.
10.05 REDUCTION IN BTL'S SHAREHOLDING
-------------------------------
BTI may terminate this AGREEMENT by serving a written notice to the
MINORITY SHAREHOLDERS, if without its consent the ratio of its shareholding in
NEWCO ever falls below fifty-one percent (51%) of the issued and outstanding
SHARES of NEWCO.
10.06 MINORITY SHAREHOLDER
--------------------
In the event that any MINORITY SHAREHOLDER ceases to own any SHARES
due to the exercise of the buy-out right by BTI as provided in Paragraph 6.04 or
otherwise, this AGREEMENT shall automatically terminate as to such MINORITY
SHAREHOLDER.
10.07 GOVERNMENT ACTION
-----------------
Any party hereto may terminate this AGREEMENT by serving a written
notice to the other parties hereto, upon the enactment of any law or regulation
or upon the order or action of a court of any governmental agency (i) making
impossible the business of NEWCO; (ii) materially altering the rights or
obligations set forth in this AGREEMENT; (iii) interfering with material
benefits contemplated by any party under this AGREEMENT or under Exhibit II
attached hereto.
10.08 RIGHTS OF THE PARTIES HERETO UPON TERMINATION
---------------------------------------------
In the event that any MINORITY SHAREHOLDER elects to exercise its
right of termination hereof pursuant to Paragraphs 10.02, 10.03, 10.04 or 10.07
hereof, such MINORITY SHAREHOLDER shall immediately offer to sell to BTI, or to
the nominee of BTI, at a PURCHASE PRICE per SHARE determined under the
provisions of Paragraph 6.05 hereof, all of the outstanding SHARES then held by
it. In the event that BTI
(Page 19)
<PAGE>
refuses or fails to accept such offer made in accordance with the first sentence
of this Paragraph 10.08 within sixty (60) days following receipt of such offer,
the SHARES involved shall promptly be retired by NEWCO in accordance with
applicable provisions of Japanese law.
In the event that BTI elects to terminate this AGREEMENT pursuant to
Paragraphs 10.02 through 10.07 hereof, BTI shall have the right and option
either to purchase from the MINORITY SHAREHOLDER that has created the cause of
the termination all the SHARES held by such MINORITY SHAREHOLDER at the purchase
price equal to the aggregate par value of the SHARES, or to dissolve and
liquidate NEWCO, which right and option may be exercised by BTI by timely
written notice to the other parties hereto following the termination hereof.
Such other parties hereto shall fully cooperate with BTI in effectuation of the
dissolution and liquidation of NEWCO under Japanese law.
Nothing in this Paragraph 10.08 shall in any manner adversely affect
such remedies as non-breaching party(ies) hereto may be entitled to under
applicable law in the event of termination of this AGREEMENT for reason of
breach by any other party hereto.
10.09 FORCE MAJEURE
-------------
No party hereto shall be liable to any other party hereto for any
loss, injury, delay, damages or other casualty suffered or incurred by any other
party hereto due to strikes, riots, storms, fires, explosions, acts of God, war,
or any other cause similar thereto which is beyond the reasonable control of any
party hereto, and any failure or delay by any party hereto in performance of any
of its obligations under this AGREEMENT or under any ASSOCIATED AGREEMENT due to
one or more of the foregoing causes shall not be considered as a breach of this
AGREEMENT or of any ASSOCIATED AGREEMENT, as the case may be, for purposes of
this SECTION 10.00.
(Page 20)
<PAGE>
10.10 NON-WAIVER
----------
The waiver, express or implied, by any of the parties hereto of
any right hereunder or of any failure to perform or breach hereof by any other
party hereto shall not constitute or be deemed as a waiver of any other right
hereunder or of any other failure to perform or breach hereof by any such other
party hereto, whether of a similar or dissimilar nature thereto.
10.11 SURVIVAL OF RIGHTS, DUTIES AND OBLIGATIONS
Termination of this AGREEMENT for any cause shall not release any
party hereto from any liability which at the time of termination has already
accrued to any other party hereto or which thereafter may accrue in respect of
any act or omission prior to such termination, nor shall any such termination
hereof affect in any way the survival of any right, duty or obligation of any
party hereto which is expressly stated elsewhere in this AGREEMENT to survive
termination hereof.
SECTION 11.00 REPRESENTATIONS AND WARRANTIES OF THE PARTIES
---------------------------------------------
Each of the MINORITY SHAREHOLDERS and BTI represents and warrants
to the other parties hereto:
11.01 AUTHORIZATION
-------------
That it has taken all corporate actions necessary for the
authorization, execution and delivery of this AGREEMENT, the performance of all
of its obligations under this AGREEMENT, and the consummation of the
transactions contemplated by this AGREEMENT.
(Page 21)
<PAGE>
11.02 PURPOSE OF ACQUISITION OF SHARES
--------------------------------
That it is purchasing the SHARES solely for its own account for
investment purposes and not with a view to, or for sale in connection with, any
distribution of the SHARES or any portion thereof and not with any present
intention of selling, offering to sell, or otherwise disposing of or
distributing any SHARES in any transaction other than a transaction exempt from
registration under U.S. federal and state laws and Japanese securities laws.
Each party realizes that the purchase of the shares involves risk, and each is
able, without impairing its financial condition, to hold the SHARES for an
indefinite period of time and suffer a complete loss of its investment. The
parties fully understand and acknowledge that: (i) the SHARES have not been
registered for sale under U.S. federal or state laws or Japanese securities laws
or the laws of any other jurisdiction; (ii) the SHARES must be held indefinitely
unless subsequently registered under such laws, or exemptions from such
registration requirements are available; and (iii) NEWCO is under no obligation
to register such SHARES.
11.03 COMPLIANCE
----------
That the execution, delivery, and performance of this AGREEMENT
and the consummation of the transactions contemplated by this AGREEMENT will not
(i) violate any provision of its Articles of Incorporation; (ii) violate,
conflict with, or result in the breach of any of the terms of any contract or
other agreement to which it may be a party or by which it or any of its assets
or properties may be bound or subject; (iii) violate any order, judgment,
injunction, award, or decree of any court, arbitrator, or governmental or
regulatory body against, or binding upon it; or (iv) violate any statute, law,
or regulation of any jurisdiction which it may be subject.
(Page 22)
<PAGE>
SECTION 12.00 FECL AND FTC FILINGS
--------------------
12.01 FECL FILING
-----------
As soon as reasonably practicable after the date of this
AGREEMENT, BTI will file with the relevant Japanese authorities a notification
or report of acquisition of the SHARES required under the Foreign Exchange and
Foreign Trade Control Law.
12.01 FTC FILING
----------
Each MINORITY SHAREHOLDER will, within thirty (30) days after the
execution of this AGREEMENT, notify the JAPANESE FAIR TRADE COMMISSION ("FTC")
of this AGREEMENT as required by the Antimonopoly Law of Japan.
12.03 SUBSEQUENT FILINGS
------------------
Each MINORITY SHAREHOLDER and BTI agree to cooperate and assist
each other and NEWCO in making any filings required under the laws referred to
in Paragraphs 12.01 and 12.02 above, and in obtaining all required Government
Approvals.
SECTION 13.00 COMPLIANCE WITH LAW
-------------------
The parties hereto will at all times act to ensure that NEWCO
complies with the laws and regulations of Japan. The parties recognize that
BTl's participation in NEWCO is subject to various laws and regulations of the
U.S.A., and the parties will cause NEWCO to conduct its activities so as not to
place BTI or NEWCO in violation of any such laws or regulations.
(Page 23)
<PAGE>
SECTION 14.00 DISPUTE RESOLUTION
------------------
14.01 AMICABLE RESOLUTION OF DISPUTES
-------------------------------
In the event any controversy or claim arises out of or in relation to
this AGREEMENT, the parties hereto will seek to solve the matter amicably
through discussions between the parties. Only if the parties fail to resolve the
controversy, claim or breach through amicable arrangement and compromise, may
the aggrieved party seek arbitration as provided in Paragraph 14.02 below.
14.02 ARBITRATION
-----------
Any controversy or claim arising out of or in relation to this
AGREEMENT, or the breach hereof, between BTI and any of the MINORITY
SHAREHOLDERS, will be finally settled by arbitration in Austin, Texas, U.S.A. or
some other location mutually agreed to by the parties in dispute.
14.02.1 The arbitration will be conducted before three (3) arbitrators
in accordance with the Rules of Arbitration and Conciliation of the
INTERNATIONAL CHAMBER OF COMMERCE then in effect.
14.02.2 Each of BTI and the MINORITY SHAREHOLDER(S) will appoint one
(1) arbitrator within thirty (30) days after receipt of a demand for
arbitration. (In case more than one MINORITY SHAREHOLDERS are parties to the
dispute, such MINORITY SHAREHOLDERS shall jointly elect one (1) arbitrator.)
Such arbitrators will be freely selected, and the parties will not be limited to
any prescribed list. The two (2) arbitrators thus appointed will, within thirty
(30) days after their appointment, appoint a third arbitrator who, unless
otherwise agreed in writing by the parties, will not be a national of Japan or
the U.S.A. and who will preside over the arbitration proceedings.
(Page 24)
<PAGE>
14.02.3 The proceedings will be conducted in English, and all
arbitrators will be conversant in, and have a thorough command of, the English
language.
14.02.4 All the parties will be bound by the award rendered by the
arbitrators, and judgment thereon may be entered in any court of competent
jurisdiction.
14.02.5 Notwithstanding any other provisions of this AGREEMENT, each
party will be entitled to seek preliminary injunctive relief from any court of
competent jurisdiction pending the final decision or award of the arbitrators,
provided, however, that such action shall not result in suspension of NEWCO's
business.
14.03 APPLICABLE LAW
--------------
The validity, construction and performance of this AGREEMENT shall be
governed by and interpreted in accordance with the laws of Japan.
SECTION 15.00 INTERPRETATION
--------------
15.01 GOVERNING LANGUAGE
------------------
This AGREEMENT is in the English language only, which language shall
be controlling in all respects. No translation, if any, of this AGREEMENT into
the Japanese or any other language shall be of any force or effect in the
interpretation of this AGREEMENT or in a determination of the intent of either
of the parties hereto.
15.02 EFFECT OF HEADINGS
------------------
The headings of SECTIONS and Paragraphs of this AGREEMENT, excepting
those in SECTION 1.00 hereof, are to facilitate
(Page 25)
<PAGE>
reference only, do not form a part of this AGREEMENT, and shall not in any way
affect the interpretation hereof.
15.03 PRIOR AGREEMENTS
----------------
This AGREEMENT supersedes all previous representations, understandings
and agreements, oral or written, between the parties hereto with respect to the
subject matter of this AGREEMENT, and the agreements and documents contemplated
by this AGREEMENT, including the ASSOCIATED AGREEMENTS and the Articles of
Incorporation, contain the entire understanding of the parties hereto as to the
terms and conditions of their relationship.
15.04 CONTRADICTION OF TERMS
----------------------
Terms included in this AGREEMENT and in the ASSOCIATED AGREEMENTS may
not be contradicted by evidence of any prior oral or written agreement or of a
contemporaneous oral or written agreement.
15.05 AMENDMENTS
----------
No amendments, changes, alterations or modifications of this AGREEMENT
will be effective unless they are in writing and are signed by the authorized
representatives of the parties hereto.
SECTION 16.00 EXPENSES AND ENFORCEMENT COSTS
------------------------------
16.01 EXPENSES
--------
Each party hereto will bear its own attorney's fees and other expenses
incurred in connection with the negotiation, execution and delivery of this
AGREEMENT and all ASSOCIATED AGREEMENTS and other related documents. NEWCO will
be responsible for the costs of incorporation, corporate maintenance and any
other corporate expenses.
(Page 26)
<PAGE>
16.02 ENFORCEMENT COSTS
-----------------
Each party hereto agrees to pay and discharge all reasonable costs,
attorney's fees and expenses (including but not limited to the costs of
arbitration and litigation) that are incurred by the other party in enforcing
the terms of this AGREEMENT or in defending itself in an action to enforce the
terms of this AGREEMENT, provided that such other party substantially prevails
in the proceedings.
SECTION 17.00 MISCELLANEOUS
-------------
17.01 ASSIGNMENT
----------
This AGREEMENT, and all rights and obligations hereunder, are personal
as to the parties hereto and shall not be assigned by any of the parties hereto
to any third party without the prior written consent thereto by the other
parties hereto. However, this provision will not prevent BTI from merging with
another corporation or selling substantially all of its assets to another
corporation, providing all obligations of BTI under this and ASSOCIATED
AGREEMENTS are assumed by the surviving corporation or the buyer.
17.01 NOTICES
-------
Except as otherwise provided in this AGREEMENT, all notices required
or permitted to be given hereunder shall be in writing and shall be valid and
sufficient if dispatched by registered airmail, postage prepaid, in any post
office in the Untied States of America or in Japan, as the case may be, or by
facsimile, addressed as follows:
(Page 27)
<PAGE>
If to BTI: BTRIEVE TECHNOLOGIES, INC.
Suite 300, 8834 Capital of Texas Highway N.
Austin, Texas 78759
UNITED STATES OF AMERICA
(fax: 1-512-794-1778)
Attention: Mr. Ron R. Harris
President and CEO
If to NOVELL: NOVELL JAPAN, LTD.
13-1, Mishuku 1-chome
Setagaya-ku, Tokyo 154
JAPAN
(fax: 81-3-5481-1855)
Attention: Mr. Kazuya Watanabe
President
If to AG TECH: AG TECH CORPORATION
10-9, Higashi-Sakura 1-chome
Higashi-ku, Nagoya 461
JAPAN
(fax: 81-52-951-4469)
Attention: Mr. Yoshio Tanahashi
President
If to EMPOWER: EMPOWER LTD.
15-8, Iwamoto-cho 2-chome
Chiyoda-ku, Tokyo 101
JAPAN
(fax: 81-3-3863-9285)
Attention: Mr. Junichi Okada
Chairman
(Page 28)
<PAGE>
TIME OF RECEIPT
---------------
Any notice so given will be deemed to have been received two (2)
business days (as calculated at the location of the recipient) after dispatch in
the case of a facsimile transmission or, in the case of a letter:
17.03.1 Fourteen (14) days after dispatch for air mail sent between
Japan and the U.S.A. or any other country; or
17.03.2 Seven (7) days after dispatch for air courier or for mail
sent within Japan or the U.S.A. or any other country.
17.04 PROOF OF SERVICE OF NOTICE
--------------------------
To prove service of notice, it will be sufficient to show that a
facsimile transmission containing the notice was properly addressed and properly
dispatched, or to show that a letter was properly addressed and posted provided
that a certificate of delivery, return receipt or registered mail receipt has
been returned to the sender indicating delivery of the letter.
17.05 CHANGING OF ADDRESSEE
---------------------
Either party hereto may amend the information contained in Paragraph
17.02 at any time by written notice to the other parties hereto.
(Page 29)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this AGREEMENT to
be executed by their duly authorized representatives on the day and year first
set forth above.
BTI: BTRIEVE TECHNOLOGIES, INC.
By:
------------------------------------
(name)
(title and/or division)
NOVELL: NOVELL JAPAN, LTD.
By:
------------------------------------
(name)
(title and/or division)
AG TECH: AG TECH CORPORATION
By:
------------------------------------
(name)
(title and/or division)
EMPOWER: EMPOWER LTD.
By:
------------------------------------
(name)
(title and/or division)
<PAGE>
* * * * *
ATTACHMENTS
Exhibit I English form of Articles of Incorporation of NEWCO
Exhibit II Letter of Intent between BTI and NEWCO
Exhibit III Letter of Intent between AG TECH and NEWCO
Exhibit IV Letter of Intent between EMPOWER and NEWCO
Exhibit V Letter of Intent between NOVELL and NEWCO
* * * * *
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated July 24, 1997 in the Registration Statement
(Amendment No. 2 to Form S-1 No. 333-32199) and the related Prospectus of
Pervasive Software Inc. for the registration of 4,000,000 shares of its common
stock.
/s/ Ernst & Young LLP
Austin, Texas
August 29, 1997
