<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 1998
REGISTRATION NO. 333-47263
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BRIO TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0210797
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3430 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 856-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
KAREN J. WILLEM
CHIEF FINANCIAL OFFICER
BRIO TECHNOLOGY, INC.
3430 WEST BAYSHORE ROAD
PALO ALTO, CA 94303
(650) 856-8000
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
MARK B. WEEKS MARK A. BERTELSEN
JON E. GAVENMAN JOSE F. MACIAS
PATRICK R BARRY S. DAWN SMITH
VENTURE LAW GROUP WILSON SONSINI GOODRICH & ROSATI
A PROFESSIONAL CORPORATION PROFESSIONAL CORPORATION
2800 SAND HILL ROAD 650 PAGE MILL ROAD
MENLO PARK, CA 94025 PALO ALTO, CA 94304
(650) 854-4488 (650) 493-9300
---------------
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, 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 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 number of the earlier effective registration statement for the
same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
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 APRIL 17, 1998
[LOGO OF BRIO TECHNOLOGY]
- --------------------------------------------------------------------------------
2,900,000 SHARES
COMMON STOCK
- --------------------------------------------------------------------------------
Of the 2,900,000 shares of Common Stock, par value $0.001 per share ("Common
Stock"), of Brio Technology, Inc. ("Brio" or the "Company") offered hereby
(the "Offering"), 2,775,000 shares are being offered by the Company and
125,000 shares are being offered by certain stockholders of the Company (the
"Selling Stockholders"). The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling Stockholders. See "Principal
and Selling Stockholders" and "Underwriting." Prior to this Offering, there
has been no public market for the Common Stock. It is currently estimated
that the initial public offering price will be between $8.00 and $10.00 per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The Company has applied to
have the Common Stock approved for listing on the Nasdaq National Market
under the symbol "BRYO."
FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE PROCEEDS PROCEEDS TO
TO UNDERWRITING TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share $ $ $ $
Total(3) $ $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $1,000,000, payable by the
Company.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 435,000 additional shares of Common Stock
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to Selling Stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to the
approval of certain legal matters by counsel and certain other conditions.
The Underwriters reserve the right to withdraw, cancel or modify such offer
and to reject orders in whole or in part. Delivery of the shares of Common
Stock offered hereby to the Underwriters is expected to be made in New York,
New York on or about , 1998.
DEUTSCHE MORGAN GRENFELL
BANCAMERICA ROBERTSON STEPHENS
FIRST ALBANY CORPORATION
PIPER JAFFRAY INC.
The date of this Prospectus is , 1998
<PAGE>
[COLOR ARTWORK]
[DESCRIPTION OF COLOR ARTWORK]
The inside front cover contains the same centered, dissected circle as the
gatefold center graphic. However, in this circle the icons are eliminated, as
is the upper-right arrow. The outside perimeter contains the same phrases:
"Client/Server Access" and "Web or Intranet Access." There are 5 text phrases
embedded within the circle. Analoging to a clock face, the text phrases are
positioned as follows:
At twelve o'clock is a set of 4 stacked phrases: (i), (ii), (iii) and (iv).
At two o'clock is the phrase: Query, Analysis & Reporting Directly from
Data Sources
At half-past three is: Query, Analysis & Reporting from Existing Data
Models
At six o'clock is: Ad Hoc Analysis from Pre-Built Reports
At ten o'clock is: Web or Intranet Access
The very top potion of the page contains a text box with the words
"Enterprise Business Intelligence." Below it and on the left are two
paragraphs. The text in the paragraph is as follows:
Delivering effective enterprise business intelligence requires a new
approach--the information supply chain. This information delivery and
analysis strategy incorporates individuals who manage and produce
information--Information Producers--and individuals who use information as
a part of their daily business life--Information Consumers.
This information supply chain approach allows Information Producers to
leverage their strengths in data management, applications and report
development and infrastructure management while enabling end users to focus
an answering key business questions--on their own.
Below that text is an empty space, then a third paragraph as follows:
Information Consumers. The largest group of users in any organization
require:
Below the paragraph are set square bullet points:
. Ad hoc analysis
. Off-line analysis and reporting
. Consistent user interface
. Accessibility via the Web
. Intuitive and easy to learn products
. Timely delivery of information and reports
Below the bullet points is another text box stretching across the left half
of the page with the words "Information Consumers."
On the upper right portion of the page, directly below the large text box is
a smaller text box stretching across the right half of the page with the words
"Information Producers." Below the text box is the phrase:
Information Producers--IT professionals and departmental power users--who
deliver business information to the organization require solutions that
provide:
Below this phrase are 7 square bullet points staggered at various points to
the right, roughly shadowing the perimeter of the wheel. The bullet points
read:
. Scalable architecture
. Simple support and maintenance
. Leverage existing technology
. Secure report distribution
. Centralized control
. Quick implementation
. Comprehensive, integrated tools
[END OF DESCRIPTION OF COLOR ARTWORK INSIDE FRONT COVER]
Adaptive Reporting, Brio, Brio Enterprise, Brio.Insight, BrioQuery,
BrioQuery Designer, BrioQuery Explorer, BrioQuery Navigator, Brio.Quickview,
Broadcast Server, DataPrism, OnDemand Server and the Company's logo are
trademarks of the Company. All other brand names or trademarks appearing in
this Prospectus are the property of their respective holders.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
Except as otherwise noted herein, information in this Prospectus assumes (i)
no exercise of the Underwriters' over-allotment option, (ii) the conversion of
all outstanding shares of Preferred Stock of the Company into shares of Common
Stock of the Company upon the closing of this Offering, (iii) the exercise of
a warrant to purchase 10,000 shares of Common Stock and (iv) the filing, upon
the closing of this Offering, of a Restated Certificate of Incorporation
authorizing 2,000,000 shares of undesignated Preferred Stock.
2
<PAGE>
[DESCRIPTION OF GATEFOLD GRAPHICS]
The graphic heading starts with the phrase "Brio Enterprise for the
Enterprise." Directly underneath this heading is the sentence: "Brio
Enterprise is Brio Technology's comprehensive client/server and web-based
suite of products that meet the needs of both Information Producers and
Information Consumers." In the center of the gatefold there is a circle divided
into 8 various-sized wedges. In the center of the circle is an icon
representing the Brio Enterprise Server product with the text "Brio Enterprise
Server" set out in a block directly below the icon. In the upper right portion
of the circle is an icon representing the BrioQuery product with the text
"BrioQuery" set directly below the icon in a text block. An arrow runs
counter-clockwise through the upper right quadrant of the circle. On the left
side of the circle, still within the circle itself at approximately a
70(degrees) angle from the top of the circle, lies an icon representing the
Brio.Quickview product, again placing the text in a block directly below the
icon. Curved arrows radiate from each side of the icon, one clockwise and the
other counter-clockwise, each covering about 30(degrees) of the circle. An
icon representing the Brio.Insight product lies in the bottom portion of the
circle. Directly below the icon lies the text "Brio.Insight." Arrows radiate
from each side of the icon in the same fashion as the arrows from the
Brio.Quickview icon, but each of these arrows extends for approximately
90(degrees) of the circle. Around the perimeter of the circle is a solid band
encasing two phrases. The upper right portion contains the phrase
"Client/Server Access" and the lower left portion contains the phrase "Web or
Intranet Access."
Directly below the graphic heading and extending across the width of the
page is a graphic consisting of two boxes linked by a double-headed arrow. The
box on the left side of the page carries the text "Information Consumers" and
the box at the right side carries the text "Information Producers." This
graphic represents the two major subsets of individuals Brio's products serve.
The page is roughly divided into 4 quadrants, each representing different
products that meet a slightly different mix of needs, as evinced by their
positioning under the "Information Consumers"--"Information Producers"
continuum. In the lower left quadrant, closest to the left-hand side of the
page, lies the Brio.Quickview icon, along with two different screen shots
demonstrating the product the screen shots are diagonal from one another and
overlap slightly. The icon is below them and to the left. Above and to the
right is the following text:
Brio.Quickview
Browser-based report viewing and refresh of data views provides Web users
timely, formatted reports. Brio's Executive Information System interface
launches other applications and provides one-touch report selection.
Above the text and slightly to the right are two more screen shots, these
taken from Brio Enterprise Server, again diagonally placed and slightly
overlapping. Above the intersection of the screens and to the right lies the
following text:
Brio Enterprise Server
Brio Enterprise Server bridges Information Producers to Information
Consumers with "push" and "pull" server technology. Brio's server solution
enables query over the Web and pushes information to Information Consumers
via client/server connection, the Web, email, fileservers, or printers.
Brio Enterprise Server provides IT with "zero administration" Web-based
clients, and a full range of capabilities for managing user profiles,
security and usage.
Centered above the text is the Brio Enterprise server, intersecting the
double-sided arrow that spreads across the top portion of the page.
The upper right quadrant has a similar array. The BrioQuery icon is in the
lower left corner of the array, with two screen shots linked diagonally above
and to the right. In the upper right quadrant of the array lies the text:
BrioQuery Designer, Explorer and Navigator
With one intuitive interface, BrioQuery delivers integrated query, analysis
and reporting in existing client/server environments. For IT departments,
BrioQuery provides database administration functionality, security,
auditing and repository set-up, including the ability to build data models
and reports to be shared across the organization.
The lower right quadrant is a mirror image of the upper right quadrant. The
upper right portion contains the Brio.Insight icon, then come the two
interlocked diagonal screens, then on the lower left portion lies the text:
Brio.Insight
Utilizing adaptive reporting technology, Brio's Web-client product,
Brio.Insight adapts its functionality--report by report--based on security
and user profiles. Users experience the same query, analysis and reporting
as BrioQuery--but based in the Web browser.
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus.
THE COMPANY
Brio designs, develops, markets and supports software products that enable
organizations to rapidly implement enterprise business intelligence solutions.
Brio provides a solution that is architected for the enterprise, designed for
business users, and engineered for IT departments. The Company's software
suite, consisting of server products and a range of Web, email, and client-
server based software, minimizes the user's dependence and corresponding impact
on IT departments by operating within existing hardware and software
infrastructures. These user-centric, cross-platform products provide dynamic
query, analysis, and reporting functionality in a distributed processing
architecture. Brio's strategy is to be a leading provider of enterprise
business intelligence solutions by (i) extending its technology leadership,
(ii) broadening its distribution channels, (iii) expanding its product
deployments throughout the enterprise, (iv) leveraging its industry
relationships, (v) increasing its international presence and (vi) providing its
customers with premium support and service. The Company principally sells and
markets its software and services through a direct sales and services
organization located in the United States, Canada, the United Kingdom, France
and Australia as well as worldwide through its indirect channel, including
value added resellers, resellers and distributors. The Company's customers
currently include: ARCO, Avis Rent A Car Systems, California State University
System, Comcast Cable Communications, Hewlett-Packard, Hoffman LaRoche, IBM,
Motorola, Sun Microsystems, the U.S. Army and Worldcom Network Services.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered ............................. 2,900,000 shares (including 2,775,000 shares
by the Company and 125,000 shares by the
Selling Stockholders)
Common Stock outstanding after the Offering....... 13,986,172 shares(1)
Use of proceeds................................... General corporate purposes, including working
capital, capital expenditures, and repayment
of certain indebtedness. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............ BRYO
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------ -------------------
1995 1996 1997 1996 1997
------ ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total revenues................ $3,512 $ 4,527 $13,386 $ 8,709 $18,560
Gross profit.................. 3,115 3,816 11,730 7,594 16,189
Operating expenses............ 3,445 7,045 17,720 11,063 22,703
Loss from operations.......... (330) (3,229) (5,990) (3,469) (6,514)
Net loss...................... (370) (3,196) (5,965) (3,426) (6,740)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED(2)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 1,472 $20,309
Total current assets................................... 9,254 28,091
Total current liabilities.............................. 11,324 8,184
Noncurrent liabilities................................. 1,609 1,359
Stockholders' equity (deficit)......................... (554) 21,673
</TABLE>
- -------
(1) Based on the number of shares outstanding as of December 31, 1997. Excludes
(i) 1,204,562 shares issuable upon exercise of options outstanding as of
December 31, 1997 with a weighted average exercise price of $1.79 per
share, (ii) 10,000 shares issuable upon exercise of an outstanding warrant
as of December 31, 1997 with an exercise price of $.60 per share (which
warrant was exercised in full subsequent to December 31, 1997),
(iii) 130,229 shares available for issuance under the Company's 1992 Stock
Option Plan, (iv) 2,250,000 shares reserved for issuance upon exercise of
options that may be granted under the newly adopted 1998 Stock Option Plan,
(v) 300,000 shares reserved for issuance upon exercise of options that may
be granted under the newly adopted 1998 Directors' Stock Option Plan, and
(vi) 500,000 shares reserved for issuance under the newly adopted 1998
Employee Stock Purchase Plan. See "Management--Stock Plans" and Note 8 of
Notes to Consolidated Financial Statements.
(2) As adjusted to reflect the sale of 2,775,000 shares of Common Stock offered
by the Company hereby, at an assumed initial public offering price of $9.00
per share and after deducting the estimated underwriting discount and
estimated offering expenses, and the application of the net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
3
<PAGE>
THE COMPANY
Brio Technology, Inc. designs, develops, markets and supports software
products that enable organizations to rapidly implement enterprise business
intelligence solutions. The Company's software solution is a comprehensive
client-server and Web-based product suite designed to enable large numbers of
business professionals to access and analyze data in order to make faster and
more informed business decisions.
In today's increasingly competitive markets, organizations in virtually
every industry are seeking to improve the ability of business professionals to
make timely, fact-based business decisions. To accomplish this objective,
organizations must establish and maintain an infrastructure that empowers
business professionals with analytical tools and information to improve their
decision making. The Company refers to this infrastructure as a business
intelligence environment. Over the last decade, many organizations have spent
considerable effort and resources to collect, organize and distribute data,
but have been unable to fully empower business professionals with the benefits
of a business intelligence environment.
The Company believes there is a need for an approach to business
intelligence modeled on the concept of an "INFORMATION SUPPLY CHAIN"
consisting of individuals who produce information, or "INFORMATION PRODUCERS,"
and individuals who consume and use information as part of their daily
business, or "INFORMATION CONSUMERS." The Company believes that an enterprise
business intelligence approach based on the concept of an information supply
chain is the most effective way of meeting the needs of users throughout an
organization.
The Company's Brio Enterprise product suite and related services enable
organizations to develop and deploy enterprise business intelligence solutions
that maximize the value of corporate data. The Company provides an integrated
solution that is architected for the enterprise, designed for information
consumers, and engineered for information producers. The Company's software
suite consists of its server products and a range of Web, email, and client-
server based software. This user-centric, cross-platform product suite
provides dynamic query, analysis, and reporting functionality in a distributed
processing architecture. The Company's products are designed to be easily and
quickly implemented, to scale from departmental deployments to enterprise
solutions, to minimize the dependence and impact on IT departments, and to
leverage existing hardware and software investments.
Brio's strategy is to be a leading provider of enterprise business
intelligence software solutions. The Company plans to extend its technology
leadership by devoting significant resources to research and development and
leveraging relationships with industry partners. The Company also intends to
broaden its distribution capabilities by expanding its indirect channel and
growing its direct sales force to focus on enterprise-wide deployments within
large organizations. Additionally, Brio has formed strategic relationships
that provide enhanced integration with partner technology and increased market
exposure and sales opportunities. Brio also intends to increase its
international presence and to maintain a focus on quality customer service and
support.
The Company principally sells and markets its software and services through
a direct sales and services organization located in the United States, Canada,
the United Kingdom, France and Australia and internationally through its
indirect channel, including value-added resellers, resellers and distributors.
The Company's customers currently include: ARCO, Avis Rent A Car System,
California State University System, Comcast Cable Communications, Hewlett-
Packard, Hoffman LaRoche, IBM, Motorola, Sun Microsystems, the U.S. Army and
Worldcom Network Services.
Brio was incorporated in California in February 1989 and was reincorporated
in Delaware in April 1998. The Company's principal executive offices are
located at 3430 West Bayshore Road, Palo Alto, CA 94303. Its telephone number
at that location is (650) 856-8000.
4
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. In addition to the other information in this Prospectus, the
following risk factors should be considered carefully in evaluating an
investment in the Common Stock offered by this Prospectus. When used in this
Prospectus, the words "expects," "anticipates," "intends," "plans,"
"estimates" and similar expressions are intended to identify forward looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. These risks
and uncertainties include, but are not limited to, those risks discussed below
and elsewhere in this Prospectus. Actual results could differ materially from
those projected in the forward looking statements as a result of the risk
factors discussed below and elsewhere in this Prospectus.
HISTORY OF NET LOSSES; SUBSTANTIAL ACCUMULATED DEFICIT; UNCERTAIN FUTURE
PROFITABILITY. The Company incurred net losses of $370,000, $3.2 million, $6.0
million and $6.7 million in fiscal 1995, 1996, 1997 and for the nine months
ended December 31, 1997, respectively. As of December 31, 1997, the Company
had an accumulated deficit of approximately $16.5 million. Given the Company's
history of net losses, there can be no assurance of revenue growth or
profitability on a quarterly or annual basis in the future. While the Company
achieved significant quarter-to-quarter revenue growth in fiscal 1997 and in
the nine months ended December 31, 1997, the Company does not expect to
sustain the same rate of sequential quarterly revenue growth in future
periods. In addition, the Company intends to increase its operating expenses
significantly in fiscal 1999; therefore, the Company's operating results will
be adversely affected if revenue does not increase. The Company's prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in rapidly evolving markets. To address these risks, the Company
must, among other things, successfully increase the scope of its operations,
respond to competitive developments, continue to attract, retain and motivate
qualified personnel and continue to commercialize products incorporating
advanced technologies. There can be no assurance that the Company will be
successful in addressing such risks, and the failure to do so 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."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company has experienced and
expects to continue to experience significant fluctuations in quarterly
operating results based on a number of factors, many of which are not within
the Company's control. Among other things, the Company's operating results
have fluctuated in the past due to the timing of product enhancements and new
product announcements by the Company, the lengthy sales cycle of the Company's
products, market acceptance of and demand for the Company's products, capital
spending patterns of the Company's customers, customer order deferrals in
anticipation of enhancements or new products offered by the Company, the
Company's ability to attract and retain key personnel, the mix of domestic and
international sales, the mix of license and service revenues, personnel
changes and changes in the timing and level of operating expenses. The
Company's results of operations may also fluctuate in the future due to a
number of factors, including but not limited to those discussed above as well
as the number and significance of product enhancements and new product
announcements by the Company's competitors, changes in pricing policies by the
Company or its competitors, the ability of the Company to develop, introduce
and market new and enhanced versions of the Company's products on a timely
basis, customer order deferrals in anticipation of enhancements or new
products offered by the Company's competitors, nonrenewal of service
agreements, software defects and other product quality problems, the mix of
direct and indirect sales, currency fluctuations, costs or
5
<PAGE>
damage awards associated with the current Business Objects, S.A. litigation,
and general economic conditions. The Company anticipates that an increasing
portion of its revenue could be derived from larger orders, in which case the
timing of receipt and fulfillment of any such orders could cause material
fluctuations in the Company's operating results, particularly on a quarterly
basis. Furthermore, the Company has experienced, and expects to continue to
experience, seasonality due, among other things, to customer capital spending
patterns and the general summer slowdown in sales. Such seasonality could have
a material adverse effect on the Company's results of operations, particularly
for the quarters ending June 30 or September 30.
In addition, the Company currently intends to commit substantial financial
resources to research and development, customer support and sales and
marketing, including the expansion of its direct sales force, third-party
partnering relationships and its indirect channel sales organization, and
expects that expenses relating to its litigation with Business Objects, S.A.
will increase in future periods. The Company also expects to increase its
staffing and systems infrastructure in order to support the Company's
expanding operations and to comply with the additional responsibilities of a
public company. To the extent such expenses are not subsequently followed by
increased revenues, the Company's business, operating results and financial
condition could be materially adversely affected. The timing of such expansion
and the rate at which new sales people become productive could also cause
material fluctuations in the Company's quarterly operating results.
Due to the foregoing factors, quarterly revenue and operating results are
difficult to forecast. Further, the Company's expense levels are based in
significant part on the Company's expectations as to future revenue and are
therefore relatively fixed in the short term. Additionally, the Company has in
the past and expects in the future to recognize a large portion of its license
revenue in the last month of each quarter. If revenue levels fall below
expectations, net income is likely to be disproportionately adversely affected
because a proportionately smaller amount of the Company's expenses varies with
its revenue. In light of the foregoing, in some future quarter the Company's
reported or anticipated operating results may fail to meet or exceed the
expectations of securities analysts or investors. In such event, the price of
the Company's Common Stock would be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON DIRECT SALES FORCE. The Company has historically sold its
products primarily through its direct sales and services organization located
in the United States, Canada, the United Kingdom, France and Australia, and
the Company intends to continue to invest significant resources to expand its
direct sales force. Revenues from direct sales were 91%, 93% and 88% of total
revenues for fiscal 1996, 1997 and the nine months ended December 31, 1997,
respectively. Competition for personnel with a sufficient level of expertise
and experience for these positions is intense, particularly among the
Company's competitors who may have substantially greater resources than the
Company or greater resources dedicated to hiring such personnel. In addition,
the Company has experienced significant turnover of its sales force. Such
turnover tends to slow sales efforts until replacement personnel can be
recruited and trained to become productive members of the Company's sales
force. There can be no assurance that the Company will be able to attract and
retain adequate sales and marketing personnel, despite the expenditure of
significant resources to do so, and the failure to do so could have a material
adverse effect on the Company's business, operating results and financial
condition. See "--Dependence on Key Personnel and Hiring of Additional
Personnel."
DEPENDENCE ON KEY PERSONNEL AND HIRING OF ADDITIONAL PERSONNEL. The
Company's success depends to a significant degree upon the continued
contributions of its key management, engineering, sales and marketing
personnel, many of whom would be difficult to
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replace. The Company has employment contracts with only three members of its
executive management personnel, and currently maintains "key person" life
insurance only on Yorgen Edholm, the Company's President and Chief Executive
Officer, and Katherine Glassey, the Company's Executive Vice President,
Products and Services and Chief Technology Officer, respectively. The Company
does not believe such insurance would adequately compensate it for the loss of
either Mr. Edholm or Ms. Glassey. The Company believes its future success will
also depend in large part upon its ability to attract and retain highly
skilled managerial, engineering, sales and marketing and finance personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting and retaining such personnel. The
Company has recently experienced difficulties in hiring highly qualified sales
and engineering personnel, and the Company believes that it may have greater
difficulty in attracting such personnel with equity incentives as a public
company than it had while privately held. For example, as a result of market
forces, companies in the enterprise software industry have historically
experienced significant fluctuations in their market valuations. To the extent
that the Company's Common Stock trades at a premium relative to historical
industry averages or to other companies in the enterprise software industry,
the Company may experience difficulty in attracting qualified personnel. The
loss of the services of any of the key personnel, the inability to attract or
retain qualified personnel in the future or delays in either hiring required
personnel or the rate at which new people become productive, particularly
sales personnel and engineers, could have a material adverse effect on the
Company's business, operating results and financial condition. In addition,
companies in the enterprise software industry whose employees accept positions
with competitive companies frequently claim that their competitors have
engaged in unfair hiring practices. The Company has, from time to time,
received such claims from other companies and there can be no assurance that
the Company will not receive additional claims in the future as it seeks to
hire qualified personnel or that such claims will not result in litigation
involving the Company. The Company could incur substantial costs in defending
itself against any such claims, regardless of the merits of such claims or
lack thereof. See "Business--Employees" and "Management--Executive Officers
and Directors."
LENGTHY PRODUCT SALES CYCLE. The purchase of the Company's products may
require significant, executive-level investment and systems architecture
decisions by prospective customers. Such transactions may be delayed during
the customer acceptance process because the Company must provide a significant
level of education to prospective customers regarding the use and benefits of
the Company's products. The Company believes that most companies currently are
not yet aware of the benefits of enterprise-wide business intelligence
solutions or of the Company's products and capabilities, nor have such
companies deployed business intelligence solutions on an enterprise-wide
basis. Accordingly, the sales cycle associated with the purchase of the
Company's enterprise business intelligence products is typically three to nine
months in length and subject to a number of significant risks over which the
Company has little or no control, including customers' budgeting constraints
and internal acceptance review procedures. Further, to the extent that
potential customers divert resources and attention to issues associated with
the year 2000 issue, the Company's sales cycle could be further lengthened.
See "--Year 2000 Compliance."
Additionally, the sales cycle for the Company's products in international
markets has historically been, and is expected to continue to be, longer than
the sales cycle in the United States and Canada. Accordingly, as the Company
expands internationally, the average sales cycle for the Company's products is
expected to lengthen. Based in part upon, among other things, its lengthy
sales cycle, the Company believes that its quarterly revenues and operating
results could vary significantly in the future, and that excessive delay in
product sales could have a material adverse effect on the Company's business,
operating results and financial
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condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Sales and Marketing."
DEPENDENCE ON DEVELOPMENT OF INDIRECT SALES CHANNELS. To date, the Company
has sold its products principally through its direct sales and services
organizations and, to a lesser extent, through value-added resellers ("VARs"),
resellers and distributors (collectively referred to as the Company's
"Indirect Channel"). Revenues from the Company's Indirect Channel were 9%, 7%
and 12% of total revenues for fiscal 1996, 1997 and for the nine months ended
December 31, 1997, respectively. The Company's ability to achieve revenue
growth and improved operating margins on product sales, as well as increased
worldwide sales, in the future will depend in large part upon its success in
expanding and maintaining the Indirect Channel worldwide. Although the Company
is currently investing and plans to continue to invest significant resources
to develop the Indirect Channel, there can be no assurance that the Company
will be able to continue to attract and retain additional companies in the
Indirect Channel that will be able to market the Company's products
effectively and will be qualified to provide timely and cost-effective
customer support and services. There also can be no assurance that the Company
will be able to manage conflicts within the Indirect Channel or that the
Company's focus on increasing sales through the Indirect Channel will not
divert management resources and attention from direct sales. In addition, the
Company's agreements with companies in the Indirect Channel do not restrict
such companies from distributing competing products, and in many cases may be
terminated by either party without cause. There can be no assurance that the
Company will be able to successfully expand its Indirect Channel or that any
such expansion will result in an increase in revenues, and failure to do so
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Brio Strategy" and "--Sales
and Marketing."
COMPETITION. The market in which the Company operates is still developing,
and is intensely competitive, highly fragmented and characterized by rapidly
changing technology and evolving standards. The Company's current and
potential competitors offer a variety of software solutions and generally fall
within four categories: (i) vendors of business intelligence software such as
Cognos, Business Objects, S.A., Seagate, and Andyne; (ii) vendors offering
alternative approaches to delivering analysis capabilities to users, such as
MicroStrategy; (iii) database vendors that offer products which operate
specifically with their proprietary database, such as Microsoft, IBM, Oracle
or Arbor; and (iv) other companies that may in the future announce offerings
of enterprise business intelligence solutions. The Company's competitive
position in the market is uncertain, due principally to the variety of current
and potential competitors and the emerging nature of the market. The Company
has experienced and expects to continue to experience increased competition
from current and potential competitors, many of whom have significantly
greater financial, technical, marketing and other resources than the Company.
Such competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources
to the development, promotion and sales of their products than the Company.
The Company expects additional competition as other established and emerging
companies enter into the business intelligence software market and new
products and technologies are introduced. Increased competition could result
in price reductions, fewer customer orders, reduced gross margins, longer
sales cycles and loss of market share, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition. Current and potential competitors may make strategic acquisitions
or establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's prospective customers. The Company's current or future indirect
channel partners may establish cooperative relationships with current or
potential competitors of the Company, thereby limiting the Company's ability
to sell its products through particular distribution
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channels. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Such competition could have a material adverse effect on the Company's
ability to obtain new licenses, and maintenance and support renewals for
existing licenses, on terms favorable to the Company. Further, competitive
pressures may require the Company to reduce the price of its products, which
could have a material adverse effect on the Company's business, operating
results and financial condition. There can be no assurance that the Company
will be able to compete successfully against current and future competitors,
and the failure to do so could have a material adverse effect on the Company's
business, operating results and financial condition. The Company competes on
the basis of certain factors, including product features, time to market, ease
of use, product performance, product quality, analytical capabilities, user
scalability, open architecture, customer support and price. The Company
believes it presently competes favorably with respect to each of these
factors. However, the Company's market is still evolving and there can be no
assurance that the Company will be able to compete successfully against
current and future competitors, and the failure to do so successfully could
have a material adverse effect on the Company's business, operating results
and financial condition.
LITIGATION WITH BUSINESS OBJECTS, S.A. On January 20, 1997, Business
Objects, S.A. filed a complaint (the "Complaint") against the Company in the
U.S. District Court for the Northern District of California in San Jose,
California alleging that certain of the Company's products (including at least
the BrioQuery Navigator, BrioQuery Explorer and BrioQuery Designer products)
infringe at least claims 1, 2 and 4 of U.S. Patent No. 5,555,403. In April
1997, the Company filed an answer and affirmative defenses to the Complaint,
denying certain of the allegations in the Complaint and asserting a
counterclaim requesting declaratory relief that the Company is not infringing
the patent and that the patent is invalid and unenforceable. In December 1997,
venue for the case was changed to the Northern District of California in San
Francisco, California. The Company believes that it has meritorious defenses
to the claims made in the Complaint on both invalidity and non-infringement
grounds, and intends to defend the suit vigorously. Business Objects, S.A.
contends that there was no prior software or other prior art which allowed
users to associate a familiar name with a query or which permitted retrieved
values to be semantically dynamic. The Company has contended that, if the
patent were construed to cover the Company's current products, the patent
would then also cover prior art products, rendering the patent invalid.
Business Objects, S.A. contends that there are material differences between
those prior art products and the Company's current products. Business Objects,
S.A. also contends that the patent is valid because it has been commercially
successful and widely copied in the industry. The Company disputes these
contentions. The Company and Business Objects, S.A. are currently conducting
discovery and are awaiting a date for the claims construction hearing. The
pending litigation could result in substantial expense to the Company and
significant diversion of effort by the Company's technical and management
personnel. The Complaint seeks injunctive relief and unspecified monetary
damages, and Business Objects, S.A. is expected to seek lost profits and/or
equivalent royalties. The Complaint also alleges willful infringement, and
seeks treble damages, costs and attorneys' fees. Litigation is subject to
inherent uncertainties, especially in cases such as this where complex
technical issues must be decided. The Company's defense of this litigation,
regardless of the merits of the Complaint or lack thereof, could be time-
consuming or costly, or divert the attention of technical and management
personnel, which could have a material adverse effect upon the Company's
business, operating results and financial condition. There can be no assurance
that the Company will prevail in the litigation given the complex technical
issues and inherent uncertainties in patent litigation, particularly before
the claims have been construed by the Court. In the event the Company is
unsuccessful in the litigation, the Company may be required to pay damages to
Business Objects, S.A. and could be prohibited from marketing certain of its
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products without a license, which license may not be available on acceptable
terms. If the Company is unable to obtain such a license, the Company may be
required to license a substitute technology or redesign to avoid infringement,
in which case the Company's business, operating results and financial
condition could be materially adversely affected. Collectively, sales of
BrioQuery Navigator, BrioQuery Explorer and BrioQuery Designer represented
substantially all of the Company's revenues in fiscal 1996 and represented a
majority of the Company's revenues in fiscal 1997 and the nine months ended
December 31, 1997. See "Business--Proprietary Rights" and "--Legal
Proceedings."
MANAGEMENT OF OPERATIONS; NEW MANAGEMENT TEAM. The Company's recent growth
and expansion of operations has placed, and is expected to continue to place,
a significant strain on its managerial, operational and financial resources.
To manage its potential growth, the Company must continue to implement and
improve its operational and financial systems and to expand, train and manage
its employee base. Over half of the Company's executive management have joined
the Company within approximately the last eighteen months, including the
Company's Chief Financial Officer, Executive Vice President, Marketing and
Executive Vice President, Worldwide Operations. See "Management--Executive
Officers and Directors." These individuals have not previously worked together
for substantial lengths of time and are in the process of integrating as a
management team, and certain of such individuals do not have significant prior
experience in public company executive management. There can be no assurance
that the Company will be able to effectively manage the expansion of its
operations, that the Company's systems, procedures or controls will be
adequate to support the Company's operations or that Company management will
be able to achieve the rapid execution necessary to fully exploit the market
opportunity for the Company's products and services. Any inability to manage
growth, if any, 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."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION. Sales to customers outside of
the United States and Canada, including sales generated by the Company's
foreign subsidiaries, represented 9%, 14% and 19% of total revenues for fiscal
1996, 1997 and the nine months ended December 31, 1997, respectively. The
Company has direct sales offices in the United Kingdom, France and Australia,
and has established distribution relationships in more than 20 countries,
including Belgium, Italy, Japan, The Netherlands and South Africa. The Company
has, to date, localized its products in French, Italian and Japanese. A key
component of the Company's strategy is its planned expansion into additional
international markets. To facilitate this international expansion, the Company
anticipates localizing its products for additional foreign markets in the
future. If the international revenues generated by these expanded operations
are not adequate to offset the expense of establishing and maintaining these
foreign operations, the Company's business, operating results and financial
condition could be materially adversely affected. To date, the Company has
only limited experience in developing localized versions of its products and
marketing and distributing its products internationally. There can be no
assurance that the Company will be able to successfully localize, market, sell
and deliver its products in these markets, and failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition.
In addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks inherent in doing business on
an international level, such as increased difficulty in controlling operating
expenses, unexpected changes in regulatory requirements, tariffs and other
trade barriers, difficulties in staffing and managing foreign operations,
longer payment cycles, problems in collecting accounts receivable, political
instability, fluctuations in currency exchange rates, seasonal reductions in
business activity
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during the summer months in Europe and certain other parts of the world and
potentially adverse tax consequences, which could adversely impact the success
of the Company's international operations. In particular, the Company's
international sales are generally denominated and collected in foreign
currencies, and the Company has not historically undertaken foreign exchange
hedging transactions to cover its potential foreign currency exposure. In the
quarter ended December 31, 1997, the Company incurred losses on foreign
currency translations resulting from intercompany receivables from its foreign
subsidiaries in an amount of approximately $105,000. There can be no assurance
that one or more of such factors will not have a material adverse effect on
the Company's future international operations and, consequently, on the
Company's business, operating results and financial condition.
DEPENDENCE UPON PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL CHANGE AND EVOLVING
INDUSTRY STANDARDS. The Company's success will depend upon its ability to
develop new products that meet changing customer requirements. The market for
the Company's products is characterized by rapidly changing technology,
evolving industry standards and customer requirements, emerging competition
and frequent new product introductions. The Company's products incorporate a
number of advanced technologies, including a proprietary data analysis engine,
a distributed architecture, as well as Web access and delivery technology. As
a result, the Company may be required to change and improve its products in
response to changes in operating systems, applications, networking and
connectivity software, computer and communications hardware, programming tools
and computer language technology. Such changes and improvements are dependent,
in part, on the Company's ability to hire and retain highly qualified
engineering personnel. See "--Dependence on Key Personnel and Hiring of
Additional Personnel." In addition, the Company attempts to establish and
maintain partner alliances with influential companies in a variety of core
technology areas. The Company's failure to establish such alliances with
leading companies in particular technology areas could have a material adverse
effect on the Company's business, operating results and financial condition.
There can be no assurance that the Company can successfully respond to
changing technology, identify new product opportunities or develop and bring
new products to market in a timely and cost-effective manner. The Company has
in the past experienced delays in software development and there can be no
assurance that the Company will not experience delays in connection with its
current or future product development activities. In particular, development
efforts in the UNIX server environment are complex, and the Company in the
past has encountered delays in developing products for this environment.
Delays and difficulties associated with new product introductions or product
enhancements could have a material adverse effect on the Company's business,
operating results and financial condition. Failure of the Company, for
technological or other reasons, to develop and introduce new products and
product enhancements on a timely basis that are compatible with industry
standards and that satisfy customer requirements would have a material adverse
effect on the Company's business, operating results and financial condition.
In addition, the Company or its competitors may announce enhancements to
existing products, or new products embodying new technologies, industry
standards or customer requirements that have the potential to supplant or
provide lower cost alternatives to the Company's existing products. The
introduction of such enhancements or new products could render the Company's
existing products obsolete and unmarketable. There can be no assurance
that the announcement or introduction of new products by the Company or its
competitors or any change in industry standards will not cause customers to
defer or cancel purchases of existing products, which could have a material
adverse effect on the Company's business, operating results and financial
condition. Furthermore, introduction by the Company of products with
reliability, quality or compatibility problems could result in reduced orders,
delays in collecting accounts receivable and additional service costs. The
failure to introduce a new
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product or product enhancement on a timely basis could delay or hinder market
acceptance. Any such event could have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Products and Technology."
DEPENDENCE ON EMERGING MARKET FOR ENTERPRISE BUSINESS INTELLIGENCE; NO
ASSURANCE OF MARKET ACCEPTANCE OF ENTERPRISE BUSINESS INTELLIGENCE
PRODUCTS. The Company is focusing its selling efforts increasingly on larger,
enterprise-wide implementations of its products, and the Company expects such
sales to constitute an increasing portion of the Company's future revenue
growth, if any. To date, the Company's selling efforts have resulted in
limited enterprise-wide implementations of the Company's products. The Company
believes that most companies currently are not yet aware of the benefits of
enterprise-wide business intelligence solutions or of the Company's products
and capabilities, nor have such companies deployed business intelligence
solutions on an enterprise-wide basis. While the Company has devoted
significant resources to promoting market awareness of its products and the
problems such products address (including training of its sales force to
promote enterprise business intelligence and demonstrating the enterprise-wide
business intelligence capabilities of Brio Enterprise at industry conferences
and trade shows, the costs of which the Company views as a normal part of its
new product sales and marketing activity), no assurance can be given that
these efforts will be sufficient to build market awareness of the need for
enterprise business intelligence or acceptance of the Company's products.
Failure of a significant market for enterprise business intelligence products
to develop, or failure of enterprise-wide implementations of the Company's
products to achieve broad market acceptance, would have a material adverse
effect on the Company's business, operating results and financial condition.
YEAR 2000 COMPLIANCE. Many existing computer systems and applications, and
other control devices, use only two digits to identify a year in the date
field, without considering the impact of the upcoming change in the century.
As a result, such systems and applications could fail or create erroneous
results unless corrected so that they can process data related to the year
2000 and beyond. The Company relies on its systems, applications and devices
in operating and monitoring all major aspects of its business, including
financial systems (such as general ledger, accounts payable and payroll),
customer services, infrastructure, networks and telecommunications equipment.
The Company also relies, directly and indirectly, on external systems of
business enterprises such as customers, suppliers, creditors, financial
organizations, and governmental entities, both domestic and international, for
accurate exchange of data. The Company's current estimate is that the costs
associated with the year 2000 issue, and the consequences of incomplete or
untimely resolution of the year 2000 issue, will not have a material adverse
effect on the results of operations or financial position of the Company in
any given year. However, despite the Company's efforts to address the year
2000 impact on its internal systems, the Company has not fully identified such
impact or whether it can resolve it without disruption of its business and
without incurring significant expense. In addition, even if the internal
systems of the Company are not materially affected by the year 2000 issue, the
Company could be affected through disruption in the operation of the
enterprises with which the Company interacts. Furthermore, although the
Company's products comply with such year 2000 requirements, the Company
believes that the purchasing patterns of customers and potential customers may
be affected by year 2000 issues as companies expend significant resources to
correct or patch their current software systems to comply with year 2000
requirements. These expenditures may result in reduced funds available to
purchase software products such as those offered by the Company, which could
have a material adverse effect on the Company's business, operating results
and financial condition. See "--Lengthy Product Sales Cycle."
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RISKS OF PRODUCT DEFECTS; PRODUCT LIABILITY. As a result of their
complexity, the Company's software products may contain undetected errors,
failures or viruses. Despite testing by the Company and use by current and
potential customers when new products are first introduced or new enhancements
are released, there can be no assurance that errors will not be found in new
products or enhancements after commencement of commercial shipments. Although
the Company has not experienced material adverse effects resulting from any
such defects and errors to date, there can be no assurance that defects and
errors will not be found in new products or enhancements after commencement of
commercial shipments, resulting in loss of revenues, delay in market
acceptance or damage to the Company's reputation, which could have a material
adverse effect upon the Company's business, operating results and financial
condition. Further, the Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure for
potential claims based on errors or malfunctions of its products. It is
possible, however, that the limitation of liability provisions contained in
the Company's license agreements may not be effective under the laws of
certain jurisdictions. Although the Company has not experienced any product
liability claims to date, the sale and support of the Company's products
entails the risk of such claims. Although the Company carries insurance
against product liability risks, there can be no assurance that such insurance
would be adequate to cover a potential claim. A product liability claim
brought against the Company could have a material adverse effect on the
Company's business, operating results and financial condition.
LIMITED PROTECTION OF PROPRIETARY RIGHTS. The Company currently relies
primarily on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company also believes that factors such as the
technological and creative skills of its personnel, new product developments,
frequent product enhancements, name recognition and reliable product
maintenance are essential to establishing and maintaining a technology
leadership position. The Company seeks to protect its software, documentation
and other written materials under trade secret and copyright laws, which
afford only limited protection. The Company currently has one United States
patent application. There can be no assurance that the Company's patent
application will result in the issuance of a patent, or if issued, will not be
invalidated, circumvented or challenged, or that the rights granted
thereunder, if any, will provide competitive advantages to the Company or that
any of the Company's future patent applications, if any, will be issued with
the scope of the claims sought by the Company, if at all. Furthermore, there
can be no assurance that others will not develop technologies that are similar
or superior to the Company's technology or design around any patent that may
come to be 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 while 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. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights as fully as do the laws of the United
States. There can be no assurance that the Company's means of protecting its
proprietary rights in the United States or abroad will be adequate or that
competitors will not independently develop similar technology. The Company has
entered into source code escrow agreements with a number of its customers and
indirect channel partners requiring release of source code under certain
conditions. Such agreements provide that such parties will have a limited,
non-exclusive right to use such code in the event that there is a bankruptcy
proceeding by or against the Company, if the Company ceases to do business or,
in some cases, if the Company fails to meet its contractual obligations. The
provision of source code escrows may increase the likelihood of
misappropriation by third parties. The Company expects that software product
developers will increasingly be subject to infringement claims as
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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 license the infringed or similar technology,
the Company's business, operating results and financial condition would be
materially adversely affected. Currently, the Company is engaged in litigation
with Business Objects, S.A. concerning the alleged infringement by the Company
of a U.S. patent held by Business Objects, S.A. See "--Litigation with
Business Objects, S.A." and "Business--Legal Proceedings."
Finally, in the future the Company may rely upon certain software that it
may license from third parties, including software that may be integrated with
the Company's internally developed software and used in the Company's products
to perform key functions. There can be no assurance that these third-party
software licenses will be available to the Company on commercially reasonable
terms. The inability to obtain or maintain any such software licenses could
result in shipment delays or reductions until equivalent software could be
developed, identified, licensed and integrated, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE. Prior
to this Offering, there has been no public market for the Company's Common
Stock, and there can be no assurance that an active public market will develop
or be sustained after this Offering. The initial public offering price will be
determined by negotiations between the Company, the Selling Stockholders and
the representatives of the Underwriters based on several factors and may not
be indicative of the market price of the Common Stock after this Offering. The
market price of the shares of the Company's 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 operating results, announcement of
business partnerships, technological innovations or new product introductions
by the Company or its competitors, changes of estimates of the Company's
future operating results by securities analysts, developments with respect to
copyrights or proprietary rights, 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 of equity securities of many technology companies. Broad market
fluctuations, as well as economic conditions generally and in the software
industry specifically, may result in material adverse effects on the market
price of the Company's Common Stock. There can be no assurance that the market
price for the Company's Common Stock will not decline below the initial public
offering price. 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 that 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. These broad
market fluctuations may adversely effect the market price of the Company's
Common Stock. See "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Stock offered
hereby will suffer an immediate and substantial dilution of $7.45 per share in
the net tangible book value of the Common Stock from the assumed initial
public offering price of $9.00. To the extent outstanding options to purchase
the Company's Common Stock are exercised, there will be further dilution. See
"Dilution."
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SHARES ELIGIBLE FOR FUTURE SALE. Sales of a substantial number of shares of
Common Stock in the public market following this Offering could adversely
affect the market price for the Company's Common Stock. The number of shares
of Common Stock available for sale in the public market is limited by
restrictions under the Securities Act of 1933, as amended (the "Securities
Act"), and lock-up agreements under which the holders of such shares have
agreed not to sell or otherwise dispose of any of their shares for a period of
180 days after the date of this Prospectus without the prior written consent
of Deutsche Morgan Grenfell Inc., subject to certain limited exceptions.
However, Deutsche Morgan Grenfell Inc. may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. Deutsche Morgan Grenfell Inc. currently has no plans to
release any portion of the securities subject to lock-up agreements. When
determining whether or not to release shares from the lock-up agreements,
Deutsche Morgan Grenfell Inc. will consider, among other factors, the
stockholder's reasons for requesting the release, the number of shares for
which the release is being requested and market conditions at the time. As a
result of these restrictions, based on shares outstanding and options granted
as of December 31, 1997, the following shares of Common Stock will be eligible
for future sale. On the date of this Prospectus (assuming, for this purpose,
no exercise of warrants or options to purchase Common Stock outstanding as of
December 31, 1997), (i) 17,334 shares will be eligible for immediate sale,
(ii) 514,997 shares will be eligible for sale 90 days after the date of this
Prospectus, and (iii) 10,553,841 shares will be eligible for sale upon
expiration of lock-up agreements 180 days after the date of this Prospectus.
In addition, the Company intends to file a registration statement on Form S-8
with the Securities and Exchange Commission (the "Commission") shortly after
the date of this Prospectus covering approximately 4,254,562 shares of Common
Stock subject to outstanding options or reserved for issuance under the
Company's stock plans. See "Management--Stock Plans." Following this Offering
and expiration of the lock-up agreements, the holders of 4,533,480 shares will
have certain rights to require the Company to register those shares under the
Securities Act. If such holders, by exercising their demand registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have an adverse effect on the market price for the
Company's Common Stock. If the Company were required to include in a Company-
initiated registration shares held by such holders pursuant to the exercise of
their piggyback registration rights, such sales may have an adverse effect on
the Company's ability to raise needed capital. See "Description of Capital
Stock," "Shares Eligible for Future Sale" and "Underwriting."
CONTROL BY EXISTING STOCKHOLDERS. Upon consummation of this Offering (based
on shares outstanding as of December 31, 1997), the Company's executive
officers and directors, together with entities affiliated with such
individuals, will beneficially own approximately 57.4% of the Company's Common
Stock (approximately 55.2% if the Underwriters' over-allotment option is
exercised in full). In particular, Yorgen Edholm, the Company's President and
Chief Executive Officer and a director of the Company, and his spouse
Katherine Glassey, the Company's Executive Vice President, Products and
Services and Chief Technology Officer and a director of the Company, will
beneficially own approximately 34.9% of the Company's Common Stock
(approximately 33.2% if the Underwriters' over-allotment option is exercised
in full). Accordingly, these stockholders may, as a practical matter, continue
to be able to control the election of a majority of the Company's directors
and the determination of all corporate actions after this Offering. This
concentration of ownership could have the effect of delaying or preventing a
change in control of the Company. See "Management" and "Principal and Selling
Stockholders."
BENEFITS OF THE OFFERING TO EXISTING STOCKHOLDERS. The existing stockholders
of the Company will recognize significant benefits from this Offering. These
benefits include the creation of a public market for the Company's Common
Stock, which will afford existing stockholders the ability to liquidate their
investments, subject in certain cases to volume
15
<PAGE>
limitations and other limitations and restrictions upon the sale of the Common
Stock. See "Shares Eligible For Future Sale." Two of the Company's
stockholders, Yorgen Edholm and Katherine Glassey, are selling shares in this
Offering. See "Principal and Selling Stockholders." The shares of Common Stock
owned by the Company's existing stockholders were purchased at prices ranging
from $0.02 to $7.04 per share, with an aggregate consideration paid of
approximately $16,984,300. Based on an assumed initial public offering price
of $9.00, the aggregate value of the shares owned by the Company's existing
stockholders is approximately $100,900,548, a difference of approximately
$83,916,248 over the aggregate consideration paid by the Company's existing
stockholders. Accordingly, after this Offering, these stockholders will have
substantial unrealized gains on their shares. See "Dilution," "Principal and
Selling Stockholders" and "Certain Transactions."
ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's charter
documents, including provisions relating to a classified board of directors
and provisions eliminating cumulative voting, eliminating the ability of
stockholders to take actions by written consent and limiting the ability of
stockholders to raise matters at a meeting of stockholders without giving
advance notice, may have the effect of delaying or preventing a change in
control or management of the Company, which could have an adverse effect on
the market price of the Company's Common Stock. In addition, the Board of
Directors has authority to issue up to 2,000,000 shares of Preferred Stock and
to fix the rights, preferences, privileges and restrictions, including voting
rights, of these shares without any further vote or action by the
stockholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company, thereby delaying, deferring or preventing a
change in control of the Company. Furthermore, such Preferred Stock may have
other rights, including economic rights senior to the Common Stock, and as a
result, the issuance of such Preferred Stock could have a material adverse
effect on the market value of the Common Stock. The Company has no present
plan to issue shares of Preferred Stock. Further, Section 203 of the General
Corporation Law of the State of Delaware (as amended from time to time, the
"DGCL"), which is applicable to the Company, prohibits certain business
combinations with certain stockholders for a period of three years after they
acquire 15% or more of the outstanding voting stock of a corporation. See
"Description of Capital Stock."
BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS. The Company currently has no
specific plan for using substantially all of the proceeds of this Offering. As
a consequence, the Company will have the discretion to allocate a large
percentage of such proceeds to uses which the stockholders may not deem
desirable, and there can be no assurance that the proceeds can or will yield a
significant return. See "Use of Proceeds."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
being offered by the Company hereby at an assumed public offering price of
$9.00 per share are estimated to be $22,226,750 ($24,821,450 if the
Underwriters' over-allotment option is exercised in full). The principal
purpose of this Offering is to obtain additional working capital.
The Company expects to use the net proceeds of this Offering for general
corporate purposes, including capital expenditures and working capital. The
Company anticipates spending at least $600,000 for furniture and leasehold
improvements related to the expansion of its facilities and approximately $1.3
million for other capital expenditures during the fiscal year ending March 31,
1999. In addition, the Company intends to use a portion of the net proceeds of
this Offering to repay approximately $3.4 million of debt that has a maturity
date of December 1, 1999 and bears interest at the lender's prime rate. The
amounts actually expended for these purposes will depend on numerous factors.
As of the date of this Prospectus, the Company has no specific plans regarding
the use of the remainder of the net proceeds of this Offering. In addition, a
portion of the proceeds may also be used to acquire or invest in complimentary
businesses or products or to obtain the right to use complimentary
technologies. The Company has no present understandings, commitments, or
agreements with respect to any material acquisitions of other businesses,
products, or technologies. The Company's management will retain broad
discretion in the allocation of a substantial portion of the net proceeds.
Pending such uses, the Company intends to invest the proceeds from this
Offering in interest-bearing, investment grade securities. See "Risk Factors--
Broad Management Discretion in Use of Proceeds."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its capital stock.
The Company currently intends to retain all available funds and any future
earnings for use in the operation of its business and does not anticipate
paying any cash dividends in the foreseeable future. In addition, the terms of
the Company's primary credit facility prohibit the paying of dividends without
the lender's consent.
17
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1997 (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company giving effect to the conversion of the outstanding shares of Preferred
Stock into shares of Common Stock upon the closing of this Offering, and (iii)
the pro forma capitalization of the Company as adjusted to give effect to the
sale of the 2,775,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $9.00 per share after deducting the estimated
underwriting discount and estimated offering expenses, and the application of
the estimated net proceeds therefrom as described in "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>
DECEMBER 31, 1997
-------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt(1)........... $ 3,140 $ 3,140 $ --
======== ======= ========
Long-term debt, less current portion(1)........ 250 250 --
-------- ------- --------
Stockholders' equity (deficit):
Preferred Stock, par value $0.001 per share;
5,625,000 shares authorized, 5,466,172
shares outstanding actual; 2,000,000 shares
authorized pro forma and as adjusted; no
shares outstanding pro forma and as
adjusted.................................... 15,655 -- --
Common Stock, par value $0.001 per share;
13,500,000 shares authorized, 5,745,000
shares outstanding actual, 60,000,000 shares
authorized pro forma and as adjusted,
11,211,172 shares outstanding pro forma and
13,986,172 shares outstanding pro forma as
adjusted(2)................................. 1,134 16,789 14
Additional paid-in capital................... -- -- 39,002
Notes receivable from shareholders........... (292) (292) (292)
Deferred compensation........................ (504) (504) (504)
Cumulative translation adjustment............ (10) (10) (10)
Accumulated deficit.......................... (16,537) (16,537) (16,537)
-------- ------- --------
Total stockholders' equity (deficit)....... (554) (554) 21,673
-------- ------- --------
Total capitalization..................... $ 2,836 $ 2,836 $ 21,673
======== ======= ========
</TABLE>
- --------
(1) See Note 6 of Notes to Consolidated Financial Statements.
(2) Based on the number of shares outstanding as of December 31, 1997.
Excludes (i) 1,204,562 shares issuable upon exercise of options
outstanding as of December 31, 1997 with a weighted average exercise price
of $1.79 per share, (ii) 10,000 shares issuable upon exercise of an
outstanding warrant as of December 31, 1997 with an exercise price of
$0.60 per share (which warrant was exercised in full subsequent to
December 31, 1997), (iii) 130,229 shares available for issuance under the
Company's 1992 Stock Option Plan, (iv) 2,250,000 shares reserved for
issuance upon exercise of options that may be granted under the newly
adopted 1998 Stock Option Plan, (v) 300,000 shares reserved for issuance
upon exercise of options that may be granted under the newly adopted 1998
Directors' Stock Option Plan, and (vi) 500,000 shares reserved for
issuance under the newly adopted 1998 Employee Stock Purchase Plan. See
"Management--Stock Plans" and Note 8 of Notes to Consolidated Financial
Statements.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of December 31, 1997
was approximately $(608,000) or $(0.05) per share of Common Stock. Net
tangible book value per share represents the amount of total tangible assets
of the Company reduced by the amount of its total liabilities and divided by
the total number of shares of Common Stock outstanding. After giving effect to
the sale by the Company of the 2,775,000 shares of Common Stock offered hereby
at an assumed initial public offering price of $9.00 per share (after
deducting the estimated underwriting discount and estimated offering
expenses), the adjusted pro forma net tangible book value of the Company as of
December 31, 1997 would have been $21,618,750 or $1.55 per share of Common
Stock. This represents an immediate increase in net tangible book value of
$1.60 per share to existing stockholders and an immediate dilution in net
tangible book value of $7.45 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $9.00
Pro forma net tangible book value per share as of
December 31, 1997.......................................... $(0.05)
Increase per share attributable to new investors............ 1.60
------
Adjusted pro forma net tangible book value per share after
this Offering................................................ 1.55
-----
Dilution per share to new investors........................... $7.45
=====
</TABLE>
The following table summarizes on a pro forma basis, as of December 31,
1997, the differences between the existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid to the Company and the average price per share
paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)....... 11,211,172 80.2% $16,984,300 40.5% $1.51
New investors.................. 2,775,000 19.8 24,975,000 59.5 9.00
---------- ----- ----------- -----
Totals....................... 13,986,172 100.0% $41,959,300 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders will reduce the number of shares of
Common Stock held by existing stockholders to 11,086,172 or 79.3% (or
10,961,172 or 76.7% if the Underwriters' over-allotment option is
exercised in full) and will increase the number of shares of Common Stock
held by new investors to 2,900,000 or 20.7% (or 3,335,000 or 23.3% if the
Underwriters' over-allotment option is exercised in full). See "Principal
and Selling Stockholders."
The information presented with respect to existing stockholders assumes no
exercise of a warrant to purchase 10,000 shares that was outstanding on
December 31, 1997 with an exercise price of $0.60 per share (which warrant was
exercised in full subsequent to December 31, 1997) and no exercise of
outstanding options under the 1992 Stock Option Plan. As of December 31, 1997,
options to purchase 1,204,562 shares were outstanding under the Company's 1992
Stock Option Plan with a weighted average price of $1.79 per share and 130,229
additional shares are available for issuance. In addition, the information
presented excludes 2,250,000 shares reserved for issuance upon exercise of
options that may be granted subsequent to December 31, 1997 under the newly
adopted 1998 Stock Option Plan, 300,000 shares reserved for issuance upon
exercise of options that may be granted subsequent to December 31, 1997 under
the newly adopted 1998 Directors' Stock Option Plan and 500,000 shares
reserved for issuance subsequent to December 31, 1997 under the newly adopted
1998 Employee Stock Purchase Plan. The issuance of Common Stock under these
plans and warrant will result in further dilution to new investors. See
"Management--Stock Plans" and Note 8 of Notes to Consolidated Financial
Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements and the
notes thereto and the other information contained in this Prospectus. The
selected consolidated statements of operations data for the years ended March
31, 1995, 1996 and 1997 and the nine months ended December 31, 1997, and the
selected consolidated balance sheet data as of March 31, 1996 and 1997 and
December 31, 1997, are derived from, and are qualified by reference to, the
audited consolidated financial statements of the Company appearing elsewhere
in this Prospectus. The consolidated balance sheet data as of March 31, 1995,
are derived from audited consolidated financial statements of the Company not
included herein. The selected consolidated statement of operations data for
the years ended March 31, 1993 and 1994 and for the nine months ended December
31, 1996 and the selected consolidated balance sheet data as of March 31, 1993
and 1994 are derived from unaudited consolidated financial statements of the
Company not included in this Prospectus which have been prepared by the
Company on a basis consistent with the audited consolidated financial
statements appearing elsewhere in this Prospectus and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for fair presentation of such data. The results of
operations for the nine months ended December 31, 1997 are not necessarily
indicative of results to be expected for any subsequent period.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------------ -------------------
1993 1994 1995 1996 1997 1996 1997
----------- ----------- ------ ------- ------- ----------- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
License fees........... $ 470 $3,180 $2,487 $ 3,212 $10,328 $ 6,675 $13,914
Services............... 84 287 1,025 1,315 3,058 2,034 4,646
------ ------ ------ ------- ------- ------- -------
Total revenues......... 554 3,467 3,512 4,527 13,386 8,709 18,560
------ ------ ------ ------- ------- ------- -------
Cost of revenues:
License fees........... 48 184 192 340 839 641 654
Services............... 67 174 205 371 817 474 1,717
------ ------ ------ ------- ------- ------- -------
Total cost of revenues. 115 358 397 711 1,656 1,115 2,371
------ ------ ------ ------- ------- ------- -------
Gross profit............ 439 3,109 3,115 3,816 11,730 7,594 16,189
------ ------ ------ ------- ------- ------- -------
Operating expenses:
Research and
development........... 276 725 934 1,555 2,447 1,619 3,860
Sales and marketing.... 451 1,001 1,662 4,476 13,588 8,350 16,764
General and
administrative........ 385 819 849 1,014 1,685 1,094 2,079
------ ------ ------ ------- ------- ------- -------
Total operating
expenses.............. 1,112 2,545 3,445 7,045 17,720 11,063 22,703
------ ------ ------ ------- ------- ------- -------
Income (loss) from
operations............. (673) 564 (330) (3,229) (5,990) (3,469) (6,514)
Interest and other
income (expense), net.. (24) (40) (40) 33 25 43 (226)
------ ------ ------ ------- ------- ------- -------
Net income (loss)....... $ (697) $ 524 $ (370) $(3,196) $(5,965) $(3,426) $(6,740)
====== ====== ====== ======= ======= ======= =======
Basic net income (loss)
per share(1)........... $(0.14) $ 0.10 $(0.07) $ (0.64) $ (1.14) $ (0.68) $ (1.18)
====== ====== ====== ======= ======= ======= =======
Shares used in computing
basic net income (loss)
per share(1)........... 5,000 5,000 5,000 5,018 5,218 5,069 5,715
====== ====== ====== ======= ======= ======= =======
Pro forma basic net loss
per share(1)........... $ (0.63) $ (0.37) $ (0.62)
======= ======= =======
Shares used in computing
pro forma basic net
loss per share (1)..... 9,479 9,213 10,898
======= ======= =======
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------ DECEMBER 31,
1993 1994 1995 1996 1997 1997
----------- ----------- ------ ------- ------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA: (IN THOUSANDS)
Cash and cash
equivalents............ $ 167 $ 39 $3,091 $ 546 $ 890 $ 1,472
Total current assets.... 442 925 4,284 3,002 6,516 9,254
Total current
liabilities............ 839 1,178 1,221 3,371 8,295 11,324
Noncurrent liabilities.. 420 -- -- -- 457 1,609
Stockholders' equity
(deficit).............. (690) (166) 3,236 100 133 (554)
</TABLE>
- -------
(1) See Note 2 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in computing
per share amounts.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto and the other information included
elsewhere in this Prospectus. Certain statements in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations" are
forward-looking statements. The forward-looking statements contained herein
are based on current expectations and entail various risks and uncertainties
that could cause actual results to differ materially from those expressed in
such forward-looking statements. For a more detailed discussion of these and
other business risks, see "Risk Factors."
OVERVIEW
The Company designs, develops, markets and supports software products that
enable organizations to rapidly implement enterprise business intelligence
solutions. The Company's first product, DataPrism, was introduced in 1990, and
the Company's most recent version of its product suite, Brio Enterprise 5.5,
was introduced in 1997. The Company had net losses of $3.2 million, $6.0
million and $6.7 million in fiscal 1996, 1997 and for the nine months ended
December 31, 1997, respectively, and had an accumulated deficit of
approximately $16.5 million as of December 31, 1997. See "Risk Factors--
History of Net Losses; Substantial Accumulated Deficit; Uncertain Future
Profitability."
The Company's revenues are derived principally from license fees for
software products and, to a lesser extent, fees for a range of services
complementing such products, including software maintenance and support,
training and system implementation consulting. Revenues in current periods are
generally attributable to the sale of the most recent version of the Company's
product suite, and the Company generally discontinues marketing older versions
upon new version introductions. The Company typically licenses its products on
a per user basis with the price per user varying based on the selection of
products licensed. Additionally, the Company is increasing its efforts to sell
customers larger enterprise-wide implementations of the Company's products
through licenses on a per site basis with the price per site varying based on
the selection of products licensed, the number of authorized users for each
product at each site and the number of licensed sites. Revenues from license
fees are recognized upon product shipment if collection of the resulting
receivable is deemed probable, the fee is fixed or determinable and vendor-
specific objective evidence exists to allocate the total fee to all delivered
and undelivered elements of the arrangement. In instances where payments are
subject to extended payment terms, revenue is deferred until payments become
due. If an acceptance period is required, revenue is recognized upon the
earlier of customer acceptance or the expiration of the acceptance period.
Allowances are established for potential product returns and credit losses,
which have been insignificant to date. Fees for services are charged
separately from license fees. In addition, service revenues from maintenance
and support services, which include ongoing product support and periodic
product updates, are recognized ratably over the term of each contract, which
is typically twelve months. Payments for maintenance and support services are
generally made in advance and are non-refundable. Service revenues from
training and consulting services are recognized when the services are
performed.
To date, revenues from license fees have been derived principally from
direct sales of software products to end users through the Company's direct
sales force. Although the Company believes that such direct sales will
continue to account for a significant portion of revenues from license fees in
the foreseeable future, the Company has recently developed and intends to
continue to develop reselling relationships with companies in the Indirect
Channel,
21
<PAGE>
and the Company expects that revenues from sales through the Indirect Channel
will increase as a percentage of revenues from license fees. Revenues from the
Indirect Channel were 9%, 7% and 12% of total revenues for fiscal 1996, 1997
and for the nine months ended December 31, 1997, respectively. The Company's
ability to achieve revenue growth and improved operating margins, as well as
increased worldwide sales, in the future will depend in large part upon its
success in expanding and maintaining the Indirect Channel worldwide. See "Risk
Factors--Dependence on Direct Sales Force" and "--Dependence on Development of
Indirect Sales Channels."
The Company is also increasing its efforts to sell customers larger,
enterprise-wide implementations of the Company's products, rather than
departmental sales, which may increase the complexity and length of the sales
cycle. In connection with such larger sales, the Company has in the past and
may in the future choose to grant greater pricing and other concessions, such
as discounted training and consulting, than for single department or local
network sales. See "Risk Factors--Lengthy Product Sales Cycle."
The Company has, to date, sold its products internationally through direct
sales offices in the United Kingdom, France and Australia, and indirectly
through established distribution relationships in more than 20 countries,
including Belgium, Italy, Japan, The Netherlands and South Africa. Sales to
customers outside of the United States and Canada, including sales generated
by the Company's foreign subsidiaries, represented 9%, 14% and 19% of total
revenues for fiscal 1996, 1997 and the nine months ended December 31, 1997,
respectively. The Company's direct sales offices in the United Kingdom and
Australia were formed through the Company's acquisition of distributors in
those countries. A substantial portion of the Company's international sales in
the past have been denominated and collected in foreign currencies, and the
Company believes that a portion of the Company's cost of revenues and
operating expenses will continue to be incurred in foreign currencies.
Although it is impossible to predict future exchange rate movements between
the U.S. dollar and other currencies, to the extent the U.S. dollar
strengthens or weakens against other currencies, a substantial portion of the
Company's revenues, cost of revenues and operating expenses will be
commensurately lower or higher than would be the case in a more stable foreign
currency environment. Although the Company has not historically undertaken
foreign exchange hedging transactions to cover its potential foreign currency
exposure, it may do so in the future. See "Risk Factors--Risks Associated with
International Expansion."
Although the Company has experienced significant quarter-to-quarter revenue
growth in fiscal 1997 and in the nine months ended December 31, 1997, the
Company does not expect to sustain the same rate of sequential quarterly
revenue growth in future periods, and there can be no assurance that the
Company will be able to sustain revenue growth or attain profitability in the
future. The Company currently intends to commit substantial financial
resources to research and development, customer support and sales and
marketing, including the expansion of its direct sales force, third-party
partnering relationships and its indirect channel sales organization, and
expects that expenses relating to its litigation with Business Objects, S.A.
will increase in future periods. The Company also expects to increase its
staffing and systems infrastructure in order to support the Company's
expanding operations and to comply with the additional responsibilities of a
public company. As a result, the Company expects that its operating expenses
will increase significantly in fiscal 1999. See "Risk Factors--Fluctuations in
Quarterly Operating Results" and "--Litigation with Business Objects, S.A."
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain selected consolidated financial
information as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------- ----------------
1995 1996 1997 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
License fees............... 71% 71% 77% 77% 75%
Services................... 29 29 23 23 25
------ ------ ------ ------ ------
Total revenues........... 100 100 100 100 100
------ ------ ------ ------ ------
Cost of revenues:
License fees............... 5 8 6 7 4
Services................... 6 8 6 6 9
------ ------ ------ ------ ------
Total cost of revenues... 11 16 12 13 13
------ ------ ------ ------ ------
Gross profit................. 89 84 88 87 87
------ ------ ------ ------ ------
Operating expenses:
Research and development... 27 34 18 19 21
Sales and marketing........ 47 99 102 96 90
General and administrative. 24 23 13 12 11
------ ------ ------ ------ ------
Total operating expenses. 98 156 133 127 122
------ ------ ------ ------ ------
Loss from operations......... (9) (72) (45) (40) (35)
Interest and other income
(expense), net.............. (1) 1 -- 1 (1)
------ ------ ------ ------ ------
Net loss..................... (10)% (71)% (45)% (39)% (36)%
====== ====== ====== ====== ======
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
REVENUES
The Company's revenues are derived from license fees and services, which
include software maintenance and support, training and system implementation
consulting. Total revenues increased 113% from $8.7 million for the nine
months ended December 31, 1996 to $18.6 million for the nine months ended
December 31, 1997.
License Fees. Revenues from license fees increased 108% from $6.7 million
for the nine months ended December 31, 1996 to $13.9 million for the nine
months ended December 31, 1997. The increase was due in approximately equal
amounts to increased sales to new customers and increased follow-on sales to
existing customers primarily as a result of the introduction of the Company's
Web-based extensions of its product suite in fiscal 1997.
Services. Service revenues increased 128% from $2.0 million for the nine
months ended December 31, 1996 to $4.6 million for the nine months ended
December 31, 1997. The increase was due in approximately equal amounts to
increases in maintenance and support revenues and training and consulting
service revenues, related to increases in the Company's installed customer
base.
23
<PAGE>
COST OF REVENUES
License Fees. Cost of revenues from license fees consists primarily of
product packaging, shipping, media, documentation, and related personnel and
overhead allocations. Cost of revenues from license fees increased from
$641,000, or 10% of revenues from license fees, for the nine months ended
December 31, 1996 to $654,000, or 5% of revenues from license fees, for the
nine months ended December 31, 1997. The increase in absolute dollars was due
to the increase in the number of licenses sold. The decrease as a percentage
of revenues from license fees was primarily due to an increase in the number
of customers purchasing master disks, which are less expensive to produce and
ship, as compared to "shrinkwrapped" product.
Services. Cost of service revenues consists primarily of personnel costs and
third-party consulting fees associated with providing software maintenance and
support, training and consulting services. Cost of service revenues increased
from $474,000, or 23% of service revenues, for the nine months ended December
31, 1996 to $1.7 million, or 37% of service revenues, for the nine months
ended December 31, 1997. The increase in absolute dollars and as a percentage
of service revenues was due in approximately equal amounts to increases in
personnel resulting from the Company's expansion of its support services and
use of outside consultants for training and consulting services. The cost of
service revenues may vary between periods due to the mix of services provided
by the Company's personnel relative to services provided by outside
consultants and to varying levels of expenditures required to build the
services organization.
OPERATING EXPENSES
Research and development. Research and development expenses consist
primarily of personnel and related costs associated with the development of
new products, the enhancement and localization of existing products, quality
assurance and testing. Research and development expenses increased from $1.6
million, or 19% of total revenues, for the nine months ended December 31, 1996
to $3.9 million, or 21% of total revenues, for the nine months ended December
31, 1997. The increases were primarily due to increased personnel and related
costs required to develop new products and enhance existing products. The
Company believes that significant investment for product research and
development is essential to product and technical leadership and anticipates
that it will continue to commit substantial resources to research and
development in the future. The Company anticipates that research and
development expenditures will continue to increase in absolute dollars,
although such expenses may vary as a percentage of total revenues.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and other personnel related costs, commissions, bonuses and sales
incentives, travel, marketing programs such as trade shows and seminars, and
promotion costs. Sales and marketing expenses increased from $8.4 million, or
96% of total revenues, for the nine months ended December 31, 1996 to $16.8
million, or 90% of total revenues, for the nine months ended December 31,
1997. The increase in absolute dollars was attributable to the expansion of
the Company's sales and marketing organization, including the addition of
field sales and marketing personnel, the expansion of the domestic telesales
organization, higher sales commissions associated with increased revenues and
increased marketing activities worldwide. The decrease as a percentage of
total revenues was generally attributable to increases in revenues for the
periods.
The Company believes that as it continues to expand its direct sales and
pre-sales support organization and its third-party partnering relationships
and its indirect channel sales organization on a worldwide basis, sales and
marketing expenses will continue to increase in
24
<PAGE>
absolute dollars. Such expenses are currently intended to be funded by the
Company's working capital. In particular, the Company expects that sales
compensation, travel and related expenses will increase significantly as the
Company continues to increase the number of its direct sales personnel and its
emphasis on direct field sales efforts. Nonetheless, the Company expects sales
and marketing expenses will continue to vary as a percentage of total
revenues.
General and administrative. General and administrative expenses consist
primarily of personnel costs for finance, human resources, information
systems, and general management, as well as legal, accounting and unallocated
overhead expenses. General and administrative expenses increased from $1.1
million, or 12% of total revenues, for the nine months ended December 31, 1996
to $2.1 million, or 11% of total revenues, for the nine months ended December
31, 1997. Substantially all of the increase in absolute dollars was due to an
increase in personnel and related costs, and to a lesser extent professional
fees, necessary to manage and support the Company's growth and facilities
expansion. The decrease in general and administrative expenses as a percentage
of total revenues is primarily attributable to increased efficiencies in the
Company's administrative operations and increased revenues. The Company
expects that its general and administrative expenses will increase in absolute
dollars as the Company expands its staffing to support expanded operations,
incurs expenses in its litigation with Business Objects, S.A., and assumes the
responsibilities of a public company. The Company expects that such expenses
will vary as a percentage of total revenues.
Deferred Compensation. In connection with the grant of certain stock options
to employees during the nine months ended December 31, 1997, the Company
recorded deferred compensation of $580,000, representing the difference
between the deemed value of the Common Stock for accounting purposes and the
option exercise price of such options at the date of grant. Such amount is
presented as a reduction of stockholder's equity and amortized ratably over
the vesting period of the applicable options. Approximately $76,000 was
expensed during the nine months ended December 31, 1997, and the balance will
be expensed ratably over the next four years as the options vest. See Note 8
of Notes to Consolidated Financial Statements.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest and other income (expense), net, is comprised primarily of interest
income and foreign currency transaction gains or losses, net of interest
expense. Interest expense is comprised of interest incurred on the Company's
bank line of credit. Interest and other income (expense), net, decreased from
a net income of $43,000 for the nine months ended December 31, 1996 to a net
expense of $226,000 for the nine months ended December 31, 1997. The decrease
in interest and other income (expense), net, is attributable to an increase in
the amount of borrowings on the Company's line of credit to fund growth in
operations, and to a lesser extent losses of approximately $105,000 on foreign
currency transactions resulting from intercompany receivables from foreign
subsidiaries. See Note 2 of Notes to Consolidated Financial Statements.
PROVISION FOR INCOME TAXES
As of December 31, 1997, the Company had federal and state net operating
loss carryforwards of approximately $8.0 million and $3.0 million,
respectively, available to offset future taxable income, which expire at
various dates through 2012 if not utilized. Further, as of December 31, 1997,
the Company had tax credit carryforwards of approximately $515,000, which
expire at various dates through 2012. In addition, the Internal Revenue Code
of 1986, as amended, contains certain provisions that may limit the net
operating loss carryforwards available for use in any given period upon the
occurrence of certain events, including a significant change in ownership
interests. The Company has net deferred tax assets, including
25
<PAGE>
its net operating loss carryforwards, totaling approximately $4.6 million as
of December 31, 1997. The Company has recorded a valuation allowance for all
of its net deferred tax assets as a result of significant uncertainties
regarding the realization of most of its assets, including the limited
operating history of the Company, a recent history of losses and the
variability of operating results. See Note 10 of Notes to Consolidated
Financial Statements.
FISCAL YEARS ENDED MARCH 31, 1995, 1996 AND 1997
REVENUES
The Company's revenues increased by 29% from $3.5 million in fiscal 1995 to
$4.5 million in fiscal 1996 and by 196% to $13.4 million in fiscal 1997.
License Fees. The Company's revenues from license fees increased by 29% from
$2.5 million in fiscal 1995 to $3.2 million in fiscal 1996 and by 222% to
$10.3 million in fiscal 1997. The increases in fiscal 1996 and 1997 were due
in approximately equal amounts to growing sales to new customers and increased
follow-on sales to existing customers, primarily as a result of the
introduction of BrioQuery version 3.0 during fiscal 1996, which introduced
query and analysis capabilities in an integrated product, and the expansion of
the BrioQuery product suite through the introduction of the Company's Web-
based extensions of its product suite in fiscal 1997.
Services. The Company's service revenues increased by 28% from $1.0 million
in fiscal 1995 to $1.3 million in fiscal 1996 and by 133% to $3.1 million in
fiscal 1997. The increases in fiscal 1996 and 1997 were due in approximately
equal amounts to increases in maintenance and support revenues and training
and consulting revenues, related to increases in the Company's installed
customer base.
COST OF REVENUES
License Fees. The Company's cost of revenues from license fees increased by
77% from $192,000 in fiscal 1995 to $340,000 in fiscal 1996 and by 147% to
$839,000 in fiscal 1997. The increases from year to year were due to the
increase in the number of licenses sold and related personnel and overhead
costs.
Services. Cost of service revenues increased by 81% from $205,000 in fiscal
1995 to $371,000 in fiscal 1996 and by 120% to $817,000 in fiscal 1997. The
increases from year to year were due principally to increases in personnel
resulting from the Company's expansion of its support services and related
costs in response to increased demand for maintenance and support, training
and consulting services.
OPERATING EXPENSES
Research and development. Research and development expenses increased by 66%
from $934,000 in fiscal 1995 to $1.6 million in fiscal 1996 and by 57% to $2.4
million in fiscal 1997. The increases from year to year were primarily due to
increased personnel and related costs required to continue to develop and
enhance the Company's fully integrated Brio Enterprise solution for both the
client/server and Web-based environments, while developing new products, such
as the Brio Enterprise server products.
Sales and marketing. Sales and marketing expenses increased by 169% from
$1.7 million in fiscal 1995 to $4.5 million in fiscal 1996 and by 204% to
$13.6 million in fiscal 1997. Substantially all of these increases were
attributable to the costs associated with additional worldwide field sales and
marketing personnel, including higher sales commissions, bonuses
26
<PAGE>
and sales incentives associated with increased revenues, and to a lesser
extent increased domestic and international marketing activities. In fiscal
1996, the Company began building its direct field sales organization. In
fiscal 1997, it continued the expansion domestically through the growth of the
telesales organization and internationally through the establishment of
subsidiary offices in the United Kingdom, Australia, and France.
General and administrative. General and administrative expenses increased by
19% from $849,000 in fiscal 1995 to $1.0 million in fiscal 1996 and by 66% to
$1.7 million in fiscal 1997. Substantially all of the increases were due to
increased personnel and related costs and professional fees necessary to
manage and support the Company's growth and facilities expansion.
INTEREST AND OTHER INCOME (EXPENSE), NET
The Company's interest and other income (expense), net, increased by 183%
from a net expense of $40,000 in fiscal 1995 to a net income of $33,000 in
fiscal 1996 and decreased by 24% to $25,000 in fiscal 1997. The increase in
fiscal 1996 was primarily due to the investment of proceeds from the Company's
sale of preferred stock in March 1995 and the corresponding interest on such
funds and to a lesser extent reduced borrowings. The decrease in fiscal 1997
was due to increased bank borrowings.
PROVISION FOR INCOME TAXES
The Company incurred significant operating losses in each of fiscal 1995,
1996 and 1997. Therefore, no provision for income taxes was necessary.
27
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statements of
operations data of the Company for each of the seven quarters ended December
31, 1997, as well as such data expressed as a percentage of the Company's
total revenues for the quarters presented. This unaudited quarterly
information has been prepared on the same basis as the Company's audited
consolidated financial statements and, in the opinion of management, reflects
all adjustments (consisting only of normal recurring entries) necessary for a
fair presentation of the information for the periods presented. The operating
results for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31,
1996 1996 1996 1997 1997 1997 1997
-------- -------- ------- ------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees........... $1,389 $2,176 $ 3,110 $ 3,653 $ 3,950 $ 4,531 $ 5,433
Services............... 569 697 768 1,024 1,303 1,527 1,816
------ ------ ------- ------- ------- ------- -------
Total revenues......... 1,958 2,873 3,878 4,677 5,253 6,058 7,249
------ ------ ------- ------- ------- ------- -------
Cost of revenues:
License fees........... 184 257 200 198 210 219 225
Services............... 104 137 233 343 443 544 730
------ ------ ------- ------- ------- ------- -------
Total cost of revenues. 288 394 433 541 653 763 955
------ ------ ------- ------- ------- ------- -------
Gross profit............ 1,670 2,479 3,445 4,136 4,600 5,295 6,294
------ ------ ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 442 501 676 828 1,141 1,304 1,415
Sales and marketing.... 1,798 2,647 3,905 5,238 5,314 5,676 5,774
General and
administrative........ 254 368 472 591 626 687 766
------ ------ ------- ------- ------- ------- -------
Total operating
expenses.............. 2,494 3,516 5,053 6,657 7,081 7,667 7,955
------ ------ ------- ------- ------- ------- -------
Loss from operations.... (824) (1,037) (1,608) (2,521) (2,481) (2,372) (1,661)
Interest and other
income (expense), net.. (18) 53 8 (18) (62) (18) (146)
------ ------ ------- ------- ------- ------- -------
Net loss................ $ (842) $ (984) $(1,600) $(2,539) $(2,543) $(2,390) $(1,807)
====== ====== ======= ======= ======= ======= =======
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
---------------------------------------------------------------------
JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30, DEC 31,
1996 1996 1996 1997 1997 1997 1997
-------- -------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees........... 71% 76% 80% 78% 75% 75% 75%
Services............... 29 24 20 22 25 25 25
------ ------ ------- ------- ------- ------- -------
Total revenues......... 100 100 100 100 100 100 100
------ ------ ------- ------- ------- ------- -------
Cost of revenues:
License fees........... 9 9 5 5 4 4 3
Services............... 6 5 6 7 8 9 10
------ ------ ------- ------- ------- ------- -------
Total cost of revenues. 15 14 11 12 12 13 13
------ ------ ------- ------- ------- ------- -------
Gross profit............ 85 86 89 88 88 87 87
------ ------ ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 23 17 17 18 22 22 20
Sales and marketing.... 92 92 101 112 101 94 80
General and
administrative........ 12 13 12 12 12 10 10
------ ------ ------- ------- ------- ------- -------
Total operating
expenses.............. 127 122 130 142 135 126 110
------ ------ ------- ------- ------- ------- -------
Loss from operations.... (42) (36) (41) (54) (47) (39) (23)
Interest and other
income (expense), net.. (1) 2 -- -- (1) -- (2)
------ ------ ------- ------- ------- ------- -------
Net loss................ (43)% (34)% (41)% (54)% (48)% (39)% (25)%
====== ====== ======= ======= ======= ======= =======
</TABLE>
The Company's revenues have increased each consecutive quarter during the
six fiscal quarters ending December 31, 1997, primarily due to increased sales
of new and existing products to new customers and increased follow-on sales to
existing customers. See "Risk Factors--Fluctuations in Quarterly Operating
Results," "--Dependence on Direct Sales Force" and "--Risks Associated with
International Expansion." Service revenues have generally
28
<PAGE>
increased along with increases in the Company's installed base. Cost of
revenues from license fees have not increased proportionately with the
increase in revenues from license fees due to an increase in sales of master
disks, which are less expensive to produce and ship as compared to
"shrinkwrapped" product. Cost of services revenues have increased generally
quarter to quarter both in absolute dollars and as a percentage of revenues,
primarily due to increases in personnel and related costs for customer
support, training and consulting services and the use of outside consultants.
Research and development expenses have increased in absolute dollars quarter
to quarter, primarily due to increased personnel required to support ongoing
development. Fluctuations in quarterly research and development expenses as a
percentage of total revenues were generally attributable to changes in total
revenues. Sales and marketing expenses have increased generally quarter to
quarter in absolute dollars due to the expansion of sales and marketing
organization domestically and internationally, including increased sales
commissions, bonuses and sales incentives as a result of increased revenues.
Decreases in sales and marketing expenses as a percentage of total revenues
from the quarter ended June 30, 1997 through the quarter ended December 31,
1997 were attributable to increased total revenues, and to a reduced rate of
spending as a result of an increased focus on expense management. The Company
believes that, as it continues to expand its direct sales and pre-sales
support organization and its third-party partnering relationships and its
indirect channel sales organization on a worldwide basis, sales and marketing
expenses will continue to increase in absolute dollars. Such expenses are
currently intended to be funded by the Company's working capital. In
particular, the Company expects that sales compensation, travel and related
expenses will increase significantly as the Company continues to increase the
number of its direct sales personnel and its emphasis on direct field sales
efforts. Nonetheless, the Company expects sales and marketing expenses will
continue to vary as a percentage of total revenues. General and administrative
expenses have increased in absolute dollars quarter to quarter, primarily due
to increased personnel and related costs, including additional facilities and
infrastructure added to support overall Company growth. Fluctuations in
quarterly general and administrative expenses as a percentage of total
revenues were generally attributable to changes in revenues, although an
increased focus on expense management resulted in the decline of quarterly
general and administrative expenses as a percentage of total revenues for the
quarters ended September 30, 1997 and December 31, 1997. In particular,
operating expenses increased significantly in the aggregate during the
quarters ended December 31, 1996 and March 31, 1997 for the reasons discussed
above.
The Company has experienced and expects to continue to experience
significant fluctuations in quarterly operating results based on a number of
factors, many of which are not within the Company's control. Among other
things, the Company's operating results have fluctuated in the past due to the
timing of product enhancements and new product announcements by the Company,
the lengthy sales cycle of the Company's products, market acceptance of and
demand for the Company's products, capital spending patterns of the Company's
customers, customer order deferrals in anticipation of enhancements or new
products offered by the Company, the Company's ability to attract and retain
key personnel, the mix of domestic and international sales, the mix of license
and service revenues, personnel changes and changes in the timing and level of
operating expenses. The Company's results of operations may also fluctuate in
the future due to a number of factors, including but not limited to those
discussed above as well as the number and significance of business
partnerships, product enhancements and new product announcements by the
Company's competitors, changes in pricing policies by the Company or its
competitors, the ability of the Company to develop, introduce and market new
and enhanced versions of the Company's products on a timely basis, customer
order deferrals in anticipation of enhancements or new products offered
29
<PAGE>
by the Company's competitors, nonrenewal of service agreements, software
defects and other product quality problems, the mix of direct and indirect
sales, currency fluctuations, costs or damage awards associated with the
current Business Objects, S.A. litigation, and general economic conditions.
The Company anticipates that an increasing portion of its revenue could be
derived from larger orders, in which case the timing of receipt and
fulfillment of any such orders could cause material fluctuations in the
Company's operating results, particularly on a quarterly basis. Furthermore,
the Company has experienced, and expects to continue to experience,
seasonality due, among other things, to customer capital spending patterns and
the general summer slowdown in sales. Such seasonality could have a material
adverse effect on the Company's results of operations, particularly for the
quarters ending June 30 or September 30.
In addition, the Company currently intends to increase significantly its
funding of research and product development, customer support operations and
sales and marketing activities, to expand its domestic and international
distribution channels, and to increase its infrastructure at its headquarters
and overseas, as required, to support the Company's expanding operations and
additional needs to comply with the responsibilities of a public company. To
the extent such expenses are not subsequently followed by increased revenues,
the Company's business, operating results and financial condition could be
materially adversely affected. The timing of such expansion and the rate at
which new sales people become productive could also cause material
fluctuations in the Company's quarterly operating results.
Due to the foregoing factors, quarterly revenue and operating results are
difficult to forecast. Further, the Company's expense levels are based in
significant part on the Company's expectations as to future revenue and are
therefore relatively fixed in the short term. Additionally, the Company has in
the past and expects in the future to recognize a large portion of its license
revenue in the last month of each quarter. If revenue levels fall below
expectations, net income is likely to be disproportionately adversely affected
because a proportionately smaller amount of the Company's expenses varies with
its revenue. In light of the foregoing, in some future quarter the Company's
reported or anticipated operating results may fail to meet or exceed the
expectations of securities analysts or investors. In such event, the price of
the Company's Common Stock would be materially adversely affected. See "Risk
Factors--Fluctuations in Quarterly Operating Results."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." SFAS No. 130 is effective for the Company's fiscal year beginning on
April 1, 1998. This standard defines comprehensive income as the changes in
equity of an enterprise except those resulting from stockholder transactions.
All components of comprehensive income will be required to be reported in
financial statements issued for periods beginning after the effective date of
SFAS No. 130. Management believes the adoption of SFAS No. 130 will not have a
material effect on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 is effective for the Company's fiscal years beginning on April 1,
1998. SFAS No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers.
Management believes the adoption of SFAS No. 131 will not have a material
effect on the Company's consolidated financial statements.
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2 which will supersede SOP 91-1,
"Software Revenue Recognition." SOP
30
<PAGE>
97-2 is effective for transactions entered into in the Company's fiscal years
beginning April 1, 1998. Management has assessed this new statement and
believes that its adoption will not have a material effect on the Company's
consolidated financial statements or the timing of the Company's revenue
recognition, or cause changes to its revenue recognition policies.
RECENT OPERATING RESULTS
The following table shows certain unaudited consolidated financial data for
the quarter ended March 31, 1998. The Company believes that this information
reflects all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the information for the period presented.
The operating results for any quarter are not necessarily indicative of
results for any future period. See Note 2 of Notes to Consolidated Financial
Statements for an explanation of the determination of the number of shares
used in computing per share amounts.
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
1998
-------------------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C>
Total revenues....................................... $ 8,212
-------
Net loss............................................. $(1,332)
=======
Basic net loss per share............................. $ (0.23)
=======
Shares used in computing basic net loss per share.... 5,751
=======
Pro forma basic net loss per share................... $ (0.12)
=======
Shares used in computing pro forma basic net loss per
share............................................... 11,218
=======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has funded its operations and capital
expenditures primarily from the net proceeds of approximately $15.7 million
from private sales of Preferred Stock, cash from operations and, early in the
Company's history, development fees, and to a lesser extent from bank
borrowings. Net cash used in operating activities in fiscal 1996, 1997 and the
nine months ended December 31, 1997 was $3.3 million, $4.7 million and $5.4
million, respectively.
As of December 31, 1997, the Company had cash and cash equivalents of $1.5
million. In addition, during January 1998, the Company obtained a bank line of
credit which provides for up to $10.0 million in borrowings. The Company can
borrow up to 80% of eligible accounts receivable against this line, with an
additional $1.5 million in non-formula availability, which is collateralized
by substantially all of the Company's assets, including the Company's
intellectual property to the extent required to secure the Bank's interest in
the accounts receivables and which provides for interest at the bank's prime
rate. This line of credit requires the Company to comply with various
financial covenants, including quarterly requirements to maintain a minimum
quick ratio of 1.2:1.0 and a minimum results of operations covenant which
permits quarterly losses through the quarter ended June 30, 1999 and quarterly
profitability thereafter. In the event the Company completes an initial public
offering by September 30, 1998, the minimum results of operations covenant
will be eliminated, the minimum quick ratio will increase to 2.0:1.0, and a
minimum tangible net worth of two times the commitment amount will be
required. The line expires on December 1, 1999, when any amounts outstanding
thereunder would be due and payable. See Note 6 of Notes to Consolidated
Financial Statements. As of December 31, 1997, the Company's bank borrowings
were $3.4 million.
Net cash used in investing activities was $380,000, $2.0 million and $1.2
million in fiscal 1996, 1997 and the nine months ended December 31, 1997,
respectively, consisting primarily of
31
<PAGE>
purchases of property and equipment and, to a lesser extent, a one-time
payment in connection with the acquisition of the Company's Australian
subsidiary. The Company has planned capital commitments of up to approximately
$600,000 in fiscal 1999. See Note 5 of Notes to Consolidated Financial
Statements.
Net cash provided by financing activities was $1.2 million, $7.1 million and
$7.2 million in fiscal 1996, 1997 and the nine months ended December 31, 1997,
respectively, consisting primarily of proceeds from private sales of Preferred
Stock and periodic borrowings, net of repayments, on the bank line of credit.
The Company believes that the proceeds from this Offering, together with the
Company's current cash balances and any cash generated from operations and
from available or future debt financing, will be sufficient to meet the
Company's operating and capital requirements for at least the next 12 months.
However, there can be no assurance that the Company will not require
additional financing within this time frame. The Company has no current plans,
and is not currently negotiating, to obtain additional financing following the
completion of this Offering.
32
<PAGE>
BUSINESS
Brio Technology, Inc. ("Brio" or the "Company") designs, develops, markets
and supports software products that enable organizations to rapidly implement
enterprise business intelligence solutions. The Company's software solution,
Brio Enterprise, is a comprehensive client-server and Web-based product suite
designed to enable large numbers of business professionals to quickly access
and analyze data to make more informed business decisions. The Company's
product suite and services are designed to allow organizations to rapidly
deploy and effectively manage business intelligence solutions incorporating
the wide range of available corporate data sources, including data marts, data
warehouses, operational data stores, enterprise applications and legacy
applications.
INDUSTRY BACKGROUND
In today's increasingly competitive markets, organizations in virtually
every industry are seeking to improve the ability of business professionals to
make timely, fact-based business decisions. To accomplish this objective,
organizations must establish and maintain an infrastructure that empowers
business professionals with analytical tools and information to improve their
decision making. The Company refers to this infrastructure as a business
intelligence environment. Over the last decade, many organizations have spent
considerable effort and resources to collect, organize and distribute data,
but have been unable to fully empower business professionals with the benefits
of a business intelligence environment.
LIMITED SCOPE OF TRADITIONAL APPROACHES
Reporting Products. Many organizations use standardized reporting products
to improve the dissemination of information across the organization. Managed
by IT departments, reporting products deliver static reports to business
professionals on paper, through executive information or decision support
systems or recently via the Web and Web browsers. This approach has provided
business professionals with significant amounts of information, but requires
significant IT resources to continually revise and customize reports as
requested by end users. Although reporting products facilitate broad and
timely dissemination of information, they generally do not enable business
professionals to perform the follow-on analysis and custom reporting needed to
maximize the usefulness of the information provided.
Data Access and Analysis Tools and the Data Warehouse. Over the last decade,
data warehousing technology, coupled with access and analysis tools, emerged
as a leading technology framework for enabling business professionals to make
better fact-based decisions. Data warehouses with access and analysis tools
have enabled some non-technical users for the first time to work with data on
their own terms. While this approach has made a positive impact in many
organizations, significant cost and technical barriers have made deploying
data warehousing solutions beyond a small percentage of these organizations'
total user population impractical.
Although reporting products and data warehousing each serve particular types
of users well, many organizations employing these technologies have continued
to encounter problems. IT departments continue to have a reporting and
applications development backlog, a prohibitively high cost of implementation
and maintenance, and face challenges delivering information in a secure and
controlled manner. Reporting products fail to provide more active users with
the analytical functionality they seek. The Company believes that there is a
large and growing population of professionals who need to interact with data,
for whom a data warehousing solution is prohibitively complex and expensive,
and for whom standardized reporting is inadequate. The Company believes that
as the amount of data and the number and
33
<PAGE>
diversity of users increase, organizations will be unable to meet the needs of
business professionals without a new approach to business intelligence.
OPPORTUNITY FOR ENTERPRISE BUSINESS INTELLIGENCE
The Company believes there is a need for an approach to business
intelligence modeled on the concept of an "INFORMATION SUPPLY CHAIN"
consisting of individuals who produce information, or "INFORMATION PRODUCERS,"
and individuals who consume and use information as part of their daily
business, or "INFORMATION CONSUMERS." The Company believes that an enterprise
business intelligence approach based on the concept of an information supply
chain is the most effective means of meeting the needs of users throughout an
organization.
TARGET MARKETS: TRADITIONAL APPROACHES VERSUS ENTERPRISE BUSINESS INTELLIGENCE
[Four circuclar pie diagrams in a rectangular box, showing the types of
users served (information producer and information consumers) by traditional
approaches of reporting products, data access and analysis tools and data
warehouses and enterprise business intelligence.]
Information Producers. In the information supply chain, IT staff and IT-
savvy business professionals, often referred to as "power users," act as the
information producers for the entire organization. IT professionals, using and
supporting a wide variety of hardware and software technologies, create and
manage the infrastructure that supports the storage, processing and delivery
of information across the enterprise. Power users, as part of their jobs, use
full-function data access, reporting and analysis tools to interact directly
with data resident in data marts or data warehouses and to produce reports and
analyses for their own use or the selective use of information consumers.
Information producers are under pressure from information consumers to
continually develop, customize and deliver reports.
Information Consumers. Information consumers, the customers in the
information supply chain, are the largest group of users within any
organization. Although standardized reports have met the needs of a number of
information consumers for years, over the last decade, information consumers
have become increasingly more sophisticated in their information requirements
and have tried to derive more value from the information delivered to them.
These consumers are seeking technology solutions that will allow them to work
autonomously with information delivered by information producers. Although
information consumers want to have access to customized information products,
they typically do not have the skills or supporting information infrastructure
to do anything other than view static, standardized reports.
The Company believes that to address the needs of all users in the
information supply chain, an effective enterprise business intelligence
solution must:
. meet the needs of growing and diverse user populations and growing
amounts of data;
. leverage email and the Web as critical components of the information
infrastructure;
. minimize the dependence and impact on IT departments; and
. leverage existing hardware and software within the organization.
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THE BRIO SOLUTION
The Company's Brio Enterprise product suite and related services enable
organizations to develop and deploy enterprise business intelligence solutions
that maximize the value of corporate data. The Company provides an integrated
solution that is architected for the enterprise, designed for information
consumers, and engineered for information producers. The Company's product
suite and services enable information producers to support the entire
information supply chain, while satisfying the needs of information consumers
to interact with and customize their data. The Company's product suite is
designed to be easily and quickly implemented, to scale from departmental
deployments to enterprise solutions, to minimize the dependence and impact on
IT departments, and to leverage existing hardware and software investments.
The Company believes its solution provides the following benefits for the
enterprise and its information consumers and producers:
ARCHITECTED FOR THE ENTERPRISE
Integrated, Comprehensive Product Suite. The Company provides a product
suite that can be used either separately or together in an integrated,
distributed client-server and/or Web-enabled implementation. By incorporating
the same easy-to-use interface across all supported platforms and the same
underlying core technologies, the Company's products provide simple viewing
capabilities, robust analysis and reporting features and powerful
administrative functions for information producers and consumers.
Scalable for Enterprise Deployment. The Company's multi-tier architecture
utilizes the strength of the server and the computing power of the client,
allowing the Company's solution to scale by number and location of users, as
well as by quantity and type of source data.
Leverages Email and the Web. The Company's product suite economically
enables information producers to push data and reports to information
consumers via email, printers and the Internet.
Adaptive Reporting. The Company's adaptive reporting feature permit
information producers to control, on a report-by-report basis, the analytical
functionality available to the information consumers in a report. This feature
allows information producers to control user access while maximizing the
usefulness of reports and data.
DESIGNED FOR INFORMATION CONSUMERS
Powerful Functionality, Easy to Use. The Company's product suite combines a
consistent and intuitive user interface with powerful functionality that
allows information consumers to easily customize, format and manipulate data,
reports and analyses.
Robust Solution for Mobile Users. The Company's product suite facilitates
mobile, off-line analysis in both Web browser and PC-based environments and
enable information consumers to work with reports, analyses, and data sets
that have been sent via email, file servers or the Web. As a result, users in
a mobile, off-line environment can view data and can create new analyses and
reports to answer their individual questions.
ENGINEERED FOR INFORMATION PRODUCERS
Simplifies Administration. The Company designs its product suite to be
quickly and easily installed. The Company's "zero administration" technology
centralizes and automates the installation and upgrade of the Company's Web-
based client software. The Company's server
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products enable IT departments to control user access and security privileges
and to audit and manage user activity.
Leverages Existing Customer Investments in Technology. The Company's
products are designed to integrate seamlessly with existing customer database,
application, reporting and analysis software, to take advantage of existing
enterprise hardware environments and to leverage existing desktop and
operating system infrastructure.
BRIO STRATEGY
The Company's strategy is to be a leading provider of enterprise business
intelligence software solutions. The following are key elements of the
Company's strategy:
Extend Technology Leadership. The Company has designed its products to
satisfy customers' desire for rapid implementation, intuitive user interfaces,
transparent integration, high performance and limited IT involvement. The
Company's products incorporate a number of advanced technologies, including a
proprietary data analysis engine, a distributed architecture, and Web access
and delivery technology. In addition, the Company has in the past rapidly
incorporated new technology into its product offerings. In particular, the
Company shipped its Web-based end user analysis extension to its product suite
(Brio.Insight) in November 1996 and its Java-based server extension to its
product suite (OnDemand Server) in November 1997. The Company intends to
extend its technology leadership by continuing to devote significant resources
to research and development efforts and by forming strategic relationships
that will enable the Company to further enhance its products' functionality
and ease of use.
Broaden Distribution Channels. To date, the Company has sold its products
primarily through its direct sales and services organizations located in the
United States, Canada, the United Kingdom, France and Australia, and has sold
its products worldwide through VARs, resellers and distributors. The Company
intends to grow its direct sales organization to intensify its coverage of
large organizations and to augment its telesales operation to cover smaller
organizations. In addition, the Company will continue to both leverage and
grow its existing network of value-added resellers, resellers and distributors
to expand its indirect distribution channel worldwide.
Expand Product Deployments Throughout the Enterprise. The Company's products
and related services are designed to enable organizations to deploy
enterprise-wide business intelligence. Although most organizations initially
deploy the Company's products on a departmental or pilot basis, the Company
believes that initial customer success with this deployment can lead to
significant opportunities for enterprise-wide adoption of the Company's
products. The Company intends to focus its sales and services efforts on large
organizations seeking enterprise-wide business intelligence deployments and on
making initial customer pilots or deployments successful.
Leverage Industry Relationships. To accelerate the adoption of the Company's
products as a standard platform for business intelligence, the Company has
formed strategic relationships that provide for enhanced technology
integration with partner technology as well as increased market exposure and
sales opportunities for the Company's products and services. The Company's
partners include industry-leading providers of software and hardware, such as
Microsoft, Oracle and IBM, that complement the Company's product and service
offerings, and providers of a wide range of training, implementation and
application development services related to the Company's products. The
Company's strategic relationships with Microsoft, Oracle and IBM have to date
consisted of (i) Brio's participation in various sales and marketing
initiatives sponsored by such companies, including joint presentations at
industry trade shows and conferences, and (ii) agreements by Brio to support
certain technology standards promoted by such companies.
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Increase International Presence. Outside of the United States, the Company
has direct sales offices in Canada, the United Kingdom, France and Australia,
has established distributor relationships in more than 20 countries, including
Belgium, Italy, Japan, The Netherlands and South Africa and has localized
products in French, Italian and Japanese. The Company intends to expand its
global sales capabilities by increasing the size of its direct sales and sales
support organizations, expanding its distribution channels in Europe, Latin
America, and Asia/Pacific and continuing localization efforts of its products
in selected markets.
Provide Premium Customer Support and Service. The Company believes that
offering quality service and support is important to customer satisfaction and
provides a significant opportunity for the Company to build customer loyalty
and to differentiate itself from competition. The Company intends to increase
its focus on customer satisfaction by investing in support services including
additional staffing, a Web-based help line and systems infrastructure. In
addition, the Company is committed to providing customer-driven product
functionality through feedback from user groups, prospects, consultants,
partners and customer surveys.
PRODUCTS AND TECHNOLOGY
Brio Enterprise is a fully integrated business intelligence software product
suite providing powerful query, analysis and reporting functionality across
both client-server and Web environments. Designed to meet the needs of users
throughout the enterprise, the Company's products combine powerful
functionality with intuitive, easy-to-use interfaces. The Company's products
are designed to enable an IT department to maintain centralized control with
auditing, security and "zero administration" deployment while incorporating a
system architecture that scales to meet the needs of growing and diverse user
populations and increasing amounts of data.
The Company's products use "push" and "pull" server technology to optimize
utilization of client and server system resources. The Company's distributed
architecture, built on the Company's proprietary, portable on-line analytical
processing engine, enables analytical processing to take place on the server
or on the client. This architecture enhances the flexibility and scalability
of the solution without losing analytical capabilities required for
individuals to answer complex data-related business questions. The Company's
adaptive reporting capability further enhances this flexibility by giving IT
departments the ability to control the analytical functionality available to
an information consumer on a report-by-report basis.
[Flowchart diagram illustrating the way the Company's products interact with
various elements of an information technology network.]
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BRIO ENTERPRISE CLIENT PRODUCTS
The Company's client products, whether Web-based or client-server based,
share the same user-centric design, functionality and intuitive interface. The
Company believes that the result is an integrated, easy-to-navigate suite of
products that consistently guide the user from query and analysis through
reporting and charting. The Company's client products allow users to create
queries that are targeted at single or multiple data sources and that can
combine data from local or server-based data sources without IT department
assistance.
BrioQuery. All editions of BrioQuery unify query, analysis, reporting and
charting capabilities in one product for client-server connected users. To
meet the differing needs of these users, BrioQuery is available in three
editions:
BrioQuery Designer extends the core BrioQuery capabilities with database
administration functionality, security, auditing and repository setup
features to enable IT departments to manage and control the business
intelligence environment;
BrioQuery Explorer is designed for power users or independent analysts
who need direct access to database tables and repositories of pre-defined
data models and reports and need to be able to create their own queries,
analyses and reports; and
BrioQuery Navigator is used by analysts or information consumers who do
not have the technical ability or need to directly access database tables.
These users typically only need access to repositories of pre-defined data
models and reports that they can use as a basis for independent analyses.
Web-based Products. The Company's Web-based client products provide users
with a wide range of report, query and analytical capabilities within standard
Web browsers. Together with the Company's server-based products, they enable
organizations to deploy a "thin client" architecture that facilitates
administration and maintenance in a multi-platform environment.
Brio.Insight. Employing the same user-interface as BrioQuery,
Brio.Insight delivers interactive query, analysis, reporting and charting
capabilities inside a standard Web browser. Whether connected to the Web,
to the Brio Enterprise Server, or operating without connection,
Brio.Insight enables users to go beyond viewing static reports and to
perform independent analysis and reporting on the delivered information.
Brio.Quickview. Brio.Quickview enables organizations to deliver a
portfolio of "view only" reports to users through a Web browser. These
portfolios can include fully formatted reports with color, highlights,
charts and tables. When used in conjunction with the Brio Enterprise
Server, Brio.Quickview provides users with the option to refresh the data
that is used to create their portfolio, or to limit the view based on a set
of criteria.
BRIO ENTERPRISE SERVER PRODUCTS
Brio Enterprise Server. The Brio Enterprise Server product includes two
powerful server modules, the Broadcast Server and the OnDemand Server, and a
unified administration tool. The Brio Enterprise Server is designed to meet
the information distribution and data access needs of information consumers,
while providing IT departments with centralized control, administration and
security management functionality. This scalable server suite employs "push"
and "pull" technology to enable organizations to cost-effectively deploy
business intelligence solutions to a wide variety of users across
heterogeneous computing environments.
Broadcast Server. The Broadcast Server enables IT departments to control the
integrity and distribution of business information. It allows information
producers to take queries, analyses and reports created with BrioQuery, and to
schedule automatic processing and delivery of such reports based on date,
time, or event. The Broadcast Server pushes the reports
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and documents in a highly compressed format out to Web, client-server and
mobile users via FTP, email, Web servers, and network file servers and
printers.
OnDemand Server. The OnDemand Server allows both mobile and desktop users
easy and secure access to a variety of data sources. Query execution can be
performed over the Web or on the server; the server can then pre-build reports
and transmit them to the Company's Web client products, Brio.Insight and
Brio.Quickview. With the OnDemand Server and the Company's adaptive reporting
feature, IT departments can determine on a report-by-report basis the level of
Brio.Insight and Brio.Quickview functionality and interactivity that a
particular user is allowed. The OnDemand Server also automates the
installation and maintenance of the Company's Web client software.
PLATFORMS AND PRICING
The Company's server products are designed to operate on most popular server
platforms including Windows NT and UNIX (AIX, HPUX, Sun Solaris). Pricing on
the Brio Enterprise Server product, which includes both the Broadcast Server
and the OnDemand Server, ranges from $30,000 to $45,000. Brio client products
currently operate on a number of operating systems including Windows (95, NT
and 3.1), PowerMac and UNIX (AIX, HPUX, Sun Solaris). The Company's products
provide native and ODBC connectivity to a variety of data sources, including
relational database management systems such as Oracle, DB2, SQL Server and
Adaptive Server; non-relational database management systems such as Arbor
Essbase, Oracle Express and Informix Metacube; and legacy systems such as SAS.
Pricing ranges from approximately $50 for Brio.Quickview to $4,000 for
BrioQuery Designer.
The Company's success in the future will depend upon its ability to develop
new products and its ability to sell larger, enterprise-wide implementations
of its products. See "Risk Factors--Dependence upon Product Development; Rapid
Technological Change and Evolving Industry Standards" and "--Dependence on
Emerging Market for Enterprise Business Intelligence; No Assurance of Market
Acceptance of Enterprise Business Intelligence Products."
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CUSTOMERS
The Company's customers include organizations in a diverse set of industry
segments. The following is a representative list of Company's customers who
have purchased more than $125,000 of the Company's products since January 1996.
No single customer has accounted for more than 10% of the Company's total
revenues for the year ended March 31, 1997 and the nine months ended December
31, 1997.
MANUFACTURING/PUBLISHING FINANCIAL SERVICES Montell USA, Inc.
Addison-Wesley Longman Allstate Insurance Nortel--Northern
ARCO Company Telecom
Boise Cascade Barclays De Zoete Wedd Pacific Telesis
Corporation Plc Qualcomm Incorporated
BP Exploration Edward Jones & Co. Sasktel ITM
Operating Company Esanda Finance Sprint Corporation
Gannett Co., Inc. Corporation US West Communications
Honeywell Inc. Fair Isaac & Co. Inc.
KLA-Tencor Corporation J&W Seligman & Co. Worldcom Network
Kraft General Goods Inc. Services
Nike Inc. Liberty Mutual
Phillip Morris U.S.A. Insurance Company
Pioneer Standard & Piper Jaffray PHARMACEUTICAL/
Electric Inc. Companies Inc. MEDICAL
Sikorsky Aircraft Westpac Banking Amgen
Corp. Corporation Bayer Corporation
Toyota Motor Sales Blue Cross & Blue
U.S.A. Inc. Shield
Viskase Corporation GOVERNMENT Genentech Inc.
Zeneca Agricultural State of Oregon Hoffman LaRoche Inc.
Products State of Washington Merck & Co. Inc.
U.S. Army Pfizer Inc.
U.S. Department of Roche Biosciences
TECHNOLOGY Agriculture United Healthcare
Hewlett-Packard U.S. Navy Services, Inc.
Company
Hitachi America
IBM RETAIL/SERVICES EDUCATION
Lotus Development Avis Rent A Car System California State
Corporation Inc. University System
LSI Logic Inc. DHL Massachusetts
Micron Electronics Edgars Stores Institute of
Inc. HBO Inc. Technology
Motorola J. Sainsburys Plc Purdue University
Quantum Safeway Stores Plc School Board of
Storage Technology Toys R' US Broward County,
Corporation Florida
Sun Microsystems Virginia Polytechnic
US Robotics Access TELECOMMUNICATIONS Institute
Corporation AT&T Wireless Services University of
VLSI Technology Corporation California
Comcast Cable University of Maryland
Communication
MCI Telecommunications
Corporation
SALES AND MARKETING
Sales. To date, the Company has sold its products primarily through its
direct sales and services organizations located in the United States, Canada,
the United Kingdom, France and Australia, and has sold its products worldwide
through value-added resellers ("VARs"), resellers and distributors. The direct
sales process involves the generation of sales leads through direct mail,
seminars and telemarketing or requests for proposal from prospects. The
Company's field sales force conducts multiple presentations and demonstrations
of the Company's products to management and users at customer sites as part of
the direct sales effort. Sales cycles typically last from three to nine months.
The direct sales force is responsible for local partner support, joint sales
efforts and channel management. The direct sales force is compensated for sales
made through indirect channel partners as well as direct sales to ensure
appropriate cooperation with the Company's VARs, resellers and distributors. To
date, the Company has generated a majority of its sales from its direct sales
force, and has supplemented its direct sales efforts with the efforts of VARs,
resellers and distributors in a variety of locations throughout the world.
These third parties perform some or all of the following functions: sales and
marketing; systems implementation and integration; software development and
customization; and ongoing consulting, training, service and technical support.
The Company
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generally offers such parties discounts on products and training, a
cooperative marketing program, and field level assistance from the Company's
direct sales force. The Company intends to leverage sales and marketing
through indirect channel partners that will distribute or resell the Company's
products in their respective markets. Indirect channel partners accounted for
approximately 9%, 7% and 12% of the Company's total revenues in fiscal 1996
and 1997 and for the nine months ended December 31, 1997, respectively. The
Company intends to grow its direct sales organization and its telesales
operation to cover smaller organizations. In addition, the Company will
continue both to leverage and grow its existing network of VARs, resellers and
distributors to expand its indirect distribution channel worldwide. The
Company currently expects that it will fund such expansion out of its working
capital. The Company's agreements with its VARs generally provide VARs with a
right to resell a customized version of the Company's products in conjunction
with sales of the VAR's products or services. The Company typically offers its
VARs a purchase discount to incent the VAR to sell the Company's products. The
Company's agreements with its distributors generally require that such
distributors make certain minimum purchases of the Company's products, none of
which minimum purchases are material in amount either individually or in the
aggregate. The Company recognizes revenue from such minimum purchases as the
distributors sell the Company's products through to end customers. The Company
does not typically grant exclusive sales territories to its distributors. See
"Risk Factors--Dependence on Direct Sales Force," "--Dependence on Key
Personnel and Hiring of Additional Personnel," "--Lengthy Product Sales
Cycle," "--Dependence on Development of Indirect Sales Channels," "--Risks
Associated with International Expansion" and "--Year 2000 Compliance."
Marketing. The Company is focused on building market awareness and
acceptance of the Company and its products as well as on developing strategic
partnerships. The Company has a marketing strategy with several key
components: image and awareness building, direct marketing to both prospective
and existing customers, a strong Web presence, as well as broad-scale
marketing programs in conjunction with key local and global partners. The
Company's corporate marketing strategy includes extensive public relations
activities; a conference and trade show speakers program, as well as programs
to work closely with key analysts and other influential third parties. The
Company's direct marketing activities include participation in selected trade
shows and conferences, targeted advertising as well as ongoing direct mail
efforts to existing and prospective customers. The Company has effectively
used local, regional and Web-based seminars to assist prospects in selecting
enterprise business intelligence solutions. The Company has used the Web to
further the interest and lead generation process and to improve the quality of
the leads that it provides to the sales organization. The Company's Web site
has become an effective lead generation program. The Company has invested in
building a partner and channel marketing function which helps to recruit,
train, support and conduct cooperative marketing with technology partners,
resellers and VARs. These programs help to foster strong relationships between
the Company and its various partners. The marketing organization also provides
a wide-range of programs, materials and events to support the sales
organization in its efforts.
The Company's sales and marketing organization consisted of 111 full-time
employees as of December 31, 1997. The sales and marketing staff is based at
the Company's corporate headquarters in Palo Alto, California. The Company
also has field sales offices in the metropolitan areas of Chicago, New York,
Los Angeles, Atlanta, Washington D.C. and Dallas.
RESEARCH AND DEVELOPMENT
Research and development created the products that have been the basis for
the Company's success, and the Company intends to make substantial investments
in research and development and related activities to maintain and enhance its
product lines. The Company believes that its future success will, in large
part, depend on its ability to maintain and improve
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current products, and to develop new products that meet enterprise business
intelligence needs. The Company's research and development organization is
divided into teams consisting of development engineers, product managers,
quality assurance engineers and technical writers. As of December 31, 1997,
the Company's research and development organization consisted of 43 full-time
employees. The research and development organization uses a phase-oriented
development process, which includes constant monitoring of quality, schedule,
functionality, costs and customer satisfaction. Product development is based
upon a consolidation of the requirements from existing customers, technical
support and engineering. The development group infrastructure provides
documentation, quality assurance, and delivery and support capabilities (as
well as product design and implementation) for the Company's products.
See "Risk Factors--Dependence on Key Personnel and Hiring of Additional
Personnel," "--Dependence on Product Development; Rapid Technological Change
and Evolving Industry Standards" and "--Risks of Product Defects; Product
Liability."
CUSTOMER AND TECHNICAL SUPPORT
The Company believes that a high level of customer support is important to
the successful marketing and sale of its products. Maintenance and support
contracts, which are typically for twelve months, are offered with the initial
license, may be renewed annually and are typically set at a percentage of the
total license fee. A large portion of the Company's direct sales to customers
have maintenance and support contracts that entitle the customers to patches,
updates and upgrades at no additional cost if and when available, and
technical hotline support. In addition, the Company offers classes and
training programs at the Company's headquarters, local training centers and
customer sites. Customers purchasing maintenance are able to access hotline
telephone support during normal business hours. Incoming customer calls are
immediately logged into the support database at the time of the call. The
Company supplements its standard telephone hotline support with a number of
Web-based support services, including access to FAQs (frequently asked
questions), a patch download area, and an interface to the Company's technical
support department's problem-tracking database, which allows customers to
submit cases and view the status of any of their current cases on-line. Users
of the Company's products can attend regional user group conferences
throughout the year. To improve user access to explanatory materials, the
Company provides on-line documentation with all of its products. Among other
things, such documentation includes detailed explanations of product features
as well as problem-solving tips for middleware connections.
COMPETITION
The market in which the Company operates is still developing, and is
intensely competitive, highly fragmented and characterized by rapidly changing
technology and evolving standards. The Company's current and potential
competitors offer a variety of software solutions and generally fall within
four categories: (i) vendors of business intelligence software such as Cognos,
Business Objects, Seagate, and Andyne; (ii) vendors offering alternative
approaches to delivering analysis capabilities to users, such as
MicroStrategy; (iii) database vendors that offer products which operate
specifically with their proprietary database, such as Microsoft, IBM, Oracle
and Arbor; and (iv) other companies that may in the future announce offerings
of an enterprise business intelligence solution. The Company's competitive
position in the market is uncertain, due principally to the variety of current
and potential competitors, and the emerging nature of the market. The Company
has experienced and expects to continue to experience increased competition
from current and potential competitors, many of whom have significantly
greater financial, technical, marketing and other resources than the Company.
Such competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources
to the development, promotion and sales
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of their products than the Company. The Company expects additional competition
as other established and emerging companies enter into the business
intelligence software market and new products and technologies are introduced.
Increased competition could result in price reductions, fewer customer orders,
reduced gross margins, longer sales cycles and loss of market share, any of
which could materially and adversely affect the Company's business, operating
results and financial condition. Current and potential competitors may make
strategic acquisitions or establish cooperative relationships among themselves
or with third parties, thereby increasing the ability of their products to
address the needs of the Company's prospective customers. The Company's
current or future indirect channel partners may establish cooperative
relationships with current or potential competitors of the Company, thereby
limiting the Company's ability to sell its products through particular
distribution channels. Accordingly, it is possible that new competitors or
alliances among current and new competitors may emerge and rapidly gain
significant market share. Such competition could materially adversely affect
the Company's ability to obtain new licenses, and maintenance and support
renewals for existing licenses, on terms favorable to the Company. Further,
competitive pressures may require the Company to reduce the price of its
products, which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully against current and
future competitors, and the failure to do so could have a material adverse
effect upon the Company's business, operating results and financial condition.
The Company competes on the basis of certain factors, including data
scalability, user scalability, open architecture, analytical capabilities,
product features, product performance, product quality, time to market, ease
of use, customer support and price. The Company believes it presently competes
favorably with respect to each of these factors. However, the Company's market
is still evolving and there can be no assurance that the Company will be able
to compete successfully against current and future competitors, and the
failure to do so successfully could have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk
Factors--Competition."
PROPRIETARY RIGHTS
The Company currently relies primarily on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential to establishing and maintaining a
technology leadership position. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. The Company currently has one
United States patent application. There can be no assurance that the Company's
patent application will result in the issuance of a patent, or if issued, will
not be invalidated, circumvented or challenged, or that the rights granted
thereunder, if any, will provide competitive advantages to the Company or that
any of the Company's future patent applications, if any, will be issued with
the scope of the claims sought by the Company, if at all. Furthermore, there
can be no assurance that others will not develop technologies that are similar
or superior to the Company's technology or design around any patent that may
come to be 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 while 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. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights as fully as do the laws of the United
States. There can be no assurance that
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the Company's means of protecting its proprietary rights in the United States
or abroad will be adequate or that competitors will not independently develop
similar technology. The Company has entered into source code escrow agreements
with a number of its customers and indirect channel partners requiring release
of source code under certain conditions. Such agreements provide that such
parties will have a limited, non-exclusive right to use such code in the event
that there is a bankruptcy proceeding by or against the Company, if the
Company ceases to do business or, in some cases, if the Company fails to meet
its contractual obligations. The provision of source code escrows may increase
the likelihood of misappropriation by third parties. The Company expects that
software product developers will increasingly 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 license the infringed or similar
technology, the Company's business, operating results and financial condition
would 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 the
Company's 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 have a material adverse effect on the Company's
business, operating results and financial condition. Currently, the Company is
engaged in litigation with Business Objects, S.A. concerning the alleged
infringement by the Company of a U.S. patent held by Business Objects, S.A.
See "--Legal Proceedings." See "Risk Factors--Fluctuations in Quarterly
Operating Results," "--Litigation with Business Objects, S.A." and "--Limited
Protection of Proprietary Rights."
Finally, in the future the Company may rely upon certain software that it
may license from third parties, including software that may be integrated with
the Company's internally developed software and used in the Company's products
to perform key functions. There can be no assurance that these third-party
software licenses will be available to the Company on commercially reasonable
terms. The inability to obtain or maintain any such software licenses could
result in shipment delays or reductions until equivalent software could be
developed, identified, licensed and integrated, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
LEGAL PROCEEDINGS
On January 20, 1997, Business Objects, S.A. filed a complaint (the
"Complaint") against the Company in the U.S. District Court for the Northern
District of California in San Jose, California alleging that certain of the
Company's products (including at least the BrioQuery Navigator, BrioQuery
Explorer and BrioQuery Designer products) infringe at least claims 1, 2 and 4
of U.S. Patent No. 5,555,403. In April 1997, the Company filed an answer and
affirmative defenses to the Complaint, denying certain of the allegations in
the Complaint and asserting a counterclaim requesting declaratory relief that
the Company is not infringing the patent and that the patent is invalid and
unenforceable. In December 1997, venue for the case was changed to the
Northern District of California in San Francisco, California. The Company
believes that it has meritorious defenses to the claims made in the Complaint
on both invalidity and non-infringement grounds, and intends to defend the
suit vigorously. Business Objects, S.A.
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contends that there was no prior software or other prior art which allowed
users to associate a familiar name with a query or which permitted retrieved
values to be semantically dynamic. The Company has contended that, if the
patent were construed to cover the Company's current products, the patent
would then also cover prior art products, rendering the patent invalid.
Business Objects, S.A. contends that there are material differences between
those prior art products and the Company's current products. Business Objects,
S.A. also contends that the patent is valid because it has been commercially
successful and widely copied in the industry. The Company disputes these
contentions. The Company and Business Objects, S.A. are currently conducting
discovery and are awaiting a date for the claims construction hearing. The
pending litigation could result in substantial expense to the Company and
significant diversion of effort by the Company's technical and management
personnel. The Complaint seeks injunctive relief and unspecified monetary
damages, and Business Objects, S.A. is expected to seek lost profits and/or
equivalent royalties. The Complaint also alleges willful infringement, and
seeks treble damages, costs and attorneys' fees. Litigation is subject to
inherent uncertainties, especially in cases such as this where complex
technical issues must be decided. The Company's defense of this litigation,
regardless of the merits of the Complaint or lack thereof, could be time-
consuming or costly, or divert the attention of technical and management
personnel, which could have a material adverse effect upon the Company's
business, operating results and financial condition. There can be no assurance
that the Company will prevail in the litigation given the complex technical
issues and inherent uncertainties in patent litigation, particularly before
the claims have been construed by the Court. In the event the Company is
unsuccessful in the litigation, the Company may be required to pay damages to
Business Objects, S.A. and could be prohibited from marketing certain of its
products without a license, which license may not be available on acceptable
terms. If the Company is unable to obtain such a license, the Company may be
required to license a substitute technology or redesign to avoid infringement,
in which case the Company's business, operating results and financial
condition could be materially adversely affected. Collectively, sales of
BrioQuery Navigator, BrioQuery Explorer and BrioQuery Designer represented
substantially all of the Company's revenues in fiscal 1996 and represented a
majority of the Company's revenues in fiscal 1997 and the nine months ended
December 31, 1997. See "Risk Factors--Litigation with Business Objects, S.A."
and "Business--Proprietary Rights."
EMPLOYEES
As of December 31, 1997, the Company had 200 employees, including 111 in
sales and marketing, 21 in services and support, 43 in research and
development and 25 in general and administrative functions. The Company
believes its employee relations are good. The Company's success depends to a
significant degree upon the continued contributions of its key management,
engineering, sales and marketing personnel, many of whom would be difficult to
replace. The Company has employment contracts with only three members of its
executive management personnel, and currently maintains "key person" life
insurance only on Yorgen Edholm, the Company's President and Chief Executive
Officer, and Katherine Glassey, the Company's Executive Vice President,
Products and Services and Chief Technology Officer. The Company does not
believe such insurance would adequately compensate it for the loss of either
Mr. Edholm or Ms. Glassey. The Company believes its future success will also
depend in large part upon its ability to attract and retain highly skilled
managerial, engineering, sales and marketing and finance personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting and retaining such personnel. The
loss of the services of any of the key personnel, the inability to attract or
retain qualified personnel in the future or delays in either hiring required
personnel or the rate at which new people become productive, particularly
sales personnel and engineers, could have a material adverse effect on the
Company's business, operating results and financial condition. In particular,
the Company has from time to time experienced and may continue to experience
45
<PAGE>
significant turnover of its sales force, due principally to the intensely
competitive market for such personnel. Such turnover tends to slow sales
efforts until replacement personnel can be recruited and trained to become
productive members of the Company's sales force. See "Risk Factors--Dependence
on Direct Sales Force" and "--Dependence on Key Personnel and Hiring of
Additional Personnel."
FACILITIES
The Company's principal executive offices are located in Palo Alto,
California where the Company leases approximately 12,145 square feet under a
lease that expires in October 2003. Effective March 1998, the Company will
lease approximately 30,000 square feet in Palo Alto, California under a lease
that expires in March 2000. The Company also leases approximately 17,895
square feet in an adjacent facility in Palo Alto, California under a lease
that expires in May 1998. The Company has no plans to renew this lease upon
expiration. The Company also leases space (typically less than 4,000 square
feet) in various geographic locations primarily for sales and support
personnel. The Company believes that its current facilities are adequate to
meet its needs through the end of 1999, at which time the Company may need to
lease additional space.
46
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
March 31, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
Yorgen H. Edholm..................... 42 President, Chief Executive Officer and
Chairman of the Board of Directors
Katherine Glassey.................... 40 Executive Vice President, Products and
Services, Chief Technology Officer and
Director
Robert W. Currie..................... 52 Executive Vice President, Worldwide
Operations
Chris M. Grejtak..................... 49 Executive Vice President, Marketing
Karen J. Willem...................... 42 Executive Vice President, Finance and
Operations and Chief Financial Officer
E. Floyd Kvamme(1)(2)................ 60 Director
Bernard J. Lacroute(1)(2)............ 54 Director
Norman L. Vincent(1)(2).............. 64 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
YORGEN H. EDHOLM is a co-founder of the Company and has been its President,
Chief Executive Officer and Chairman of the Board of Directors since
inception. Prior to founding the Company, Mr. Edholm was a manager with the
Management Consulting Division of Arthur Young & Company in New York (now
Ernst & Young, LLP) where he co-founded the microcomputer-based Decision
Support Systems Group. Before that, Mr. Edholm was a product manager with
Industri Mathematic AB in Stockholm, Sweden. Mr. Edholm holds a M.S. degree in
Computer Science and Applied Mathematics from the School of Physical
Engineering at the Royal Institute of Technology in Stockholm, Sweden and an
M.B.A. degree in Organizational Behavior and International Economics from the
Stockholm School of Economics in Stockholm, Sweden. Mr. Edholm is the spouse
of Katherine Glassey.
KATHERINE GLASSEY is a co-founder of the Company and has been its Executive
Vice President of Products and Services and Chief Technology Officer since
January 1997 and has been a director since inception. Prior to joining the
Company, Ms. Glassey established and managed application development and
consulting organizations for Metaphor Computer Systems, Inc. ("Metaphor"), a
decision support hardware and software company. Before joining Metaphor, Ms.
Glassey was a Senior Consultant with the Management Consulting Division of
Arthur Young & Company in New York. During that time, she co-founded the
microcomputer-based Decision Support Systems Group whose charter was to use
personal computers to enable end-users to make decisions based on corporate
data. Ms. Glassey holds a B.S. degree in Operations Research from Cornell
University with a Minor in English Literature. Ms. Glassey is the spouse of
Yorgen H. Edholm.
ROBERT W. CURRIE joined the Company in September 1996 as Executive Vice
President of Worldwide Operations. Prior to joining the Company, Mr. Currie
was Vice President and General Manager of North American Operations at Sybase,
Inc., a database software and systems company, from July 1995 to July 1996.
From December 1993 to July 1995, Mr. Currie was Vice President and General
Manager of European Operations at Sybase, Inc. Mr. Currie holds a B.S. degree
in Business Administration from the University of Massachusetts.
47
<PAGE>
CHRIS M. GREJTAK joined the Company in January 1997 as Executive Vice
President, Marketing. Prior to joining the Company, Mr. Grejtak was Vice
President, Marketing at Red Brick Systems, Inc., a data warehousing company,
from December 1995 to December 1996. From July 1995 to December 1995, he was
Vice President, Sales and Marketing at Avistar Systems, Inc., a video desktop
conferencing software and hardware company. Mr. Grejtak was Vice President,
Marketing at Network General Corporation ("Network General"), a network
management software company, from November 1994 to June 1995. From August 1992
to November 1994, he was a Vice President and then President and CEO of
Metaphor. Mr. Grejtak holds a B.A. degree in Sociology from Middlebury
College.
KAREN J. WILLEM joined the Company in August 1997 as Executive Vice
President, Finance and Operations and Chief Financial Officer. Prior to
joining the Company, Ms. Willem was Vice President, Worldwide Sales Operations
from April 1995 to January 1997 at Network General. From July 1991 to March
1995, Ms. Willem was Vice President and Corporate Controller at Network
General. Ms. Willem holds a B.S. degree in Biology from Bucknell University
and an M.B.A. degree in Finance from the University of Pittsburgh.
E. FLOYD KVAMME has been a director of the Company since March 1995. He is
currently also a director of TriQuint Semiconductor, Inc., Harmonic
Lightwaves, Inc., Photon Dynamics, Inc., and several privately held companies.
He has been a partner of Kleiner Perkins Caufield & Byers, a venture capital
firm, since 1984. He holds a Bachelor of Science degree in engineering from
the University of California and a Master of Science degree in engineering
from Syracuse University.
BERNARD J. LACROUTE has been a director of the Company since March 1995. He
is currently also a director of several privately held companies. Mr. Lacroute
has been a partner with Kleiner Perkins Caufield & Byers since 1989. Prior to
joining Kleiner Perkins Caufield & Byers, Mr. Lacroute held a number of Senior
Executive positions in leading high technology firms including Digital
Equipment Corporation and Sun Microsystems, Inc. Mr. Lacroute holds graduate
degrees in Physics from the University of Grenoble and in Engineering from the
Ecole Nationale Superieure d'lngenieurs, as well as an M.S. degree in
Electrical Engineering from the University of Michigan.
NORMAN L. VINCENT has been a director of the Company since November 1995.
From 1960 until 1995, Mr. Vincent held various positions at State Farm Mutual
Auto Insurance Company ("State Farm") including, most recently, head of the
systems department (Systems Vice President). During part of his tenure at
State Farm, Mr. Vincent was a member of the Research Board, a private
organization of Chief Information Officers. He currently serves on the board
of NeoVista Solutions, Inc. Mr. Vincent holds a degree in Psychology from the
University of Wisconsin, as well as an M.S. and a Ph.D. in Industrial
Psychology from Purdue University.
EXECUTIVE OFFICERS
The Company's executive officers are appointed by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full-time
employee of the Company.
BOARD COMPOSITION
The Company currently has authorized six directors. In accordance with the
terms of the Company's Restated Certificate of Incorporation, effective at the
time the Company becomes a Listed Corporation within the meaning of Section
301.5 of the California Corporations Code, the terms of office of the Board of
Directors will be divided into two classes: Class I, whose term will expire at
the annual meeting of stockholders to be held in 1999 and Class II, whose term
48
<PAGE>
will expire at the annual meeting of stockholders to be held in 2000. The
Class I directors are Mr. Kvamme, Mr. Vincent and Ms. Glassey, and the Class
II directors are Mr. Edholm and Mr. Lacroute. At each annual meeting of
stockholders after the initial classification, the successors to directors
whose terms will then expire will be elected to serve from the time of
election and qualification until the second annual meeting following election.
Any additional directorships resulting from an increase in the number of
directors will be distributed among the two classes so that, as nearly as
possible, each class will consist of one-half of the directors. This
classification of the Board of Directors may have the effect of delaying or
preventing changes in control or management of the Company. Directors of the
Company may be removed, with or without cause, by the affirmative vote of the
holders of a majority of the Common Stock.
BOARD COMMITTEES
The Board of Directors has two committees, an Audit Committee and a
Compensation Committee. The Board's Audit Committee currently consists of
Messrs. Kvamme, Lacroute and Vincent. The Audit Committee reviews the
Company's annual audit and meets with the Company's independent auditors to
review the Company's internal accounting procedures and financial management
practices. The Compensation Committee currently consists of Messrs. Kvamme,
Lacroute and Vincent. The Compensation Committee recommends compensation and
benefits for certain of the Company's executive officers to the Board, reviews
general policy relating to compensation and benefits of employees of the
Company, and administers the Company's Stock Plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the Board is currently
or has been, at any time since the formation of the Company, an officer or
employee of the Company. No executive officer 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 on the Company's Board or
Compensation Committee.
DIRECTOR COMPENSATION
Except for Mr. Vincent, who receives $500 per meeting for his attendance at
meetings of the Board of Directors, the Company does not currently provide
cash compensation to directors for services in such capacity. Directors may,
however, be reimbursed for certain expenses in connection with attendance at
Board and Committee meetings. Directors are eligible to participate in the
Company's Stock Plans and, beginning in 1998, employee directors will also be
eligible to participate in the Company's 1998 Employee Stock Purchase Plan and
non-employee directors will also be eligible to participate in the 1998
Directors' Stock Option Plan. In December 1996, Mr. Vincent was granted an
option to purchase 12,500 shares of Common Stock at an exercise price of $0.60
per share subject to a twenty-five month vesting schedule. In March 1989, Mr.
Edholm and Ms. Glassey purchased 3,750,000 shares and 1,250,000 shares,
respectively, of restricted Common Stock. See "--Stock Plans."
49
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
compensation awarded or paid by the Company during the fiscal years ended
March 31, 1998 (the "Last Fiscal Year") and March 31, 1997 to its President,
Chief Executive Officer and Chairman of the Board of Directors and the
Company's other four most highly compensated executive officers, each of whose
aggregate compensation during the Last Fiscal Year exceeded $100,000
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
FISCAL --------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS
- --------------------------- ------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Yorgen H. Edholm................... 1998 $ 175,000 $ 42,112 --
President, Chief Executive Officer 1997 160,000 8,000 --
and Chairman of the Board of
Directors
Katherine Glassey.................. 1998 145,000 31,584 --
Executive Vice President, Products 1997 107,500 6,500 --
and Services, Chief Technology
Officer and Director
Robert W. Currie................... 1998 170,000 69,934(2) --
Executive Vice President and 1997 78,125 18,750(2) 262,500
General Manager, Worldwide
Operations
Chris M. Grejtak................... 1998 175,000 21,056 25,000
Executive Vice President, 1997 41,843 -- 50,000
Marketing
Karen J. Willem(3)................. 1998 99,519 21,056 87,500
Executive Vice President, Finance 1997 -- -- --
and Operations, and Chief
Financial Officer
</TABLE>
- --------
(1) Includes amounts earned with respect to such individual's performance in
the applicable fiscal year.
(2) Represents sales commission.
(3) Ms. Willem joined the Company in August 1997. Ms. Willem's annualized
salary in the Last Fiscal Year was $150,000.
50
<PAGE>
Option Grants. The following table provides certain information regarding
stock options granted to the Named Executive Officers during the Last Fiscal
Year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(4)
-------------------------------------------------- ---------------------
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(1) FISCAL YEAR(2) PER SHARE (3) DATE 5% 10%
- ---- ---------- -------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Yorgen H. Edholm........ -- -- -- -- -- --
Katherine Glassey....... -- -- -- -- -- --
Robert W. Currie........ -- -- -- -- -- --
Chris M. Grejtak........ 25,000 3.5% $1.20 06/18/2002 $ 257,163 $ 332,365
Karen J. Willem......... 75,000 10.6 2.00 08/20/2002 711,490 937,094
12,500 1.8 6.00 11/25/2002 68,582 106,182
</TABLE>
- --------
(1) With respect to Mr. Grejtak's option, 1/48 of the total shares vest on
each monthly anniversary of the vesting commencement date. With respect to
Ms. Willem's options, (i) the option to purchase 75,000 shares vests at
the rate of 1/4 of such shares one year from the vesting commencement
date, and 1/48th of the total shares on each monthly anniversary of the
vesting commencement date thereafter and (ii) the option to purchase
12,500 shares vests at the rate of 1/48 of the total shares on each
monthly anniversary of the vesting commencement date. The options expire
five years from the date of grant, or earlier upon termination of
employment. See "--Stock Plans--1992 Stock Option Plan."
(2) Based on an aggregate of 705,597 options granted to employees, consultants
and directors during the eleven months ended February 28, 1998.
(3) The exercise price per share of each option was equal to the fair value of
the Common Stock on the date of grant as determined in good faith by the
Board of Directors on such date based upon such factors as the purchase
prices paid by investors for shares of the Company's Preferred Stock, the
absence of a trading market for the Company's securities and the Company's
financial outlook and results of operations. Such exercise prices are
significantly lower than prices paid by investors purchasing shares of the
Company's Preferred Stock in transactions taking place approximately
contemporaneously with the grant of such options. In making its
determination as to the exercise price of such options, the Board
considered the fact that the Company's Preferred Stock carried certain
rights, preferences and privileges, including a preference upon
liquidation, sale or merger, enhanced voting rights, and antidilution
rights, and purchasers of such Preferred Stock received additional
contractual rights, including registration rights, information rights and
rights of first offer on new issuance of Company securities. See "Certain
Relationships and Related Transactions" and Notes 7 and 8 of Notes to
Consolidated Financial Statements.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the SEC. There can be no assurance that the
actual stock price appreciation over the five-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 Named Executive
Officers. The potential realizable value is calculated by assuming that an
assumed initial public offering price of $9.00 per share appreciates at
the indicated rate for the entire term of the option and that the option
is exercised at the exercise price and sold on the last day at the
appreciated price.
51
<PAGE>
Option Holdings. The following table sets forth for each of the Named
Executive Officers the number and value of securities underlying unexercised
options held by each of the Named Executive Officers as of March 31, 1998.
YEAR-END OPTION HOLDINGS AND VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT MARCH 31, 1998 AT MARCH 31, 1998(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Yorgen H. Edholm............ -- -- -- --
Katherine Glassey........... -- -- -- --
Robert W. Currie............ 87,240 175,260 731,097 1,451,403
Chris M. Grejtak............ 16,146 33,854 125,939 264,061
Karen J. Willem............. 521 86,979 1,563 560,937
</TABLE>
- --------
(1) Value of unexercised in-the-money options is based on a value of $9.00 per
share of the Company's Common Stock, the assumed initial public offering
price. Amounts reflected are based on the assumed value minus the exercise
price multiplied by the number of shares acquired on exercise.
EMPLOYMENT AGREEMENTS
In June 1994, the Company entered into an agreement with Mr. Edholm
providing that, in the case of involuntary termination, Mr. Edholm will be
paid a sum equal to eighteen months salary, less applicable withholding.
In October 1996, the Company entered into an agreement with Mr. Currie
providing that, in the case of involuntary termination six months prior to or
twelve months after a change in control of the Company, salary will continue
to be paid for a period of six months from the date of termination and all
stock options and restricted stock then held by Mr. Currie will become fully
vested and exercisable.
In August 1997, the Company entered into an agreement with Ms. Willem
providing that, in the case of involuntary termination six months prior to or
twelve months after an acquisition of the Company, the vesting of all of the
stock options and restricted stock then held by Ms. Willem will accelerate as
if an additional year of service had been rendered.
STOCK PLANS
1992 Stock Option Plan. The Company's 1992 Stock Option Plan (the "1992
Plan") was adopted by the Board of Directors in January 1992 and approved by
the stockholders in June 1992. A total of 1,250,000 shares of Common Stock
were reserved at that time for issuance under the 1992 Plan. An increase of
429,795 shares in the number of shares reserved for issuance under the 1992
Plan, to a total of 1,679,795 shares of Common Stock issuable thereunder, was
authorized by the Board of Directors and approved by the stockholders in March
1995. An additional increase of 400,000 shares in the number of shares
reserved for issuance under the 1992 Plan, to a total of 2,079,795 shares of
Common Stock issuable thereunder, was authorized by the Board of Directors and
approved by the stockholders in May 1996. As of December 31, 1997, 784,901
options to purchase any shares of Common Stock had been exercised, options to
purchase a total of 1,204,562 shares at a weighted average exercise price of
$1.79 per share were outstanding and 130,229 shares remained available for
future option grants under the 1992 Plan.
52
<PAGE>
The purposes of the 1992 Plan are to attract, retain and reward persons
providing services to the Company and to motivate such persons to contribute
to the growth of the Company. The 1992 Plan provides for the granting to
employees, including officers and employee directors, of incentive stock
options within the meaning of Section 422 of the Code and for the granting to
employees, consultants and advisors of nonstatutory stock options. To the
extent an optionee would have the right in any calendar year to exercise for
the first time one or more incentive stock options for shares having an
aggregate fair market value (under all plans of the Company and determined for
each share as of the date the option to purchase the shares was granted) in
excess of $100,000, any such excess options shall be treated as nonqualified
stock options. If not terminated earlier, the 1992 Plan will terminate in
January 2002.
The 1992 Plan is administered by the Board of Directors (the "1992
Administrator"). The 1992 Administrator has the power to determine which of
the persons eligible under the 1992 Plan shall be granted options; when and
how an option shall be granted; whether an option will be an incentive stock
option or a nonqualified stock option; the provisions of each option granted
(which need not be identical), including the time or times when a person shall
be permitted to receive an option; and the number of shares with respect to
which option shall be granted to each such person. Options granted under the
1992 Plan are not generally transferable by the optionee. Options granted
under the 1992 Plan may be exercised within ninety days after termination of
employment or consulting status, provided however that options must be
exercised within twelve months after an optionee's termination by death or
twelve months after an optionee's termination due to optionee's disability,
and in any event no later than the expiration of the option's five year term.
The exercise price of options must be at least equal to the fair market value
of the Common Stock on the date of grant, unless such option is granted
pursuant to an assumption or substitution for another option in a manner
qualifying under the provisions of Section 425(a) of the Code. Under the
Company's standard form of option agreement, the initial option grant vests
over four years, with 25% vesting on the annual anniversary of the vesting
commencement date and an additional 1/48 vesting on each monthly anniversary
thereafter. For subsequent option grants, the option shares typically vest at
a rate of 1/48 of such shares on each monthly anniversary following the grant
date. The 1992 Administrator has the power to accelerate the time at which an
option may first be exercised or the time during which an option or any part
thereof will vest, notwithstanding the provisions in the option agreement. In
the event of a dissolution, sale of substantially all of the Company's assets,
merger, reverse merger, or consolidation of the Company with or into another
corporation, the Board may have the surviving corporation assume the options
granted under the 1992 Plan, or substitute similar options, continue the
options in full force and effect or accelerate vesting thereof. The Company
does not intend to grant any new options under the 1992 Plan following
completion of this Offering.
1998 Stock Option Plan. The Company's 1998 Stock Option Plan (the "1998
Plan") was adopted by the Board of Directors in February 1998 and approved by
the stockholders in April 1998. A total of 2,250,000 shares of Common Stock
have been reserved for issuance under the 1998 Plan, plus an automatic annual
increase on the first day of each of the Company's fiscal years in 1999, 2000,
and 2001 equal to the lesser of 600,000 shares or three percent (3%) of the
Company's outstanding Common Stock on the last day of the immediately
preceding fiscal year. No options have been granted under the 1998 Plan.
The purposes of the 1998 Plan are to attract and retain the best available
personnel to the Company, to provide additional incentives to the Company's
employees and consultants and to promote the success of the Company's
business. The 1998 Plan provides for the granting to employees, including
officers and directors, of incentive stock options within the meaning of
Section 422 of the Code and for the granting to employees and consultants,
including
53
<PAGE>
nonemployee directors, of nonstatutory stock options. To the extent an
optionee would have the right in any calendar year to exercise for the first
time one or more incentive stock options for shares having an aggregate fair
market value (under all plans of the Company and determined for each share as
of the date the option to purchase the shares was granted) in excess of
$100,000, any such excess options shall be treated as nonstatutory stock
options. If not terminated earlier, the 1998 Plan will terminate in February
2008.
The 1998 Plan may be administered by the Board of Directors or a committee
appointed by the Board which shall be constituted in such a manner as to
comply with applicable law (the "1998 Administrator"). The 1998 Administrator
has the power to select the consultants and employees to whom options may be
granted, to determine the terms of the options granted including the exercise
price, the number of shares subject to the option and the exercisability
thereof, and the form of consideration payable upon exercise. Options granted
under the 1998 Plan are not generally transferable by the optionee; provided,
however, that the maximum number of shares which may be subject to options
granted to any employee for any fiscal year or the Company shall be 1,000,000.
Such limitation shall not take effect until the earliest date required under
Section 162(m) of the Code. Options granted under the 1998 Plan must be
exercised within thirty days after termination of employment or consulting
status, provided however that options must generally be exercised within six
months after an optionee's termination by death or by disability, and in any
event no later than the expiration of the option's ten year term. The exercise
price of stock options must be at least equal to the fair market value of the
Common Stock on the date of grant; provided, however, that the exercise price
of any stock option granted to a holder of more than 10% of the total combined
voting power of all classes of stock of the Company must equal at least 110%
of the fair market value of the Company Stock on the date of grant. Initial
grants made under the Company's standard form of option agreement typically
vest over four years, with 25% vesting on the 12 month anniversary of the
vesting commencement date and with 1/48 vesting on each monthly anniversary
thereafter. For subsequent option grants, the option shares typically vest at
a rate of 1/48 of such shares on each monthly anniversary following the grant
date. In the event of a dissolution or liquidation, to the extent it has not
been previously exercised, the option will terminate immediately prior to the
consummation of such proposed action. In the event of a proposed sale of all
or substantially all of the Company's assets, merger of the Company with or
into another corporation, each outstanding option or stock purchase right
shall be assumed or an equivalent option or right substituted by the successor
corporation, unless the Administrator determines that the optionee shall have
the right to exercise the option as to some or all of the optioned stock,
including shares as to which the option would not otherwise be exercisable,
for a thirty day period.
1998 Employee Stock Purchase Plan. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
February 1998 and approved by the stockholders in April 1998. A total of
500,000 shares of Common Stock has been reserved for issuance under the
Purchase Plan, plus an automatic annual increase on the first day of each of
the Company's fiscal years in 1999, 2000, and 2001 equal to the lesser of
300,000 shares or 2% of the Company's outstanding Common Stock or the last day
of the immediately preceding fiscal year.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of offering periods of twenty-four month
duration, with the first such offering period commencing on the effective date
of this Registration Statement and ending on April 30, 2000. Each offering
period after the first offering period will commence on or about May 1 and
November 1 of each year. Each offering period will consist of four consecutive
purchase periods of six months duration, with the last day of each period
being designated a
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<PAGE>
purchase date. The first purchase date will occur on October 31, 1998, with
subsequent purchase dates to occur every six months thereafter. The Purchase
Plan will be administered by the Board of Directors or a committee named by
the Board. Employees (including officers and employee directors) of the
Company, or of any majority-owned subsidiary designated by the Board, are
eligible to participate in the Purchase Plan if they are employed by the
Company or any such subsidiary for at least 20 hours per week and more than
five months per year. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions, which may not exceed 20% nor equal
less than 1% of an employee's compensation, at a price equal to the lower of
85% of the fair market value of the Company's Common Stock at the beginning of
the offering period or the purchase date. If the fair market value of the
Common Stock on a purchase date is less than the fair market value at the
beginning of the offering period, a new twenty-four month offering period will
automatically being on the first business day following the purchase date with
a new fair market value. 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. If not terminated earlier, the
Purchase Plan will have a term of 20 years.
The Purchase Plan provides that in the event of the proposed dissolution or
liquidation of the Company, the Offering Period will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided
by the Board. In the event of a merger of the Company with or into another
corporation or a sale of all or substantially all of the Company's assets,
each right to purchase stock under the Purchase Plan will be assumed or an
equivalent right substituted by the successor corporation unless the Board of
Directors shortens the offering period so that employees' rights to purchase
stock under the Purchase Plan are exercised prior to the merger or sale of
assets. The Board of Directors has the power to amend or terminate the
Purchase Plan as long as such action does not adversely affect any outstanding
rights to purchase stock thereunder.
1998 Directors' Stock Option Plan. The 1998 Directors' Stock Option Plan
(the "Directors' Plan") was adopted by the Board of Directors in February 1998
and approved by the stockholders in April 1998. A total of 300,000 shares of
Common Stock has been reserved for issuance under the Directors' Plan. The
Directors' Plan provides for the automatic grant of nonstatutory stock options
to nonemployee directors of the Company. The Directors' Plan is designed to
work automatically without administration; however, to the extent
administration is necessary, it will be performed by the Board of Directors.
The Directors' Plan provides that each person who first becomes a
nonemployee director of the Company after the date of this offering shall be
granted a nonstatutory stock option to purchase 20,000 shares of Common Stock
(the "First Option") on the date on which the optionee first becomes a
nonemployee director of the Company. The First Option will not be granted to
individuals serving as nonemployee directors as of the date of this offering.
Thereafter, on the date of each annual meeting of the Company's stockholders
following which a nonemployee director is serving on the Board of Directors,
each nonemployee director (including directors who were not granted a First
Option prior to the date of such annual meeting) shall be granted an option to
purchase 5,000 shares of Common Stock (a "Subsequent Option") if, on such
date, he or she has served on the Company's Board of Directors for at least
six months.
The Directors' Plan sets neither a maximum nor a minimum number of shares
for which options may be granted to any one nonemployee director, but does
specify the number of shares that may be included in any grant and the method
of making a grant. No option granted under the Directors' Plan is transferable
by the optionee other than by will or the laws of descent or distribution or
pursuant to the terms of a qualified domestic relations order, and each
55
<PAGE>
option is exercisable, during the lifetime of the optionee, only by such
optionee. The Directors' Plan provides that the First Option shall become
exercisable in installments of 25% of the total number of shares subject to
the First Option on each of the first, second, third and fourth anniversaries
of the date of grant of the First Option; each Subsequent Option shall become
exercisable in full on the day before the first anniversary of the date of
grant of that Subsequent Option. The exercise price of all stock options
granted under the Directors' Plan shall be equal to the fair market value of a
share of the Company's Common Stock on the date of grant of the option.
Options granted under the Directors' Plan have a term of ten years.
In the event of the dissolution or liquidation of the Company, a sale of all
or substantially all of the assets of the Company, the merger of the Company
with or into another corporation in which the Company is not the surviving
corporation or any other capital reorganization in which more than 50% of the
shares of the Company entitled to vote are exchanged, the Company shall give
to each nonemployee director either (i) a reasonable time within which to
exercise the option, including any part of the option that would not otherwise
be exercisable, prior to the effectiveness of any such transaction at the end
of which time the Option shall terminate, or (ii) the right to exercise the
option, including any part of the option that would not otherwise be
exercisable (or receive a substitute option with comparable terms) as to an
equivalent number of shares of stock of the corporation succeeding the Company
or acquiring its business by reason of any such transaction. The Board of
Directors may amend or terminate the Directors' Plan; provided, however, that
no such action may adversely affect any outstanding option. If not terminated
earlier, the Directors' Plan will have a term of ten years.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company has included in its Restated Certificate of Incorporation a
provision to eliminate the personal liability of its officers and directors
for monetary damages for breach or alleged breach of their fiduciary duties as
officers or directors, respectively, except to the extent otherwise required
by Delaware Law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission. In addition,
the Company's Bylaws provide that the Company is required to indemnify its
officers and directors under certain circumstances, including those
circumstances in which indemnification would otherwise be discretionary, and
the Company is required to advance expenses to its officers and directors as
incurred in connection with proceedings against them for which they may be
indemnified. The Company has entered into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the Delaware Law.
The indemnification agreements 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 officers and directors (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. The Company has also obtained
directors' and officers' liability insurance with respect to liabilities
arising out of certain matters, including matters under the Securities Act.
The Company believes that its charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
At present, the Company is not aware of any pending or threatened litigation
or proceeding involving a director, officer, employee or agent of the Company
in which indemnification would be required or permitted. The Company is not
aware of any threatened litigation or proceeding that might result in a claim
for such indemnification.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 31, 1995, the Company has issued, in private placement
transactions (collectively, the "Private Placement Transactions"), shares of
Preferred Stock as follows: an aggregate of 2,496,756 shares of Series A
Preferred Stock at $1.542 per share in March 1995, an aggregate of 2,117,147
shares of Series B Preferred Stock at $2.834 per share in June 1996 and an
aggregate of 852,269 shares of Series C Preferred Stock at $7.04 per share in
June 1997. Each share of Series A, Series B and Series C Preferred Stock is
convertible into one share of Common Stock. The purchasers of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
included, among others, the following Named Executive Officers, directors and
5% stockholders of the Company and persons and entities associated with them:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED PREFERRED PREFERRED
INVESTOR(1) STOCK STOCK STOCK
- ----------- --------- --------- ---------
<S> <C> <C> <C>
Kleiner Perkins Caufield 2,269,780 705,716 71,022
& Byers VII............
(E. Floyd Kvamme and
Bernard J.
Lacroute)(2)(3)
Integral Capital
Partners(2)(4)......... -- 705,716 99,431
</TABLE>
- --------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal and Selling Stockholders."
(2) Holder is a 5% stockholder.
(3) Includes shares held by Kleiner Perkins Caufield & Byers VII and KPCB
Information Sciences Zaibatsu Fund II.
(4) Includes shares held by Integral Capital Partners III, L.P. and Integral
Capital Partners International III, L.P.
In December 1996, the Company issued to Management Decisions Limited a
warrant to purchase 10,000 shares of Common Stock at an exercise price of
$0.60 per share. The Company expects these warrants will be exercised
immediately prior to the completion of this Offering.
In December 1996, Chris Grejtak exercised an option to purchase 50,000
shares of the Company's Common Stock and entered into a Notice of Early
Exercise and Restricted Stock Purchase Agreement with respect to such
exercise. Mr. Grejtak paid the $0.60 exercise price per share of such shares
by delivery of a five year full-recourse promissory note bearing interest at
the rate of 6.31% per annum. The note, which is full-recourse, is secured by
the shares of Common Stock purchased by Mr. Grejtak. The maximum indebtedness
under the note during the year ended March 31, 1998 was $32,403.
In July 1997, the Company loaned Yorgen Edholm $400,000 pursuant to a full-
recourse Secured Promissory Note bearing interest at a rate of 6.07% per
annum. The note was repaid in full in December 1997. The maximum indebtedness
under the note during the nine months ended December 31, 1997 was $408,877.
In June 1994, the Company entered into an agreement with Mr. Edholm
providing that, in the case of involuntary termination, Mr. Edholm will be
paid a sum equal to eighteen months salary, less applicable withholding.
In October 1996, the Company entered into an agreement with Mr. Currie
providing that, in the case of involuntary termination six months prior to or
twelve months after a change in control of the Company, salary will continue
to be paid for a period of six months from the date of termination and all
stock options and restricted stock then held by Mr. Currie will become fully
vested and exercisable.
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<PAGE>
In August 1997, the Company entered into an agreement with Ms. Willem
providing that, in the case of involuntary termination six months prior to or
twelve months after an acquisition of the Company, the vesting of all of the
stock options and restricted stock then held by Ms. Willem will accelerate as
if an additional year of service had been rendered.
The Company has entered into indemnification agreements with its officers
and directors containing provisions which may require the Company, among other
things, to indemnify its officers and directors against certain liabilities
that may arise by reason of their status or service as officers or directors
(other than liabilities arising from willful misconduct of a culpable nature)
and to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified. The Company also intends to
execute such agreements with its future directors and executive officers. See
"Management--Limitation of Liability and Indemnification Matters."
In the past, the Company has granted options to certain of its executive
officers. The Company intends to continue to grant options to its officers in
the future. See "Management--Option Grants in Last Fiscal Year" and "Principal
and Selling Stockholders."
The Company believes that all of the transactions set forth above were in
its best interests. As a matter of policy, the transactions were, and all
future transactions between the Company and its officers, directors, principal
stockholders and affiliates will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested directors
on the Board of Directors, and will be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1997 and as
adjusted to reflect the sale of the Common Stock offered by this Prospectus by
(i) each stockholder who is known by the Company to own beneficially more than
5% of the Common Stock, (ii) each Named Executive Officer of the Company,
(iii) each director of the Company, and (iv) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING (1) AFTER OFFERING (1)
-------------------------- --------------------
OFFICERS, SHARES
DIRECTORS AND PRINCIPAL STOCKHOLDERS NUMBER PERCENT(2) OFFERED (3) NUMBER PERCENT(2)
- ------------------------------------ ------------- ------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Entities affiliated with
Kleiner Perkins 3,046,518 27.2% -- 3,046,518 21.8%
Caufield & Byers(4)....
2750 Sand Hill Road,
Suite 250
Menlo Park, CA 94025
Entities affiliated with
Integral Capital 805,147 7.2 -- 805,147 5.8%
Partners(5)............
2750 Sand Hill Road
Menlo Park, CA 94025
Yorgen H. Edholm(6)..... 4,999,996 44.6 125,000 4,874,996 34.9%
Katherine Glassey(6).... 4,999,996 44.6 125,000 4,874,996 34.9%
Robert W. Currie(7)..... 87,240 * -- 87,240 *
Chris M. Grejtak(8)..... 66,146 * -- 66,146 *
Karen J. Willem(9)...... 521 * -- 521 *
E. Floyd Kvamme(10)..... 3,046,518 27.2 -- 3,046,518 21.8%
Kleiner Perkins
Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Bernard J. Lacroute(11). 3,046,518 27.2 -- 3,046,518 21.8%
Kleiner Perkins
Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Norman L. Vincent(12)... 12,500 * -- 12,500 *
All directors and
executive officers as a
group (8 persons) (13). 8,212,921 72.5 125,000 8,087,920 57.4%
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the Company's Common
Stock.
(1) Assumes no exercise of the Underwriters' over-allotment option and no
exercise of outstanding warrants. Except pursuant to applicable community
property laws or as indicated in the footnotes to this table, to the
Company's knowledge, each stockholder identified in the table possesses
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by such stockholder.
(2) Applicable percentage of ownership for each stockholder is based on
11,211,172 shares of Common Stock outstanding as of December 31, 1997
together with applicable options for such stockholders. Beneficial
ownership is determined in accordance with the rules of the SEC. The
number of shares beneficially owned by a person includes shares of Common
Stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of December 31, 1997. Such
shares issuable pursuant to such options are deemed outstanding for
computing the percentage ownership of the person holding such options but
are not deemed outstanding for the purposes of computing the percentage
ownership of each other person. Unless otherwise indicated, the address
of each of the individuals named above is: c/o Brio Technology, Inc.,
3430 West Bayshore Road, Palo Alto, CA 94303.
(3) Consists of 93,750 shares and 31,250 shares to be sold in this Offering
by Mr. Edholm and Ms. Glassey, respectively. Additionally, if the
Underwriter's over-allotment option is exercised in full, Mr. Edholm and
Ms.
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<PAGE>
Glassey will sell an additional 93,750 shares and 31,250 shares,
respectively, in the Offering. In such event, Mr. Edholm and Ms. Glassey
will both beneficially own 4,749,996 shares or 33.2% and 33.2%,
respectively, of the shares outstanding. The Company will sell the
remaining 310,000 shares of the over-allotment if such option is exercised
in full.
(4) Consists of 3,027,100 shares held by Kleiner Perkins Caufield & Byers VII
and 19,418 shares held by KPCB Information Sciences Zaibatsu Fund II. E.
Floyd Kvamme and Bernard J. Lacroute, both directors of the Company, are
general partners of KPCB VII Associates, the general partner of each of
Kleiner Perkins Caufield & Byers VII and KPCB Information Sciences
Zaibatsu Fund II. Each of Messrs. Kvamme and Lacroute disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein.
(5) Consists of 652,099 shares held by Integral Capital Partners III, L.P.
and 153,048 shares held by Integral Capital Partners International III,
L.P.
(6) Includes 1,815,009 shares held by Mr. Edholm, 605,003 shares held by Ms.
Glassey and 2,500,000 shares held by the Edholm Family Limited
Partnership. Also includes an aggregate of 79,984 shares held in trusts
for the children of which Mr. Edholm and Ms. Glassey are trustees and
have voting power.
(7) Consists of 87,240 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1997.
(8) Includes 16,146 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1997.
(9) Consists of 521 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1997.
(10) Consists of 3,027,100 shares held by Kleiner Perkins Caufield & Byers VII
and 19,418 shares held by KPCB Information Sciences Zaibatsu Fund II. E.
Floyd Kvamme, a director of the Company, is a general partner of KPCB VII
Associates, the general partner of each of Kleiner Perkins Caufield &
Byers VII and KPCB Information Sciences Zaibatsu Fund II, shares voting
and dispositive power with respect to the shares held by each such
entity, and disclaims beneficial ownership of such shares in which he has
no pecuniary interest.
(11) Consists of 3,027,100 shares held by Kleiner Perkins Caufield & Byers VII
and 19,418 shares held by KPCB Information Sciences Zaibatsu Fund II.
Bernard J. Lacroute, a director of the Company, is a general partner of
KPCB VII Associates, the general partner of each of Kleiner Perkins
Caufield & Byers VII and KPCB Information Sciences Zaibatsu Fund II,
shares voting and dispositive power with respect to the shares held by
each such entity, and disclaims beneficial ownership of such shares in
which he has no pecuniary interest.
(12) Consists of 12,500 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1997.
(13) Includes 116,407 shares issuable upon exercise of stock options
exercisable within 60 days of December 31, 1997.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this Offering, the authorized capital stock of the
Company will consist of 60,000,000 shares of Common Stock, $0.001 par value,
and 2,000,000 shares of undesignated Preferred Stock, $0.001 par value.
COMMON STOCK
As of December 31, 1997, there were 11,211,172 shares of Common Stock
outstanding, held of record by 91 stockholders, and options to purchase an
aggregate of 1,204,562 shares of Common Stock were also outstanding. There
will be 13,986,172 shares of Common Stock outstanding after December 31, 1997
(assuming no exercise of the Underwriter's overallotment option, no exercise
of outstanding warrants, and no exercise of outstanding options under the
Stock Plans after December 31, 1997) after giving effect to the sale of the
shares of Common Stock to the public offered hereby.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." In the event of 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 and satisfaction of
preferential rights of any outstanding Preferred Stock. The Common Stock has
no preemptive or conversion rights or other subscription rights. The
outstanding shares of Common Stock are, and the shares of Common Stock to be
issued upon completion of this Offering will be, fully paid and non-
assessable.
PREFERRED STOCK
Effective upon the closing of this Offering, each outstanding share of
preferred stock will be converted into one share of Common Stock and
automatically retired. Thereafter, the Board of Directors is authorized to
issue up to 2,000,000 shares of 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. The issuance of preferred stock with voting and conversion
rights may adversely affect the voting power of the holders of Common Stock,
including voting rights, of the holders of Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. As of the closing of this Offering, no shares of
Preferred Stock will be outstanding and the Company currently has no plans to
issue any shares of Preferred Stock.
WARRANT
As of December 31, 1997, the Company had an outstanding exercisable warrant
to purchase 10,000 shares of Common Stock at $0.60 per share. The warrant was
exercised in full subsequent to December 31, 1997.
REGISTRATION RIGHTS
Following this Offering, the holders of 4,533,480 shares of Common Stock
(the "Registrable Securities") or their transferees will be entitled to
certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of an
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<PAGE>
agreement between the Company and the holders of the Registrable Securities.
Subject to certain limitations in the agreement, the holders of at least 50%
of the Registrable Securities may require, on two occasions beginning after
the earlier of March 21, 1998 or six months after the effective date of this
Offering, that the Company use its best efforts to register the Registrable
Securities for public resale. If the Company registers any of its Common Stock
either for its own account or for the account of other security holders, the
holders of Registrable Securities are entitled to include their shares of
Common Stock in such registration, subject to the ability of the underwriters
to limit the number of shares included in such offering. The holders of
Registrable Securities may also require the Company (not more than two times
in any twelve-month period or three times in the aggregate) to register all or
a portion of their Registrable Securities on Form S-3 when use of such form
becomes available to the Company, provided, among other limitations, that the
proposed aggregate selling price (net of any underwriters' discounts or
commissions) is at least $250,000. All registration expenses must be borne by
the Company and certain selling expenses relating to the Registrable
Securities must be borne by the Company.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
In February 1998, the Company's Board of Directors approved certain
provisions to the Company's Restated Certificate and Bylaws to provide, among
other things, that directors of the Company will be elected without the
application of cumulative voting. The Company's stockholders approved such
amendments in April 1998. Such provisions shall become effective at the first
meeting of stockholders following the annual meeting of stockholders when the
Company shall have had at least 800 stockholders. Such amendments also provide
that, after the closing of this Offering, any action required or permitted to
be taken by the stockholders of the Company may be taken only at a duly called
annual or special meeting of the stockholders and may not be effected by a
consent in writing. In addition, special meetings of the stockholders of the
Company may be called only by the Board of Directors, the Chairman of the
Board, the President of the Company or by any person or persons holding shares
representing at least 10% of the outstanding capital stock. The Company's
Restated Certificate also provides for a classified Board. See "Management--
Board Composition." These provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company. The
Bylaws also establish procedures, including advance notice procedures with
regard to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors.
The Company is subject to the provisions of Section 203 of the Delaware Law,
an anti-takeover law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. For purposes of
Section 203, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder,
and an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The foregoing provisions could have the effect of making it more difficult
for a third party to effect a change in the control of the Board of Directors.
In addition, these provisions could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, a majority of the outstanding voting stock of the
Company. See "Risk Factors--Anti-Takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe,
L.P. located at 150 Royall Street, Canton, Massachusetts, (781) 575-2000.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in
the public market could adversely affect prevailing market prices from time to
time. Furthermore, since only a limited number of shares will be available for
sale shortly after this Offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this Offering, based on the number of shares outstanding
as of December 31, 1997, the Company will have outstanding an aggregate of
13,986,172 shares of Common Stock assuming no exercise of warrants or options
to purchase Common Stock outstanding as of December 31, 1997. Of these shares,
the 2,900,000 shares sold in this Offering will be freely tradeable without
restriction or further registration under the Securities Act, unless such
shares are purchased by an existing "affiliate" of the Company as that term is
defined in Rule 144 under the Securities Act (an "Affiliate"). The remaining
11,086,172 shares of Common Stock held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares"). Restricted Shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which rules are summarized below. As a result of the contractual
restrictions described below and the provisions of Rules 144, 144(k) and 701,
additional shares will be available for sale in the public market as follows:
(i) 17,334 shares will be eligible for immediate sale on the date of this
Prospectus, (ii) 514,997 shares will be eligible for sale 90 days after the
date of this Prospectus, and (iii) 10,553,841 shares will be eligible for sale
upon expiration of lock-up agreements 180 days after the date of this
Prospectus.
All of the officers and directors and certain stockholders and optionholders
of the Company have entered into lock-up agreements generally providing that
they will not offer, pledge, sell, offer to sell, contract to sell, sell any
option or contract to purchase, purchase any option to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any of the shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, Common Stock owned by them, or enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock, for a
period of 180 days after the date of this Prospectus, without the prior
written consent of Deutsche Morgan Grenfell Inc., subject to certain limited
exceptions. Deutsche Morgan Grenfell Inc. may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to lock-up agreements. Deutsche Morgan Grenfell Inc. currently has no plans to
release any portion of the securities subject to lock-up agreements. When
determining whether or not to release shares from the lock-up agreements,
Deutsche Morgan Grenfell Inc. will consider, among other factors, the
stockholder's reasons for requesting the release, the number of shares for
which the release is being requested and market conditions at the time.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 139,862 shares immediately after
this Offering); or (ii) the average weekly trading volume of the Common Stock
on the Nasdaq National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such
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<PAGE>
sale. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed
to have been an Affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
except an Affiliate), is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144. Accordingly, unless otherwise restricted, "144(k) shares" may be
sold immediately upon the completion of this Offering
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisors prior to the date the
issuer becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), pursuant to written
compensatory benefit plans or written contracts relating to the compensation
of such persons. In addition, the SEC has indicated that Rule 701 will apply
to typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Exchange Act, along with the shares acquired
upon exercise of such options (including exercises after the date of this
Offering). Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 90
days after the date of this Prospectus, may be sold (i) by persons other than
Affiliates, subject only to the manner of sale provisions of Rule 144 and (ii)
by Affiliates, under Rule 144 without compliance with its one-year minimum
holding period requirements.
Following this Offering, the Company intends to file a registration
statement under the Securities Act covering approximately 4,254,562 shares of
Common Stock issued and outstanding, subject to outstanding options or
reserved for issuance under the Company's stock plans. See "Management--Stock
Plans." Accordingly, shares registered under such registration statement will,
subject to Rule 144 volume limitations applicable to Affiliates, be available
for sale in the open market, except to the extent that such shares are subject
to vesting restrictions with the Company or contractual restrictions described
above.
Upon completion of this Offering, the holders of approximately 4,533,480
shares of Common Stock issuable upon conversion of Preferred Stock or the
transferees, 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."
64
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Deutsche Morgan Grenfell Inc.,
BancAmerica Robertson Stephens, First Albany Corporation and Piper Jaffray
Inc. are acting as representatives (the "Representatives"), have severally
agreed, subject to the terms and conditions in the Underwriting Agreement (the
form of which will be filed as an exhibit to the Company's Registration
Statement of which this Prospectus is a part), to purchase from the Company
and the Selling Stockholders the respective number of shares of Common Stock
indicated below opposite their respective names. The Underwriters are
committed to purchase all of the shares, if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Deutsche Morgan Grenfell Inc.......................................
BancAmerica Robertson Stephens.....................................
First Albany Corporation...........................................
Piper Jaffray Inc..................................................
---------
Total.......................................................... 2,900,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions.
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow to selected
dealers (who may include the Underwriters) a concession not in excess of $
a share under the initial public offering price. The selected dealers may
reallow a concession not in excess of $ a share to other dealers and other
selling terms may be changed by the Representatives. The Common Stock is
offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject orders in whole or in part.
The Underwriters do not intend to sell any of the shares of Common Stock
offered hereby to accounts for which they exercise discretionary authority.
Pursuant to the Underwriting Agreement, the Company and the Selling
Stockholders have granted to the Underwriters an option to purchase up to
310,000 and 125,000 additional shares of Common Stock, respectively, to cover
over-allotments, if any, at the initial public offering price, less the
underwriting discount set forth on the cover page of this Prospectus. Such
option is exercisable for 30 days from the date of this Prospectus. To the
extent such option is exercised, each Underwriters will be committed, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock offered hereby. The Selling Stockholders will be obligated,
pursuant to the option, to sell such shares to the Underwriters.
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers, directors, optionholders and stockholders
of the Company have agreed not to sell or otherwise dispose of Common Stock or
convertible securities of the Company for up to 180 days after the date of the
final Prospectus without the prior consent of Deutsche Morgan Grenfell Inc.
The Company has agreed in the Underwriting Agreement that it will not,
directly or indirectly, without the prior written consent of Deutsche Morgan
Grenfell Inc., contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option,
65
<PAGE>
right or warrant to purchase, or otherwise transfer or dispose of any shares
of Common Stock or any securities convertible into or exchangeable for Common
Stock, for a period of 180 days after the date of the final Prospectus without
the consent of Deutsche Morgan Grenfell Inc., except under certain
circumstances.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the several Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
In June 1997, the Company issued 142,045 shares of the Company's Series C
Preferred Stock at a purchase price per share of $7.04 to DMG Technology
Ventures L.L.C. ("DMG Technology"), an affiliate of Deutsche Morgan Grenfell
Inc. The shares owned by DMG Technology represent less than 2% of the
outstanding capital stock of the Company before this Offering. All of such
shares were acquired from the Company as a part of an equity financing on the
same terms pursuant to which all other participants in such financing
purchased their shares. See "Certain Relationships and Related Transactions."
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Company and the Representatives. The principal factors to be
considered in determining the initial public offering price include the
information set forth in this Prospectus and otherwise available to the
Representatives; the history and the prospects for the industry in which the
Company competes; the ability of the Company's management; the prospects for
future earnings of the Company; the present state of the Company's development
and its current financial condition; the general condition of the securities
markets at the time of this Offering; and the recent market prices of, and the
demand for, publicly traded common stock of generally comparable companies.
Each of the Representatives has informed the Company that it currently intends
to make a market in the shares subsequent to the effectiveness of this
Offering, but there can be no assurance that the Representatives will take any
action to make a market in any securities of the Company.
At the request of the Company, the Underwriters have reserved for sale at
the initial public offering price to employees of the Company (other than
executive officers) a number of shares of Common Stock not to exceed five
percent of the total number of shares of Common Stock in this Offering. The
number of shares available for sale to the general public will be reduced to
the extent such employees purchase these shares.
Certain persons participating in this Offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with this Offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with this Offering when shares of Common Stock sold by
the syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq Stock Market, in the over-the-
counter market or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
66
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Venture Law Group, A Professional Corporation, Menlo Park,
California. Mark B. Weeks, a director of Venture Law Group, is the Secretary
of the Company. Certain legal matters relating to this Offering will be passed
upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. As of the date of this Prospectus, certain
directors of Venture Law Group and an investment partnership affiliated with
Venture Law Group own options to purchase an aggregate of 12,500 shares of the
Company's Common Stock and own an aggregate of 10,035 shares of Common Stock.
EXPERTS
The financial statements and schedule included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement (which term shall include any amendments thereto) on
Form S-1 under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits to
the Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and the financial statements and notes filed
as a part thereof. Statements made in this Prospectus concerning the contents
of any document referred to herein are not necessarily complete. With respect
to each such document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved. The Registration Statement, including
exhibits thereto and the financial statements and notes filed as a part
thereof, as well as such reports and other information filed with the
Commission, may be inspected without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, NY 10048, and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of all or any part thereof may be obtained from the Commission upon payment of
certain fees prescribed by the Commission. Such reports and other information
may also be inspected without charge at a Web site maintained by the
Commission. The address of such site is http://www.sec.gov.
67
<PAGE>
BRIO TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit) .................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Brio Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Brio
Technology, Inc. (a California corporation) and subsidiaries as of March 31,
1996, March 31, 1997, and December 31, 1997, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
each of the three years in the period ended March 31, 1997, and for the nine-
month period ended December 31, 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 financial position of Brio Technology, Inc. and
subsidiaries as of March 31, 1996, March 31, 1997, and December 31, 1997, and
the results of their operations and their cash flows for each of the three
years in the period ended March 31, 1997, and for the nine-month period ended
December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Jose, California
February 26, 1998 (except with
respect to the matter
discussed in Note 11, as to
which the date is April 13,
1998)
F-2
<PAGE>
BRIO TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1997 PRO FORMA
---------------- DECEMBER 31, SHAREHOLDERS'
1996 1997 1997 DEFICIT (NOTE 7)
------- ------- ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.... $ 546 $ 890 $ 1,472
Accounts receivable, net of
allowance of $249, $371 and
$619........................ 2,277 5,144 6,779
Inventories.................. 152 104 347
Prepaid expenses and other
current assets.............. 27 378 656
------- ------- --------
Total current assets..... 3,002 6,516 9,254
Property and Equipment, net.... 413 2,052 2,807
Other Assets................... 56 317 318
------- ------- --------
$ 3,471 $ 8,885 $ 12,379
======= ======= ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Current maturities of notes
payable..................... $ 1,104 $ 1,724 $ 3,140
Accounts payable............. 246 1,535 1,546
Accrued liabilities--
Payroll and related
benefits................... 428 1,318 1,239
Other....................... 65 657 781
Deferred revenue, current.... 1,528 3,061 4,618
------- ------- --------
Total current
liabilities............. 3,371 8,295 11,324
Notes Payable, net of current
maturities.................... -- 438 250
Noncurrent Deferred Revenue.... -- -- 1,311
Other Noncurrent Liabilities... -- 19 48
------- ------- --------
Total liabilities........ 3,371 8,752 12,933
------- ------- --------
Commitments and Contingencies
(Notes 5 and 9)
Shareholders' Equity (Deficit):
Convertible preferred stock,
no par value, aggregate
liquidation preference of
$15,850:
Authorized--5,625,000
shares at December 31,
1997 and pro forma
Issued and outstanding
(Series A, B and C)--
2,496,756 shares at March
31, 1996; 4,613,903 at
March 31, 1997; and
5,466,172 at December 31,
1997; no shares issued and
outstanding pro forma..... 3,818 9,811 15,655 $ --
Common stock, no par value:
Authorized--13,500,000
shares at December 31,
1997 and pro forma
Issued and outstanding--
5,021,392 shares at March
31, 1996; 5,656,910 shares
at March 31, 1997;
5,745,000 shares at
December 31, 1997; and
11,211,172 shares
outstanding pro forma..... 114 495 1,134 16,789
Notes receivable from
shareholders................ -- (314) (292) (292)
Deferred compensation........ -- -- (504) (504)
Cumulative translation
adjustment.................. -- (62) (10) (10)
Accumulated deficit.......... (3,832) (9,797) (16,537) (16,537)
------- ------- -------- --------
Total shareholders'
equity (deficit)........ 100 133 (554) $ (554)
------- ------- -------- ========
$ 3,471 $ 8,885 $ 12,379
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
BRIO TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------ -------------------
1995 1996 1997 1996 1997
------ ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.................. $2,487 $ 3,212 $10,328 $ 6,675 $13,914
Services...................... 1,025 1,315 3,058 2,034 4,646
------ ------- ------- ------- -------
Total revenues.............. 3,512 4,527 13,386 8,709 18,560
------ ------- ------- ------- -------
Cost of revenues:
License fees.................. 192 340 839 641 654
Services...................... 205 371 817 474 1,717
------ ------- ------- ------- -------
Total cost of revenues...... 397 711 1,656 1,115 2,371
------ ------- ------- ------- -------
Gross profit.................... 3,115 3,816 11,730 7,594 16,189
------ ------- ------- ------- -------
Operating expenses:
Research and development...... 934 1,555 2,447 1,619 3,860
Sales and marketing........... 1,662 4,476 13,588 8,350 16,764
General and administrative.... 849 1,014 1,685 1,094 2,079
------ ------- ------- ------- -------
Total operating expenses.... 3,445 7,045 17,720 11,063 22,703
------ ------- ------- ------- -------
Loss from operations............ (330) (3,229) (5,990) (3,469) (6,514)
------ ------- ------- ------- -------
Interest and other income
(expenses), net :
Interest income............... 6 44 93 83 60
Interest expense.............. (46) (2) (68) (40) (129)
Other expense, net............ -- (9) -- -- (157)
------ ------- ------- ------- -------
Total interest and other
income (expense), net...... (40) 33 25 43 (226)
------ ------- ------- ------- -------
Net loss........................ $ (370) $(3,196) $(5,965) $(3,426) $(6,740)
====== ======= ======= ======= =======
Basic net loss per share........ $(0.07) $ (0.64) $ (1.14) $ (0.68) $ (1.18)
====== ======= ======= ======= =======
Shares used in computing basic
net loss per share............. 5,000 5,018 5,218 5,069 5,715
====== ======= ======= ======= =======
Pro forma basic net loss per
share.......................... $ (0.63) $ (0.37) $ (0.62)
======= ======= =======
Shares used in computing pro
forma basic net loss per share. 9,479 9,213 10,898
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BRIO TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
CONVERTIBLE NOTES SHARE-
PREFERRED STOCK COMMON STOCK RECEIVABLE DEFERRED CUMULATIVE ACCUMU- HOLDERS'
----------------- ----------------- FROM COMPEN- TRANSLATION LATED EQUITY
SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS SATION ADJUSTMENT DEFICIT (DEFICIT)
--------- ------- --------- ------ ------------ -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994. -- $ -- 4,999,996 $ 101 $ -- $ -- $ -- $ (266) $ (165)
Issuance of Series A
preferred stock, net.. 2,464,331 3,768 -- -- -- -- -- -- 3,768
Issuance of common
stock for cash........ -- -- 5,036 3 -- -- -- -- 3
Net loss............... -- -- -- -- -- -- -- (370) (370)
--------- ------- --------- ------ ----- ----- ---- -------- -------
Balance, March 31, 1995. 2,464,331 3,768 5,005,032 104 -- -- -- (636) 3,236
Issuance of Series A
preferred stock, net.. 32,425 50 -- -- -- -- -- -- 50
Issuance of common
stock for cash........ -- -- 16,360 10 -- -- -- -- 10
Net loss............... -- -- -- -- -- -- -- (3,196) (3,196)
--------- ------- --------- ------ ----- ----- ---- -------- -------
Balance, March 31, 1996. 2,496,756 3,818 5,021,392 114 -- -- -- (3,832) 100
Issuance of Series B
preferred stock, net.. 2,117,147 5,993 -- -- -- -- -- -- 5,993
Exercise of common
stock options for
cash.................. -- -- 112,435 67 -- -- -- -- 67
Exercise of common
stock options for
notes receivable...... -- -- 553,500 332 (332) -- -- -- --
Repurchase of
restricted shares..... -- -- (30,417) (18) 18 -- -- -- --
Cumulative translation
adjustment............ -- -- -- -- -- -- (62) -- (62)
Net loss............... -- -- -- -- -- -- -- (5,965) (5,965)
--------- ------- --------- ------ ----- ----- ---- -------- -------
Balance, March 31, 1997. 4,613,903 9,811 5,656,910 495 (314) -- (62) (9,797) 133
Issuance of Series C
preferred stock, net.. 852,269 5,844 -- -- -- -- -- -- 5,844
Exercise of common
stock options for
cash.................. -- -- 39,869 30 -- -- -- -- 30
Exercise of common
stock options for
notes receivable...... -- -- 57,701 35 (35) -- -- -- --
Repurchase of
restricted shares..... -- -- (9,480) (6) -- -- -- -- (6)
Repayment of notes
receivable from
shareholders.......... -- -- -- -- 57 -- -- -- 57
Deferred compensation.. -- -- -- 580 -- (580) -- -- --
Amortization of
deferred compensation. -- -- -- -- -- 76 -- -- 76
Cumulative translation
adjustment............ -- -- -- -- -- 52 -- 52
Net loss............... -- -- -- -- -- -- -- (6,740) (6,740)
--------- ------- --------- ------ ----- ----- ---- -------- -------
Balance, December 31,
1997................... 5,466,172 $15,655 5,745,000 $1,134 $(292) $(504) $(10) $(16,537) $ (554)
========= ======= ========= ====== ===== ===== ==== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
BRIO TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
MARCH 31, ENDED DECEMBER 31,
------------------------ -------------------
1995 1996 1997 1996 1997
------ ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss...................... $ (370) $(3,196) $(5,965) $(3,426) $(6,740)
Adjustments to reconcile net
loss to cash used in
operating activities:
Depreciation and
amortization............... 40 140 298 189 458
Provision for returns and
doubtful accounts.......... 89 108 346 238 424
Deferred compensation
amortization............... -- -- -- -- 76
Changes in operating assets
and liabilities:
Accounts receivable....... (282) (1,375) (3,213) (1,550) (2,059)
Inventories............... (60) (51) 48 58 (243)
Prepaid expenses and other
assets................... (51) (1) (571) (512) (312)
Accounts payable and
accrued liabilities...... 357 41 2,790 1,464 85
Deferred revenue.......... 158 1,005 1,533 410 2,868
------ ------- ------- ------- -------
Cash used in operating
activities............. (119) (3,329) (4,734) (3,129) (5,443)
------ ------- ------- ------- -------
Cash flows from investing
activities:
Purchases of property and
equipment.................... (127) (380) (1,883) (1,279) (1,180)
Cash payment for DataBasics
acquisition.................. -- -- (95) -- --
------ ------- ------- ------- -------
Cash used in investing
activities............. (127) (380) (1,978) (1,279) (1,180)
------ ------- ------- ------- -------
Cash flows from financing activ-
ities:
Proceeds from notes payable... -- 1,104 2,093 680 6,564
Repayments under notes
payable...................... (473) -- (1,035) (1,035) (5,336)
Proceeds from issuance of
preferred stock, net......... 3,768 50 5,993 5,993 5,844
Proceeds from issuance of
common stock, net............ 3 10 67 67 24
Proceeds from repayments of
notes receivable from
shareholders................. -- -- -- -- 457
Issuance of note to
shareholder.................. -- -- -- -- (400)
------ ------- ------- ------- -------
Cash provided by
financing activities... 3,298 1,164 7,118 5,705 7,153
------ ------- ------- ------- -------
Net increase (decrease) in cash
and cash equivalents........... 3,052 (2,545) 406 1,297 530
Effect of exchange rate changes
on cash........................ -- -- (62) (49) 52
Cash and cash equivalents,
beginning of period............ 39 3,091 546 546 890
------ ------- ------- ------- -------
Cash and cash equivalents, end
of period...................... $3,091 $ 546 $ 890 $ 1,794 $ 1,472
====== ======= ======= ======= =======
Supplemental disclosure of cash
flow information:
Cash paid for interest........ $ 139 $ 46 $ 54 $ 47 $ 124
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION RELATING TO THE NINE MONTHS ENDED DECEMBER 31, 1996 IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS:
Brio Technology, Inc. (the "Company"), a California corporation, was
incorporated in 1989. The Company designs, develops, markets and supports
software products that enable organizations to rapidly implement enterprise
business intelligence solutions. The Company's products and services are
designed to allow organizations to rapidly deploy and effectively manage
business intelligence solutions incorporating the wide range of available
corporate data sources, including data marts, data warehouses, operational
data stores, enterprise applications and legacy applications.
The Company is subject to a number of risks associated with companies in a
similar stage of development, including negative working capital and
shareholders' deficit, rapid technological growth, dependence on key personnel
and sales force, litigation (see Note 9), potential competition from larger,
more established companies, dependence on product development, the ability to
penetrate the market with its products, and the ability to obtain adequate
financing to support its growth.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
are eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency of the Company's subsidiaries is the local currency.
Accordingly, the Company applies the current rate method to translate the
subsidiaries' financial statements into U.S. dollars. Translation adjustments
are included as a separate component of shareholders' equity (deficit) in the
accompanying consolidated financial statements. Transaction gains and losses,
which have not been material, are included in other income (expense).
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. At March 31, 1996 and
1997, and December 31, 1997, the Company held its cash in checking and money
market accounts.
F-7
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Inventories
The Company's inventories are carried at the lower of cost or market on a
first-in, first-out basis. Inventory consists principally of completed
software packages including media and documentation.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives (three to seven years) of
the assets. Leasehold improvements are depreciated over the shorter of the
term of the related lease or the estimated useful life of the asset.
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------- DECEMBER 31,
1996 1997 1997
----- ------ ------------
<S> <C> <C> <C>
Computer equipment and software..................... $ 584 $1,780 $ 2,657
Furniture and fixtures.............................. 75 638 976
Leasehold improvements.............................. 50 210 175
----- ------ -------
709 2,628 3,808
Less: Accumulated depreciation...................... (296) (576) (1,001)
----- ------ -------
$ 413 $2,052 $ 2,807
===== ====== =======
</TABLE>
Revenue Recognition
The Company's revenues are derived from two sources, license fees and
services. Services include software maintenance and support, training, and
system implementation consulting.
Revenue from license fees is recognized upon shipment of the software if
collection of the resulting receivable is probable, the fee is fixed or
determinable, and vendor-specific objective evidence exists to allocate the
total fee to all delivered and undelivered elements of the arrangement. Such
undelivered elements in these arrangements typically consist of services.
Allowances are established for potential product returns and credit losses. In
instances where payments are subject to extended payment terms, revenue is
deferred until payments become due. If an acceptance period is required,
revenue is recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.
Maintenance revenue is recognized ratably over the term of the maintenance
contract. If maintenance is included in an arrangement which includes a
license agreement, amounts related to maintenance are unbundled from the
license fee based on vendor specific objective evidence. Consulting and
training revenue is recognized when the services are performed.
Cost of revenues consists primarily of third-party fees, related personnel
and overhead allocations and overhead costs, the cost of media, documentation,
packaging and shipping related to products sold.
Deferred Revenue
Deferred revenue represents amounts received from customers under certain
license, maintenance and service agreements for which the revenue earnings
process has not been completed. In situations where the services are not
expected to be provided and revenue recognized within twelve months of the
balance sheet date, such amounts are classified as noncurrent deferred
revenue.
F-8
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
Software Development Costs
Under Statement of Financial Accounting Standards (SFAS) No. 86 "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
costs incurred in the research and development of software products are
expensed as incurred until technological feasibility has been established.
Once established, these costs would be capitalized. Amounts that could have
been capitalized under this Statement were insignificant and, therefore, no
costs have been capitalized to date.
Unaudited Interim Financial Data
The unaudited interim financial statements for the nine months ended
December 31, 1996, have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial information set forth therein, in accordance with
generally accepted accounting principles.
Computation of Basic Net Loss Per Share and Pro Forma Basic Net Loss Per
Share
Historical net loss per share has been calculated under SFAS No. 128
"Earnings Per Share." Basic net loss per share on a historical basis is
computed using the weighted average number of shares of common stock
outstanding. No diluted loss per share information has been presented in the
accompanying consolidated statements of operations since potential common
shares from conversion of preferred stock, stock options, and warrants are
antidilutive. The Company evaluated the requirements of the Securities and
Exchange Commission Staff Accounting Bulletin No. 98 (SAB 98), and concluded
that there are no nominal issuances of common stock or potential common stock
which would be required to be shown as outstanding for all periods as outlined
in SAB 98.
Pro forma basic net loss per share has been calculated assuming the
conversion of preferred stock into an equivalent number of common shares, as
if the shares had converted on the dates of their issuance.
Fair Value of Financial Instruments
The following methods and assumptions were used in estimating the fair
values of financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount approximates fair value
because of the short maturity of those instruments.
SHORT-TERM AND LONG-TERM DEBT: The carrying value of the notes payable
approximates the debts' fair market value as the rates are variable and based
on the bank's prime rate.
It is estimated that the carrying value of the Company's other financial
instruments approximated fair value at March 31, 1996 and 1997, and December
31, 1997.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 is effective for the Company's
fiscal year beginning April 1, 1998. This standard defines comprehensive
income as the changes in equity of an enterprise except those resulting from
shareholder transactions. All components of
F-9
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
comprehensive income will be required to be reported in financial statements
issued for periods beginning after the effective date of SFAS No. 130.
Management believes the adoption of SFAS No. 130 will not have a material
effect on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board also issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 is effective for the Company's fiscal year beginning April 1,
1998. SFAS No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers.
Management believes the adoption of SFAS No. 131 will not have a material
effect on the Company's financial statements.
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2 which will supersede SOP 91-1,
"Software Revenue Recognition." SOP 97-2 is effective for transactions entered
into in the Company's fiscal year beginning April 1, 1998. Management has
assessed this new statement and believes that its adoption will not have a
material effect on the Company's financial statements or on the timing of the
Company's revenue recognition, or cause changes to its revenue recognition
policies.
3. ACQUISITIONS:
On April 1, 1996, the Company purchased Brio Technology Ltd. from Management
Decisions (MD), one of the Company's distributors in the United Kingdom. The
Company paid a nominal value for the outstanding stock and operations of Brio
Technology Ltd., and the acquisition was accounted for as a purchase. No
goodwill resulted from this acquisition. Brio Technology Ltd. is now a wholly-
owned subsidiary of the Company. At March 31, 1996, the Company had a net
receivable from MD in the amount of $19,300, which is included in the
Company's accounts receivable at March 31, 1996. Sales to MD for the year
ended March 31, 1996 were $39,100.
On July 1, 1996, the Company purchased DataBasics, one of the Company's
distributors in Australia, for $95,000 in cash. The acquisition was accounted
for as a purchase and resulted in goodwill of $60,000 that is being amortized
over a five year period. DataBasics was renamed Brio Technology Pty. Ltd., and
is now a wholly-owned subsidiary of the Company. At March 31, 1996, the
Company had receivables from DataBasics in the amount of $82,000, which is
included in the Company's accounts receivable balance at March 31, 1996. Sales
to DataBasics for the year ended March 31, 1996 were $121,000.
Pro forma information related to these acquisitions has not been presented
as the prior operations of the acquired companies were immaterial.
4. SIGNIFICANT CONCENTRATIONS:
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of accounts receivable. The Company
performs periodic credit evaluations of its customers' financial condition and
generally does not require collateral.
For the year ended March 31, 1997 and the nine months ended December 31,
1997, no customer accounted for more than 10% of the Company's total revenues.
For the year ended March 31, 1996, one customer accounted for approximately
15% of the Company's total revenues. As of March 31, 1996 and 1997 and
December 31, 1997, no customer accounted for more than 10% of accounts
receivable.
F-10
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. SIGNIFICANT CONCENTRATIONS, CONTINUED:
The Company markets its products in the United States and Canada and in
other foreign countries through its domestic sales personnel and through its
foreign subsidiaries. International revenue, which consists of sales to
customers in foreign countries and sales from the Company's foreign
subsidiaries, were 9%, 14% and 19% of total revenues for the years ended March
31, 1996 and 1997 and the nine months ended December 31, 1997, respectively.
International revenues were not material in 1995.
Information about the Company's operations in different geographic locations
is shown below. International operations were not material in fiscal 1995 and
1996. Export sales from the United States to other countries were not material
for all periods.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
MARCH 31, DECEMBER 31,
1997 1997
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Total revenues:
United States.................................... $12,473 $16,552
International.................................... 1,484 2,765
Eliminations..................................... (571) (757)
------- -------
Consolidated................................... $13,386 $18,560
======= =======
Intercompany sales between geographic areas:
United States.................................... $ 571 $ 757
International.................................... -- --
------- -------
Consolidated................................... $ 571 $ 757
======= =======
Net loss:
United States.................................... $(4,356) $(5,095)
International.................................... (1,499) (1,542)
Eliminations..................................... (110) (103)
------- -------
Consolidated................................... $(5,965) $(6,740)
======= =======
Identifiable assets:
United States.................................... $ 9,638 $14,255
International.................................... 1,179 2,392
Eliminations..................................... (1,932) (4,268)
------- -------
Consolidated................................... $ 8,885 $12,379
======= =======
</TABLE>
F-11
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS:
The Company leases various facilities under operating leases which expire on
various dates through October 2003. The Company also leases office equipment
under various non-cancelable operating leases with terms which expire through
July 1998. Future minimum lease payments relating to these agreements as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1998 (Three months)................................................. $ 360
1999................................................................ 1,712
2000................................................................ 1,576
2001................................................................ 511
2002................................................................ 434
2003................................................................ 434
Thereafter.......................................................... 253
------
$5,280
======
</TABLE>
Rent expense for the years ending March 31, 1995, 1996 and 1997 was $67,300,
$260,300, and $798,000, respectively. Rent expense for the nine month periods
ended December 31, 1996 and 1997, was $564,000 and $1,397,000, respectively.
Additionally, the Company has entered into a purchase commitment to purchase
up to $600,000 of equipment for certain of its office space.
6. NOTES PAYABLE:
At December 31, 1997, the Company had a $5,000,000 accounts receivable-based
line of credit agreement and a $750,000 equipment-based line of credit
agreement with a commercial bank. Interest accrued on borrowings under the
accounts receivable line at the bank's reference rate (8.5% at December 31,
1997) and on borrowings under the equipment line at the bank's reference rate
plus 0.5% (9.0% at December 31, 1997). The accounts receivable line and the
equipment line had expiration dates of April 30, 1998 and December 1, 1999,
respectively. At December 31, 1997, $3,390,000 was outstanding under these
arrangements of which $3,140,000 was classified as current and $250,000 as
noncurrent, due in fiscal 1999. Borrowings under the accounts receivable line
of credit were limited to 70% of eligible accounts receivable. Borrowings
under both agreements were secured by inventory, accounts receivable, property
and equipment, and intangible assets of the Company.
In January 1998, the Company entered into a new line of credit agreement
with another bank and used proceeds from borrowings under the new line to pay
off balances owed under the old lines of credit discussed above. The old lines
of credit were cancelled. The new line of credit provides for up to $10.0
million in borrowings. The Company can borrow up to 80% of eligible accounts
receivable against this line, in addition to up to $1.5 million in non-formula
availability. The line of credit is collateralized by substantially all of the
Company's assets, including the Company's intellectual property, accounts
receivable, and property and equipment. Borrowings under the line bear
interest at the bank's prime rate. This line of credit requires the Company to
comply with various financial covenants, including quarterly requirements to
maintain a minimum quick ratio, a minimum tangible net worth, and minimum
results of operations (the results of operation covenant is eliminated in the
event of an initial public offering). The line expires on December 1, 1999.
F-12
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. PREFERRED STOCK:
As of December 31, 1997, the Company had issued 2,496,756 shares of Series A
Convertible Preferred Stock (Series A), 2,117,147 shares of Series B
Convertible Preferred Stock (Series B) and 852,269 shares of Series C
Convertible Preferred Stock (Series C).
The rights, restrictions and preferences of the Series A, Series B and
Series C Convertible Preferred Stock are as follows:
. Each share of Series A, Series B and Series C is convertible, at the
right and option of the shareholder, into one share of common stock. The
conversion ratio is subject to adjustment in the event of stock splits,
stock dividends, or the issuance of equity securities with a per share
price lower than that of the Series A, Series B and Series C.
. Each shareholder of Series A, Series B and Series C is entitled to the
number of votes equal to the number of shares of common stock into which
the preferred stock can be converted.
. Each share of Series A, Series B and Series C will automatically convert
into common stock in the event of the closing of an underwritten public
offering of the Company's common stock from which the Company receives
proceeds in excess of $10,000,000 and for which the offering price is not
less than $14.08 per share of common stock (see Note 11).
. Each shareholder of Series A, Series B and Series C is entitled to
receive annual dividends at the rates of $.14, $.28 and $.70 per share,
respectively, when and if declared by the Board of Directors, prior to
payment of dividends on common stock. Dividends are non-cumulative, and
no dividends have been declared to date.
. On June 30, 2002 or thereafter, the Company may redeem in whole or in
part the Series A, Series B and Series C shares by paying, in cash,
$1.542, $2.834 and $7.04 per share, respectively, plus any accrued but
unpaid dividends. Such redemption may occur prior to June 30, 2002, with
the written consent of 66 2/3% of the outstanding Series A, Series B and
Series C shareholders.
. In the event of any liquidation, dissolution, or winding up of the
Company, either voluntary or involuntary, each shareholder of Series A,
Series B and Series C shall be entitled to receive, prior and in
preference to any distribution of any assets or surplus funds to the
holders of common stock, an amount equal to $1.542, $2.834 and $7.04 per
share, respectively. If the full amount is not available for
distribution, amounts shall be paid out in proportion to the aggregate
preferential amounts owed.
Pro Forma Shareholders' Deficit
In February 1998, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with the proposed Initial Public
Offering (IPO). If the offering is consummated under the terms presently
anticipated, all of the currently outstanding convertible preferred stock will
convert to 5,466,172 shares of common stock upon the closing of the IPO. The
effect of the conversion has been reflected as unaudited pro forma
shareholders' deficit in the accompanying consolidated balance sheet as of
December 31, 1997.
F-13
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK:
As of December 31, 1997, 150,000 shares of common stock issued to certain
founders of the Company were subject to the option of the Company to
repurchase such shares at original cost. Of the shares subject to the
repurchase option, 50,000 shares per month will be released from such option.
As of December 31, 1997, the Company had reserved shares of its common stock
for future issuance as follows:
<TABLE>
<S> <C>
Conversion of Series A convertible preferred stock............... 2,496,756
Conversion of Series B convertible preferred stock............... 2,117,147
Conversion of Series C convertible preferred stock............... 852,269
Exercise of outstanding warrants................................. 10,000
Exercise of stock options........................................ 1,334,791
---------
Total shares reserved.......................................... 6,810,963
=========
</TABLE>
During fiscal 1997 and the nine months ended December 31, 1997, certain
employees funded the purchase of common stock under the 1992 Stock Option Plan
with fully secured notes payable to the Company.
Stock Rights and Warrants
In connection with the issuance of a promissory note in 1992, the Company
issued warrants to the noteholder to purchase up to 128,205 shares of common
stock at $1.542 per share. The warrants expired, unexercised, on April 17,
1997.
Under the terms of an agreement with a customer, the Company granted the
customer the right to purchase up to $1,300,000 of equity securities of the
same type and price of the securities issued to third parties in the event the
Company issues at least $500,000 of such securities. This right expires upon
the closing of the first firm commitment underwritten offering of the
Company's securities to the public.
In connection with the purchase of Brio Technology Ltd. from MD in 1996, the
Company granted MD warrants to purchase 10,000 shares of the Company's common
stock at $.60 per share. The value of the warrants was not material. The
warrants expire on the earlier of the date of the closing of an initial public
offering of the Company's common stock, the sale of substantially all of the
Company's assets or the sale of more than 50% of the Company's outstanding
common stock, or December 9, 2001.
Stock Options
Through December 31, 1997, the Company has reserved 2,079,795 shares of
common stock for issuance under the 1992 Stock Option Plan (the "Plan"). Under
the Plan, the Board of Directors may grant options to purchase the Company's
common stock to employees, directors, or consultants at an exercise price of
not less than 100% of the fair value of the Company's common stock, as
determined by the Board of Directors. Any options granted must be granted by
the tenth anniversary of the effective date of the Plan. Options issued under
the Plan generally have a term of five years from the date of grant and
generally vest ratably over four years.
F-14
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK, CONTINUED:
Option activity under the Plan is as follows:
<TABLE>
<CAPTION>
SHARES
AVAILABLE OUTSTANDING WEIGHTED AVERAGE
FOR GRANT OPTIONS EXERCISE PRICE
--------- ----------- ----------------
<S> <C> <C> <C>
Outstanding--March 31, 1995........ 1,304,426 370,333 $0.60
Options granted.................. (372,125) 372,125 0.60
Options exercised................ -- (16,360) 0.60
Options canceled................. 59,051 (59,051) 0.60
--------- --------- -----
Outstanding--March 31, 1996........ 991,352 667,047 0.60
Authorized....................... 400,000 -- --
Restricted shares repurchased.... 30,417 -- --
Options granted.................. (939,521) 939,521 0.72
Options exercised................ -- (665,935) 0.60
Options canceled................. 93,594 (93,594) 0.62
--------- --------- -----
Outstanding--March 31, 1997........ 575,842 847,039 0.74
Restricted shares repurchased.... 9,480 -- --
Options granted.................. (667,747) 667,747 2.68
Options exercised................ -- (97,570) 0.67
Options canceled................. 212,654 (212,654) 0.86
--------- --------- -----
Outstanding--December 31, 1997..... 130,229 1,204,562 $1.79
========= ========= =====
</TABLE>
Certain unvested options have been exercised and are subject to repurchase by
the Company until such shares vest. As of December 31, 1997, 174,021 shares
were subject to the right of repurchase at an exercise price of $0.60 per
share.
A summary of options outstanding and exercisable as of December 31, 1997, is
as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
----------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
RANGE OF AVERAGE WEIGHTED WEIGHTED
CONTRACTUAL NUMBER CONTRACTUAL LIFE AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.60 426,618 3.59 $0.60 168,397 $0.60
1.20 417,938 4.32 1.20 50,465 1.20
2.00 171,950 4.63 2.00 771 2.00
3.00 24,718 4.81 3.00 1,426 3.00
6.00 163,338 4.90 6.00 388 6.00
------- --------- ---- ----- ------- -----
$0.60 -
$6.00 1,204,562 4.19 $1.79 221,447 $0.76
======= ========= ==== ===== ======= =====
</TABLE>
F-15
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK, CONTINUED:
The Company accounts for its Plan under APB Opinion No. 25, "Accounting for
Stock Issued to Employees." Had compensation expense for the Plan been
determined consistent with SFAS No. 123, "Accounting for Stock Based
Compensation," the Company's net loss would have increased to the following
pro forma amounts (in thousands, except per share information):
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------- NINE MONTHS ENDED
1996 1997 DECEMBER 31, 1997
---------- ---------- -----------------
<S> <C> <C> <C>
Net loss:
As reported......................... $ (3,196) $ (5,965) $(6,740)
Pro forma........................... $ (3,198) $ (5,988) $(6,840)
Basic net loss per share:
As reported......................... $ (0.64) $ (1.14) $ (1.18)
Pro forma........................... $ (0.64) $ (1.15) $ (1.20)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to April 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The weighted average grant date fair value of options granted during fiscal
1996 and 1997 and the nine month period ended December 31, 1997, was $0.08,
$0.12 and $2.06, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions used for grants in all periods: risk-free
interest rates ranging from 5.2 to 6.7 percent; expected dividend yields of
zero percent; expected lives of 3 to 4 years from grant date; and expected
volatility of 0.01 percent.
Deferred Compensation
In connection with the grant of certain stock options to employees during
the nine months ended December 31, 1997, the Company recorded deferred
compensation of $580,000, representing the difference between the deemed value
of the common stock for accounting purposes and the option exercise price of
such options at the date of grant. Such amount is presented as a reduction of
shareholder's equity and amortized ratably over the vesting period of the
applicable options. Approximately $76,000 was expensed during the nine months
ended December 31, 1997, and the balance will be expensed ratably over the
next four years as the options vest. Compensation expense is decreased in the
period of forfeiture for any accrued but unvested compensation arising from
the early termination of an option holder's services. No compensation expense
related to any other periods presented has been recorded.
1998 Stock Option Plan
The Company's 1998 Stock Option Plan (the "1998 Plan") was adopted by the
Company's Board of Directors in February 1998, subject to approval by the
stockholders. A total of 2,250,000 shares of common stock have been reserved
for issuance under the 1998 Plan. The shares reserved for issuance under the
1998 Plan increase annually on the first day of the Company's fiscal year
through April 1, 2003, by the lesser of 600,000 or three percent of the shares
outstanding on the last day of the immediately preceding fiscal year. Under
the 1998 Plan, the Board of Directors may grant options to purchase the
Company's common stock to employees, directors or consultants at an exercise
price of not less than 100% of the fair value
F-16
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. COMMON STOCK, CONTINUED:
of the Company's common stock on the date of grant, in the case of incentive
stock options, and not less than 85% of the fair value of the Company's common
stock on the date of grant, in the case of nonqualified stock options. Options
must all be granted by the tenth anniversary of the effective date of the 1998
Plan. Options issued under the 1998 Plan will generally have a term of 10
years from the date of grant and will generally vest ratably over four years.
1998 Employee Stock Purchase Plan
The Company's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors in February 1998, subject to
approval by the stockholders. A total of 500,000 shares of common stock has
been reserved for issuance under the Purchase Plan. The shares reserved for
issuance under the Purchase Plan increase annually on the first day of the
Company's fiscal year through April 1, 2000, by the lesser of 300,000 or two
percent of the shares outstanding on the last day of the immediately preceding
fiscal year. The Purchase Plan permits eligible employees to purchase common
stock at 85% of the lower of the fair market value of the Company's common
stock on the first day or the last day of each six-month offering period.
1998 Directors' Stock Option Plan
The Company's 1998 Directors' Stock Option Plan (the "Directors' Plan") was
adopted by the Company's Board of Directors in February 1998, subject to
approval by the stockholders. A total of 300,000 shares of common stock has
been reserved for issuance under the Directors' Plan. The Directors' Plan
provides for the initial grant of nonqualified stock options to purchase
20,000 shares of common stock on the date on which the optionee first becomes
a nonemployee director of the Company subsequent to the initial public
offering (the "First Option"), and an additional option to purchase 5,000
shares of common stock on the next anniversary to existing and future
nonemployee directors of the Company if, on such date, the director has served
on the board for at least six months (the "Subsequent Option"). The exercise
price per share of all options granted under the Directors' Plan will equal
the fair market value of a share of the Company's common stock on the date of
grant of the option. Options issued under the Directors' Plan will have a term
of 10 years from the date of grant; the First Option shall become exercisable
in installments of 25% of the total number of shares subject to the First
Option on each of the first, second, third and fourth anniversaries of the
date of grant of the First Option; each Subsequent Option shall become
exercisable in full on the day before the first anniversary of the date of
grant of that Subsequent Option.
F-17
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. CONTINGENCIES:
On January 20, 1997, Business Objects, S.A. filed a complaint (the
"Complaint") against the Company in the U.S. District Court for the Northern
District of California in San Jose, California alleging that certain of the
Company's products infringe U.S. Patent No. 5,555,403. The Complaint seeks
injunctive relief and unspecified monetary damages. In April 1997, the Company
filed an answer and affirmative defenses to the Complaint, denying certain of
the allegations in the Complaint, and asserting a counterclaim requesting
declaratory relief that the Company is not infringing the patent and that the
patent is invalid and unenforceable. In December 1997, venue for the case was
changed to the Northern District of California in San Francisco, California.
The Company believes that it has meritorious defenses to the claims made in
the Complaint on both invalidity and non-infringement grounds, and intends to
defend the suit vigorously. The Company and Business Objects, S.A. are
currently conducting discovery and are awaiting a date for the claims
construction hearing. The pending litigation could result in substantial
expense to the Company and significant diversion of effort by the Company's
technical and management personnel. Litigation is subject to inherent
uncertainties, especially in cases such as this where complex technical issues
must be decided. The Company's defense of this litigation, regardless of the
merits of the Complaint or lack thereof, could be time-consuming or costly, or
divert the attention of technical and management personnel, which could have a
material adverse effect upon the Company's business, operating results and
financial condition. There can be no assurance that the Company will prevail
in the litigation given the complex technical issues and inherent
uncertainties in patent litigation. In the event the Company is unsuccessful
in the litigation, the Company may be required to pay damages to Business
Objects, S.A. and could be prohibited from marketing certain of its products
without a license, which license may not be available on acceptable terms. If
the Company is unable to obtain such a license, the Company may be required to
license a substitute technology or redesign to avoid infringement, in which
case the Company's business, operating results and financial condition could
be materially adversely affected. The Company is unable to estimate the amount
of loss, if any, which may be incurred as a result of the Complaint.
10. INCOME TAXES:
The Company accounts for income taxes using an asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
expected future tax
consequences of events which have been recognized in the Company's financial
statements. Deferred tax assets and liabilities are determined using the
current applicable enacted tax rate and provisions of the enacted tax law.
Until March 23, 1995, the Company had elected to be treated as an S
corporation under the provisions of the Internal Revenue Code; therefore, the
income and loss of the Company was reported and taxed in the shareholders'
individual income tax returns. Thus, no provision for income taxes was
recorded by the Company. On March 23, 1995, in connection with the issuance of
Series A Preferred Stock, the Company's S corporation status was terminated
and the Company became a taxable entity.
F-18
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES, CONTINUED:
The Company had a net deferred tax asset at March 31, 1996 and 1997, and
December 31, 1997 as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, DECEMBER 31,
1996 1997 1997
--------- --------- ------------
<S> <C> <C> <C>
Allowance for sales returns and doubtful
accounts............................... $ 102 $ 152 $ 256
Accumulated depreciation................ (33) (92) (143)
Accrued expenses and other.............. 135 1,699 1,019
Federal and state credits............... 34 103 269
Capitalized research and development.... -- 161 246
Net operating losses.................... 1,119 2,003 2,979
------- ------- ------
1,357 4,026 4,626
Valuation allowance..................... (1,357) (4,026) (4,626)
------- ------- ------
Net deferred tax asset.................. $ -- $ -- $ --
======= ======= ======
</TABLE>
At December 31, 1997, the Company had Federal and state net operating loss
carryforwards of $8.0 million and $3.0 million, respectively, which expire at
various dates through 2012. The Company believes that, based on a number of
factors, there is sufficient uncertainty regarding the reliability of
carryforwards and credits that a full valuation allowance has been recorded
against the net deferred tax asset. These factors include a history of
operating losses, recent increases in expense levels to support the Company's
growth, the competitive nature of the Company's market and the lack of
predictability of revenue. Management will continue to assess the reliability
of the tax benefits available to the Company based on actual and forecasted
operating results. The Internal Revenue Code contains provisions which may
limit the net operating loss and research and development credit carryforwards
to be used in any given year upon the occurrence of certain events, including
a significant change in ownership.
11. SUBSEQUENT EVENT
In April 1998, the Company was reincorporated via a merger with a newly-
formed Delaware corporation in connection with the Company's proposed IPO.
Also, the shareholders approved a one-for-two reverse stock split, the 1998
Stock Option Plan, the 1998 Employee Stock Purchase Plan and the 1998
Directors' Stock Option Plan. All common, preferred, and per share amounts
have been adjusted retroactively to give effect to the reverse stock split. In
connection with the reincorporation, the automatic conversion price for the
Series A, Series B, and Series C Preferred Stock has been reduced from $14.08,
as indicated in Note 7 above, to $7.00 per share.
F-19
<PAGE>
[DESCRIPTION OF INSIDE BACK COVER]
The back cover has a text box stretching across the entire bottom of the
page. In the text box is the phrase "Unleashing the Power of Data" followed by
a trademark symbol. Above this box, the page is divided horizontally into two
halves. The left half is darker and contains the silhouette of a planet with a
sun backlighting the planet and shining through from behind it. "Brio
Technology" lies over the graphic. The right half of the page has the phrase
"Our Mission" centered horizontally on the page and offset to the right, with
a line stretching under the phrase and off to the left. Below this phrase is
the mission statement:
Deliver instant insight into information to any user, anywhere, anytime with
the best business intelligence software for the enterprise.
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................................................... 3
The Company ........................................................... 4
Risk Factors .......................................................... 5
Use of Proceeds ....................................................... 17
Dividend Policy ....................................................... 17
Capitalization ........................................................ 18
Dilution .............................................................. 19
Selected Consolidated Financial Data .................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations ........................................................ 21
Business .............................................................. 33
Management............................................................. 47
Certain Relationships and Related Transactions ........................ 57
Principal and Selling Stockholders .................................... 59
Description of Capital Stock .......................................... 61
Shares Eligible for Future Sale ....................................... 63
Underwriting .......................................................... 65
Legal Matters ......................................................... 67
Experts ............................................................... 67
Additional Information ................................................ 67
Index to Financial Statements.......................................... F-1
</TABLE>
UNTIL , 1998 (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 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.
- -------------------------------------------------------------------------------
[LOGO OF BRIO TECHNOLOGY]
2,900,000 SHARES
COMMON STOCK
DEUTSCHE MORGAN GRENFELL
BANCAMERICA ROBERTSON STEPHENS
FIRST ALBANY CORPORATION
PIPER JAFFRAY INC.
PROSPECTUS
, 1998
<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 fee and the Nasdaq
National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee................................................ $9,839
NASD filing fee..................................................... 3,835
Nasdaq National Market listing fee.................................. 50,000
Printing and engraving expenses..................................... 200,000
Legal fees and expenses............................................. 350,000
Accounting fees and expenses........................................ 200,000
Blue Sky qualification fees and expenses............................ 10,000
Transfer Agent, Registrar and Custodial fees........................ 10,000
Travel expenses..................................................... 50,000
Miscellaneous fees and expenses..................................... 116,326
----------
Total............................................................. $1,000,000
==========
</TABLE>
- --------
* To be disclosed by amendment.
The Registrant intends to pay all expenses of registration, issuance and
distribution with respect to the securities being offered for the account of
the Selling Stockholders, except for Underwriter's discounts and commissions
and stock transfer taxes.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity 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 of the Company's Certificate of
Incorporation (Exhibit 3.2 hereto) and Article VI of the Company's Bylaws
(Exhibit 3.3 hereto) provide for indemnification of the Company's directors,
officers, employees and other agents to the maximum extent permitted by
Delaware Law. In addition, the Company has entered into Indemnification
Agreements (Exhibit 10.1 hereto) with its officers and directors. The
Underwriting Agreement (Exhibit 1.1) also provides for cross-indemnification
among the Company, and the Underwriters with respect to certain matters,
including matters arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 31, 1995, the Company has sold and issued the following
securities:
1. In March 1995, the Company issued and sold, pursuant to a Series A
Preferred Stock Purchase Agreement, an aggregate of 2,496,756 shares of its
Series A Preferred Stock convertible into 2,496,756 shares of Common Stock
at a purchase price of $1.542 per share for an aggregate offering price of
$3,849,996.21.
2. In June 1996, the Company issued and sold, pursuant to a Series B Preferred
Stock Purchase Agreement, an aggregate of 2,117,147 shares of its Series B
Preferred Stock
II-1
<PAGE>
convertible into 2,117,146 shares of Common Stock at a purchase price of
$2.834 per share for an aggregate offering price of $5,999,991.76.
3. In April 1996, the Company issued and sold a warrant to purchase an
aggregate of 10,000 shares of its Common Stock an exercise price of $0.60
per share to Management Decisions Limited.
4. In June 1997, the Company issued and sold, pursuant to a Series C Preferred
Stock Purchase Agreement, an aggregate of 852,269 shares of its Series C
Preferred Stock convertible into 852,269 shares of Common Stock at a
purchase price of $7.04 per share for an aggregate offering price of
$5,999,973.76.
5. From January 31, 1995 through January 31, 1998, the Company granted options
under the 1992 Stock Option Plan to purchase an aggregate of 1,990,493
shares of Common Stock at exercise prices ranging from $0.60 to $8.00 per
share to 276 employees, directors and consultants.
6. From January 31, 1995 through January 31, 1998, an aggregate of 786,129
shares of Common Stock were issued pursuant to option exercises at exercise
prices ranging from $0.60 to $2.00 per share to 59 employees, directors and
consultants.
The issuances of the securities in Items 1, 2, 3 and 4 above were deemed to
be exempt from registration under the Act in reliance on Section 4(2) of such
Act. The issuances of the options and Common Stock issued upon exercise of
options in Items 5 and 6 above were deemed exempt from registration under the
Act in reliance upon Rule 701 promulgated under the Act. The recipients of
securities in each 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, options and warrants issued in such transactions. All recipients
had adequate access, through their relationships with the Company, to
information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of the Company.*
3.2 Form of Amended and Restated Certificate of Incorporation of the
Company to be effective upon the closing of the Offering.
3.3 Bylaws of the Company.
4.1 Specimen Stock Certificate.*
4.2 Amended and Restated Rights Agreement dated as of June 27, 1997 between
the Company and the individuals and entities listed in the signature
pages thereto, as amended effective February 27, 1998.
5.1 Opinion of Venture Law Group regarding the legality of the Common Stock
being registered.*
10.1 Form of Indemnification Agreement between the Company and each of its
Officers and Directors.
10.2 Loan and Security Agreement dated December 30, 1997 between the Company
and Silicon Valley Bank.
10.3 Sublease dated February 1997 between the Company and KPMG Peat Marwick
LLP.
10.4 Lease Agreement dated June 27, 1996 between the Company and the
Arrillaga Family Trust.
10.5 Employment Agreement dated July 15, 1996 between the Company and Robert
Currie.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.6 Employment Agreement dated July 21, 1997 between the Company and Karen
Willem.
10.7 Employment Agreement dated June 30, 1994 between the Company and Yorgen
Edholm.
10.8 1992 Stock Option Plan.
10.9 1998 Stock Option Plan.
10.10 1998 Directors' Stock Option Plan.
10.11 1998 Employee Stock Purchase Plan.
21.1 List of Subsidiaries.
23.1 Consent of Independent Public Accountants.*
23.2 Consent of Counsel (included in Exhibit 5.1).*
24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
*Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Report of Independent Public Accountants on Schedule S-1
Schedule II--Valuation and Qualifying Accounts S-2
</TABLE>
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 undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing, as 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.
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 foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The Securities 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-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PALO
ALTO, STATE OF CALIFORNIA ON APRIL 16, 1998.
Brio Technology, Inc.
/s/ Karen J. Willem
By: _________________________________
KAREN J. WILLEM
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
Yorgen H. Edholm* President, Chief April 16, 1998
- ------------------------------------- Executive Officer
YORGEN H. EDHOLM and Chairman of the
Board of Directors
(Principal Executive
Officer)
/s/ Karen J. Willem Chief Financial April 16, 1998
- ------------------------------------- Officer (Principal
KAREN J. WILLEM Financial and
Accounting Officer)
Katherine Glassey* Director April 16, 1998
- -------------------------------------
KATHERINE GLASSEY
E. Floyd Kvamme* Director April 16, 1998
- -------------------------------------
E. FLOYD KVAMME
Bernard J. Lacroute* Director April 16, 1998
- -------------------------------------
BERNARD J. LACROUTE
Norman Vincent* Director April 16, 1998
- -------------------------------------
NORMAN VINCENT
*By: /s/ Karen J. Willem
---------------------------------
KAREN J. WILLEM, ATTORNEY-IN-FACT
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Shareholders of Brio Technology, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Brio Technology, Inc. and
subsidiaries included in this Registration Statement and have issued our
report thereon dated February 26, 1998. Our audits were made for the purpose
of forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the index above is the responsibility of the Company's
management and is presented for the purpose of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
February 26, 1998
S-1
<PAGE>
BRIO TECHNOLOGY, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------ ---------- ---------- ---------- ---------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ------------------------------------ ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended March 31, 1995:
Allowance for returns and doubtful
accounts........................... $ 52,000 $ 89,000 $ -- $141,000
Year ended March 31, 1996:
Allowance for returns and doubtful
accounts........................... $141,000 $108,000 $ -- $249,000
Year ended March 31, 1997:
Allowance for returns and doubtful
accounts........................... $249,000 $346,000 $224,000 $371,000
Nine-Month Period Ended December 31,
1997:
Allowance for returns and doubtful
accounts........................... $371,000 $424,000 $176,000 $619,000
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Amended and Restated Certificate of Incorporation of the Company.*
3.2 Form of Amended and Restated Certificate of Incorporation of the
Company to be effective upon the closing of the Offering.
3.3 Bylaws of the Company.
4.1 Specimen Stock Certificate.*
4.2 Amended and Restated Rights Agreement dated as of June 27, 1997 between
the Company and the individuals and entities listed in the signature
pages thereto, as amended effective February 27, 1998.
5.1 Opinion of Venture Law Group regarding the legality of the Common Stock
being registered.*
10.1 Form of Indemnification Agreement between the Company and each of its
Officers and Directors.
10.2 Loan and Security Agreement dated December 30, 1997 between the Company
and Silicon Valley Bank.
10.3 Sublease dated February 1997 between the Company and KPMG Peat Marwick
LLP.
10.4 Lease Agreement dated June 27, 1996 between the Company and the
Arrillaga Family Trust.
10.5 Employment Agreement dated July 15, 1996 between the Company and Robert
Currie.
10.6 Employment Agreement dated July 21, 1997 between the Company and Karen
Willem.
10.7 Employment Agreement dated June 30, 1994 between the Company and Yorgen
Edholm.
10.8 1992 Stock Option Plan.
10.9 1998 Stock Option Plan.
10.10 1998 Directors' Stock Option Plan.
10.11 1998 Employee Stock Purchase Plan.
21.1 List of Subsidiaries.
23.1 Consent of Independent Public Accountants.*
23.2 Consent of Counsel (included in Exhibit 5.1).*
24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
*Filed herewith.
<PAGE>
EXHIBIT 1.1
BRIO TECHNOLOGY, INC.
_________ SHARES
COMMON STOCK, PAR VALUE $0.001 PER SHARE
UNDERWRITING AGREEMENT
Dated April ____, 1998
<PAGE>
BRIO TECHNOLOGY, INC.
April __, 1998
2,900,000 SHARES COMMON STOCK
(PLUS AN OPTION TO PURCHASE UP TO
435,000 ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS)
UNDERWRITING AGREEMENT
DEUTSCHE MORGAN GRENFELL INC.
BANCAMERICA ROBERTSON STEPHENS
FIRST ALBANY CORPORATION
PIPER JAFFRAY INC.
As Representatives of the several Underwriters
c/o Deutsche Morgan Grenfell Inc.
31 West 52nd Street
New York, New York 10019
Dear Sirs and Mesdames:
Brio Technology, Inc., a Delaware corporation (the "Company"), and the
persons named in Schedule 2 hereto (the "Selling Stockholders") hereby confirm
their agreement with the several underwriters named in Schedule 1 hereto (the
"Underwriters"), for whom you have been duly authorized to act as
representatives (the firms acting in such capacities, the "Representatives"), as
set forth below. If you are the only Underwriters, all references herein to the
Representatives shall be deemed to be references to the Underwriters.
SECTION 1. UNDERWRITING. Subject to the terms and conditions contained herein:
------------
(a) The Company proposes to issue and sell 2,775,000 shares of common
stock, par value $0.001 per share (the "Common Stock"), of the Company, and the
Selling Stockholders propose to sell 125,000 shares of Common Stock (said shares
to be issued and sold by the Company and shares to be sold by the Selling
Stockholders collectively, the "Firm Shares") to the several Underwriters. The
Company also proposes to issue and sell not more than 310,000 additional shares
of Common Stock, and the Selling Stockholders also propose to sell not more than
125,000 additional shares of Common Stock (collectively, the "Option Shares"
and, together with the Firm Shares, the "Shares") to the several Underwriters if
requested by the Representatives as provided in Section 2(b) hereof.
(b) Upon your authorization of the release of the Firm Shares, the
Underwriters propose to make a public offering (the "Offering") of the Firm
Shares upon the terms set forth in the Prospectus (as defined below) as soon
after the Registration Statement (as defined below) and this Agreement have
become effective as in the Representatives' sole judgment is advisable. As used
in this Agreement, the term "Original Registration
-1-
<PAGE>
Statement" means the registration statement (File No. 333-47263) initially
filed with the Securities and Exchange Commission (the "Commission") relating
to the Shares, as amended at the time when it was or is declared effective,
including all financial schedules and exhibits thereto and including any
information omitted therefrom pursuant to Rule 430A under the Securities Act
of 1933, as amended (the "Securities Act"), and included in the Prospectus;
the term "Rule 462(b) Registration Statement" means any registration statement
filed with the Commission pursuant to Rule 462(b) under the Securities Act
(including the Registration Statement and any Preliminary Prospectus (as
defined below) or Prospectus incorporated therein at the time such
Registration Statement becomes effective); the term "Registration Statement"
includes both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each
prospectus subject to completion filed with the Original Registration
Statement or any amendment thereto (including the prospectus subject to
completion, if any, included in the Original Registration Statement or any
amendment thereto at the time it was or is declared effective); and the term
"Prospectus" means:
(i) if the Company relies on Rule 434 under the Securities Act, the
Term Sheet (as defined below) relating to the Shares that is first filed
pursuant to Rule 424(b)(7) under the Securities Act, together with the
Preliminary Prospectus identified therein that such Term Sheet supplements;
(ii) if the Company does not rely on Rule 434 under the Securities
Act, the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Securities Act;
(iii) if the Company does not rely on Rule 434 under the Securities
Act and if no prospectus is required to be filed pursuant to Rule 424(b) under
the Securities Act, the prospectus included in the Registration Statement; or
(iv) for purposes of the representations and warranties contained in
Section 5 hereof, if the prospectus is not in existence, the most recent
Preliminary Prospectus;
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Securities Act. Any reference herein to the "date" of a
Prospectus that includes a Term Sheet shall mean the date of such Term Sheet.
SECTION 2. PURCHASE AND CLOSING.
--------------------
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell, and the Selling Stockholders
propose to sell, to each of the Underwriters, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company and the Selling
Stockholders, at a purchase price of $___ per Share (the "Purchase Price"), the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule 1 hereto. Firm Shares shall be registered by ______________ in the
name of Cede & Co. ("Cede & Co.") (the nominee of the Depository Trust Company
("DTC")), and credited to the accounts of such of its participants as the
Representatives shall request, upon notice to the Company and the Selling
Stockholders at least 48 hours prior to the First Closing Date (as defined
below), with any transfer taxes payable in connection with the transfer of the
Firm Shares to the Underwriters duly paid, against payment by or on behalf of
the Underwriters to the account of the Company and the Selling Stockholders of
the aggregate Purchase Price therefor by wire transfer
-2-
<PAGE>
in immediately available funds. Delivery or registry of and payment for the
Firm Shares shall be made at the offices of Venture Law Group, 2800 Sand Hill
Road, Menlo Park, California at 9:30 A.M., New York City time, on May
____,1998 (the [third or fourth] full business day following the date of this
Agreement), or at such other place, time or date as the Representatives, the
Company and the Selling Stockholders may agree upon. Such time and date of
delivery against payment are herein referred to as the "First Closing Date,"
and the implementation of all the actions described in this Section 2(a) is
herein referred to as the "First Closing."
(b) For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Shares as contemplated by the Prospectus, the
Company and the Selling Stockholders hereby grant to the several Underwriters an
option to purchase, severally and not jointly, the Option Shares. The purchase
price to be paid for any Option Shares shall be the same as the Purchase Price
for the Firm Shares set forth above in Section 2(a). The option granted hereby
may be exercised as to all or any part of the Option Shares from time to time
within thirty days after the date of the Prospectus (or, if such 30th day shall
be a Saturday or Sunday or a holiday, on the next business day thereafter when
the New York Stock Exchange and The Nasdaq Stock Market Inc.'s National Market
(the "Nasdaq National Market") is open for trading). The Underwriters shall not
be under any obligation to purchase any of the Option Shares prior to the
exercise of such option. The Representatives may from time to time exercise the
option granted hereby by giving notice in writing or by telephone (confirmed in
writing) to the Company and the Selling Stockholders setting forth the aggregate
number of Option Shares as to which the several Underwriters are then exercising
the option and the date and time for delivery or registry of and payment for
such Option Shares. Any such date of delivery or registry shall be determined
by the Representatives but shall not be earlier than two business days or later
than five business days after such exercise of the option and, in any event,
shall not be earlier than the First Closing Date. The time and date set forth
in such notice, or such other time or date as the Representatives, the Company
and the Selling Stockholders may agree upon or as the Representatives may
determine pursuant to Section 2(a) hereof, is herein called an "Option Closing
Date" with respect to such Option Shares, and the implementation of all the
actions described in this Section 2(b) is herein referred to as the "Option
Closing." As used in this Agreement, the term "Closing Date" means either the
First Closing Date or any Option Closing Date, as applicable, and the term
"Closing" means either the First Closing or any Option Closing, as applicable.
If the option is exercised as to all or any portion of the Option Shares, then
either one or more certificates in definitive form for such Option Shares shall
be delivered or, if such Option Shares are to be held through DTC, such Option
Shares shall be registered and credited, on the related Option Closing Date in
the same manner, and upon the same terms and conditions, set forth in Section
2(a), except that reference therein to the Firm Shares and the First Closing
Date shall be deemed, for purposes of this paragraph (b), to refer to such
Option Shares and Option Closing Date, respectively. Upon exercise of the
option as provided herein, the Company and the Selling Stockholders shall become
obligated to sell to each of the several Underwriters, and, on the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, each of the Underwriters
(severally and not jointly) shall become obligated to purchase from the Company
and the Selling Stockholders, the same percentage of the total number of the
Option Shares as to which the several Underwriters are then exercising the
option as such Underwriter is obligated to purchase of the aggregate number of
Firm Shares, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares. In the event that the option is exercised
in part, the number of Option Shares to be sold by each of the Selling
Stockholders shall be, as nearly as practicable, in the same proportion to each
other as are the number of Option Shares to be sold by each Selling Stockholder
listed opposite their names on Schedule 2 hereto.
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(c) The Company and the Selling Stockholders hereby acknowledge that the
payment of monies pursuant to Section 2(a) and Section 2(b) hereof (a "Payment")
by or on behalf of the Underwriters of the aggregate Purchase Price for any
Shares does not constitute closing of a purchase and sale of the Shares. Only
execution and delivery, by facsimile or otherwise, of a receipt for Shares by
the Underwriters indicates completion of the closing of a purchase of the Shares
from the Company and the Selling Stockholders. Furthermore, in the event that
the Underwriters make a Payment to the Company and the Selling Stockholders
prior to the completion of the closing of a purchase of Shares, the Company and
the Selling Stockholders hereby acknowledge that until the Underwriters execute
and deliver such receipt for the Shares, the Company and the Selling
Stockholders will not be entitled to the Payment and shall return the Payment to
the Underwriters as soon as practicable (by wire transfer of same-day funds)
upon demand. In the event that the closing of a purchase of Shares is not
completed and the Payment is not returned by the Company and the Selling
Stockholders to the Underwriters on the same day the Payment was received by the
Company and the Selling Stockholders, the Company and the Selling Stockholders
agree to pay to the Underwriters in respect of each day the Payment is not
returned by them, in same-day funds, interest on the amount of such Payment in
an amount representing the Underwriters' cost of financing as reasonably
determined by the Representatives, pro rata in proportion to the percentage of
such Payment received by each.
(d) It is understood that any of you, individually and not as one of the
Representatives, may (but shall not be obligated to) make Payment on behalf of
any Underwriter or Underwriters for any of the Shares to be purchased by such
Underwriter or Underwriters. No such Payment shall relieve such Underwriter or
Underwriters from any of its or their obligations hereunder.
SECTION 3. COVENANTS.
---------
(a) The Company covenants and agrees with the several Underwriters that:
(i) The Company will:
(x) use its best efforts to cause the Registration Statement,
if not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If required,
the Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Securities Act. During any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act, the Company (I) will comply
with all requirements imposed upon it by the Securities Act and the rules and
regulations of the Commission thereunder to the extent necessary to permit the
continuance of sales of or dealings in the Shares in accordance with the
provisions hereof and of the Prospectus, as then amended or supplemented, and
(II) will not file with the Commission the Prospectus, Term Sheet, any
amendment or supplement to such Prospectus or Term Sheet, any amendment to the
Registration Statement (including the amendment referred to in the second
sentence of Section 5(a)(i) hereof) or any Rule 462(b) Registration Statement
unless the Representatives previously have been advised of, and furnished with
a copy within a reasonable period of time prior to, the proposed filing and
the Representatives shall have given their consent to such filing, which
consent shall not unreasonably be withheld. The Company will prepare and file
with the Commission, in accordance with the rules and regulations of the
Commission, promptly upon request by the Representatives or counsel for the
Underwriters, any amendments to the Registration Statement or amendments
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or supplements to the Prospectus that may be necessary or advisable in
connection with the distribution of the Shares by the several Underwriters.
The Company will advise the Representatives, promptly after receiving notice
thereof, of the time when the Registration Statement or any amendment thereto
has been filed or declared effective or the Prospectus or Term Sheet or any
amendment or supplement thereto has been filed and will provide evidence
satisfactory to the Representatives of each such filing or effectiveness;
(y) without charge, provide (I) to the Representatives and to
counsel for the Underwriters, an executed and a conformed copy of the Original
Registration Statement and each amendment thereto or any Rule 462(b)
Registration Statement (in each case including exhibits thereto), (II) to each
other Underwriter, a conformed copy of the Original Registration Statement and
each amendment thereto or any Rule 462(b) Registration Statement (in each case
without exhibits thereto), and (III) so long as a prospectus relating to the
Shares is required to be delivered under the Securities Act, as many copies of
each Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto as the Representatives may reasonably request. Without limiting the
application of clause (III) of the preceding sentence, the Company, not later
than (A) 9:00 A.M., New York City time, on the business day following the date
of determination of the public offering price, if such determination occurred
at or prior to 12:00 noon, New York City time, on such date or (B) 6:00 P.M.,
New York City time, on the business day following the date of determination of
the public offering price, if such determination occurred after 12:00 noon,
New York City time, on such date, will deliver to the Underwriters, without
charge, as many copies of the Prospectus and any amendment or supplement
thereto as the Representatives may reasonably request for purposes of
confirming orders that are expected to settle on the First Closing Date; and
(z) advise the Representatives, promptly after receiving notice
or obtaining knowledge thereof, of (I) the issuance by the Commission of any
stop order suspending the effectiveness of the Original Registration Statement
or any amendment thereto or any Rule 462(b) Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, (II) the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, (III)
the institution, threatening or contemplation of any proceeding for any
purpose identified in the preceding clause (I) or (II), or (IV) any request
made by the Commission for amending the Original Registration Statement or any
Rule 462(b) Registration Statement, for amending or supplementing the
Prospectus or for additional information. The Company will use its best
efforts to prevent the issuance of any such stop order and, if any such stop
order is issued, to obtain the withdrawal thereof as promptly as possible.
(ii) The Company will arrange for the qualification of the Shares for
offering and sale in each jurisdiction as the Representatives shall designate
including, but not limited to, pursuant to applicable state securities ("Blue
Sky") laws of certain states of the United States of America or other U.S.
jurisdictions, and the Company shall maintain such qualifications in effect for
so long as may be necessary in order to complete the placement of the Shares;
provided, however, that the Company shall not be obliged to file any general
consent to service of process or to qualify as a foreign corporation or as a
securities dealer in any jurisdiction or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not otherwise so
subject.
(iii) If, at any time prior to the final date when a prospectus
relating to the Shares is required to be delivered under the Securities Act, any
event occurs as a result of which the Prospectus, as then amended or
supplemented, would contain any untrue statement of a material fact or omit to
state a material fact necessary
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in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if for any other reason it
shall be necessary at any time to amend the Registration Statement or amend or
supplement the Prospectus to comply with the Securities Act or the rules or
regulations of the Commission thereunder or applicable law, the Company will
promptly notify the Representatives thereof and will promptly, at its own
expense, but subject to the second sentence of Section 3(a)(i)(x) hereof: (x)
prepare and file with the Commission an amendment to the Registration
Statement or amendment or supplement to the Prospectus which will correct such
statement or omission or effect such compliance, and (y) supply any amended
Registration Statement or amended or supplemented Prospectus to the
Underwriters in such quantities as the Underwriters may reasonably request.
(iv) The Company will make generally available to the Company's
security holders and to the Representatives as soon as practicable an earnings
statement that satisfies the provisions of Section 11(a) of the Securities Act,
including Rule 158 thereunder.
(v) The Company will apply the net proceeds from the sale of the
Shares as set forth under "Use of Proceeds" in the Prospectus.
(vi) The Company will not, and will not allow any subsidiary to,
publicly announce any intention to, and will not itself, and will not allow any
subsidiary to, without the prior written consent of Deutsche Morgan Grenfell
Inc., on behalf of the Underwriters, (x) offer, pledge, sell, offer to sell,
contract to sell, sell any option or contract to purchase, purchase any option
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, Common Stock,
or (y) enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the shares of Common
Stock or securities convertible into, or exercisable or exchangeable for, shares
of Common Stock (whether any such transaction described in clause (x) or (y)
above is to be settled by delivery of shares of Common Stock or such other
securities, in cash or otherwise), for a period beginning from the date hereof
and continuing to and including the date 180 days after the date of the
Prospectus, except pursuant to this Agreement and other than with respect to (a)
shares of Common Stock to be issued upon the exercise of a warrant to purchase
shares of Common Stock, or upon conversion or exchange of securities convertible
or exchangeable into shares of Common Stock, in each case, which are outstanding
on the date hereof and disclosed in the Prospectus, and (b) shares of Common
Stock (or any securities exercisable, convertible into or exchangeable for
shares of Common Stock) issued pursuant to any employee benefit plans, qualified
stock option plans or other employee compensation plans which are disclosed in
the Prospectus.
(vii) Neither the Company nor any of its affiliates, nor any person
acting on behalf of any of them will, directly or indirectly, (x) take any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares, or (y) (I) sell, bid for, purchase, or pay anyone any compensation for
soliciting purchases of, the Shares, or (II) pay or agree to pay to any person
any compensation for soliciting another to purchase any other securities of the
Company; provided, however, that this paragraph shall not be construed to apply
to the Underwriters.
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(viii) The Company will obtain the agreements described in Section
7(i) hereof prior to the First Closing Date.
(ix) If at any time during the 25-day period after the Registration
Statement becomes effective or during the period prior to any Closing Date, any
rumor, publication or event relating to or affecting the Company shall occur as
a result of which in the Representatives' sole judgment the market price of the
Shares 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 notice from the Representatives
advising the Company to the effect set forth above, forthwith prepare, consult
with the Representatives concerning the substance of, and disseminate a press
release or other public statement reasonably satisfactory to the
Representatives, responding to or commenting on such rumor, publication or
event.
(x) If the Company elects to rely on Rule 462(b), the Company shall
both file the Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) and pay the applicable fees in accordance with Rule
111 promulgated under the Securities Act by the earlier of (x) 10:00 P.M. New
York City time on the date of this Agreement and (y) the time confirmations are
sent or given, as specified by Rule 462(b)(2) under the Securities Act.
(xi) The Company will cause the Shares to be duly included for
quotation on the Nasdaq National Market prior to the First Closing Date. The
Company will ensure that the Shares remain included for quotation on the Nasdaq
National Market following the First Closing Date.
(xii) The Company will (i) enforce the terms of each Lock-up
Agreement (as defined in Section 5 (a) (xxxi)), (ii) issue stop-transfer
instructions to the transfer agent for the Common Stock with respect to any
transaction or contemplated transaction that would constitute a breach of or
default under the applicable Lock-up Agreement and (iii) upon written request
of Deutsche Morgan Grenfell Inc., release from the Lock-up Agreements those
shares of Common Stock held by those holders set forth in such request. In
addition, except with the prior written consent of Deutsche Morgan Grenfell
Inc., the Company agrees (i) not to amend or terminate, or waive any right
under, any Lock-up Agreement, or take any other action that would directly or
indirectly have the same effect as an amendment or termination, or waiver of
any right under, any Lock-up Agreement, that would permit any holder of shares
of Common Stock, or any securities convertible into, or exercisable or
exchangeable for, Common Stock, to (x) offer, pledge, sell, offer to sell,
contract to sell, sell any option or contract to purchase, purchase any option
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, such shares of Common Stock or other
securities, or (y) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of such shares
of Common Stock or other securities, and (ii) not to consent to any sale,
short sale, grant of an option for the purchase of, or other disposition or
transfer of shares of Common Stock, or securities convertible into or
exercisable or exchangeable for Common Stock, subject to a Lock-up Agreement.
(xiii) The Company will place a restrictive legend on any shares of
Common Stock acquired pursuant to the exercise, after the date hereof and
prior to the expiration of the 180-day period after the date of the initial
public offering of the Shares, of any option granted under the 1992 Stock
Option Plan (the "Option Plan"), which legend shall restrict the transfer of
such shares prior to the expiration of such 180-day period. In addition, the
Company agrees that, without the prior written consent of Deutsche Morgan
Grenfell Inc., it will not
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release any stockholder or option holder from the market standoff provision
imposed by the Company pursuant to the terms of the Option Plan earlier than
180 days after the date of the initial public offering of the Shares.
(b) Each Selling Stockholder agrees that:
(i) It will not, and no person acting on behalf of such Selling
Stockholder will, directly or indirectly, (x) take any action designed to cause
or to result in, or that has constituted or which might reasonably be expected
to constitute, the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares or (y) (I) sell, bid
for, purchase, or pay anyone any compensation for soliciting purchases of, the
Shares or (II) pay or agree to pay to any person any compensation for soliciting
another to purchase any other securities of the Company (except for the sale of
Shares by the Selling Stockholders under this Agreement); provided, however,
that this paragraph shall not be construed to apply to the Underwriters.
(ii) It will not publicly announce any intention to, and will not
itself, without the prior written consent of Deutsche Morgan Grenfell Inc. on
behalf of the Underwriters, (x) offer, pledge, sell, offer to sell, contract to
sell, sell any option or contract to purchase, purchase any option to sell,
grant any option, right or warrant to purchase, or otherwise transfer or dispose
of, directly or indirectly, any of the shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, Common Stock, or (y) enter
into any swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock (whether any such transaction described in clause (x) or (y) above
is to be settled by delivery of shares of Common Stock or such other securities,
in cash or otherwise), in each case, beneficially owned (within the meaning of
Rule 13d-3 under the Exchange Act) or otherwise controlled by such person on the
date hereof or hereafter acquired, for a period beginning from the date hereof
and continuing to and including the date 180 days after the date of the
Prospectus; provided, however, that such Selling Stockholder may, without the
prior written consent of Deutsche Morgan Grenfell Inc. on behalf of the
Underwriters, transfer shares of Common Stock or such other securities to
members of such Selling Stockholder's immediate family or to trusts for the
benefit of members of such Selling Stockholder's immediate family or in
connection with bona fide gifts, provided that any transferee agrees to the
transfer restrictions described above.
SECTION 4. EXPENSES.
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(a) The Company shall bear and pay all costs and expenses incurred incident
to the performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 9 hereof, including: (i) the fees and expenses of its
counsel, accountants and any other experts or advisors retained by the Company;
(ii) the costs of delivering and distributing the Powers of Attorney (as defined
below) and the Custody Agreements (as defined below) and the fees and expenses
of the Custodian (as defined below) (and any other Attorney-in-Fact (as defined
below)); (iii) fees and expenses incurred in connection with the registration of
the Shares under the Securities Act and the preparation and filing of the
Registration Statement, the Prospectus and all amendments and supplements
thereto; (iv) the printing and distribution of the Prospectus and any
Preliminary Prospectus and the printing and production of all other documents
connected with the Offering (including this Agreement and any other related
agreements); (v) expenses related to the qualification of the Shares under the
state securities or Blue Sky laws, including filing fees and the fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with
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the preparation of any Blue Sky memoranda; (vi) the filing fees and expenses,
if any, incurred with respect to any filing with the National Association of
Securities Dealers, Inc., including the fees and disbursements of counsel for
the Underwriters in connection therewith; (vii) all expenses arising from the
quoting of the Shares on the Nasdaq National Market; (viii) all arrangements
relating to the preparation, issuance and delivery to the Underwriters of any
certificates evidencing the Shares, including transfer agent's and registrar's
fees; (ix) the costs and expenses of the "roadshow" and any other meetings
with prospective investors in the Shares (other than as shall have been
specifically approved by the Representatives to be paid for by the
Underwriters); and (x) the costs and expenses of travel, lodging and meals of
the Company's employees in connection with advertising relating to the
Offering (other than as shall have been specifically approved by the
Representatives to be paid for by the Underwriters). Subject to the provisions
of Section 10, the Underwriters agree to pay all costs and expenses incident
to the performance of their obligations under this Agreement not payable by
the Company pursuant to the preceding sentence, including, without limitation,
the fees and disbursements of counsel to the Underwriters (other than as set
forth in clauses (v) and (vi) above).
(b) The Selling Stockholders shall bear and pay all costs and expenses
incurred incident to the performance of their respective obligations under this
Agreement, whether or not the transactions contemplated herein are consummated
or this Agreement is terminated pursuant to Section 9 hereof, including: (i) any
stamp duties, capital duties and stock transfer taxes, if any, payable upon the
sale of the Shares of such Selling Stockholders to the Underwriters and (ii) the
fees and disbursements of their respective counsel, accountants and other
advisors.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
------------------------------
(a) As a condition of the obligation of the Underwriters to underwrite and
pay for the Shares, the Company and, to the best of their knowledge, the Selling
Stockholders jointly and severally represent and warrant to, and agree with,
each of the several Underwriters as follows:
REGISTRATION STATEMENT AND PROSPECTUS
(i) The Original Registration Statement, including the Preliminary
Prospectus, has been filed by the Company with the Commission under the
Securities Act, and one or more amendments to such Registration Statement may
have been so filed. After the execution of this Agreement, the Company will
file with the Commission either (x) if such Registration Statement, as it may
have been amended, has been declared by the Commission to be effective under the
Securities Act, either (I) if the Company relies on Rule 434 under the
Securities Act, a Term Sheet relating to the Shares that shall identify the
Preliminary Prospectus that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Securities Act or
(II) if the Company does not rely on Rule 434 under the Securities Act, a
prospectus in the form most recently included in an amendment to such
Registration Statement (or, if no such amendment shall have been filed, in such
Registration Statement), with such changes or insertions as are required by Rule
430A under the Securities Act or permitted by Rule 424(b) under the Securities
Act, and in the case of either clause (I) or (II) of this sentence, as have been
provided to and approved by the Representatives prior to the execution of this
Agreement, or (y) if such Registration Statement, as it may have been amended,
has not been declared by the Commission to be effective under the Securities
Act, an amendment to such Registration Statement, including a form of
prospectus, a copy of which amendment has been furnished to and approved by
the Representatives prior
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to the execution of this Agreement. The Company may also file a Rule 462(b)
Registration Statement with the Commission for the purpose of registering
certain additional Shares, which registration shall be effective upon filing
with the Commission.
(ii) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When any Preliminary Prospectus was
filed with the Commission, it (x) contained all statements required to be stated
therein in accordance with, and complied in all material respects with the
requirements of, the Securities Act and the rules and regulations of the
Commission thereunder and (y) did not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. When the Registration Statement or any amendment thereto was or is
declared effective, it (I) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Securities Act and the rules and
regulations of the Commission thereunder and (II) did not or 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 the statements therein not
misleading. When the Prospectus or any Term Sheet that is a part thereof or any
amendment or supplement to the Prospectus is filed with the Commission pursuant
to Rule 424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement or the amendment
thereto containing the Prospectus or such amendment or supplement to the
Prospectus was or is declared effective) and on the Closing Date, the
Prospectus, as amended or supplemented at any such time, (A) contained or will
contain all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements of, the
Securities Act and the rules and regulations of the Commission thereunder and
(B) did not or will not contain any untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (ii) do not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement or any
amendment thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives specifically for use
therein.
(iii) If the Company has elected to rely on Rule 462(b) and the Rule
462(b) Registration Statement is not effective, (x) the Company will file a Rule
462(b) Registration Statement in compliance with, and that is effective upon
filing pursuant to, Rule 462(b) and (y) the Company has given irrevocable
instructions for transmission of the applicable filing fee in connection with
the filing of the Rule 462(b) Registration Statement, in compliance with Rule
111 under the Securities Act, or the Commission has received payment of such
filing fee.
(iv) If the Company has elected to rely on Rule 434 under the
Securities Act, the Prospectus is not "materially different," as such term is
used in Rule 434, from the prospectus included in the Registration Statement at
the time of its effectiveness or an effective post-effective amendment thereto
(including such information that is permitted to be omitted pursuant to Rule
430A under the Securities Act);
(v) The Company and the Selling Stockholders have not distributed and,
prior to the later of (x) any Closing Date and (y) the completion of the
distribution of the Shares, will not distribute any offering material in
connection with the Offering other than the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto.
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THE SHARES
(vi) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus. All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, have been issued in compliance with all
applicable federal and state securities laws and were not issued in violation of
or subject to any preemptive rights or other rights to subscribe for or purchase
such securities. The Shares have been duly authorized by all necessary
corporate action of the Company and, after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable at the Closing
Date. No holders of outstanding shares of capital stock of the Company are
entitled as such to any preemptive or other rights to subscribe for any of the
Shares, and no holder of securities of the Company has any right which has not
been fully exercised or waived to require the Company to register the offer or
sale of any securities owned by such holder under the Securities Act in the
Offering contemplated by this Agreement.
(vii) Except as disclosed in the Prospectus, there are no outstanding
(x) securities or obligations of the Company or any of its subsidiaries
convertible into or exchangeable for any capital stock of the Company or any
such subsidiary, (y) warrants, rights or options to subscribe for or purchase
from the Company or any such subsidiary any such capital stock or any such
convertible or exchangeable securities or obligations, or (z) obligations of the
Company or any such subsidiary to issue any shares of capital stock, any such
convertible or exchangeable securities or obligations, or any such warrants,
rights or options.
(viii) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and its subsidiaries, neither the Company nor
any such subsidiary owns any shares of stock or any other equity securities of
any corporation or has any equity interest in any firm, partnership, association
or other entity, except as described in or contemplated by the Prospectus. The
Company does not have any significant subsidiaries, as defined in paragraph (w)
of Rule 1-02 of Regulation S-X promulgated by the Commission.
LISTING
(ix) All of the Shares have been duly authorized and accepted for
quotation on the Nasdaq National Market, subject to official notice of issuance.
MARKET MANIPULATION
(x) Neither the Company nor any of its affiliates, nor any person
acting on behalf of any of them has, directly or indirectly, (x) taken any
action designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares, or (y) since the filing of the Original Registration Statement (I) sold,
bid for, purchased, or paid anyone any compensation for soliciting purchases of,
the Shares or (II) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company; provided,
however, that this paragraph shall not be construed to apply to the
Underwriters.
CORPORATE POWER AND AUTHORITY
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(xi) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the law of its jurisdiction of
incorporation with full power and authority to own, lease and operate its
properties and assets and conduct its business as described in the Prospectus,
is duly qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which its ownership, leasing or operation of
its properties or assets or the conduct of its business requires such
qualification, except where the failure to be so qualified does not amount to a
material liability or disability to the Company and its subsidiaries, taken as a
whole, and has full power and authority to execute and perform its obligations
under this Agreement; each subsidiary of the Company is a corporation duly
incorporated and validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and is duly qualified to transact
business and is in good standing in each jurisdiction in which its ownership,
leasing or operation of its properties or assets or the conduct of its business
requires such qualification, except where the failure to be so qualified does
not amount to a material liability or disability to the Company and its
subsidiaries, taken as a whole, and each has full power and authority to own,
lease and operate its properties and assets and conduct its business as
described in the Registration Statement and the Prospectus; all of the issued
and outstanding shares of capital stock of each of the Company's subsidiaries
have been duly authorized and validly issued, are fully paid and nonassessable
and are owned beneficially by the Company free and clear of any security
interests, liens, encumbrances, equities or claims.
(xii) The execution and delivery of the Agreement and Plan of Merger
dated as of __________, 1998 (the "Merger Agreement") between Brio Technology,
Inc., a California corporation (the "California Corporation"), and the Company,
effecting the reincorporation of the California Corporation under the laws of
the State of Delaware, was duly authorized by all necessary corporate action on
the part of each of the California Corporation and the Company. Each of the
California Corporation and the Company had all corporate power and authority to
execute and deliver the Merger Agreement, to file the Merger Agreement with the
Secretary of State of California and the Secretary of State of Delaware and to
consummate the reincorporation contemplated by the Merger Agreement, and the
Merger Agreement at the time of execution and filing constituted a valid and
binding obligation of each of the California Corporation and the Company.
(xiii) The execution and delivery of this Agreement and the issuance
and sale of the Shares have been duly authorized by all necessary corporate
action of the Company, and this Agreement has been duly executed and delivered
by the Company and is the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except (i) as
rights to indemnity and contribution hereunder may be limited by federal or
state securities laws, (ii) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally and (iii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
(xiv) The issuance, offering and sale of the Shares to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of
the other transactions herein contemplated do not (x) require the consent,
approval, authorization, registration or qualification of or with any
governmental authority, except such as have been obtained or made or such as
may be required by the securities or Blue Sky laws of the various states of
the United States of America and other U.S. jurisdictions in connection with
the offer and sale of the Shares by the Underwriters, or (y) conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which
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the Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or any of their respective properties are bound, or
the charter documents or by-laws of the Company or any of its subsidiaries, or
any statute or any judgment, decree, order, rule or regulation of any court or
other governmental authority or any arbitrator applicable to the Company or
any of its subsidiaries.
(xv) The Company is not, and will conduct its operations in a manner
so that it continues not to be, an "investment company" and, after giving effect
to the Offering and the application of the proceeds therefrom, will not be an
"investment company," as such term is defined in the Investment Company Act of
1940, as amended (the "1940 Act").
TITLE, LICENSES AND CONSENTS
(xvi) The Company and each of its subsidiaries own no real property
and have marketable title to all personal property owned by each of them, in
each case free and clear of any security interests, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not interfere with the use
made or proposed to be made of such property by the Company or such
subsidiary, and any real property and buildings held under lease by the
Company or any such subsidiary are held under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
interfere with the use made or proposed to be made of such property and
buildings by the Company or such subsidiary, in each case except as described
in or contemplated by the Prospectus.
(xvii) Except as disclosed in the Prospectus, the Company and each of
its subsidiaries own or possess, or can acquired on reasonable terms, adequate
licenses or other rights to use all patents, patent rights inventions, trade
secrets, copyrights, trademarks, service marks, trade names, technology and
know-how currently employed or proposed to be employed by them in connection
with their business as described in the Prospectus, the Company is not
obligated to pay a royalty, grant a license, or provide other consideration to
any third party in connection with its patents, copyrights, trademarks,
service marks, trade names, or technology other than as disclosed in the
Prospectus, and, except as disclosed in the Prospectus, neither the Company
nor any of its subsidiaries has received any notice of infringement or
conflict with (and neither the Company nor any of its subsidiaries knows of
any infringement or conflict with) asserted rights of others with respect to
any patents, patent rights, inventions, trade secrets, copyrights, trademarks,
service marks, trade names, technology or know-how which could result in any
material adverse effect upon the Company and its subsidiaries, taken as a
whole; and, except as disclosed in the Prospectus, the discoveries,
inventions, products or processes of the Company and its subsidiaries referred
to in the Prospectus do not, to the best knowledge of the Company or any of
its subsidiaries, infringe or conflict with any right or patent of any third
party, or any discovery, invention, product or process which is the subject of
a patent application filed by any third party, known to the Company or any of
its subsidiaries which could have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(xviii) The Company and its subsidiaries possess all consents,
licenses, certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification
of any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a materially adverse effect on or constitute a materially adverse change
in, or constitute a development involving a prospective
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materially adverse effect on or change in, the condition (financial or
otherwise), earnings, properties, business affairs or business prospects, net
worth or results of operations of the Company and its subsidiaries, taken as a
whole, except as described in or contemplated by the Prospectus.
FINANCIAL STATEMENTS
(xix) Arthur Anderson LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and delivered their
report with respect to the audited consolidated financial statements and
schedules included in the Registration Statement and the Prospectus, are
independent public accountants as required by the Securities Act and the
applicable rules and regulations thereunder.
(xx) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the Registration Statement
and the Prospectus were prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout the periods
involved (except as otherwise noted therein) and they present fairly the
financial condition of the Company as of the dates at which they were prepared
and the results of operations of the Company in respect of the periods for which
they were prepared.
INTERNAL ACCOUNTING CONTROLS
(xxi) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (w)
transactions are executed in accordance with management's general or specific
authorizations; (x) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain asset
accountability; (y) access to assets is permitted only in accordance with
management's general or specific authorization; and (z) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
LITIGATION
(xxii) No legal or governmental proceedings are pending or, to the
best knowledge of the Company, threatened to which the Company or any of its
subsidiaries is a party or to which the property of the Company or any of its
subsidiaries is subject that are required to be described in the Registration
Statement or the Prospectus and are not described therein; and no statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described therein or filed as required.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
(xxiii) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, making any
other distribution on such subsidiary's capital stock, repaying to the Company
any loans or advances to such subsidiary from the Company or transferring any
of such subsidiary's property or assets to the Company or any other subsidiary
of the Company, and the Company is not currently prohibited, directly or
indirectly, from paying any dividends or making any other distribution on its
capital stock, in each case except as described in or contemplated by the
Prospectus.
TAXES
(xxiv) The Company has filed all foreign, federal, state and local
tax returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a
materially adverse effect on the Company and its subsidiaries, taken as a
whole) and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or penalty
that is currently being contested in good faith or as described in or
contemplated by the Prospectus.
INSURANCE
(xxv) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which
they are engaged; 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 and adversely affect the
condition (financial or otherwise), earnings, properties, business affairs or
business prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, except as described in or contemplated by the
Prospectus.
PENSION AND LABOR
(xxvi) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (x) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (y) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each "pension plan" for
which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, which would
cause the loss of such qualification.
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<PAGE>
(xxvii) No labor dispute with the employees of the Company or any of
its subsidiaries exists or, to the best knowledge of the Company, is
threatened or imminent that could have a materially adverse effect on or
constitute a materially adverse change in, or constitute a development
involving a prospective materially adverse effect on or change in, the
condition (financial or otherwise), properties, management, earnings, business
affairs or business prospects, net worth or results of operations of the
Company and its subsidiaries, taken as a whole, except as described in or
contemplated by the Prospectus.
ENVIRONMENTAL
(xxviii) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to occupational
safety and health or to the storage, handling or transportation of hazardous
or toxic materials, and the Company and its subsidiaries have received all
permits, licenses or other approvals required of them under applicable federal
and state occupational safety and health and environmental laws and
regulations to conduct their respective businesses, and the Company and each
such subsidiary is in compliance with all terms and conditions of any such
permit, license or approval, except any such violation of law or regulation,
failure to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
which would not, singly or in the aggregate, have a materially adverse effect
on or constitute a materially adverse change in, or constitute a development
involving a prospective materially adverse effect on or change in, the
condition (financial or otherwise), earnings, properties, business affairs or
business prospects, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, except as described in or contemplated by the
Prospectus.
OTHER AGREEMENTS
(xxix) No default by the Company, or to the Company's knowledge, by
another party, exists, and no event has occurred which, with notice or lapse of
time or both, would constitute a default by the Company, or to the Company's
knowledge, by another party, in the due performance and observance of any term,
covenant or condition of any material indenture, mortgage, deed of trust, lease
or other material agreement or instrument to which the Company is a party or by
which the Company or any of its properties is bound.
LOCK-UP AGREEMENTS
(xxx) Except as disclosed in the Prospectus and except for the
Shares, all outstanding shares of Common Stock, and all securities convertible
into or exercisable or exchangeable for Common Stock, are subject to valid and
binding agreements (collectively, the "Lock-up Agreements") that restrict the
holders thereof from selling, making any short sale of, granting any option
for the purchase of, or otherwise transferring or disposing of, any of such
shares of Common Stock, or any such securities convertible into or exercisable
or exchangeable for Common Stock, for a period of 180 days after the date of
the Prospectus without the prior written consent of the Company or Deutsche
Morgan Grenfell Inc.
(xxxi) The Company (i) has notified each holder of a currently
outstanding option issued under the Option Plan and each person who has acquired
shares of Common Stock pursuant to the exercise of any option granted under the
Option Plan that pursuant to the terms of the Option Plan, none of such options
or shares may be sold or otherwise transferred or disposed of for a period of
180 days after the date of the initial public
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<PAGE>
offering of the Shares and (ii) has imposed a stop-transfer instruction with
the Company's transfer agent in order to enforce the foregoing lock-up
provision imposed pursuant to the Option Plan.
(xxxii) The Company (i) has notified each stockholder who is party
to the Amended and Restated Rights Agreement dated June 27, 1997, the Amended
and Restated Stock Restriction Agreement dated June 27, 1997 or the Common
Stock Purchase Warrant dated ___________, (collectively, the "Rights
Agreements"), that pursuant to the terms of the Rights Agreements, none of the
shares of the Company's capital stock held by such stockholder may be sold or
otherwise transferred or disposed of for a period of 180 days after the date
of the initial public offering of the Shares and (ii) has imposed a stop-
transfer instruction with the Company's transfer agent in order to enforce the
foregoing lock-up provision imposed pursuant to the Rights Agreements.
ABSENCE OF MATERIALLY ADVERSE CHANGE
(xxxiii) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (w) the Company and
its subsidiaries, taken as a whole, have not incurred any material liability
or obligation, direct or contingent, nor entered into any material transaction
not in the ordinary course of business; (x) the Company has not purchase any
of its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; and (y) there has
not been any material change in the capital stock, short-term or long-term
debt of the Company and its subsidiaries, taken as a whole, except in each
case as described in or contemplated by the Prospectus; and (z) there has not
been any material loss or interference with the businesses or properties or
the Company and its subsidiaries, taken as a whole, from fire, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding, and there has
been no materially adverse change (including, without limitation, a change in
management or control), or development involving a prospective materially
adverse change, in the condition (financial or otherwise), management,
earnings, property, business affairs or business prospects, stockholders'
equity, net worth or results of operations of the Company and its
subsidiaries, taken as a whole, other than as described in or contemplated by
the Prospectus.
(xxxiv) No receiver or liquidator (or similar person) has been
appointed in respect of the Company or any subsidiary of the Company or in
respect of any part of the assets of the Company or any subsidiary of the
Company; no resolution, order of any court, regulatory body, governmental body
or otherwise, or petition or application for an order, has been passed, made
or presented for the winding up of the Company or any subsidiary of the
Company or for the protection of the Company or any such subsidiary from its
creditors; and the Company has not, and no subsidiary of the Company has,
stopped or suspended payments of its debts, become unable to pay its debts or
otherwise become insolvent.
(b) As a further condition of the obligation of the Underwriters to
underwrite and pay for the Shares, each Selling Stockholder, severally and not
jointly, represents and warrants to, and agrees with, each of the several
Underwriters that:
(i) Such Selling Stockholder has full power to enter into this
Agreement and to sell, assign, transfer and deliver to the Underwriters the
Shares to be sold by such Selling Stockholder hereunder in
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accordance with the terms of this Agreement; and this Agreement has been duly
executed and delivered by such Selling Stockholder.
(ii) Such Selling Stockholder has duly executed and delivered a power
of attorney and custody agreement (with respect to such Selling Stockholder, the
"Power-of-Attorney" and the "Custody Agreement," respectively), each in the form
heretofore delivered to the Representatives, appointing _________________as such
Selling Stockholder's attorney-in-fact (the "Attorney-in-Fact") with authority
to execute, deliver and perform this Agreement on behalf of such Selling
Stockholder and appointing __________________, as custodian thereunder (the
"Custodian"). Certificates in negotiable form, endorsed in blank or accompanied
by blank stock powers duly executed, with signatures appropriately guaranteed,
representing the Shares to be sold by such Selling Stockholder hereunder have
been deposited with the Custodian pursuant to the Custody Agreement for the
purpose of delivery pursuant to this Agreement. Such Selling Stockholder has
full power to enter into the Custody Agreement and the Power-of-Attorney and to
perform its obligations under the Custody Agreement. Assuming due
authorization, execution and delivery by the Custodian, the Power-of-Attorney
and Custody Agreement are the legal, valid, binding and enforceable instruments
of such Selling Stockholder. Such Selling Stockholder agrees that each of the
Shares represented by the certificates on deposit with the Custodian is subject
to the interests of the Underwriters hereunder, that the arrangements made for
such custody, the appointment of the Attorney-in-Fact and the right, power and
authority of the Attorney-in-Fact to execute and deliver this Agreement, to
agree on the price at which the Shares (including such Selling Stockholder's
Shares) are to be sold to the Underwriters, and to carry out the terms of this
Agreement, are to that extent irrevocable and that the obligations of such
Selling Stockholder hereunder shall not be terminated, except as provided in
this Agreement or the Custody Agreement, by any act of such Selling Stockholder,
by operation of law or otherwise, whether in the case of any individual Selling
Stockholder by the death or incapacity of such Selling Stockholder, in the case
of a trust or estate by the death of the trustee or trustees or the executor or
executors or the termination of such trust or estate, or in the case of a
corporate or partnership Selling Stockholder by its liquidation or dissolution
or by the occurrence of any other event. If any individual Selling Stockholder,
trustee or executor should die or become incapacitated or any such trust should
be terminated, or if any corporate or partnership Selling Stockholder shall
liquidate or dissolve, or if any other event should occur, before the delivery
of such Shares hereunder, the certificates for such Shares deposited with the
Custodian shall be delivered by the Custodian in accordance with the respective
terms and conditions of this Agreement as if such death, incapacity,
termination, liquidation or dissolution or other event had not occurred,
regardless of whether or not the Custodian or the Attorney-in-Fact shall have
received notice thereof.
(iii) Such Selling Stockholder is the lawful owner of the Shares to
be sold by such Selling Stockholder hereunder and upon sale and delivery of,
and payment for, such Shares, as provided herein, such Selling Stockholder
will convey good and marketable title to such Shares, free and clear of any
security interests, liens, encumbrances, equities, claims or other defects
(assuming the Underwriters are acquiring the Shares in good faith and without
notice of any adverse claim).
(iv) Neither such Selling Stockholder nor any person acting on behalf
of it has, directly or indirectly, (x) taken any action designed to cause or to
result in, or that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares or (y) since the
filing of the Original Registration Statement (I) sold, bid for, purchased, or
paid anyone any compensation for soliciting purchases of, the Shares or (II)
paid or agreed to pay
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<PAGE>
to any person any compensation for soliciting another to purchase any other
securities of the Company (except for the sale of Shares by the Selling
Stockholders under this Agreement).
(v) Such Selling Stockholder has reviewed the Prospectus and the
Registration Statement, and the information regarding such Selling Stockholder
set forth therein under the caption "Principal and Selling Stockholders" is
complete and accurate.
(vi) The sale by such Selling Stockholder of Shares pursuant hereto
is not prompted by any adverse information concerning the Company or its
subsidiaries that is not set forth in the Registration Statement or the
Prospectus.
(vii) The sale of the Shares to the Underwriters by such Selling
Stockholder pursuant to this Agreement, the compliance by such Selling
Stockholder with the other provisions of this Agreement, the Custody Agreement
and the consummation of the other transactions herein contemplated do not (i)
require the consent, approval, authorization, registration or qualification of
or with any governmental authority, except such as have been obtained, such as
may be required under state securities or blue sky laws and, if the registration
statement filed with respect to the Shares (as amended) is not effective under
the Securities Act as of the time of execution hereof, such as may be required
(and shall be obtained as provided in this Agreement) under the Securities Act,
or (ii) conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under any indenture, mortgage, deed of
trust, lease or other agreement or instrument to which such Selling Stockholder
is a party or by which such Selling Stockholder or any of such Selling
Stockholder's properties are bound, or any statute or any judgment, decree,
order, rule or regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Stockholder.
(c) The above representations and warranties shall be deemed to be repeated
at each Closing, and all references therein to the Shares and the Closing Date
shall be deemed to refer to the Firm Shares or the Option Shares and the First
Closing Date or the applicable Option Closing Date, each as applicable.
SECTION 6. INDEMNITY.
---------
(a) The Company and each Selling Stockholder jointly and severally agree to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Securities Act
or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), against any and all losses, claims, damages or liabilities, joint or
several, to which such Underwriter or such controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by the
Company or such Selling Stockholder in Section 5 hereof,
(ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or
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(iii) the omission or alleged omission to state in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto a material fact required to be stated
therein or necessary to make the statements therein not misleading,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other costs or expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; provided, however, that the
Company and such Selling Stockholder will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein; provided further, however, that no Selling Stockholder will be liable
to any Underwriter or any person controlling such Underwriter with respect to
any such untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus that is corrected in the Prospectus
(or any amendment or supplement thereto) if the person asserting any such loss,
claim, damage or liability purchased Shares from such Underwriter but was not
sent or given a copy of the Prospectus (as amended or supplemented) in any case
where such delivery of the Prospectus (as amended or supplemented) was required
by the Securities Act, unless such failure to deliver the Prospectus (as amended
or supplemented) was a result of noncompliance by the Company with Section 3
hereof. Notwithstanding any other provision of this Section 6, no Selling
Stockholder shall be liable for indemnification hereunder in an aggregate amount
exceeding the net proceeds (before deducting expenses) received by such Selling
Stockholder in respect of the Shares sold by such Selling Stockholder to the
Underwriters pursuant to this Agreement. In addition, the Company and each of
the Underwriters agrees with each of the Selling Stockholders that any claim of
such Underwriter against such Selling Stockholders for indemnification,
reimbursement or advancement of expenses pursuant to this Section 6 or for
breach of any representation or warranty in Section 5 hereof shall first be
sought by such Underwriter to be satisfied in full by the Company and shall be
satisfied by the Founders only to the extent that such claim has not been
satisfied in full by the Company for any reason within the 30-day period
following the date requested for payment in accordance with the terms of this
Agreement. The Company and the 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, including, without limitation, allocating between the
Company and the Selling Stockholders the liability resulting in a breach of the
representations and warranties of the Company and the Selling Stockholders
hereunder. The indemnity provided for in this Section 6 shall be in addition to
any liability which the Company and such Selling Stockholder may otherwise have.
Neither the Company nor any Selling Stockholder will, without the prior written
consent of the Representatives, settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
such Representatives or any person who controls any such Representatives is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of all of the
Underwriters and such controlling persons from all liability arising out of such
claim, action, suit or proceeding.
(b) Each Underwriter, severally and not jointly, will indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the
Registration Statement, each Selling Stockholder and each person, if any, who
controls the Company or such Selling Stockholder within the meaning of Section
15 of the
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Securities Act or Section 20 of the Exchange Act against any losses, claims,
damages or liabilities to which the Company or any such director or officer of
the Company, such Selling Stockholder or any such controlling person of the
Company or such Selling Stockholder may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto or (ii) the omission or
the alleged omission to state in the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case 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 through the
Representatives specifically for use therein, and, subject to the limitation
set forth immediately preceding this clause, will reimburse, as incurred, any
legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person or such Selling Stockholder or
controlling person of such Selling Stockholder in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or any action in
respect thereof. The remedies provided for in this Section 6 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to paragraph (a) or (b) of this Section 6, such person (for purposes of
this paragraph (c), the "indemnified party") shall, promptly after receipt by
such party of notice of the commencement of such action, notify the person
against whom such indemnity may be sought (for purposes of this paragraph (c),
the "indemnifying party"), 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 6. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
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 one or more legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or parties
and such indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense of any such action and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 6 for any
legal or other expenses, other than reasonable costs of investigation,
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 in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated in writing by the Representatives in
the case of paragraph (a) of this Section 6, representing the indemnified
parties under such paragraph (a) who are parties to such action or
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actions), or (ii) the indemnifying party does not promptly retain counsel
satisfactory to the indemnified party, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense
of the indemnifying party. All fees and expenses reimbursed pursuant to this
paragraph (c) shall be reimbursed as they are incurred. After such notice from
the indemnifying party to such indemnified party, the indemnifying party will
not be liable for the costs and expenses of any settlement of such action
effected by such indemnified party without the consent of the indemnifying
party.
(d) In circumstances in which the indemnity agreement provided for in the
preceding paragraphs of this Section 6 is unavailable or insufficient, for any
reason, to hold harmless an indemnified party in respect of any losses, claims,
damages or liabilities (or actions in respect thereof), each indemnifying party,
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits received by
the indemnifying party or parties on the one hand and the indemnified party on
the other from the Offering or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total proceeds from
the Offering (before deducting expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Underwriters. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Stockholders or the
Underwriters, the parties' relative intents, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances. The Company, the
Selling Stockholders and the Underwriters agree that it would not be equitable
if the amount of such contribution were determined by pro rata or per capita
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to above in this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no Underwriter shall
be obligated to make contributions hereunder that in the aggregate exceed the
total public offering price of the Shares purchased by such Underwriter under
this Agreement, less the aggregate amount of any damages that such Underwriter
has otherwise been required to pay in respect of the same or any substantially
similar claim, and no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Deutsche Morgan Grenfell Inc. Master Agreement Among Underwriters. For
purposes of this paragraph (d), each person, if any, who controls an Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company or any
Selling Stockholder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, shall have the same rights to contribution as
the Company or such Selling Stockholder, as the case may be.
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SECTION 7. CONDITIONS PRECEDENT.
--------------------
The obligations of the several Underwriters to purchase and pay for the
Shares shall be subject, in the Representatives' sole discretion, to the
accuracy of the representations and warranties of the Company and the Selling
Stockholders contained herein as of the date hereof and as of each Closing Date,
as if made on and as of each Closing Date, to the accuracy of the statements of
the Company's officers and the Selling Stockholders made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Stockholders of their respective covenants and agreements hereunder and to the
following additional conditions:
(a) (i) If the Original Registration Statement or any amendment thereto
filed prior to the First Closing Date has not been declared effective as of the
time of execution hereof, the Original Registration Statement or such amendment
shall have been declared effective not later than 6:00 P.M. New York City time
on the date of determination of the public offering price, if such determination
occurred at or prior to 4:30 P.M. New York City time on such date, or 12:00 Noon
New York City time on the business day following the day on which the public
offering price was determined, if such determination occurred after 4:30 P.M.
New York City time on such date, and (ii) if the Company has elected to rely
upon Rule 462(b), the Rule 462(b) Registration Statement shall have been
declared effective not later than the time confirmations are sent or given as
specified by Rule 462(b)(2), or such later time and date as shall have been
consented to by the Representatives; if required, the Prospectus or any Term
Sheet that constitutes a part thereof and any amendment or supplement thereto
shall have been filed with the Commission in the manner and within the time
period required by Rules 434 and 424(b) under the Securities Act; no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto shall have been issued, and no proceedings for that purpose shall have
been instituted or threatened or, to the knowledge of the Company or the
Representatives, shall be contemplated by the Commission; and the Company shall
have complied with any request of the Commission for additional information (to
be included in the Registration Statement or the Prospectus or otherwise).
(b) The Representatives shall have received a legal opinion from Venture
Law Group, counsel for the Company, dated the Closing Date, to the effect that:
(i) the Registration Statement is effective under the Securities Act;
any required filing of the Prospectus, or any Term Sheet that constitutes a part
thereof, pursuant to Rules 434 and 424(b) has been made in the manner and within
the time period required by Rules 434 and 424(b); such counsel has been advised
by the Commission that no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued and, to the best
knowledge of such counsel, no proceedings for that purpose are pending or
threatened by the Commission;
(ii) the Original Registration Statement and each amendment thereto,
any Rule 462(b) Registration Statement and the Prospectus (in each case, other
than the financial statements and other financial information contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Securities Act and the
rules and regulations of the Commission thereunder;
(iii) if the Company elects to rely on Rule 434 under the Securities
Act, the Prospectus is not "materially different," as such term is used in Rule
434, from the prospectus included in the Registration Statement
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at the time of its effectiveness or an effective post-effective amendment
thereto (including such information that is permitted to be omitted pursuant
to Rule 430A under the Securities Act);
(iv) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus; all of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable, and except as set forth in the Prospectus, the
Company does not have outstanding any options to purchase, or any preemptive
rights or, to the best knowledge of such counsel, 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; and all outstanding
shares of capital stock and options and other rights to acquire capital stock
have been issued in compliance with all applicable federal and state securities
laws and were not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities; the Shares have been duly
authorized by all necessary corporate action of the Company and, when issued and
delivered to and paid for by the Underwriters pursuant to this Agreement, will
be validly issued, fully paid and nonassessable;
(v) no holders of outstanding shares of capital stock of the Company
are entitled as such to any preemptive or, to the best of such counsel's
knowledge, other rights to subscribe for any of the Shares; and no holder of
securities of the Company has any right which has not been fully exercised or
waived to require the Company to register the offer or sale of any securities
owned by such holder under the Securities Act in the Offering contemplated by
this Agreement;
(vi) all of the Shares have been duly authorized and accepted for
quotation on the Nasdaq National Market, subject to official notice of issuance;
(vii) the Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its jurisdiction of
incorporation and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of all other jurisdictions
where the ownership, leasing or operation of its properties or assets or the
conduct of its business requires such qualification, except where the failure
to be so qualified does not amount to a material liability or disability to
the Company and its subsidiaries, taken as a whole; the Company has full power
and authority to own, lease and operate its properties and assets and conduct
its business as described in the Registration Statement and the Prospectus,
and the Company has full power and authority to enter into this Agreement and
to carry out all the terms and provisions hereof to be carried out by it;
(viii) the execution and delivery of the Merger Agreement, effecting
the reincorporation of the California Corporation under the laws of the State
of Delaware, was duly authorized by all necessary corporate action on the part
of each of the California Corporation and the Company;
(ix) the statements set forth under the heading "Description of
Capital Stock" in the Prospectus, insofar as such statements purport to
summarize certain provisions of the capital stock of the Company, provide a fair
summary of such provisions; and the statements set forth under the headings
"Risk Factors -- Control by Existing Stockholders," "Risk Factors -- Anti-
Takeover Provisions," "Dividend Policy," "Management -- Employment Agreements,"
"Management -- Stock Plans," "Management -- Limitation of Liability and
Indemnification Matters," "Certain Transactions" and "Shares Eligible" in the
Prospectus, insofar as such
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statements constitute a summary of the legal matters, documents or proceedings
referred to therein, have been reviewed by such counsel and fairly present the
information called for with respect to such legal matters, documents and
proceedings in all material respects as required by the Securities Act and the
rules and regulations thereunder;
(x) the execution and delivery of this Agreement have been duly
authorized by all necessary corporate action of the Company, and this Agreement
has been duly executed and delivered by the Company; the issuance, offering and
sale of the Shares to the Underwriters by the Company pursuant to this
Agreement, the compliance by the Company with the other provisions of this
Agreement and the consummation of the other transactions herein contemplated do
not (x) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have been
obtained or made (and specified in such opinion) or such as may be required by
the securities or Blue Sky laws of the various states of the United States of
America and other U.S. jurisdictions in connection with the offer and sale of
the Shares by the Underwriters, or (y) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, lease or other agreement or instrument,
known to such counsel, to which the Company is a party or by which the Company
or any of its properties are bound, or the charter documents or by-laws of the
Company or any of its subsidiaries, or any statute or any judgment, decree,
order, rule or regulation of any court or other governmental authority or any
arbitrator known to such counsel and applicable to the Company;
(xi) the Company is not an "investment company" and, after giving
effect to the Offering and the application of the proceeds therefrom, will not
be an "investment company", as such term is defined in the 1940 Act; and
(xii) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company is a party or to which
the property of the Company is subject that are required to be described in the
Registration Statement or the Prospectus and are not described therein or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described therein or filed
as required.
In addition, such counsel shall state that in addition to rendering legal
advice and assistance to the Company in the course of the preparation of the
Registration Statement and the Prospectus, involving, among other things,
discussions and inquiries concerning various legal matters and the review of
certain corporate records, documents and proceedings (in addition to those
described in paragraphs (i) and (__) above), such counsel also participated in
conferences with certain officers and other representatives of the Company,
including its independent auditors and with the Underwriters and their counsel,
at which the contents of the Registration Statement and the Prospectus and
related matters were discussed; provided such counsel may state that they have
not independently verified the accuracy, completeness or fairness of the
information contained in the Registration Statement and Prospectus.
Such counsel shall also state that based upon its participation as
described in the preceding paragraph, such counsel has no reason to believe that
(except for the description of the Business Objects, S.A. litigation, financial
statements, and schedules and other financial and statistical data derived from
the financial statements,
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as to which such counsel expresses no belief) the Registration Statement, as
of its effective date, 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 that (except for the description
of the Business Objects, S.A. litigation, financial statements, and schedules
and other financial and statistical data derived from the financial
statements, as to which such counsel expresses no belief) the Prospectus, as
of its date and as of the Closing Date, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the States of California and
Delaware or the United States, to the extent satisfactory in form and scope to
counsel for the Underwriters, upon the opinion(s) of other counsel. The
foregoing opinion shall also state that the Underwriters are justified in
relying upon such opinion(s) of other counsel, and copies of such opinion shall
be delivered to the Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion. The opinions of issuer's counsel described herein shall be
rendered to the Underwriters at the request of the Company and shall so state
therein.
(c) The Representatives shall have received a legal opinion from Weil,
Gotshal & Manges LLP, special patent counsel for the Company, dated the Closing
date, to the effect that:
(i) the statements set forth under the headings "Risk Factors --
Litigation with Business Objects, S.A." and "Business --Legal Proceedings" in
the Registration Statement and the Prospectus, insofar as such statements
constitute a summary of the legal matters, documents or proceedings referred to
therein, have been reviewed by such counsel and fairly present the information
called for with respect to such legal matters, documents and proceedings in all
material respects as required by the Securities Act and the rules and
regulations thereunder, and such counsel has no reason to believe that such
information, (i) as of the effective date, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make such information not misleading and (ii) as of the date of
such opinion, included or includes any untrue statement of material fact or
omitted or omits to state a material fact necessary in order to make such
information, in light of the circumstances in which they were made, not
misleading.
(d) The Representatives shall have received a legal opinion from Venture
Law Group, counsel for the Selling Stockholders, dated the Closing Date, to the
effect that:
(i) each of the Selling Stockholders has valid title to the Shares to
be sold by such Selling Stockholder, and such Selling Stockholder has full power
to enter into this Agreement, the Custody Agreement and the Power-of-Attorney
and to sell, assign, transfer and deliver the Shares being sold by such Selling
Stockholder hereunder in the manner provided in this Agreement and to perform
its obligations under the Custody Agreement; this Agreement, the Custody
Agreement and the Power-of-Attorney have been duly executed and delivered by
each Selling Stockholder; assuming due authorization, execution and delivery by
the Custodian, the Custody Agreement and the Power-of-Attorney are the legal,
valid, binding and enforceable instruments of such
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Selling Stockholder, subject to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and subject, as to enforceability,
to general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law);
(ii) the delivery by each Selling Stockholder to the several
Underwriters of certificates for the Shares being sold hereunder by such Selling
Stockholder against payment therefor as provided herein, will convey good and
marketable title to such Shares to the several Underwriters, free and clear of
all security interests, liens, encumbrances, equities, claims or other defects;
(iii) the sale of the Shares to the Underwriters by such Selling
Stockholder pursuant to this Agreement, the compliance by such Selling
Stockholder with the other provisions of this Agreement and the Custody
Agreement and the consummation of the other transactions herein contemplated do
not (x) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have been
obtained and such as may be required under state securities or blue sky laws, or
(y) conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under any indenture, mortgage, deed of
trust, lease or other agreement or instrument to which such Selling Stockholder
is a party or by which such Selling Stockholder or any of properties are bound,
or any statute or any judgment, decree, order, rule or regulation of any court
or other governmental authority or any arbitrator applicable to such Selling
Stockholder.
In rendering such opinion, such counsel may rely, as to matters of fact, to
the extent such counsel deems proper, on certificates of the Selling
Stockholders and public officials and, as to matters involving the application
of laws of any jurisdiction other than the States of California or Delaware or
the United States, to the extent satisfactory in form and scope to counsel for
the Underwriters, upon the opinion(s) of other counsel. The foregoing opinion
shall also state that the Underwriters are justified in relying upon such
opinion(s) of other counsel, and copies of such opinion(s) shall be delivered to
the Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus in this
paragraph (d) shall include any amendment or supplement thereto at the date of
such opinion.
(e) The Representatives shall have received a legal opinion from Wilson
Sonsini Goodrich & Rosati, counsel for the Underwriters, dated the Closing Date,
covering the issuance and sale of the Shares, the Registration Statement and the
Prospectus, and such other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel such documents as
they may reasonably request for the purpose of enabling them to pass upon such
matters.
(f) The Representatives shall have received from Arthur Anderson & Co. a
letter or letters dated, respectively, the date hereof and the Closing Date, in
form and substance satisfactory to the Representatives, containing statements
and information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and certain
financial information contained in the Registration Statement and the
Prospectus; provided that the letter delivered on the Closing Date shall use a
--------
"cut-off date" not earlier than the date hereof.
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(g) The Company shall have furnished or caused to be furnished to the
Underwriters at the Closing a certificate of its Chairman of the Board, its
President or its Chief Executive Officer and its Chief Financial Officer
satisfactory to the Underwriters to the effect 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; the
Registration Statement, as of its effective date, did 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 the statements therein not misleading, and
the Prospectus, as amended or supplemented as of the Closing Date, does not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Company has
performed all covenants and agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement or any amendment thereto has been issued, and no proceedings for that
purpose have been instituted or threatened or, to the best of the Company's
knowledge, are contemplated by the Commission; and
(iii) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, neither the Company nor
any of its subsidiaries has sustained any material loss or interference with
their respective businesses or properties from fire, flood, hurricane, accident
or other calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding, and there has not been any
materially adverse change (including, without limitation, a change in management
or control), or development involving a prospective materially adverse change,
in the condition (financial or otherwise), management, earnings, properties,
business affairs or business prospects, stockholders' equity, net worth or
results of operations of the Company or any of its subsidiaries, except in each
case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto).
(h) The Representatives shall have received from each Selling Stockholder a
certificate, signed by such Selling Stockholder, dated the Closing Date, to the
effect that:
(i) the representations and warranties of such Selling Stockholder in
this Agreement are true and correct as if made on and as of the Closing Date;
(ii) the Registration Statement, as amended as of the Closing Date,
does not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Closing Date, does not include
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(iii) such Selling Stockholder has performed all covenants and
agreements on its part to be performed or satisfied at or prior to the Closing
Date.
(i) The Representatives shall have received from each person who is a
director or officer of the Company and substantially all holders of the
outstanding shares of Common Stock an agreement dated on or
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before the date of this Agreement to the effect that such person will not
publicly announce any intention to and will not, without the prior written
consent of the Representatives on behalf of the Underwriters, (i) offer,
pledge, sell, offer to sell, contract to sell, sell any option or contract to
purchase, purchase any option to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any of
the shares of Common Stock or any securities convertible into, or exercisable
or exchangeable for, Common Stock, or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the shares of Common Stock or any securities
convertible into, or exercisable or exchangeable for, shares of Common Stock
(whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of shares of Common Stock or such other securities, in
cash or otherwise), in each case, beneficially owned (within the meaning of
Rule 13d-3 under the Exchange Act) or otherwise controlled by such person on
the date hereof or hereafter acquired, for a period beginning from the date
hereof and continuing to and including the date 180 days after the date of the
Prospectus; provided, however, that such person may, without the prior written
consent of the Representatives on behalf of the Underwriters, transfer shares
of Common Stock or such other securities to members of such person's immediate
family or to trusts for the benefit of members of such person's immediate
family or in connection with bona fide gifts, provided that any transferee
agrees to the transfer restrictions described above.
(j) Prior to the commencement of the Offering, the Company shall have made
an application for the quotation of the Shares on the Nasdaq National Market and
the Shares shall have been included for trading on the Nasdaq National Market,
subject to official notice of issuance.
(k) Subsequent to the execution and delivery of this Agreement and prior to
the Closing Date, there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any review
for a possible change that does not indicate the direction of the possible
change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act.
(l) On or before the Closing Date, the Representatives and counsel for the
Underwriters shall have received such further certificates, documents or other
information as they may have reasonably requested from the Company and the
Selling Stockholders.
(m) All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
satisfactory in all material respects to the Representatives and counsel for the
Underwriters. The Company and the Selling Stockholders shall furnish to the
Representatives such conformed copies of such opinions, certificates, letters
and documents in such quantities as the Representatives and counsel for the
Underwriters shall reasonably request.
The respective obligations of the several Underwriters to purchase and pay
for any Shares shall be subject, in their discretion, to each of the foregoing
conditions to purchase the Shares, except that all references therein to the
Shares and the Closing Date shall be deemed to refer to the Firm Shares or the
Option Shares and the First Closing Date or the related Option Closing Date,
each as applicable.
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SECTION 8. DEFAULT OF UNDERWRITERS.
-----------------------
If, at the any Closing, any one or more of the Underwriters shall fail or
refuse to purchase Shares that it has or they have agreed to purchase hereunder
on such date, and the aggregate number of Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is ten
percent or less of the aggregate number of the Shares to be purchased on such
date, the other Underwriters may make arrangements satisfactory to the
Representatives for the purchase of such Shares by other persons (who may
include one or more of the non-defaulting Underwriters, including the
Representatives), but if no such arrangements are made by the First Closing Date
or the related Option Closing Date, as the case may be, the other Underwriters
shall be obligated severally in the proportions that the number of Firm Shares
set forth opposite their respective names in Schedule 1 hereto bears to the
aggregate number of Firm Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as the Representatives may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, at the
First Closing, any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than ten per cent of the aggregate number of Firm Shares
to be purchased, and arrangements satisfactory to the Representatives, the
Company and the Selling Stockholders for the purchase of such Firm Shares are
not made within 36 hours after such default, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter, the Company or
any Selling Stockholder. In any such case either the Representatives or the
Company shall have the right to postpone the Closing, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. If, at any Option Closing, any Underwriter or Underwriters shall fail
or refuse to purchase Option Shares, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Option Shares
or (ii) purchase not less than the number of Option Shares that such non-
defaulting Underwriters would have been obligated to purchase in the absence of
such default. As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 8. Any action taken
under this Section 8 shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
SECTION 9. TERMINATION.
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This Agreement shall be subject to termination in the sole discretion of
the Representatives by notice to the Company and the Selling Stockholders given
prior to any Closing Date in the event that the Company or any Selling
Stockholder shall have failed, refused or been unable to perform all obligations
and satisfy all conditions on its part to be performed or satisfied hereunder at
or prior thereto or, if at or prior to any Closing Date, (a) trading in
securities generally on the New York Stock Exchange or the Nasdaq National
Market shall have been suspended or materially limited or minimum or maximum
prices shall have been established by or on, as the case may be, the Commission
or the New York Stock Exchange or the Nasdaq National Market; (b) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market; (c) a general moratorium on commercial banking
activities shall have been declared by either Federal or New York State
authorities; (d) there shall have occurred (i) an outbreak or escalation of
hostilities between the United States and any foreign power, (ii) an outbreak or
escalation of any other insurrection or armed conflict involving the United
States, or (iii) any other calamity or crisis or materially adverse change in
general economic, political or financial conditions having an effect on the U.S.
financial markets that, in the sole judgment of the
-30-
<PAGE>
Representatives, makes it impractical or inadvisable to proceed with the
public offering or the delivery of the Shares as contemplated by the
Registration Statement, as amended as of the date hereof; or (e) the Company
or any of its subsidiaries shall have, in the sole judgment of the
Representatives, sustained any material loss or interference with their
respective businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding, or there shall have been any
materially adverse change (including, without limitation, a change in
management or control), or constitute a development involving a prospective
materially adverse change, in the condition (financial or otherwise),
management, earnings, properties, business affairs or business prospects,
stockholders' equity, net worth or results of operations of the Company and
its subsidiaries, taken as a whole, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or supplement
thereto). Termination of this Agreement pursuant to this Section 9 shall be
without liability of any party to any other party except for the liability of
the Company in relation to expenses as provided in Sections 4 and 10 hereof,
the liability of the Selling Stockholders in relation to expenses as provided
in Sections 4 and 10 hereof, the indemnity provided in Section 6 hereof and
any liability arising before or in relation to such termination.
SECTION 10. REIMBURSEMENT OF EXPENSES.
-------------------------
If the sale of the Shares provided for herein is not consummated because
any condition to the obligations of the Underwriters set forth in Section 7
hereof is not satisfied or because of any termination pursuant to Section 9
hereof (other than by reason of a default by any of the Underwriters), the
Company shall reimburse the Underwriters, severally upon demand, for all out-of-
pocket expenses (including fees and disbursements of counsel) that shall have
been incurred by them in connection with the proposed purchase and sale of the
Shares. If the Company is required to make any payments to the Underwriters
under this Section 10 because of any Selling Stockholder's refusal, inability or
failure to satisfy any condition to the obligations of the Underwriters set
forth in Section 7 hereof, such defaulting Selling Stockholder, pro rata in
proportion to the percentage of Shares to be sold by each, shall reimburse the
Company on demand for all amounts so paid.
SECTION 11. INFORMATION SUPPLIED BY UNDERWRITERS.
------------------------------------
The statements set forth in [the second to last paragraph on the front
cover page and under the heading "Underwriting" in any Preliminary Prospectus or
the Prospectus] (to the extent such statements relate to the Underwriters)
constitute the only information furnished by any Underwriter through the
Representatives to the Company for the purposes of Section 5(a)(ii) and Section
6 hereof. The Underwriters confirm that such statements (to such extent) are
correct.
SECTION 12. NOTICES.
-------
In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by the Representatives. Any notice or notification in any form to be
given under this Agreement may be delivered in person or sent by telex,
facsimile or telephone (subject in the case of a communication by telephone to
confirmation by telex or facsimile) addressed to:
in the case of the Company:
-31-
<PAGE>
Brio Technology, Inc.
3430 West Bayshore Road
Palo Alto, CA 94303
Facsimile: (650) 856-0794
Telex: (650) 845-8000
Attention: Yorgen H. Edholm
in the case of the Underwriters:
Deutsche Morgan Grenfell Inc.
31 West 52nd Street
New York, New York 10019
Facsimile: (212) 469-8173
Telex: (212) 469-7151
Attention: Thomas Curtis, Esq.
In the case of the Selling Stockholders, any such notice shall be addressed to
the Selling Stockholders at the addresses set forth in Schedule 2 hereto. Any
notice under this Section 12 shall take effect, in the case of delivery, at the
time of delivery and, in the case of telex or facsimile, at the time of
dispatch.
SECTION 13. MISCELLANEOUS.
-------------
(a) Time shall be of the essence of this Agreement.
(b) The headings herein are inserted for convenience of reference only and
are not intended to be part of, or to affect, the meaning or interpretation of
this Agreement.
(c) For purposes of this Agreement, (a) "business day" means any day on
which the New York Stock Exchange is open for trading, and (b) "subsidiary" has
the meaning set forth in Rule 405 under the Securities Act.
(d) This Agreement may be executed in any number of counterparts, all of
which, taken together, shall constitute one and the same Agreement and any party
may enter into this Agreement by executing a counterpart.
(e) This Agreement shall inure to the benefit of and shall be binding upon
the several Underwriters, the Company, the Selling Stockholders and their
respective successors and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or 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 such persons and for the benefit of no other person, except that (i)
the indemnities of the Company and the Selling Stockholders contained in Section
6 hereof shall also be for the benefit of any person or persons who control any
Underwriter within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act and (ii) the indemnities of the Underwriters contained in
Section 6 hereof shall also be for the benefit of the
-32-
<PAGE>
directors of the Company, the officers of the Company who have signed the
Registration Statement, each Selling Stockholder and any person or persons who
control the Company or such Selling Stockholder within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act. No purchaser of
Shares from any Underwriter shall be deemed a successor because of such
purchase.
(f) The respective representations, warranties, agreements, covenants,
indemnities and other statements of the Company, its officers, the Selling
Stockholders and the several Underwriters set forth in this Agreement or made by
or on behalf of them, respectively, pursuant to this Agreement shall remain in
full force and effect, regardless of (i) any investigation made by or on behalf
of the Company, any of its officers or directors, the Selling Stockholders, any
Underwriter or any controlling person referred to in Section 6 hereof and (ii)
delivery of and payment for the Shares. The respective agreements, covenants,
indemnities and other statements set forth in Sections 4, 6 and 10 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
SECTION 14. SEVERABILITY.
------------
It is the desire and intent of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the law and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any provision of this Agreement would be held in
any jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 15. GOVERNING LAW.
-------------
The validity and interpretation of this Agreement, and the terms and
conditions set forth herein, shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to any provisions
relating to conflicts of laws. If the foregoing is in accordance with your
understanding, please sign and return to us eight (8) counterparts hereof, and
upon the acceptance hereof by you, on behalf of each of the Underwriters, this
letter and such acceptance hereof shall constitute a binding agreement among
each of the Underwriters and the Company. It is understood that your acceptance
of this letter on behalf of each of the Underwriters is pursuant to the
authority set forth in the Deutsche Morgan Grenfell Inc. Master Agreement Among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
BRIO TECHNOLOGY, INC.
-33-
<PAGE>
By: Yorgen H. Edholm
Title: President and Chief Executive Officer
SELLING STOCKHOLDERS
- ---------------------------- -----------------------------------
YORGEN H. EDHOLM KATHERINE GLASSEY
The foregoing Agreement is hereby confirmed and
accepted as of the date first above written.
DEUTSCHE MORGAN GRENFELL INC.
BANCAMERICA ROBERTSON STEPHENS
FIRST ALBANY CORPORATION
PIPER JAFFRAY INC.
By: DEUTSCHE MORGAN GRENFELL INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-34-
<PAGE>
SCHEDULE 1
----------
THE UNDERWRITERS
----------------
<TABLE>
<CAPTION>
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
<S> <C>
Deutsche Morgan Grenfell Inc.
BancAmerica Robertson Stephens
First Albany Corporation
Piper Jaffray Inc.
TOTAL FIRM SHARES:
</TABLE>
-35-
<PAGE>
SCHEDULE 2
----------
THE SELLING STOCKHOLDERS
------------------------
NAME AND ADDRESS OF NUMBER OF FIRM SHARES NUMBER OF OPTION SHARES
SELLING STOCKHOLDERS TO BE SOLD TO BE SOLD
- -------------------- --------------------- -----------------------
Yorgen H. Edholm
- ----------------------
- ----------------------
- ----------------------
Katherine Glassey
- ----------------------
- ----------------------
- ----------------------
-36-
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BRIO TECHNOLOGY, INC.
The following Amended and Restated Certificate of Incorporation of Brio
Technology, Inc. amends and restates the provisions of and supersedes the
Certificate of Incorporation filed with the Secretary of State of the State of
Delaware on April 9, 1998 in its entirety.
ARTICLE I
The name of the corporation is BRIO TECHNOLOGY, INC. (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware, County of New Castle, is The Corporation Trust Company, 1209 Orange
Street, Wilmington, Delaware, 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
Upon the filing of this Amended and Restated Certificate of Incorporation,
every two shares of this Corporation's outstanding Common Stock and Preferred
Stock shall be converted and reconstituted into one share of the like class and
series of the Corporation's capital stock from which such shares were converted
(the "Stock Split"). In lieu of the issuance of fractional shares, each
-----------
fraction of a share shall be rounded down to the nearest whole share. All share
amounts and amounts per share set forth in this Amended and Restated Certificate
of Incorporation have been appropriately adjusted to reflect the Stock Split.
No further adjustment of any Dividend Preference, Liquidation Preference,
Redemption Price, Conversion Price, or Protective Provisions pursuant to
Sections 1, 2, 3, 4 or 6 respectively, of Part B of this Article IV shall be
made as a result of the Stock Split.
(A) Classes of Stock. This corporation is authorized to issue two classes
-----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock",
each with a par value of $0.001 per share. The total number of shares which the
corporation is authorized to issue is Nineteen Million One Hundred Twenty Five
Thousand (19,125,000) shares. Thirteen Million
<PAGE>
Five Hundred Thousand (13,500,000) shares shall be Common Stock and Five Million
Six Hundred Twenty Five Thousand (5,625,000) shares shall be Preferred Stock.
(B) Rights, Preferences, Privileges and Restrictions of Preferred Stock.
-------------------------------------------------------------------
The Preferred Stock authorized by this Certificate of Incorporation may be
issued from time to time in series. The rights, preferences, privileges and
restrictions granted to and imposed on the Series A Preferred Stock, which
series shall consist of 2,550,000 shares, the Series B Preferred Stock, which
series shall consist of 2,200,000 shares, and the Series C Preferred Stock,
which series shall consist of 875,000 shares, are as set forth below in this
Article IV(B).
Except as to the Series A, Series B and Series C Preferred Stock and except
as otherwise provided in this Certificate of Incorporation, the Board of
Directors is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
additional series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them. The Board of
Directors, except as otherwise provided in this Certificate of Incorporation, is
also authorized to decrease the number of shares of any series, excluding the
Series A, Series B and Series C Preferred Stock, subsequent to the issuance of
shares that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
1. Dividend Provisions. The holders of shares of Series A,
-------------------
Series B and Series C Preferred Stock shall be entitled to receive dividends,
out of any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Common Stock of this Corporation, at the rate of (i) $0.14
per share of Series A Preferred Stock then held thereby, $0.28 per share of
Series B Preferred Stock then held thereby and $0.70 per share of Series C
Preferred Stock then held thereby, per annum or, if greater (as determined on an
as-converted basis), (ii) an amount equal to that paid on any other outstanding
shares of this corporation, whenever funds are legally available therefor,
payable when, as and if declared by the Board of Directors. No dividend shall
be declared and/or paid with respect to any series of Preferred Stock unless a
dividend is declared and/or paid with respect to each series of outstanding
Preferred Stock at a rate that is no less favorable than $0.14 for each share of
Series A Preferred Stock, $0.28 for each share of Series B Preferred Stock and
$0.70 for each share of Series C Preferred Stock. Such dividends shall not be
cumulative.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding
up of this corporation, either voluntary or involuntary, the holders of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of the assets
of this corporation to the holders of Common Stock by reason of their ownership
thereof, an amount per share equal $1.54 per share of Series A Preferred Stock,
-2-
<PAGE>
$2.834 per share of Series B Preferred Stock and $7.04 per share of Series C
Preferred Stock then held thereby plus any declared but unpaid dividends thereon
(the "Series A Liquidation Preference," the "Series B Liquidation Preference"
and the "Series C Liquidation Preference," respectively). If, upon the
occurrence of such an event, the assets and property thus distributed among the
holders of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be insufficient to permit the payment to such holders of
the full Series A Liquidation Preference, the full Series B Liquidation
Preference and the full Series C Liquidation Preference, then the assets and
property of the corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock in proportion to the aggregate
preferential amounts owed such holders of the outstanding Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock upon a liquidation,
dissolution or winding up of the corporation.
(b) After the distributions described in subsection (a)
above have been paid, the remaining assets of the corporation available for
distribution to shareholders shall be distributed among the holders of Preferred
Stock and Common Stock pro rata based on the number of shares of Common Stock
held by each (assuming conversion of all such Preferred Stock); provided that at
-------------
such time as the holders of (i) Series A Preferred Stock shall have received an
aggregate amount of $4.62 per share of Series A Preferred Stock they own, (ii)
the Series B Preferred Stock shall have received an aggregate of $8.50 per share
of Series B Preferred Stock they own and (iii) the Series C Preferred Stock
shall have received an aggregate of either (1) if the transaction giving rise to
the distribution occurs prior to June 30, 1998, $14.08 per share of Series C
Preferred Stock they own, or (2) if the transaction giving rise to the
distribution occurs on or after June 30, 1998, $21.12 per share of Series C
Preferred Stock they own, (including, for all distributions to the holders of
Series A, Series B or Series C Preferred Stock hereunder, all amounts paid to
such holders pursuant to subsections (a) and (b) of this Section 2), such shares
shall be considered fully paid and the holders thereof shall be entitled to no
further distributions pursuant to this subsection 2(b) with respect to such
shares or shares assumed to be issued upon conversion thereof.
(c) For purposes of this Section 2, (i) any acquisition of
this corporation by means of merger or other form of corporate reorganization in
which the shareholders of this corporation do not own a majority of the
outstanding shares of the surviving corporation or (ii) a sale of all or
substantially all of the assets of this corporation shall be treated as a
liquidation, dissolution or winding up of this corporation and shall entitle the
holders of Preferred Stock and Common Stock to receive at the closing cash,
securities or other property as set forth in Sections 2(a) and 2(b) above.
(d) Any securities to be delivered to the holders of the
Preferred Stock and/or Common Stock pursuant to Section 2(c) above shall be
valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability:
-3-
<PAGE>
(A) If traded on a securities exchange or the Nasdaq
National Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the 30-day period ending three
(3) days prior to the closing;
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) days prior to the closing; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors of this corporation.
(ii) The method of valuation of securities subject to
investment letter of other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in (i) (A),
(B) or (C) to reflect the approximate fair market value thereof, as determined
in good faith by the Board of Directors of this corporation.
(e) In the event the requirements of subsection 2(c) are not
complied with, the corporation shall forthwith either:
(i) cause such closing to be postponed until such time
as the requirements of this Section 2(c) have been complied with, or
(ii) cancel such transaction, in which event the rights,
preferences, privileges and restrictions of the holders of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall
revert to and be the same as such rights, preferences, privileges and
restrictions existing immediately prior to the date of the first notice referred
to in Section 2(f) hereof.
(f) The corporation shall give each holder of record of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
written notice of such a Section 2(c) transaction not later than twenty (20)
days prior to the shareholders' meeting called to approve such transaction, or
twenty (20) days prior to the closing of such transaction, whichever is earlier,
and shall also notify such holders in writing of the final approval of such
transaction. The first of such notices shall describe the material terms and
conditions of the impending transaction and the provisions of Section 2(c), and
the corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than twenty (20)
days after the corporation has given the first notice provided for herein or
sooner than ten (10) days after the corporation has given notice of any material
changes provided for herein; provided, however, that such periods may be
shortened upon the written consent of the holders of a majority of the shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
then outstanding, voting together as a single class.
3. Redemption.
----------
-4-
<PAGE>
(a) On or at any time after June 30, 2002, or at such
earlier time if it shall obtain the prior written consent of the holders of 66-
2/3% of the then outstanding shares of Preferred Stock, this corporation may, at
such time as and to the extent that it may lawfully do so, redeem in whole or in
part the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock by paying in cash therefor to the holders thereof a sum equal to
$1.54 per share of Series A Preferred Stock, $2.834 per share of Series B
Preferred Stock and $7.04 per share of Series C Preferred Stock then held
thereby plus all accrued but unpaid dividends thereon (such amount being
referred to in this Section 3 as the "Redemption Price").
(b) (i) In the event of any redemption of only a part of the
then outstanding Series A Preferred Stock, Series B Preferred Stock and/or
Series C Preferred Stock this corporation shall effect such redemption pro rata
according to the number of shares held by each holder thereof. In the event of
any redemption of all or part of the then outstanding Series A Preferred Stock,
Series B Preferred Stock and/or Series C Preferred Stock any holder thereof may
avoid all or part of such redemption by converting into Common Stock, pursuant
to Section 4 below, up to that number of shares of such holder's Preferred Stock
scheduled to be redeemed in such redemption. Such holder may condition such
conversion on deposit by the corporation of the Redemption Price for the shares
to be redeemed pursuant to subsection 3(b)(iv) below.
(ii) At least 30 but no more than 60 days prior to the
date fixed for any redemption of Series A Preferred Stock, Series B Preferred
Stock and/or Series C Preferred Stock (the "Redemption Date"), written notice
shall be mailed, first class postage prepaid, to each holder of record (at the
close of business on the business day next preceding the day on which notice is
given) of the Series A Preferred Stock, Series B Preferred Stock and/or Series C
Preferred Stock to be redeemed, at the address last shown on the records of this
corporation for such holder or given by the holder to this corporation for the
purpose of notice, notifying such holder of the redemption to be effected,
specifying the number of shares to be redeemed from such holder, the Redemption
Date, the Redemption Price, the place at which payment may be obtained and the
date on which such holder's Conversion Rights (as hereinafter defined) as to
such shares terminate and calling upon such holder to surrender to this
corporation, in the manner and at the place designated, his certificate or
certificates representing the shares to be redeemed (the "Redemption Notice").
Except as provided in subsection 3(b)(iii), on or after the Redemption Date,
each holder of Series A Preferred Stock, Series B Preferred Stock and/or Series
C Preferred Stock to be redeemed shall surrender to this corporation the
certificate or certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(iii) From and after the Redemption Date, unless
there shall have been a default in payment of the Redemption Price, all
dividends on the Series A Preferred Stock, Series B Preferred Stock and/or
Series C Preferred Stock designated for redemption in the
-5-
<PAGE>
Redemption Notice shall cease to accrue, all rights of the holders of such
shares as holders of Series A Preferred Stock, Series B Preferred Stock and/or
Series C Preferred Stock (except the right to receive the Redemption Price
without interest upon surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of this corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the corporation legally available for
redemption of shares of Series A Preferred Stock, Series B Preferred Stock
and/or Series C Preferred Stock on any Redemption Date are insufficient to
redeem the total number of shares of Series A Preferred Stock, Series B
Preferred Stock and/or Series C Preferred Stock to be redeemed on such date,
those funds which are legally available will be used to redeem the maximum
possible number of such shares in accordance with the provisions of paragraph
3(b)(i) hereof. The shares of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock not redeemed shall remain outstanding and entitled
to all the rights and preferences provided herein. At any time thereafter when
additional funds of the Company are legally available for the redemption of
shares of Series A Preferred Stock, Series B Preferred Stock and/or Series C
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares which the Company has become obligated to redeem on any Redemption
Date but which it has not redeemed.
(iv) Three days prior to the Redemption Date, this
corporation shall deposit the Redemption Price of all outstanding shares of
Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred
Stock designated for redemption in the Redemption Notice, and not yet redeemed
or converted, with a bank or trust company having aggregate capital and surplus
in excess of $50,000,000 as a trust fund for the benefit of the respective
holders of the shares designated for redemption and not yet redeemed.
Simultaneously, this corporation shall deposit irrevocable instruction and
authority to such bank or trust company to publish the notice of redemption
thereof (or to complete such publication if theretofore commenced) and to pay,
on and after the date fixed for redemption or prior thereto, the Redemption
Price of the Series A Preferred Stock, Series B Preferred Stock and/or Series C
Preferred Stock to the holders thereof upon surrender of their certificates. Any
monies deposited by this corporation pursuant to this subsection 3(b)(iv) for
the redemption of shares which are thereafter converted into shares of Common
Stock pursuant to Section 4 hereof no later than the close of business on the
Redemption Date shall be returned to this corporation forthwith upon such
conversion. The balance of any monies deposited by this corporation pursuant to
this subsection 3(c)(iv) remaining unclaimed at the expiration of one year
following the Redemption Date shall thereafter be returned to this corporation,
provided that the shareholder to which such money would be payable hereunder
shall be entitled, upon proof of its ownership of the Series A Preferred Stock,
Series B Preferred Stock and/or Series C Preferred Stock and payment of any bond
requested by the Company, to receive such monies but without interest from the
Redemption Date.
4. Conversion. The holders of the Series A Preferred Stock,
----------
Series B Preferred Stock and Series C Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert.
----------------
-6-
<PAGE>
(i) Subject to subsection (c), each share of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share and prior to the close of business on any Redemption Date
as may have been fixed in any Redemption Notice with respect to such share, at
the office of this corporation or any transfer agent for the Preferred Stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined (A) in the case of the Series A Preferred Stock, by dividing $1.54
for each share of Series A Preferred Stock by the Conversion Price at the time
in effect for such share, (B) in the case of the Series B Preferred Stock, by
dividing $2.834 for each share of Series B Preferred Stock by the Conversion
Price at the time in effect for such share and (C) in the case of the Series C
Preferred Stock, by dividing $7.04 for each share of Series C Preferred Stock by
the Conversion Price at the time in effect for such share. The initial
Conversion Price for shares of Series A Preferred Stock shall be $1.54 per
share; the initial Conversion Price for shares of Series B Preferred Stock shall
be $2.834 per share; the initial Conversion Price for shares of Series C
Preferred Stock shall be $7.04 per share; provided, however, that each such
Conversion Price shall be subject to adjustment as set forth in subsection 4(c).
(ii) In the event of a call for redemption of any shares
of Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred
Stock pursuant to Section 3 hereof, the Conversion Rights shall terminate as to
the shares designated for redemption at the close of business on the Redemption
Date, unless default is made in payment of the Redemption Price.
(iii) Each share of Series A Preferred Stock, Series B
Preferred Stock and/or Series C Preferred Stock shall automatically be converted
into shares of Common Stock at the Conversion Price at the time in effect for
such Series A Preferred Stock, Series B Preferred Stock and/or Series C
Preferred Stock immediately upon the consummation of the corporation's sale of
its Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement on Form S-1 under the Securities Act of 1933, as amended,
which results in aggregate gross cash proceeds to this corporation of at least
$10,000,000 and the public offering price of which is not less than $7.00 per
share (adjusted to reflect stock dividends, stock splits or recapitalizations
effected after the filing date hereof).
(b) Mechanics of Conversion. Before any holder of Series
-----------------------
A Preferred Stock, Series B Preferred Stock, or Series C Preferred Stock shall
be entitled to convert the same into shares of Common Stock, he shall surrender
the certificate or certificates therefor, duly endorsed, at the office of this
corporation or of any transfer agent for the Preferred Stock, and shall give
written notice by mail, postage prepaid, to this corporation at its principal
corporate office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office such holder of Preferred Stock, or
to the nominee or nominees of such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such
-7-
<PAGE>
surrender of the shares of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offer of securities registered pursuant to the Securities
Act of 1933, the conversion will be conditioned upon the closing with the
underwriter of the sale of securities pursuant to such offering, unless
otherwise designated in writing by the holders of such Preferred Stock, in which
event the person(s) entitled to receive the Common Stock issuable upon such
conversion of the Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.
(c) Conversion Price Adjustments of Preferred Stock. The
-----------------------------------------------
Conversion Price of the Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock shall be subject to adjustment from time to
time as follows:
(i) (A) If the corporation, at any time or from
time to time after the date of the first issuance of shares of a particular
series of Preferred Stock (in each case a "Purchase Date" with respect to such
series), shall issue any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock in effect immediately prior to the issuance of such Additional Stock, the
Conversion Price for the Series A Preferred Stock, the Series B Preferred Stock
or the Series C Preferred Stock in effect immediately prior to each such
issuance shall forthwith be adjusted to a price determined by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock which the aggregate consideration received by
the corporation for the total number of shares of Additional Stock so issued
would purchase at such Conversion Price, and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of such shares of Additional Stock so issued; provided
that for the purposes of this subsection, all shares of Common Stock issuable
upon exercise of outstanding options and warrants and/or upon conversion of
outstanding convertible securities (including outstanding Preferred Stock),
shall be deemed to be outstanding, and immediately after any Additional Stock is
deemed issued, such Additional Stock shall be deemed to be outstanding.
(B) No adjustment of the Conversion Price for the
Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred
Stock shall be made in an amount less than one cent per share, provided that any
adjustments which are not required to be made by reason of this sentence shall
be carried forward and shall be either taken into account in any subsequent
adjustment made prior to 3 years from the date of the event giving rise to the
adjustment being carried forward, or shall be made at the end of 3 years from
the date of the event giving rise to the adjustment being carried forward.
Except to the limited extent provided for in subsections (E)(3) and (E)(4), no
adjustment of such Conversion Price pursuant to this subsection 4(c)(i) shall
have the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
-8-
<PAGE>
(C) In the case of the issuance of Common Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by this corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance, whether before, on
or after the Purchase Date of the Series A Preferred Stock, Series B Preferred
Stock, or Series C Preferred Stock of options to purchase or rights to subscribe
for Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities (which are not excluded from the definition of
Additional Stock), the following provisions shall apply:
1. The aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the consideration
(determined in the manner provided in subsections 4(c)(i)(C) and 4(c) (i)(D)),
if any, received by the corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby.
2. The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration, if any, received by
the corporation for any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in subsections 4(c)(i)(C) and 4(c)(i)(D)).
3. In the event of any change in the number of
shares of Common Stock deliverable or any increase in the consideration payable
to this corporation upon exercise of such options or rights or upon conversion
of or in exchange for such convertible or exchangeable securities, including,
but not limited to, a change resulting from the antidilution provisions thereof,
the Conversion Price of the Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock obtained with respect to the adjustment which was
made upon the issuance of such options, rights or securities, and any subsequent
adjustments based thereon, shall be recomputed to reflect such change, but no
further adjustment shall be
-9-
<PAGE>
made for the actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or rights or the conversion
or exchange of such securities.
4. Upon the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price of the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock obtained with respect to the
adjustment which was made upon the issuance of such options, rights or
securities or options or rights related to such securities, and any subsequent
adjustments based thereon, shall be recomputed to reflect the issuance of only
the number of shares of Common Stock actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities. Upon the
expiration of any such options or rights, the termination of any such rights to
convert or exchange or the expiration of any options or rights related to such
convertible or exchangeable securities, only the number of shares of Common
Stock actually issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the options or
rights related to such securities shall continue to be deemed to be issued.
5. All Common Stock deemed issued pursuant to
this subsection 4(c)(i)(E) shall be considered issued only at the time of its
deemed issuance and any actual issuance of such stock shall not be an actual
issuance or a deemed issuance of the corporation's Common Stock under the
provisions of this Section 4.
(ii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to subsection
4(c)(i)(E)) by this corporation on or after the Purchase Date other than shares
of Common Stock issued or issuable
(A) pursuant to a transaction described in
subsection 4(c)(iii) hereof,
(B) up to 2,058,398 shares of Common Stock (plus any
increase unanimously approved by the Board of Directors), issuable to officers,
directors, employees and consultants of this corporation directly or pursuant to
a stock option plan or restricted stock plan,
(C) in connection with capital equipment leases
approved by the Board of Directors,
(D) upon conversion of the Preferred Stock, or
(E) upon exercise of a warrant issued in connection
with the acquisition of Brio Technology Limited.
(iii) In the event the corporation should at any
time or from time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of
-10-
<PAGE>
the outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be increased in proportion to such
increase of outstanding shares determined in accordance with subsection 4 (c)
(i)(E).
(iv) If the number of shares of Common Stock outstanding
at any time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock shall be appropriately
increased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be decreased in proportion to such decrease in
outstanding shares.
(d) Other Distributions. In the event this
-------------------
corporation shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by this corporation or other persons, assets
(excluding cash dividends) or options or rights not referred to in subsection
4(c)(iii), then, in each such case for the purpose of this subsection 4(d), the
holders of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of the
corporation entitled to receive such distribution.
(e) Recapitalizations. If at any time or from time
-----------------
to time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 2) provision shall be made so that the
holders of the Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock shall thereafter be entitled to receive upon conversion
of the Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock the number of shares of stock or other securities or property of
the Company or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of the Series A Preferred Stock, the Series B
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<PAGE>
Preferred Stock and the Series C Preferred Stock) shall be applicable after that
event as nearly equivalent as may be practicable.
(f) No Impairment. This corporation will not, by
-------------
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock against impairment.
(g) No Fractional Shares and Certificate as to
------------------------------------------
Adjustments.
- -----------
(i) No fractional shares shall be issued upon
conversion of the Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, and the number of shares of Common Stock to be issued shall be
rounded to the nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A Preferred Stock, Series B Preferred Stock and/or
Series C Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of any Conversion Price of Series A Preferred Stock, Series B
Preferred Stock and/or Series C Preferred Stock pursuant to this Section 4, this
corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock, Series B Preferred Stock and/or Series C
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
This corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (A) such adjustment and readjustment, (B) the Conversion Price at
the time in effect, and (C) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of a share of Series A Preferred Stock, Series B Preferred Stock
and/or Series C Preferred Stock.
(h) Notices of Record Date. In the event of any
----------------------
taking by this corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Preferred Stock, Series B
Preferred Stock and/or Series C Preferred Stock, at least 20 days prior to the
date specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
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<PAGE>
(i) Reservation of Stock Issuable Upon Conversion.
---------------------------------------------
This corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, in addition to such other remedies
as shall be available to the holder of such Preferred Stock, this corporation
will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes.
(j) Notices. Any notice required by the provisions
-------
of this Section 4 to be given to the holders of shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of this corporation.
5. Voting Rights.
-------------
(a) Except as set forth in (b) below, the holder of each
share of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock could then be converted (with any fractional share determined on
an aggregate conversion basis being rounded to the nearest whole share), and
with respect to such vote, such holder shall have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock, and shall
be entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the Bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
(b) The holders of Preferred Stock shall be entitled, voting
as a separate class, to elect three directors of the Corporation at each annual
election of directors. The remaining directors of the Corporation shall be
elected by the holders of the Common Stock, voting as a separate class. In the
case of any vacancy in the office of a director occurring among the directors
elected by the holders of a class of stock pursuant to this subsection 5(b), the
remaining directors so elected by that class may, by the affirmative vote of a
majority thereof (or the remaining director, if there be but one), elect a
successor to hold office for the unexpired term of the director or directors
whose place shall be vacant. In the case of vacancies in the offices of all
directors elected by the holders of a class of stock, the vacancies shall be
filled by successors elected by the holders of the class of stock originally
entitled to elect such directors hereunder as provided in the Delaware General
Corporation Law. Any director who shall have been elected by the holders of a
class of stock or by any directors so elected as provided in the next preceding
sentence hereof may be removed during the aforesaid term of office, either with
or without cause,
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<PAGE>
by and only by the affirmative vote of the holders of the shares of the class of
stock which elected such director or directors, given either at a special
meeting of such stockholders duly called for that purpose or pursuant to a
written consent of stockholders, and any vacancy thereby created may be filled
by the holders of that class represented at such meeting or pursuant to such
written consent.
6. Protective Provisions. So long as shares of Preferred Stock
---------------------
are outstanding, this corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Preferred Stock, voting together as
one class except where otherwise required by law;
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than 50%
of the voting power of the corporation is disposed of;
(b) create any new class or series of stock or any other
securities convertible into equity securities of the corporation (i) having a
preference over, or being on a parity with, the Preferred Stock with respect to
voting, dividends or upon liquidation, or (ii) having rights similar to any of
the rights of the Preferred Stock under this Section 6;
(c) do any act or thing which would result in taxation of
the holders of shares of the Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended);
(d) Alter or change the rights, preferences or privileges of
such series of Preferred Stock;
(e) Increase the number of directors to more than six; or
(f) Increase the authorized number of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Common
Stock.
7. Status of Converted or Redeemed Stock. In the event any
-------------------------------------
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock shall be redeemed or converted pursuant to Section 3 or Section
4 hereof, the shares so converted or redeemed shall be cancelled and shall not
be issuable by the corporation, and the Certificate of Incorporation of this
corporation shall be appropriately amended to effect the corresponding reduction
in the corporation's authorized capital stock.
8. Repurchase of Shares. In connection with repurchases by
--------------------
this corporation of its Common Stock pursuant to its agreements with certain of
the holders thereof providing for such repurchases in the event of the
termination of the status of such holder as an employee,
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<PAGE>
director or consultant to the Company, each holder of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall be deemed to have
consented, for purposes of Sections 502, 503 and 506 of the California General
Corporation Law, to distributions made by the corporation with respect to such
repurchases.
(C) Common Stock.
-------------
1. Dividend Rights. Subject to the prior rights of holders of
---------------
all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or
------------------
winding up of the corporation, the assets of the corporation shall be
distributed as provided in Section 2 of Division (B) of this Article IV.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock
-------------
shall have the right to one vote, and shall be entitled to notice of any
shareholders meeting in accordance with the Bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VII
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or serves or served
-15-
<PAGE>
at any other enterprise as a director or officer at the request of the
Corporation or any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of the Corporation's Certificate of Incorporation inconsistent
with this Article VII, shall eliminate or reduce the effect of this Article VII
in respect of any matter occurring, or any action or proceeding accruing or
arising or that, but for this Article VII, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE VIII
Immediately upon the closing of the Corporation's first public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering any of the corporation's securities (as that term is
defined under the Securities Act of 1933, as then in effect) no action shall be
taken by the stockholders of the Corporation except at an annual or special
meeting of the stockholders called in accordance with the Bylaws and no action
shall be taken by the stockholders by written consent.
ARTICLE IX
Meetings of stockholders may be held within or without the State of Delaware,
as the Bylaws may provide. The books of the Corporation may be kept (subject to
any provision contained in the statutes) outside of the State of Delaware at
such place or places as may be designated from time to time by the Board of
Directors or in the Bylaws of the Corporation.
ARTICLE X
"Listing Event" as used in this Certificate of Incorporation shall mean the
--------------
Corporation becoming a "Listed Corporation" within the meaning of Section 301.5
------------------
of the California Corporations Code. For the management of the business and for
the conduct of the affairs of the Corporation, and in further definition,
limitation and regulation of the powers of the Corporation, its directors and
its stockholders or any class thereof, as the case may be, it is further
provided that, effective upon the occurrence of the Listing Event:
(i) The Board of Directors of the Corporation shall divide the directors
into two classes, as nearly equal in number as reasonably possible with the term
of office of the first class to expire at the 1999 annual meeting of
stockholders or any special meeting in lieu thereof and the term of office of
the second class to expire at the 2000 annual meeting of stockholders or any
special meeting in lieu thereof. At each annual meeting of stockholders or
special meeting in lieu thereof following such initial classification, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the second succeeding annual meeting of stockholders
or special meeting in lieu thereof after their election and until their
successors are duly elected and qualified.
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<PAGE>
(ii) Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office of other cause may be filled only by a majority vote of the directors
then in office even though less than a quorum, or by a sole remaining director.
In the event of any increase or decrease in the authorized number of directors,
(a) each director then serving as such shall nevertheless continue as a director
of the class of which he or she is a member until the expiration of his or her
current term or his or her prior death, retirement, removal or resignation and
(b) the newly created or eliminated directorships resulting from such increase
or decrease shall if reasonably possible be apportioned by the Board of
Directors among the three classes of directors so as to ensure that no one class
has more than one director more than any other class. To the extent reasonably
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation and newly eliminated directorships shall
be subtracted from those classes whose terms of office are to expire at the
earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board of Directors until the vacancy is filled.
Notwithstanding the foregoing provisions of this Article X, each director shall
serve until his or her successor is duly elected and qualified or until his or
her death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
(iii) There shall be no right with respect to shares of stock of the
corporation to cumulate votes in election of directors.
-17-
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Section 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at _______________, California, on ____________________.
__________________________________
Yorgen Edholm, President
__________________________________
Mark B. Weeks, Secretary
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<PAGE>
EXHIBIT 4.1
[LOGO OF BRIO TECHNOLOGY, INC. APPEARS HERE]
BRIO TECHNOLOGY, INC.
BT
THIS CERTIFICATE IS TRANSFERABLE
IN BOSTON, MA OR NEW YORK, NY
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
AND A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS OF SHARES
CUSIP 109704 10 6
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $0.001 PER
SHARE, OF
BRIO TECHNOLOGY, INC.
transferable on the books of the Corporation by the holder hereof, in
person or by duly authorized attorney, upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be
signed in facsimile by its duly authorized officers and sealed with a facsimile
of its corporate seal.
Dated:
/s/ Mark B. Weeks /s/ Yorgen H. Edholm
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
BOSTON EQUISERVE TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY /s/ M. Peneszic
AUTHORIZED SIGNATURE
<PAGE>
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
COM PROP - as community property
UNIF GIFT MIN ACT - ......................... Custodian ......................
(Cust) (Minor)
under Uniform Gifts to Minors
Act ......................................................
(State)
UNIF TRF MIN ACT - ................. Custodian (until age ................)
(Cust)
............................ under Uniform Transfers
(Minor)
to Minors Act .............................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
-----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
----------------------------
X
----------------------------------
X
----------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
-----------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
[VENTURE LAW GROUP LOGO]
April 17, 1998
Brio Technology, Inc.
3430 West Bayshore Road
Palo Alto, California 94303
REGISTRATION STATEMENT ON FORM S-1; FILE NO. 333-47263
------------------------------------------------------
Dear Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333-
47263) filed by you with the Securities and Exchange Commission on March 3,
1998, as amended on April 7, 1998, April 16, 1998 and April 17, 1998 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of a total of 3,335,000 shares of your
Common Stock (the "Shares"), 3,085,000 of which are to be sold by the Company
and 250,000 of which are to be sold by the Selling Stockholders (as defined in
the Registration Statement). The Shares include an over-allotment option to
purchase 435,000 shares granted to the underwriters and are to be sold to the
underwriters 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 the Shares, when issued and sold in the manner
described in the Registration Statement, will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part hereof, and
in any amendment thereto.
Sincerely,
VENTURE LAW GROUP
A Professional Corporation
/s/ Venture Law Group
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
San Jose, California
April 17, 1998
