<PAGE>
As filed with the Securities and Exchange Commission on July 6, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BRIO TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<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 No.)
</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
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)
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COPIES TO:
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<S> <C>
Mark B. Weeks Michael C. Phillips
Jon E. Gavenman Heike E. Fischer
Patrick R Barry David Valenti
Venture Law Group Morrison & Foerster LLP
A Professional Corporation 755 Page Mill Road
2800 Sand Hill Road Palo Alto, CA 94304
Menlo Park, California 94025
</TABLE>
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Approximate date of commencement of proposed sale to the public: Upon
consummation of the merger described herein. [X]
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(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.
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Amount Amount Of
Title Of Each Class To Be Registration
Of Securities To Be Registered Registered (1) Fee (2)
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<S> <C> <C>
Common Stock of Brio Technology, Inc., par value
$0.001......................................... $2,607,105 $724.78
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 (f) (2) under the Securities Act of 1933 on the
basis of the book value at December 31,1998 of the estimated maximum
number of shares of capital stock of SQRIBE Technologies Corp. to be
cancelled in the merger in exchange for newly issued share of Common Stock
of Brio Technology, Inc.
(2) Fee paid previously in connection with the filing by the Registrant of its
Preliminary Schedule 14A Proxy Statement/Prospectus.
---------------
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>
[BRIO TECHNOLOGY LOGO APPEARS HERE]
Dear Brio Stockholder:
I am pleased to forward this proxy statement/prospectus for the annual
meeting of the stockholders of Brio to be held on , 1999, at 10:00 a.m.
local time, at Crowne Plaza Cabana Palo Alto, located at 4290 El Camino Real in
Palo Alto, California.
At the annual meeting, you will be asked to vote upon six proposals,
including the proposed merger of Brio with SQRIBE Technologies Corp. In the
merger, the fully diluted shares of SQRIBE capital stock will be converted into
the right to receive approximately 45% of the fully diluted shares of Brio
common stock outstanding immediately following the merger. The value and number
of shares that Brio will issue in the merger are subject to change based upon
the number of fully diluted shares of capital stock of each of Brio and SQRIBE
outstanding at the time of the merger. By way of example, if the merger had
been completed on June 30, 1999, Brio would have issued approximately 0.87
shares of common stock for each share of SQRIBE series A preferred stock,
SQRIBE series B preferred stock and SQRIBE common stock, for a total of
approximately 13.4 million shares.
Neither Brio nor SQRIBE stockholders will know at the time they vote for the
merger the number and value of the Brio shares to be issued in the merger. Brio
anticipates that the merger will be finalized on or about , 1999, which is
the day immediately following the annual meeting. The merger is described more
fully in this proxy statement/prospectus.
You will also be asked to vote on the election of five directors of Brio,
amendments to Brio's 1998 employee stock purchase plan and 1998 stock option
plan, an amendment to Brio's certificate of incorporation and the ratification
of the appointment of Brio's independent public accountants.
You may also be asked to vote on other matters properly brought before the
annual meeting.
You should carefully read this proxy statement/prospectus in its entirety and
vote your shares as you desire. In particular, you should review the matters
referred to under "risk factors" starting on page 14.
We have included a proxy card which you may use to vote your shares if you
are not able to attend the annual meeting in person. Whether or not you plan to
attend the annual meeting, please complete, sign and mail the attached proxy
card in the enclosed envelope.
Sincerely,
BRIO TECHNOLOGY, INC.
Yorgen H. Edholm
President and Chief Executive
Officer
Neither the securities and exchange commission nor any state securities
commission has approved or disapproved of this transaction and the securities
being offered by Brio or determined if this proxy statement/prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
We are first mailing this proxy statement/prospectus dated , 1999 and the
form of proxy on or about , 1999. Brio's common stock is traded on the
Nasdaq Stock Market under the symbol "BRYO."
<PAGE>
BRIO TECHNOLOGY, INC.
3460 West Bayshore Road
Palo Alto, California 94303
(650) 856-8000
Notice of Annual Meeting of Stockholders
To Be Held , 1999
The annual meeting of stockholders of Brio Technology, Inc., a Delaware
corporation, will be held at Crowne Plaza Cabana Palo Alto, located at 4290 El
Camino Real, Palo Alto, California on , 1999, at 10:00 a.m., local time,
for the following purposes:
1. To approve the merger of Brio and SQRIBE Technologies Corp. In the
merger, each outstanding share of SQRIBE capital stock will be converted
into the right to receive a fraction of a share of Brio common stock. If
the merger is approved and completed, SQRIBE will become a wholly-owned
subsidiary of Brio, and the former holders of SQRIBE capital stock will own
approximately 45% of the common stock of the combined company;
2. To elect five (5) directors of Brio to serve until their respective
successors are elected and qualified;
3. To approve amendments to Brio's 1998 employee stock purchase plan to
increase the number of shares of common stock reserved for issuance under
the plan by 1,000,000 shares, to a total of 1,500,000 shares, and to make
certain other changes described in this proxy statement/prospectus;
4. To approve an amendment to Brio's 1998 stock option plan to increase the
number of shares of common stock reserved for issuance under the plan by
2,250,000 shares, to a total of 4,500,000 shares;
5. To approve an amendment to Brio's certificate of incorporation in order
to conform the certificate to a recently modified provision of California
law with respect to the classification of the board of directors and the
election of directors;
6. To ratify the appointment of Arthur Andersen LLP as Brio's independent
public accountants for the fiscal year ending March 31, 2000; and
7. To transact other business as may properly come before the annual
meeting and any adjournment or postponement of the meeting.
The Brio board of directors has determined that the merger is in your best
interests and recommends that you vote to approve the merger and the other
proposals listed above.
The items of business listed above, including the merger and certain
information regarding the nominees for directors, are more fully described in
this proxy statement/prospectus. Approval of the merger requires the
affirmative vote of the holders of a majority of the outstanding shares of Brio
common stock.
The board of directors has fixed the close of business on June 30, 1999 as
the record date for determining the stockholders entitled to notice of and to
vote at the annual meeting and any adjournment or postponement of the meeting.
To ensure that your shares are represented at the annual meeting, please
complete, date and sign the enclosed proxy card and mail it promptly in the
postage-paid envelope provided, whether or not you plan to attend the annual
meeting in person. Any executed but unmarked proxy cards will be voted for
approval of the merger and the other proposals presented at the annual meeting.
You may revoke your proxy in the manner described in the accompanying proxy
statement/prospectus at any time before it has been voted at the annual
meeting. Any stockholder attending the annual meeting may vote in person even
if such stockholder has returned a proxy.
By Order of the Board of Directors,
Karen J. Willem
Chief Financial Officer
Palo Alto, California
, 1999
<PAGE>
TABLE OF CONTENTS FOR
PROXY STATEMENT/PROSPECTUS
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Page
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING........................... 3
SUMMARY.................................................................. 4
The Companies.......................................................... 4
The Merger............................................................. 4
What SQRIBE Stockholders Will Receive in the Merger.................... 4
Record Date for Voting on the Merger and the Other Matters Presented at
the Annual Meeting.................................................... 5
Stockholder Vote Required to Approve the Merger and the Other Matters
Presented at the Annual Meeting....................................... 5
Risks of the Merger.................................................... 5
Important Federal Income Tax Consequences.............................. 5
Fairness Opinion of Financial Advisor to Brio.......................... 6
Fairness Opinion of Financial Advisor to SQRIBE........................ 6
Brio's Reasons for the Merger; Recommendation to Brio Stockholders..... 6
SQRIBE's Reasons for the Merger........................................ 6
Conditions to the Consummation of the Merger........................... 6
Termination of the Merger Agreement.................................... 7
Completion of Merger................................................... 7
Stockholders Voting Agreements......................................... 7
Market Price Information............................................... 8
No Solicitation........................................................ 8
Accounting Treatment................................................... 8
Dissenters Rights of Brio Stockholders................................. 8
Regulatory Matters..................................................... 8
Who Can Help Answer Your Questions..................................... 8
SELECTED HISTORICAL FINANCIAL DATA....................................... 9
SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA (UNAUDITED)......... 12
UNAUDITED COMPARATIVE PER COMMON SHARE DATA OF BRIO AND SQRIBE .......... 13
RISK FACTORS............................................................. 14
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE.......................... 25
THE BRIO ANNUAL MEETING.................................................. 26
Date, Time and Place of Meeting........................................ 26
Purpose of the Annual Meeting.......................................... 26
Record Date; Voting Rights; Proxies.................................... 26
Solicitation of Proxies................................................ 27
Quorum................................................................. 27
Required Vote.......................................................... 27
PROPOSAL NO. 1 THE MERGER................................................ 28
Overview............................................................... 28
Background of the Merger............................................... 28
Brio's Reasons for the Merger.......................................... 32
Opinion of Brio's Financial Advisor.................................... 33
SQRIBE's Reasons for the Merger........................................ 39
Opinion of SQRIBE's Financial Advisor.................................. 40
Management and Operations Following the Merger......................... 45
Interests of Certain Persons in the Merger............................. 46
Employment Agreements.................................................. 46
Stock Options Accelerated Upon the Merger.............................. 46
Stock Options Accelerated Upon Termination of Employment Following the
Merger................................................................ 46
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Severance Arrangements................................................. 47
Indemnification Arrangements........................................... 47
Dissenters Rights...................................................... 47
Governmental and Regulatory Matters.................................... 47
Federal Income Tax Considerations...................................... 47
Accounting Treatment................................................... 49
Termination............................................................ 50
Resale Restrictions.................................................... 50
Voting and Affiliate Agreements........................................ 50
Contracts Between Brio and SQRIBE...................................... 51
THE MERGER AGREEMENT..................................................... 52
The Merger............................................................. 52
Effective Time of the Merger........................................... 52
Changes to Charter, Officers and Directors............................. 52
Exchange Ratio......................................................... 52
Stock Options.......................................................... 54
Exchange of Shares..................................................... 55
Representations and Warranties......................................... 56
Certain Covenants...................................................... 57
No Solicitation........................................................ 58
Management After the Merger............................................ 58
Conditions to the Merger............................................... 58
Termination............................................................ 59
Amendment; Waiver...................................................... 59
Expenses............................................................... 59
COMPARATIVE STOCK PRICE DATA AND DIVIDEND HISTORY........................ 60
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION............. 61
BRIO AND SQRIBE NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS.............................................................. 66
DESCRIPTION OF BRIO CAPITAL STOCK........................................ 68
COMPARISON OF RIGHTS OF STOCKHOLDERS OF BRIO AND STOCKHOLDERS OF SQRIBE.. 69
PROPOSAL NO. 2 ELECTION OF DIRECTORS..................................... 70
General................................................................ 70
Nominees............................................................... 70
Meetings and Committees of the Board of Directors...................... 71
Compensation of Directors.............................................. 72
Recommendation of the Brio Board of Directors.......................... 72
BRIO COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.. 73
COMPENSATION OF EXECUTIVE OFFICERS....................................... 75
OPTION GRANTS IN LAST FISCAL YEAR........................................ 76
FISCAL YEAR-END OPTION VALUES............................................ 77
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.................. 77
STOCK PERFORMANCE GRAPH.................................................. 80
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG BRIO, THE NASDAQ NATIONAL
MARKET COMPOSITE INDEX AND THE S&P COMPUTER SOFTWARE AND SERVICE INDEX.. 80
PROPOSAL NO. 3 APPROVAL OF AMENDMENT TO BRIO'S 1998 EMPLOYEE STOCK
PURCHASE PLAN........................................................... 81
</TABLE>
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<PAGE>
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<CAPTION>
Page
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Description of the 1998 Employee Stock Purchase Plan................... 81
United States Federal Income Tax Information........................... 82
Tax Treatment of Brio.................................................. 83
Recommendation of the Brio Board of Directors.......................... 83
PROPOSAL NO. 4 APPROVAL OF AMENDMENT TO BRIO'S 1998 STOCK OPTION PLAN.... 84
Description of the 1998 Stock Option Plan.............................. 84
United States Federal Income Tax Information........................... 85
Recommendation of the Brio Board of Directors.......................... 86
PROPOSAL NO. 5 AMENDMENT OF BRIO'S CERTIFICATE OF INCORPORATION.......... 87
Recommendation of the Brio Board of Directors.......................... 87
PROPOSAL NO. 6 RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS............................................................. 88
Recommendation of the Brio Board of Directors.......................... 88
INFORMATION REGARDING BRIO: BUSINESS OF BRIO............................. 89
BRIO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 100
INFORMATION REGARDING SQRIBE: BUSINESS OF SQRIBE......................... 111
SQRIBE MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION..................................................... 113
PRINCIPAL STOCKHOLDERS OF SQRIBE......................................... 121
EXPERTS.................................................................. 125
LEGAL MATTERS............................................................ 125
WHERE YOU CAN FIND MORE INFORMATION...................................... 125
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING.... 126
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................. 126
OTHER MATTERS............................................................ 126
BRIO TECHNOLOGY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS......... 127
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................. 128
BRIO TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......... 133
SQRIBE TECHNOLOGIES CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..... 144
INDEPENDENT AUDITORS' REPORT............................................. 145
SQRIBE TECHNOLOGIES CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..... 150
APPENDIX A AGREEMENT AND PLAN OF MERGER.................................. A-1
APPENDIX B OPINION OF FINANCIAL ADVISOR TO BRIO.......................... B-1
APPENDIX C OPINION OF FINANCIAL ADVISOR TO SQRIBE........................ C-1
</TABLE>
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<PAGE>
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Q: When is the annual meeting? What proposals will be voted on?
A: Brio stockholders will vote on the merger at Brio's annual meeting at
Crowne Plaza Cabana Palo Alto, located at 4290 El Camino Real, Palo Alto,
California on , 1999, at 10:00 a.m., local time. At the annual meeting,
you will also vote on the election of five directors, an increase by
1,000,000 shares in the number of shares reserved for issuance under Brio's
1998 employee stock purchase plan, an increase by 2,250,000 shares in the
number of shares reserved for issuance under Brio's 1998 stock option plan,
an amendment to Brio's certificate of incorporation and the ratification of
Brio's selection of its independent public accountants. Brio is soliciting
proxies from its stockholders prior to the annual meeting.
For additional information regarding the timing, purpose and procedures of the
annual meeting, see page 26.
To review the background and reasons for the merger in greater detail, see
page 28.
Q: What do I need to do now?
A: Please mail your signed proxy card in the enclosed return envelope as soon
as possible, so that your shares may be represented at the annual meeting.
We prefer that you sign and return your completed proxy card whether or not
you attend the annual meeting in person.
Q: What do I do if I want to change my vote?
A: Just complete, date and sign a new proxy card and mail it to Brio. The new
proxy card must arrive before the annual meeting. Or, you can come to the
annual meeting and vote your shares as you wish, regardless of whether you
have already returned a proxy card.
For additional information regarding revoking a proxy, see page 26.
Q: If my shares are held in a "street name" by my broker, will my broker vote
my shares for me?
A: Your broker will vote your shares only if you provide a proxy to vote your
shares. In addition, your broker will only vote your shares on proposals 3
through 5 if you provide instructions on how to vote. You should instruct
your broker to vote your shares, following the directions provided by your
broker.
Q: Whom should I call with questions?
A: If you have any questions about the merger, please call Karen J. Willem,
Chief Financial Officer of Brio, at (650) 856-8000.
3
<PAGE>
SUMMARY
The following summary highlights information which is provided in greater
detail elsewhere in this document. Even though we have highlighted what we feel
is the most important information for you, Brio and SQRIBE encourage you to
read this document in its entirety for a complete understanding of the merger.
The Companies (pages 89 and 111)
Brio Technology, Inc.
3460 West Bayshore Road
Palo Alto, California 94303
Telephone: (650) 856-8000
Brio is a leader in developing, marketing and supporting enterprise business
intelligence software. Enterprise business intelligence software is software
that enables organizations to maximize the business value of corporate
information through intuitive, interactive data access and analysis, resulting
in more informed business decisions. Brio's products are flexible enough to
accommodate the growth of Brio's customers and to effectively incorporate a
wide range of available corporate data sources, including data marts, data
warehouses, and operational data stores. Brio sells and markets its software
and services through a direct sales and services organization located in North
America, the United Kingdom, France and Australia as well as worldwide through
its indirect channel of value-added resellers, resellers and distributors. Brio
currently serves thousands of organizations worldwide with over 4,000 sites and
features over one third of the Fortune 500 as customers. Brio customers
include: ARCO, Avis Rent a Car Systems, California State University System,
Carrefour, Comcast Cable Communications, Hewlett-Packard, Hoffman LaRoche, IBM,
Motorola, Sun Microsystems and the U.S. Army.
SQRIBE Technologies Corp.
500 Saginaw Drive
Redwood City, CA 94063
Telephone: (650) 298-9400
SQRIBE develops, markets, licenses and supports enterprise reporting software
that enables organizations to improve the quality and speed of decision making
at every level of the organization. SQRIBE's product suite comprises a
comprehensive, scalable software solution for designing, processing and
distributing reports throughout an entire organization. SQRIBE markets its
software primarily through its direct sales organization, augmented by indirect
sales channels including distributors, value-added resellers and system
integrators. SQRIBE currently serves organizations worldwide.
The Merger (page 28)
Brio and SQRIBE have entered into a merger agreement dated February 23, 1999.
The merger agreement provides that a wholly-owned subsidiary of Brio will merge
with and into SQRIBE, with SQRIBE continuing as the surviving corporation. If
the merger is approved and consummated SQRIBE will become a wholly-owned
subsidiary of Brio. Brio and SQRIBE are working toward completing the merger as
quickly as possible. Brio and SQRIBE hope to complete the merger by the end of
the third calendar quarter of 1999.
The merger agreement provides that the merger will take place only if, among
other things, Brio stockholders approve the merger and merger agreement at
Brio's annual meeting.
What SQRIBE Stockholders Will Receive in the Merger (page 52)
If the merger is completed, SQRIBE stockholders will receive approximately 45%
of the fully diluted shares of Brio outstanding immediately following the
merger. This is equivalent to approximately $267 million worth of Brio common
stock in total, based
4
<PAGE>
on the June 30, 1999 closing price of the common stock on the Nasdaq Stock
Market and shares of each company outstanding on that date. The value and
number of shares the SQRIBE stockholders will receive is subject to change
based upon the price of Brio common stock and the number of fully diluted
shares of capital stock of each of Brio and SQRIBE outstanding at the time of
the merger. The exchange ratio is more fully discussed under the heading "The
Merger Agreement--Exchange Ratio."
Based upon the number of shares of Brio and SQRIBE common stock outstanding as
of June 30, 1999, holders of SQRIBE series A preferred stock, SQRIBE series B
preferred stock and SQRIBE common stock would have received approximately 0.87
shares of Brio common stock as of that date. The closing price of Brio common
stock on June 30, 1999 was $20.00.
All options to purchase shares of SQRIBE common stock will be converted into
options to purchase shares of Brio common stock. After the merger, the former
SQRIBE stockholders will own approximately 45% of the common stock of the
combined company.
Record Date for Voting on the Merger and the Other Matters Presented at the
Annual Meeting (page 26)
You may vote at the annual meeting or sign a proxy card if you owned shares of
Brio common stock as of the close of business on June 30, 1999, the record
date. On the record date, 14,808,927 shares of Brio common stock were
outstanding. Of this number, 8,040,957 shares were held by directors and
officers of Brio or by entities affiliated with the directors and officers. You
have one vote for each share of Brio common stock you owned on the record date.
Stockholder Vote Required to Approve the Merger and the Other Matters Presented
at the Annual Meeting (page 27)
Approval of the merger, and amendment of Brio's certificate of incorporation,
requires the affirmative vote of the holders of a majority of the outstanding
shares of Brio common stock entitled to vote on these matters. Election of
directors of Brio requires the vote of a plurality of shares present in person
or represented by proxy at the annual meeting and entitled to vote. The
remaining matters presented at the annual meeting may be approved by the
affirmative vote of a majority of the shares present in person or by proxy at
the annual meeting.
Risks of the Merger (page 14)
In considering whether to approve the merger and merger agreement, you should
consider all of the risks of the merger, including the risks that the potential
benefits of the merger may not be realized, that the surviving corporation's
business may not be successful, and that the market price of Brio's common
stock may fluctuate and could decline in the future. We encourage you to read
the risk factors set forth in this proxy statement/prospectus beginning on page
14.
Important Federal Income Tax Consequences (page 47)
Subject to limitations and qualifications described later in the document, in
the opinion of Morrison & Foerster LLP the exchange of SQRIBE capital stock for
shares of Brio common stock will be tax-free for federal income tax purposes to
the stockholders of SQRIBE. SQRIBE's receipt of an opinion of counsel to the
effect that the merger will constitute a tax-free reorganization is a condition
to SQRIBE's obligation to close the merger, waivable by SQRIBE.
However, SQRIBE stockholders will be subject to federal income tax with respect
to cash received instead of fractional shares of Brio common stock or if they
receive cash for their SQRIBE shares as a result of exercising dissenters'
rights. That cash may be taxable as ordinary income. Neither Brio nor SQRIBE
should become subject to federal income taxes solely as a result of the merger.
5
<PAGE>
Fairness Opinion of Financial Advisor to Brio (page 33)
In deciding to approve the merger, Brio's board of directors considered an
opinion from its financial advisor, BancBoston Robertson Stephens, as to the
fairness to Brio from a financial point of view of the number of shares of Brio
common stock to be exchanged for each share of SQRIBE capital stock. This
opinion is attached as Appendix B to this proxy statement/ prospectus. We
encourage you to read this opinion.
Fairness Opinion of Financial Advisor to SQRIBE (page 40)
In deciding to approve the merger, SQRIBE's board of directors considered an
opinion from its financial advisor, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as to the fairness to the stockholders of SQRIBE, taken as a
whole, from a financial point of view of the total number of shares of Brio
common stock to be issued to the holders of SQRIBE capital stock. This opinion
is attached as Appendix C to this proxy statement/prospectus. We encourage you
to read this opinion.
Brio's Reasons for the Merger; Recommendation to Brio Stockholders (page 32)
Brio's board of directors has determined that the terms of the merger agreement
and the merger are advisable, fair to, and in the best interests of Brio and
its stockholders. In reaching its decision, Brio's board of directors
identified several potential benefits of the merger. These benefits include:
. an enhanced product suite;
. increased market presence and greater economies of scale;
. significant cross-selling opportunities;
. facilitation of channel expansion and strategic relationships; and
. acceleration of international expansion and increased distribution.
However, Brio's board of directors also recognized that the potential benefits
of the merger may not be realized and that there are a number of other risks
and uncertainties related to the merger, as discussed below under the heading
"Risk Factors." Brio's board of directors unanimously recommends that you vote
FOR approval of the merger agreement and the merger.
SQRIBE's Reasons for the Merger (page 39)
SQRIBE's board of directors has determined that the merger agreement is in the
best interests of SQRIBE and its stockholders. In reaching its decision,
SQRIBE's board of directors identified several potential advantages of the
merger:
. enabling SQRIBE to more quickly meet customer needs;
. increased market presence and economies of scale;
. creation of an experienced management team able to manage the combined
company's growth;
. significant cross-selling opportunities; and
. increased visibility as a public company.
However, SQRIBE's board of directors also recognized that the potential
benefits of the merger may not be realized and that there are a number of other
risks and uncertainties related to the merger, as discussed below under the
heading "Risk Factors."
Conditions to the Consummation of the Merger (page 58)
The merger will be completed if certain conditions, including the following,
are met:
. approval of Brio stockholders;
. approval of SQRIBE stockholders;
. no legal restraints or prohibitions that prevent the completion of the
merger; and
6
<PAGE>
. no inaccuracies made by Brio or SQRIBE in their representations and
warranties in the merger agreement that would result in a material adverse
effect on the party making the representation and warranty.
Brio and SQRIBE may waive conditions with respect to the other's obligation to
provide representations and warranties, perform its preclosing obligations,
provide voting and employment agreements, provide opinions of counsel, obtain
consents and approvals, and convert preferred stock. In the event that Brio
waives a condition to the merger involving material facts or circumstances,
Brio will resolicit stockholder approval for the merger.
In the event Brio or SQRIBE waives the receipt of their accountant's letter
that the merger qualifies as a pooling of interests and the receipt of the
legal opinion that the merger is not taxable to stockholders, Brio will
resolicit stockholder approval for the merger.
Termination of the Merger Agreement (page 59)
The merger agreement may be terminated prior to the effective time of the
merger by the mutual written consent of Brio and SQRIBE. Either SQRIBE or Brio
may also terminate the merger agreement if:
. the merger is not consummated either by June 30, 1999, or August 31, 1999 if
the SEC review of this proxy statement/prospectus necessitates a later
closing date;
. the merger is prohibited by a governmental entity;
. the required vote of Brio stockholders is not obtained; or
. the required vote of SQRIBE stockholders is not obtained.
SQRIBE may terminate the merger agreement if:
. any of Brio's representations and warranties in the merger agreement is not
true and correct in all material respects, and cannot be cured within a
specified period;
. Brio fails to perform a material obligation under the merger agreement and
this failure cannot be cured within a specified period; or
. the Brio board of directors fails to recommend, withdraws, modifies or
publicly announces in a manner adverse to SQRIBE its approval or
recommendation of the merger or merger agreement.
Brio may terminate the merger agreement if:
. any of SQRIBE's representations and warranties in the merger agreement is
not true and correct in all material respects, and cannot be cured within a
specified period; or
. SQRIBE fails to perform a material obligation under the merger agreement,
and this failure cannot be cured within a specified period.
Neither Brio nor SQRIBE may individually terminate the agreement, however, if
it is the party responsible for a breach of any representation, warranty or
covenant or failure to satisfy a condition.
Completion of Merger (page 52)
Brio and SQRIBE expect to complete the merger as soon as practicable after Brio
stockholders and SQRIBE stockholders approve the merger and the other
conditions to the merger have been met. Brio anticipates this will occur on
, 1999, following the annual meeting.
Stockholders Voting Agreements (page 50)
Stockholders of Brio, including Brio's executive officers, directors and their
respective affiliates, holding, as of March 31, 1999, 55% of the outstanding
stock of Brio and stockholders of SQRIBE holding more than 52% of the
outstanding stock of SQRIBE have executed agreements to vote for the
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<PAGE>
merger. The votes of these stockholders are sufficient to approve the merger.
Market Price Information (page 60)
Brio's common stock is quoted on the Nasdaq National Market under the symbol
"BRYO." On February 22, 1999, the last trading day before the signing of the
merger agreement, Brio common stock closed at $20.75 per share. On June 30,
1999 Brio common stock closed at $20.00 per share. There is no public market
for SQRIBE capital stock.
No Solicitation (page 58)
In connection with the merger agreement, Brio and SQRIBE agreed that neither
would seek to enter into any other merger agreement, or any effectively
equivalent transaction, while the merger agreement remains operative. Between
the date of signing of the merger agreement and the date of termination of the
merger agreement, either SQRIBE or Brio may entertain offers from third parties
as long as each informs the other of the nature of the third-party offer, as
well as informing the third party of the nature and substance of the merger
agreement.
Accounting Treatment (page 49)
Brio and SQRIBE intend the merger to be accounted for as a pooling of
interests.
Dissenters Rights of Brio Stockholders (page 47)
Brio stockholders will not have dissenters' rights of appraisal with respect to
the merger.
Regulatory Matters (page 47)
U.S. antitrust laws prohibit Brio and SQRIBE from completing the merger until
Brio and a significant stockholder of SQRIBE have furnished information to the
Antitrust Division of the U.S. Department of Justice and Federal Trade
Commission and a required waiting period has ended. Both Brio and the
significant stockholder have furnished the required information and both Brio
and the significant stockholder of SQRIBE have received notice of early
termination of the waiting period.
Who Can Help Answer Your Questions
If you have questions about the merger you should contact:
Karen J. Willem
Chief Financial Officer
Brio Technology, Inc.
3460 West Bayshore Road
Palo Alto, California 94303
(650) 856-8000
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data of Brio set forth below should be read
in conjunction with the consolidated financial statements and the notes to the
consolidated financial statements contained in this proxy statement/prospectus.
The selected statements of operations data for the years ended March 31, 1997,
1998 and 1999, and the selected balance sheet data as of March 31, 1998 and
1999, are derived from, and are qualified by reference to, the audited
consolidated financial statements of Brio appearing elsewhere in this proxy
statement/prospectus. The selected statements of operations data for the years
ended March 31, 1995 and 1996, and the selected balance sheet data as of March
31, 1995, 1996 and 1997, are derived from audited consolidated financial
statements of Brio not included in this proxy statement/prospectus.
The selected historical financial data of SQRIBE set forth below should be
read in conjunction with the consolidated financial statements and the notes to
the consolidated financial statements contained in this proxy
statement/prospectus. The selected statements of operations data for the years
ended December 31, 1996, 1997 and 1998, and the selected balance sheet data as
of December 31, 1997 and 1998, are derived from, and are qualified by reference
to, the audited consolidated financial statements of SQRIBE appearing elsewhere
in this proxy statement/prospectus. The selected statements of operations data
for the year ended December 31, 1995, and the selected balance sheet data as of
December 31, 1995 and 1996, are derived from audited consolidated financial
statements of SQRIBE not included in this proxy statement/prospectus. The
selected statements of operations data for the year ended December 31, 1994,
for the three months ended March 31, 1999, and for the selected balance sheet
data as of December 31, 1994 and March 31, 1998 and 1999, are derived from the
unaudited consolidated financial statements of SQRIBE not included in this
proxy statement/prospectus, which have been prepared by SQRIBE on a basis
consistent with the audited consolidated financial statements appearing
elsewhere in this proxy statement/prospectus and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the data. The results of operations for
the three months ended March 31, 1999, are not necessarily indicative of
results to be expected for any subsequent period.
9
<PAGE>
BRIO
Selected Historical Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended March 31,
-----------------------------------------
1995 1996 1997 1998 1999
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Total revenues...................... $3,512 $4,527 $13,386 $26,772 $46,524
Operating expenses.................. 3,445 7,045 17,720 30,900 41,256
Loss from operations................ (330) (3,229) (5,990) (7,731) (1,674)
Net loss............................ (370) (3,196) (5,965) (8,072) (887)
Per Common Share Data:
Basic net loss per share............ $(0.07) $(0.64) $ (1.14) $ (1.41) $ (0.06)
Shares used in computing basic net
loss per share..................... 5,000 5,018 5,218 5,724 13,709
Balance Sheet Data At Period End:
Cash, cash equivalents and short-
term investments................... $3,091 $ 546 $ 890 $ 2,647 $32,449
Total current assets................ 4,284 3,002 6,516 10,474 41,987
Total current liabilities........... 1,221 3,371 8,295 14,384 16,662
Noncurrent liabilities.............. -- -- 457 1,556 1,237
Stockholders' equity (deficit)...... 3,236 100 133 (1,854) 29,155
</TABLE>
There were no unusual items in fiscal 1995, 1996, 1997 or 1998.
In fiscal 1999, Brio wrote off approximately $1.7 million of in-process
research and development that had not yet reached technological feasibility as
part of its acquisition of MerlinSoft, Inc.
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<PAGE>
SQRIBE
Selected Historical Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended
Years Ended December 31, March 31,
------------------------------------------ ---------------
1994 1995 1996 1997 1998 1998 1999
------ ------- ------- ------- ------- ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Total revenues.......... $8,595 $11,419 $17,997 $25,123 $39,162 $7,725 $10,755
Operating expenses...... 6,544 14,812 18,196 29,659 33,147 6,818 10,050
Income (loss) from
operations............. 1,634 (4,639) (2,628) (7,988) (118) (50) (1,687)
Net income (loss)
applicable to common
stockholders........... 1,540 (4,869) (2,659) (7,676) 109 (282) (3,617)
Per Common Share Data:
Basic net income (loss)
per share.............. $ 0.18 $ (0.55) $ (0.30) $ (0.95) $ 0.02 $(0.04) $ (0.49)
Shares used in computing
basic net income (loss)
per share.............. 8,730 8,792 8,854 8,112 7,126 6,486 7,386
Diluted net income
(loss) per share....... $ 0.18 $ (0.55) $ (0.30) $ (0.95) $ 0.01 $(0.04) $ (0.49)
Shares used in computing
diluted net income
(loss) per share....... 8,730 8,792 8,854 8,112 13,105 6,486 7,386
Balance Sheet Data at
Period End:
Cash and cash
equivalents............ $ 358 $ 1,995 $ 3,130 $ 4,679 $ 1,605 $ 2,439
Total current assets.... 3,378 4,868 7,640 13,439 17,757 18,027
Total current
liabilities............ 3,289 5,112 8,418 14,343 17,626 20,023
Noncurrent liabilities.. 593 12 109 110 1,079 1,090
Stockholders' equity
(deficit).............. (84) 963 535 565 919 (2,917)
</TABLE>
In 1994 and through June 30, 1995, SQRIBE accounted for its investment in a
German distributor by using the equity method. The equity in the net loss of
the joint venture was $88,000 in 1994 and $281,000 in 1995.
In 1995, SQRIBE wrote off approximately $3.5 million of in-process research
and development that had not yet reached technological feasibility as part of
its acquisition of the SQR product line.
In 1996, SQRIBE sold its Eventus software division in return for a note
payable of approximately $500,000 and 21% ownership in the new entitity. SQRIBE
also agreed to fund operating expenses of the resulting new entity up to
$300,000 for an additional note. No gain was recorded on the sale because the
new entity was thinly capitalized at the time of the transaction, the carrying
value of both notes and the related investment were recorded at zero.
In 1997, SQRIBE recognized compensation expense of approximately $7.7 million
related to the exchange of approximately one-third of SQRIBE's common stock for
Series B preferred stock, on a one-for-one basis. The stockholders subsequently
sold the preferred stock to third-party investors. The compensation expense was
based on the difference between the fair values of the common and preferred
stock on the date of the exchange.
In 1998, SQRIBE recorded a gain of $692,000 as a result of a stock-for-stock
merger transaction between Eventus, a privately held company in which SQRIBE
held an investment, and Segue Software, Inc., a public company, based on the
fair market value of the shares received.
11
<PAGE>
SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(UNAUDITED)
The following unaudited selected pro forma condensed combined financial data
are derived from the unaudited pro forma condensed combined financial
statements appearing elsewhere in this proxy statement/prospectus, which give
effect to Brio's acquisition of SQRIBE on a pooling-of-interests basis, and
should be read in conjunction with the pro forma condensed combined financial
statements and notes to the pro forma condensed combined financial statements.
In preparing the pro forma condensed combined statement of operations data, the
SQRIBE operations have been included as if these transactions had occurred at
the beginning of the earliest period presented. The pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results or financial position that would have occurred if the
acquisition of SQRIBE had been consummated as of the beginning of the earliest
period presented, nor is it necessarily indicative of future operating results
or the financial position of the combined companies.
BRIO AND SQRIBE
Selected Pro Forma Condensed Combined Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Statements of Operations Data:
Total revenues...................................... $31,383 $51,895 $85,686
Operating expenses.................................. 35,916 60,559 74,403
Loss from operations................................ (8,618) (15,694) (1,767)
Net income (loss)................................... (8,624) (15,723) 163
Net loss applicable to common stock................. (8,624) (15,723) (753)
Per Common Share Data:
Basic net income (loss) per share................... $ (0.58) $ (1.00) $ (0.03)
Shares used in computing basic net income (loss) per
share.............................................. 14,863 15,743 24,371
Diluted net income (loss) per share................. $ (0.58) $ (1.00) $ (0.03)
Shares used in computing diluted net income (loss)
per share.......................................... 14,863 15,743 24,371
Balance Sheet Data at Period End:
Cash, cash equivalents and short-term investments... $35,311
Total current assets................................ 59,914
Total current liabilities (1)....................... 44,535
Noncurrent liabilities.............................. 2,327
Stockholders' equity (1)............................ 21,398
</TABLE>
- --------
(1) Includes estimated costs associated with the merger of approximately $8
million. Such expenses include investment advisory fees, legal and
accounting fees, financial printing costs and other merger related charges.
These costs are preliminary and therefore subject to change. These charges
exclude integration charges which consist primarily of severance and
relocation expenses and expenses related to the consolidation of facilities
and redundant systems. These costs will be charged to operating expenses in
the period the merger is completed.
12
<PAGE>
UNAUDITED COMPARATIVE PER COMMON SHARE DATA OF BRIO AND SQRIBE
The following table shows information about Brio's historical loss per share
and book value per share, and similar information reflecting the completion of
the proposed merger which we refer to as "pro forma" information. In presenting
the comparative pro forma information, we assumed that we had been one company
throughout those periods, a method known as "pooling-of-interests" accounting.
The historical book value per share is computed by dividing total
stockholders' equity (deficit) by the number of shares of common stock
outstanding at the end of the period. The pro forma combined book value per
share is computed by dividing pro forma stockholders' equity by the pro forma
number of shares of Brio common stock outstanding at the end of the period.
This information gives effect to the one-for-two reverse split effected by Brio
in April 1998.
The information listed as "equivalent pro forma" was obtained by multiplying
the pro forma amounts by an assumed exchange ratio of 0.885 shares of Brio
common stock for each share of SQRIBE capital stock. The pro forma information,
while helpful in illustrating the financial characteristics of the new company
under one set of assumptions, does not attempt to predict or suggest future
results. It also doesn't necessarily reflect what the historical results of the
combined company would have been had Brio and SQRIBE been actually combined
during the periods presented.
The information in the following table is based on, and should be read
together with, the historical financial information that we have included
elsewhere in this proxy statement/prospectus and the "Unaudited Pro Forma
Condensed Combined Financial Information" on page 61.
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------
1996 1997 1998
------ ------ -----
<S> <C> <C> <C>
Historical--SQRIBE:
Basic net income (loss) per share........................ $(0.30) $(0.95) $0.02
Diluted net income (loss) per share...................... $(0.30) $(0.95) $0.01
Book value per share..................................... $ -- $ 0.09 $0.12
</TABLE>
<TABLE>
<CAPTION>
Years Ended March
31,
----------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Historical--Brio:
Basic net loss per share............................... $(1.14) $(1.41) $(0.06)
Book value per share................................... $ 0.02 $(0.32) $ 2.00
Pro forma combined net income (loss) per share:
Pro forma combined net income (loss) per Brio share.... $(1.52) $(2.73) $(0.05)
Equivalent pro forma net income (loss) per SQRIBE
share................................................. $(1.35) $(2.41) $(0.05)
Pro forma combined book value per share
at period end:
Pro forma book value per Brio share.................... $ 1.47
Equivalent pro forma book value per SQRIBE share....... $ 1.30
</TABLE>
13
<PAGE>
RISK FACTORS
This proxy statement/prospectus contains forward-looking statements that
involve risks and uncertainties. These statements relate to future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "expects," "believes," "anticipates," "intends" and
"plans" and similar expressions. Actual results could differ materially from
those discussed in these statements. Factors that could contribute to the
combined company's failure to achieve expectations include, but are not limited
to, those discussed below and elsewhere in this proxy statement/prospectus. You
should consider the following risk factors in evaluating whether to approve the
merger.
Risks Related to the Merger
If Brio and SQRIBE do not effectively integrate their technologies, operations
and personnel, the combined company will not realize the expected financial and
marketing benefits of the merger.
Brio initially estimates that the combined company will be able to achieve
increased operational efficiencies of $3.3 million, and both Brio and SQRIBE
expect the merger to result in improved cross-selling opportunities, an
increased market presence and an enhanced product line. To achieve these
benefits, Brio and SQRIBE must effectively integrate their technologies,
operations and personnel in a timely and efficient manner. If they cannot do
so, the combined company may not realize the expected benefits from the merger.
In particular, if the integration is not successful:
. the combined company may lose personnel;
. the combined company may not be able to retain SQRIBE's customer base to the
extent expected; and
. the process of integrating operations could cause an interruption of the
combined company's ongoing business activities.
Any of these factors could hurt the combined company's operating results. In
addition, the attention and effort devoted to the integration of the two
companies will significantly divert management's attention from other important
issues, which could harm the combined company's business, results of operations
or financial condition.
Costs of the merger may be higher than expected, which would lower the combined
company's earnings. In addition, the costs of the merger are not all presently
known, and Brio may incur charges against earnings in subsequent quarters to
reflect merger-related costs.
Costs of the merger may be higher than expected, which would hurt the
combined company's operating results. After the merger, Brio expects to incur a
charge against earnings to reflect transaction-related expenses, currently
estimated to be approximately $8 million. These charges do not include
integration costs which may be incurred as a result of the merger, including
costs relating to severance and employee relocation, the elimination of
duplicate systems and facilities and other integration costs. In addition, Brio
may incur additional charges in subsequent quarters to reflect costs associated
with the merger.
The issuance of Brio common stock in the merger may be dilutive to Brio's
stockholders.
The issuance of Brio common stock in the merger may have the effect of
reducing Brio's net income per share from levels otherwise expected and could
reduce the market price of the Brio common stock, unless the combined company
can achieve revenue growth or cost savings and other business synergies
sufficient to offset the dilutive effect of issuing stock in the merger.
Although both companies believe that beneficial synergies will result from the
merger, the combining of the two company's businesses, even if achieved in an
efficient, effective and timely manner, may not result in better combined
results of operations and financial condition than
14
<PAGE>
would have been achieved by each company independently.
Failure of the merger to qualify as a pooling of interests would negatively
affect combined financial results, and the availability of pooling of interests
accounting treatment depends on circumstances and events after the effective
time of the merger.
The failure of the merger to qualify for pooling of interests accounting
treatment for financial reporting purposes for any reason would reduce Brio's
reported earnings and, likely, the price of Brio's common stock. This is
because, if the merger does not qualify as a pooling of interests, generally
accepted accounting principles will require that Brio amortize a portion of the
merger consideration payment over several years, which would have the effect of
reducing Brio's reported earnings.
The availability of pooling of interests accounting treatment for the merger
depends on circumstances and events occurring after the effective time of the
merger. For example, there must be no significant changes in the business of
the combined company, including significant dispositions of assets, for a
period of two years following the effective time. Further, affiliates of Brio
and SQRIBE must not sell any shares of either Brio or SQRIBE capital stock
until the day that Brio publicly announces financial results covering at least
30 days of combined operations of Brio and SQRIBE after the merger. If the
effective time of the merger occurs during July 1999, we expect that such
combined financial results would be published in October 1999. If affiliates of
Brio or SQRIBE sell their shares of Brio common stock prior to that time
despite a contractual obligation not to do so, the merger may not qualify for
accounting as a pooling of interests for financial reporting purposes.
Risks Related to Brio and to Brio and SQRIBE as a Combined Entity
Because the combined company's plans to achieve profitability in the future
require it to grow its work force, improve its infrastructure and acquire and
develop new technologies, failure to successfully do so could lower the
combined company's operating results and cause its stock price to decrease.
If the combined company cannot execute its growth strategy, its stock price
could decrease. Successful growth depends upon the combined company's ability
to:
. expand, train and manage its work force;
. continue to attract, retain and motivate qualified personnel; and
. develop or acquire new businesses, products and technologies.
In addition, if the combined company cannot manage an expanding work force,
improve its reporting systems and customer service infrastructure and manage
the integration of acquired businesses, products or technologies, it will be
unable to continue manage the growth of its operations, which could harm its
business and financial results.
Brio and SQRIBE each have a history of net losses, and the combined company may
not be profitable in the future.
Brio and SQRIBE have a history of net losses, and cannot provide any
assurance that they will experience revenue growth or profitability on a
quarterly or annual basis in the future. In particular, Brio incurred net
losses of $6.0 million in fiscal 1997, $8.1 million in fiscal 1998 and $887,000
in fiscal 1999. As of March 31, 1999, Brio had stockholders' equity of
approximately $29.2 million. SQRIBE incurred net losses of $2.7 million in 1996
and $7.7 million in 1997 and net income of $109,000 in 1998. On a pro forma
basis, the combined company would have had net losses of $8.6 million in fiscal
1997, $15.7 million in fiscal 1998 and $753,000 in fiscal 1999.
The combined company anticipates increased operating expenses and a reduced
rate of revenue growth in the future.
Brio currently expects to increase its expenses, and the combined company's
15
<PAGE>
operating results will be harmed if these increased expenses are not
accompanied by increased revenues. Brio does not expect to sustain in future
periods the same rate of sequential quarterly revenue growth it has experienced
in the past. In addition, the combined company will likely increase its
operating expenses significantly in fiscal 2000. Brio currently intends to
commit substantial financial resources to research and development, customer
support and sales and marketing, including the continued expansion of its
domestic and international direct sales force, third-party partnering
relationships and Brio's domestic and international indirect channel sales
organization, and expects that expenses relating to Brio's litigation with
Business Objects, S.A. will increase in future periods. Brio also expects to
increase staffing and systems infrastructure in order to support expanding
operations.
The combined company's quarterly operating results will likely fluctuate based
on factors beyond its control, such as the timing of product enhancements and
new product announcements and the lengthy sales cycle of its products.
Brio 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 its control. Among other things, Brio's operating
results have fluctuated in the past due to:
. the timing of product enhancements and new product announcements;
. the lengthy sales cycle of its products;
. market acceptance of and demand for its products;
. capital spending patterns of its customers;
. customer order deferrals in anticipation of enhancements or new products;
. its 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.
In addition, the announcement or introduction of new products by Brio or its
competitors or any change in industry standards may cause customers to defer or
cancel purchases of existing products. Furthermore, the introduction of
products with reliability, quality or compatibility problems could result in
reduced orders, delays in collecting accounts receivable and additional service
costs. Accordingly, the combined company's results of operations may also
fluctuate in the future due to a number of additional factors, including but
not limited to those discussed above, as well as:
. the number and significance of product enhancements and new product
announcements by competitors;
. changes in customer buying patterns related to the year 2000 issue;
. changes in pricing policies by the combined company and its competitors;
. the combined company's ability to develop, introduce and market new and
enhanced versions of its products on a timely basis;
. customer order deferrals in anticipation of enhancements or new products
offered by competitors;
. nonrenewal of service agreements, software defects and other product quality
problems;
. the mix of direct and indirect sales;
. currency fluctuations; and
. costs or damage awards associated with the current litigation between Brio
and Business Objects, S.A.
Due to these factors, quarterly revenue and operating results are difficult
to forecast and may not meet expectations.
16
<PAGE>
Seasonality may affect the combined company's results because Brio's quarters
ending June 30 and September 30 have historically had slower sales.
Brio has experienced seasonality due to customer capital spending patterns
and the general summer slowdown in sales. The combined company expects to
continue to experience seasonality as a result of these factors. This
seasonality could materially hurt results of operations, particularly for the
quarters ending June 30 or September 30.
If the combined company's operating results do not meet financial analysts'
expectations, its stock price may decline.
In the future, the combined company's reported or anticipated operating
results may fail to meet or exceed the expectations of securities analysts or
investors. In that event, the combined company's common stock price could be
materially reduced.
Because Brio depends on a direct sales force, any failure by Brio to attract
and retain adequate sales personnel could slow its sales and increase its
expenses, causing significant financial and operational risks.
Brio may not be able to attract and retain adequate sales personnel, despite
the expenditure of significant resources to do so, and the failure to do so
could materially harm its ability to sell its products at expected levels.
Because turnover tends to slow sales efforts until replacement personnel can be
recruited and trained, failure to retain sales personnel could seriously hamper
its business, operating results and financial condition. Competition for
personnel with a sufficient level of expertise and experience for direct sales
positions is intense, particularly among competitors who may have substantially
greater resources than the combined company or greater resources dedicated to
hiring direct sales personnel. In addition, Brio has experienced significant
turnover of its sales force.
The combined company's success depends on key engineering, sales and management
personnel who may not continue to work for it.
The loss of the services of any of the key personnel or the inability to
attract or retain qualified personnel in the future could harm the combined
company's business, operating results and financial condition. The success of
the combined company will depend to a significant degree upon the continued
contributions of key management, engineering, sales and marketing personnel,
many of whom would be difficult to retain or replace if they leave the combined
company. Because competition for qualified personnel is intense, Brio may not
be successful in attracting and retaining the personnel it seeks.
Brio has recently experienced difficulties in hiring highly qualified sales
and engineering personnel, and the combined company may continue to have
difficulty in attracting employees in those categories. Brio has employment
contracts with only three members of its executive management personnel. In
connection with the merger, Ofir J. Kedar, SQRIBE's President and CEO, Scott
Chalmers, its Vice-President, Worldwide Sales, and John Schroeder, its Senior
Vice President, SQRIBE Products, have entered into employment agreements with
Brio. Brio currently maintains "key person" life insurance only on Yorgen
Edholm, its President and Chief Executive Officer, and Katherine Glassey, its
Executive Vice President, Products and Services and Chief Technology Officer.
Brio does not believe its current insurance would adequately compensate it for
the loss of either Mr. Edholm or Ms. Glassey.
Because the sales cycle for Brio's and SQRIBE's products is long, the timing of
sales is difficult to predict and the combined company's quarterly revenues and
earnings may fluctuate significantly.
Based in part on the lengthy sales cycle for the combined company's products,
17
<PAGE>
quarterly revenues and operating results could vary significantly in the
future. The sales cycle associated with the purchase of Brio's products is
typically three to nine months in length and subject to a number of significant
risks over which Brio has little or no control, including customers' budgeting
constraints and internal acceptance review procedures. Sales transactions may
be delayed during the customer acceptance process because Brio must provide a
significant level of education to prospective customers regarding the use and
benefits of its products. Further, to the extent that potential customers
divert resources and attention to issues associated with the year 2000 issue,
Brio's sales cycle could be further lengthened. Additionally, the sales cycle
for Brio'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, if the combined company's international operations
expand, the average sales cycle for its products is expected to lengthen. In
addition, Brio anticipates that an increasing portion of its revenue could be
derived from larger orders, in which case the timing of receipt and fulfillment
of those orders could cause material fluctuations in operating results,
particularly on a quarterly basis.
Because the combined company expects to achieve revenue growth and increased
margins through indirect sales channels, the combined company's failure to
develop and
manage indirect sales channels could limit its sales growth and financial
performance.
The combined company may not be able to continue to attract and retain
additional indirect channel partners that will be able to market its products
effectively and provide timely and cost-effective customer support and
services. The combined company may not be able to manage conflicts within its
indirect channel and its focus on increasing sales through the indirect
channels may divert management resources and attention from direct sales. In
addition, Brio's agreements with indirect channel partners do not restrict the
channel partners from distributing competing products, and in many cases may be
terminated by either party without cause. The ability of the combined company
to achieve revenue growth and improved operating margins on product sales in
the future will depend in large part upon its success in expanding and
maintaining indirect channels worldwide. Indirect channels include value added
resellers, resellers and distributors.
To date, Brio has sold its products principally through its direct sales and
service organizations and, to a lesser extent, through the indirect channel.
Revenues from Brio's indirect channel were 7% of total revenues for fiscal 1997
and 15% of total revenues for fiscal 1998 and 1999.
The business intelligence software industry in which the combined company will
operate is highly competitive, and some of the competitors of the combined
company may be more successful in attracting and retaining customers.
The market in which Brio and SQRIBE operate is highly competitive. The
combined company expects that competition will continue to intensify. Increased
competition could result in:
. price reductions;
. fewer customer orders;
. reduced gross margins;
. longer sales cycles; and
. loss of market share.
Brio 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 Brio's and SQRIBE's existing products.
Current and potential competitors offer a variety of software solutions and
generally fall within four categories:
. vendors of business intelligence software, including Cognos, Business
Objects, Hummingbird and Seagate Software;
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. vendors offering alternative approaches to delivering analysis capabilities
to users, including Information Advantage, Actuate and MicroStrategy;
. database vendors that offer products which operate specifically with their
proprietary database, including Microsoft, IBM, and Oracle; and
. other companies that may in the future announce offerings of enterprise
business intelligence solutions.
These 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 combined
company. Brio expects additional competition as other established and emerging
companies enter into the business intelligence software market and new products
and technologies are introduced.
Market consolidation may create more formidable competitors.
Alliances among current and new competitors may emerge and rapidly gain
significant market share. The failure of the combined company to compete
successfully against current and future competitors could materially harm its
business, operating results and financial condition by driving down prices and
reducing revenue growth. 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 Brio's prospective customers. Current or future indirect channel
partners of Brio and SQRIBE may establish cooperative relationships with
current or potential competitors, thereby limiting the combined company's
ability to sell its products through particular distribution channels. Such
competition could have a material adverse effect on the combined entity's
ability to obtain new licenses, and maintenance and support renewals for
existing licenses, on favorable terms. Further, competitive pressures may
require the combined entity to reduce the price of its products, which could
have a material adverse effect on its revenues, profitability and business
condition.
Brio's litigation with Business Objects, S.A. could result in substantial
expense to Brio and a significant diversion of effort by its management and
technical personnel. In addition, if the outcome of this litigation is
unfavorable, Brio may be required to pay damages and be enjoined from selling
its products or required to obtain a license or modify its products to continue
to sell them.
Brio's pending litigation with Business Objects, S.A. could result in
substantial expense to Brio and significant diversion of effort by its
technical and management personnel.
Business Object, S.A.'s 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 like
this where complex technical issues must be decided. Brio's defense of this
litigation, regardless of the merits or lack of merit of the complaint, could
be time-consuming or costly, or divert the attention of technical and
management personnel, which could have a material adverse effect upon Brio's
business, operating results and financial condition. Brio may not 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 Brio is unsuccessful in the litigation, it may be required to
pay damages to Business Objects and could be prohibited from marketing its
BrioQuery Navigator, BrioQuery Explorer and
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BrioQuery Designer products without a license, which may not be available on
acceptable terms. If Brio is unable to obtain a license, it may be required to
license a substitute technology or redesign its products to avoid infringement,
in which case its 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
Brio's revenues in fiscal 1996 and a majority of its revenues in fiscal 1997
and fiscal 1998. For more information regarding Brio's litigation with Business
Objects S.A., see "Information Regarding Brio--Business of Brio; Legal
Proceedings."
Brio's plans to expand internationally expose the combined company to risks
related to managing international operations, currency exchange rates, tariffs
and other difficulties related to foreign operations.
A key component of Brio's strategy is its planned expansion into additional
international markets. If the international revenues generated by these
expanded operations are not adequate to offset the expense of establishing and
maintaining these foreign operations, Brio's business, operating results and
financial condition could be materially harmed. In addition to the uncertainty
as to the combined company's ability to expand its international presence,
there are risks inherent in doing business on an international level,
including:
. technical difficulties associated with product localization in foreign
countries;
. 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 during the summer months in Europe;
and
. potentially adverse tax consequences.
Each of these factors could adversely impact the success of the combined
company's international operations and, consequently, the combined company's
business, operating results and financial condition. In particular, Brio's
international sales are generally denominated and collected in foreign
currencies, and Brio has not historically undertaken foreign exchange hedging
transactions to cover potential foreign currency exposure. In fiscal 1998, Brio
incurred losses on foreign currency translations resulting from intercompany
receivables from foreign subsidiaries in an amount of approximately $131,000.
The combined company's future success will depend upon successful product
development in the face of changing customer requirements and rapid
technological change.
The combined company's failure to develop and introduce new products and
product enhancements on a timely basis that meet changing customer requirements
and technological changes could result in reduced demand for or market
acceptance of the combined company's products, which could hurt the combined
company's business, operating results and financial condition. Brio's and
SQRIBE's products incorporate a number of advanced technologies, including
proprietary data analysis engines, a distributed architecture, as well as Web
access and delivery technology. The combined company may be required to change
and improve its products in response to changes in operating systems,
applications, networking and
connectivity software, computer and
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communications hardware, programming tools and computer language technology.
The combined company may not successfully respond to changing technology,
identify new product opportunities or develop and bring new products to market
in a timely and cost-effective manner. In the past Brio has experienced delays
in software development. In particular, development efforts in the UNIX server
environment are complex, and in the past Brio has encountered delays in
developing products for this environment. The combined company may experience
delays in connection with current or future product development activities.
Because the combined company's future success will depend upon successful
product development in the face of evolving industry standards, failure to
introduce new products could hurt its growth and profitability.
Brio's failure to introduce new products or product enhancements on a timely
basis that are compatible with industry standards could delay or hinder demand
for or market acceptance of its products, which could hurt the combined
company's growth and profitability.
The market may not accept the combined company's products due to inferior
engineering, undesirable functionality or pricing which would reduce revenues,
growth and profitability.
Brio is focusing its selling efforts increasingly on larger, enterprise-wide
implementations of its products, and Brio expects these sales to constitute an
increasing portion of any of its future revenue growth. Failure of a
significant market for enterprise business intelligence products to develop, or
failure of enterprise-wide implementations of Brio's products to achieve broad
market acceptance, could materially harm the combined company's business,
operating results and financial condition. To date, Brio's selling efforts have
resulted in limited enterprise-wide implementations of its products. Brio
believes that most companies currently are not yet aware of the benefits of
enterprise-wide business intelligence solutions or of its products and
capabilities, nor have most companies deployed business intelligence solutions
on an enterprise-wide basis. Brio's efforts to promote market awareness of its
products and the problems its products address may not be sufficient to build
market awareness of the need for enterprise business intelligence or acceptance
of Brio's products.
The year 2000 problem could cause the combined company's software products to
malfunction and the combined company's customers to cease their purchasing of
the combined company's products.
Brio's computer systems and applications could fail or create erroneous
results unless corrected so that they can process data related to the year 2000
and beyond. Brio relies on its systems, applications and devices in operating
and monitoring all major aspects of its business, including financial systems,
customer services, infrastructure, networks and telecommunications equipment.
Brio also relies, directly and indirectly, on external systems of business
enterprises including customers, suppliers, creditors, financial organizations,
and governmental entities, both domestic and international, for accurate
exchange of data. Brio has not fully identified the impact of the year 2000
issue on its internal systems or whether it can resolve these issues without
disruption of its business and without incurring significant expense.
In addition, even if Brio's internal systems are not materially affected by
the year 2000 issue, Brio could be affected through disruption in the operation
of the enterprises with which it interacts. Furthermore, Brio believes that the
purchasing patterns of customers and potential customers may be affected by
year
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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 like those offered by Brio and SQRIBE, which could have a material
adverse effect on the combined company's business, operating results and
financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for a discussion of the impact of the year 2000 problem on the
Company's operations.
Product defects could hurt the combined company's operating results.
As a result of their complexity, Brio's software products may contain
undetected errors, failures or viruses. Brio or its customers may discover
errors in new products or enhancements after commencement of commercial
shipments, resulting in loss of revenues, delay in market acceptance or damage
to Brio's reputation, which could have a material adverse effect upon Brio's
business, operating results and financial condition. Further, Brio's license
agreements with customers typically contain provisions designed to limit Brio's
exposure for potential claims based on errors or malfunctions of Brio's
products.
The limitation of liability provisions contained in Brio's license agreements
may not be effective under the laws of all jurisdictions. Brio's sale and
support of its products entails the risk of warranty claims, and Brio's
insurance against product liability risks may not be adequate to cover a
potential claim. A product liability claim brought against Brio could have a
material adverse effect on its business, operating results and financial
condition.
The combined company has no issued patents, and its intellectual property
protection may not be adequate to prevent competitors from entering its markets
or developing competing products.
The combined company's failure to protect its proprietary rights may allow
competitors to enter its market or develop competing products, resulting in
competitive harm to the combined company. The methods used by the combined
company to protect its proprietary rights afford only limited protection. The
combined company currently relies primarily on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. Brio currently has one U.S.
patent application. This patent application may not result in the issuance of a
patent. Even if a patent is issued, it may be invalidated, circumvented or
challenged, and the rights granted under the patent, if any, may not provide
the combined company competitive advantages. The combined company may not
obtain any more patents. Others may develop technologies that are similar or
superior to the combined company's technology or design around any patent that
the combined company may come to own.
Despite the combined company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the combined company's
products or to obtain and use information that the combined company regards as
proprietary. Policing unauthorized use of the combined company's products is
difficult, and while the combined company is unable to determine the extent to
which piracy of its software products exists, the combined company expect
software piracy to be a persistent problem. In addition, the laws of some
foreign countries do not protect proprietary rights as fully as do the laws of
the U.S. the combined company's means of protecting its proprietary rights in
the U.S. or abroad may not be adequate, and competitors may independently
develop similar technology.
Investment Risks
Brio's common stock has a limited trading history and a volatile price.
There has only been a public market for Brio's common stock since April 30,
1998, and an active public market may not
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continue. The market price of the shares of Brio's common stock is likely to be
highly volatile and may be significantly affected by a number of factors,
including:
. actual or anticipated fluctuations in the combined company's operating
results; announcement of business partnerships;
. technological innovations or new product introductions by Brio or its
competitors;
. changes of estimates of the combined company's future operating results by
securities analysts; or
. developments with respect to copyrights or proprietary rights.
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
combined company's common stock. 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. Such litigation
may occur in the future with respect to the combined company, and could result
in substantial costs and a diversion of management's attention and resources,
which could have a material adverse effect upon the combined company's
business, operating results and financial condition.
After the merger, management will own a significant percentage of the combined
company's common stock, and their interests may be adverse to yours.
Brio's executive officers and directors, together with entities affiliated
with those individuals, beneficially own a majority of Brio's common stock. In
particular, Yorgen Edholm, Brio's President and Chief Executive Officer and one
of its directors, and his spouse Katherine Glassey, Brio's Executive Vice
President, Products and Services and Chief Technology Officer and one of Brio's
directors, beneficially own approximately 30% of Brio's common stock. If the
merger is approved and consummated, they will own approximately 16% of the
common stock of the combined company.
In addition, if the merger is completed, Ofir Kedar and entities affiliated
with General Atlantic Partners, LLC will beneficially own over 17% and 11% of
the combined company's common stock, respectively. Accordingly, these
stockholders may, as a practical matter, continue to be able to control the
election of a majority of the combined company's directors and the
determination of all corporate actions. This concentration of ownership could
also have the effect of delaying or preventing a change in control of the
combined company.
Anti-takeover provisions may adversely effect the combined company's stock
price and make it more difficult for a third party to acquire the combined
company.
Provisions of Brio's charter documents may have the effect of delaying or
preventing a change in control of the combined company or its management, which
could have a material adverse effect on the market price of the combined
company's common stock. These include 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.
In addition, the the combined company's board of directors has authority to
issue up to 2,000,000 shares of preferred
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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 Brio common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that Brio may issue 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 Brio's outstanding
voting stock, thereby delaying, deferring or preventing a change in control of
Brio. Brio has no present plan to issue shares of preferred stock.
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FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This proxy statement/prospectus contains "forward-looking statements" within
the meaning of section 27A of the Securities Act of 1933, as amended, and
section 21E of the Securities Exchange Act of 1934, as amended. These
statements, which include statements regarding expected advantages and other
effects of the merger described in "The Merger--Overview; Brio's Reasons for
the Merger" and elsewhere in this proxy statement/prospectus, expectations
concerning year 2000 compliance, and expectations concerning matters that are
not historical facts. Words such as "projects," "believes," "anticipates,"
"plans," "expects," "intends," "estimates" and similar words and expressions
are intended to identify forward-looking statements. Important factors that
could cause actual results to differ materially from expectations include:
. difficulties in successfully implementing the merger and fully
integrating the operations of each company with the other;
. a highly competitive enterprise business intelligence software market;
. difficulties in achieving sales, gross-margin and operating-expense
targets based on competitive market factors;
. difficulties in accurately gauging the rate of product transitions and
introducing new products in the face of abrupt and changing technology
cycles;
. difficulties in utilizing indirect sales channels;
. difficulties in differentiating products from those of competitors; and
. difficulties in competing successfully in the markets for new products
from established and emerging competitors.
These and other factors are disclosed in this document, in the section
entitled "Risk Factors" beginning on page 14. All forward-looking statements
are expressly qualified by these risk factors in this proxy
statement/prospectus. Brio undertakes no obligation to update any forward-
looking statements.
Adaptive Reporting, Brio, Brio Enterprise, Brio.Insight, BrioQuery,
BrioQuery Designer, BrioQuery Explorer, BrioQuery Navigator Brio.Quickview,
Broadcast Server, DataPrism, OnDemand Server and Brio's logo are Brio
trademarks. All other brand names or trademarks appearing in this proxy
statement/prospectus are the property of their respective holders.
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THE BRIO ANNUAL MEETING
Date, Time and Place of Meeting
The Brio annual meeting will be held at Crowne Plaza Cabana Palo Alto,
located at 4290 El Camino Real, Palo Alto, California on , 1999, at 10:00
a.m., local time.
Purpose of the Annual Meeting
At the annual meeting, you will consider and vote upon the following six
proposals:
1. To approve the merger agreement and the merger (see page 28 for a
description of the merger);
2. To elect five directors of Brio to serve until their respective
successors are elected and qualified (see page 70 for a description of
the election);
3. To approve amendments to Brio's 1998 employee stock purchase plan to
increase the number of shares of common stock reserved for issuance
under the plan by 1,000,000 shares to a total of 1,500,000 shares and to
make other changes described in this proxy statement prospectus (see
page 81 for a description of the amendments to the plan);
4. To approve an amendment to Brio's 1998 stock option plan to increase the
number of shares reserved for issuance under the plan by 2,250,000 to a
total of 4,500,000 shares (see page 84 for a description of the
amendments to the plan);
5. To approve an amendment to Brio's certificate of incorporation with
respect to the election of directors in order to conform the certificate
to recently modified provisions of California law (see page 87 for a
description of the changes in the law and of the proposed amendment);
and
6. To ratify the appointment of Arthur Andersen LLP as Brio's independent
public accountants for the fiscal year ending March 31, 2000 (see page
88 for a description of the appointment).
You will also be asked to vote on any other matter that is properly raised
for consideration at the meeting.
The Brio board of directors has unanimously approved the adoption of the
proposals listed above. In particular, the Brio board of directors believes
that the terms of the merger agreement are advisable, fair to, and in the best
interests of Brio and its stockholders, and unanimously recommends that holders
of shares of Brio common stock vote FOR the merger and each of the other
proposals.
Record Date; Voting Rights; Proxies
Only holders of Brio common stock at the close of business on June 30, 1999
are entitled to notice of and to vote at the annual meeting.
As of June 30, 1999, there were 14,808,927 shares of Brio common stock issued
and outstanding. Each share entitles the holder to one vote.
All shares of Brio common stock represented by properly executed proxies
will, unless the proxies have been previously revoked, be voted in accordance
with the instructions indicated in the proxies. If no instructions are
indicated, the shares of Brio common stock represented by the proxies will be
voted FOR the merger and the other proposals. Brio does not know of any matters
other than those described above that are to come before the annual meeting. If
any other matter or matters are properly presented for action at the annual
meeting, the persons named in the enclosed form of proxy will have the
discretion to vote on those other matters in accordance with their best
judgment. A stockholder who has given a proxy may revoke it at any time prior
to its exercise by giving written notice to the secretary of Brio, by signing
and returning a later dated proxy, or by voting in person at
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the annual meeting. However, mere attendance at the annual meeting will not
have the effect of revoking the proxy. Votes cast by proxy or in person at the
annual meeting will be tabulated by the inspector of election appointed for the
meeting.
Solicitation of Proxies
Proxies are being solicited by and on behalf of the Brio board of directors.
Brio will bear all expenses in connection with solicitation of these proxies.
In addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of Brio in person or by telephone, telegram
or other means of communication. Directors, officers and employees will not be
additionally compensated for, but may be reimbursed for out-of-pocket expenses
incurred in connection with, this solicitation. Brio has also made arrangements
with brokerage firms, banks, custodians, nominees and fiduciaries for the
forwarding of proxy and solicitation materials to owners of Brio common stock
held of record, and Brio will reimburse these firms for reasonable expenses
incurred in forwarding these materials.
Quorum
The presence in person or by properly executed proxy of holders of a majority
of all the issued and outstanding shares of Brio common stock entitled to vote
is necessary to constitute a quorum at the annual meeting. For purposes of
determining whether a majority is present, the inspector of election will count
the shares of holders who abstained from voting on any particular matter.
Required Vote
Vote required to approve the merger and amendment of Brio's certificate of
incorporation. Approval of the merger and amendment of Brio's certificate of
incorporation requires the affirmative vote of the holders of a majority of the
outstanding shares of Brio common stock entitled to vote on these matters.
Abstentions and broker non-votes are not affirmative votes and, therefore, will
have the same effect as votes against approval of the merger and amendment of
Brio's certificate of incorporation. In addition, the required vote on these
matters is based on the number of outstanding shares of Brio common stock,
rather than the shares actually present in person or by proxy at the annual
meeting. Therefore, your failure to submit a proxy or a vote at the annual
meeting will have the same effect as a vote against approval of the merger and
amendment of Brio's certificate of incorporation.
Each director and executive officer of Brio and General Atlantic Partners,
L.P., and related entities, Kleiner Perkins Caufield & Byers, and related
entities, and Integral Capital Partners, and related entities, have indicated
an intention to vote all shares of Brio common stock beneficially owned by him
or her in favor of approval of the merger. As of March 31, 1999, these
individuals and entities beneficially owned 55% of the outstanding common stock
of Brio.
Vote required to elect directors of Brio. Election of Brio's directors
requires the vote of a plurality of the shares present in person or represented
by proxy at the annual meeting and entitled to vote.
Vote required to approve remaining matters. The affirmative vote of a
majority of the shares presented in person or represented by proxy at the
annual meeting approves the remaining matters presented at the annual meeting.
The matters to be considered at the annual meeting are of great importance to
the stockholders of Brio. Accordingly, you are urged to read and carefully
consider the information presented in this proxy statement/prospectus, and to
complete, date, sign and promptly return the enclosed proxy in the enclosed
postage-paid envelope.
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PROPOSAL NO. 1
THE MERGER
Overview
If the merger is completed, a wholly-owned subsidiary of Brio formed for the
purpose of the merger will merge with SQRIBE. SQRIBE will continue as the
surviving entity and will become a wholly owned subsidiary of Brio.
Upon completion of the merger, holders of SQRIBE capital stock who do not
exercise dissenters' rights will be entitled to receive shares of Brio common
stock. After the merger, the former holders of SQRIBE capital stock will own
approximately 45% of the fully diluted common stock of the combined company. If
the merger had occurred on June 30, 1999, approximately 13.4 million shares of
Brio common stock would have been issued to SQRIBE stockholders, which is
equivalent to approximately 0.87 shares of Brio common stock for each share of
SQRIBE capital stock. In addition, Brio will assume all outstanding options to
purchase SQRIBE capital stock. The exact number of shares Brio will issue in
the merger will be determined according to an exchange ratio that is described
more fully below (see page 52 for a description of the exchange ratio).
However, the exact number of shares that will be issued in the merger will not
be known at the time you vote on the merger because the exchange ratio depends
upon the price of Brio common stock and the number of fully diluted shares of
each of Brio and SQRIBE outstanding immediately prior to the merger.
This section of the proxy statement/ prospectus describes aspects of the
proposed merger. The discussion of the merger in this document and the
description of the principal terms of the merger agreement should be read with
the merger agreement, a copy of which is attached to this proxy
statement/prospectus as Appendix A. Although the discussion that follows is
materially complete, we encourage you to read the merger agreement and the
other appendices to this proxy statement/prospectus in their entirety.
Brio's board of directors unanimously recommends that you vote FOR approval
of the merger.
Background of the Merger
Giles McNamee, Senior Vice President of First Albany Corporation, an
investment banking company and one of the underwriters of Brio's initial public
offering, had been in discussions with SQRIBE about a possible initial public
offering and other strategic alternatives. Mr. McNamee recognized the potential
sales and product synergies of combining the two companies and in early October
1998 spoke with Yorgen H. Edholm, President and Chief Executive Officer of
Brio, regarding whether Brio might have an interest in a potential transaction.
Although from time to time Brio's board considers strategic acquisitions of
complimentary products and technologies, the board was not at that time
seriously considering any significant potential transactions.
On October 19, 1998, Mr. McNamee met with Ofir J. Kedar, President and
Chief Executive Officer of SQRIBE, on behalf of Brio to indicate that Brio
might be interested in combining Brio and SQRIBE.
On October 27, 1998, Mr. Edholm met with Mr. Kedar to discuss the possibility
of expanding Brio's year-old existing strategic relationship with SQRIBE, which
at that time consisted of agreements regarding the referral of potential
customers and a sublicense of SQRIBE's products to Brio.
On October 28, 1998, Messrs. Edholm and Kedar met to discuss further the
possibility of Brio acquiring SQRIBE. The two discussed potential product
synergies, the opportunity for cross-selling to a larger customer base and the
increased size of the sales force if the companies were to combine.
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On November 3, 1998, Mr. Edholm, Karen J. Willem, Executive Vice President
and Chief Financial Officer of Brio, and representatives of BancBoston
Robertson Stephens met to discuss the possibility of a transaction with SQRIBE,
including a review of strategic options and potential transaction scenarios.
Later the same day, Messrs. Edholm and Kedar met to discuss the possible
management structure if the companies were to be merged, review strategic
options, discuss transaction scenarios and consider, in general terms,
appropriate company valuations for the transaction.
On November 17, 1998, Messrs. Edholm and Kedar, Katherine Glassey, Executive
Vice President and Chief Technical Officer of Brio, and John W. Schroeder,
Senior Vice President, SQRIBE Products, met to discuss each company's
technology and products, how they would compliment one another, and how the
products could be integrated.
On November 18, 1998, Mr. Edholm, Ms. Willem, and representatives of
BancBoston Robertson Stephens met to discuss timing and logistical
considerations related to the transaction.
On November 21, 1998, Messrs. Edholm and Kedar met to further discuss the
topics previously covered in earlier meetings and to determine whether the
companies should proceed with their discussions about a potential transaction.
On November 23, 1998, Mr. Edholm, Ms. Glassey, Ms. Willem and representatives
of BancBoston Robertson Stephens met to prepare for a meeting of the senior
management of both companies on November 25, 1998.
On November 25, 1998, Mr. Edholm, Ms. Glassey, Ms. Willem, and Chris Grejtak,
Executive Vice President, Marketing for Brio, together with representatives of
BancBoston Robertson Stephens, met with Messrs. Kedar and Schroeder, Steven J.
Wong, Senior Vice President, Finance and Operations and Chief Financial Officer
of SQRIBE, and representatives of Merrill Lynch, financial advisor to SQRIBE,
to present company information for both companies, including corporate and
technology overviews and internal financial plans and projections. As part of
the due diligence process, both companies discussed potential cost savings,
redundancies, potential integration and cross-selling opportunities, and the
benefits of the expansion of the product line which would result from a
transaction, including the potential for increased revenues for the combined
company. The management of both companies felt there would be cost savings of
approximately $3.3 million as a result of combining the two companies,
particularly in international sales and the general and administrative area,
but the most significant reasons for combining the companies were the product
synergies, the opportunity for cross-selling to a larger customer base and the
increased size of the sales force once the companies combined. At that time,
Brio and SQRIBE executed a mutual non-disclosure agreement.
On December 1, 1998, representatives of BancBoston Robertson Stephens
presented a detailed analytical review of the transaction, including a relative
contribution analysis, comparable companies analysis, selected precedent
transactions, and a merger analysis to Mr. Edholm and Ms. Willem. The parties
also discussed terms of the proposed merger. That same day, Brio's board of
directors met with Brio's senior management and legal advisor at a special
telephonic meeting to discuss the proposed SQRIBE transaction. Brio's board of
directors then authorized management to proceed with the negotiation and make
an offer to SQRIBE.
On December 3, 1998, Brio formally engaged BancBoston Robertson Stephens to
act as its financial advisor in the transaction.
On December 4, 1998, Mr. Edholm in a telephone conversation with Mr. Kedar,
indicated Brio's preliminary interest in acquiring SQRIBE. The parties
discussed
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material terms of the proposed transaction, including timing and valuation.
On December 7, 1998, representatives from BancBoston Robertson Stephens and
Merrill Lynch met to discuss the rationale of the terms and the structure of
the proposed merger.
On December 12, 1998, Mr. Edholm met with Mr. Kedar to reiterate the
strategic rationale and the reasons underlying the proposed terms. At that
time, the parties could not agree on the valuations of each company and post-
transaction ownership percentage for each Company's stockholders.
On December 13, 1998, representatives from BancBoston Robertson Stephens and
Merrill Lynch again met to review their respective valuation analyses and
various other material terms.
On December 15, 1998, Mr. Edholm and Ms. Willem, in a telephonic meeting with
representatives of BancBoston Robertson Stephens, discussed the status of the
negotiations, as well as topics to be covered in a meeting later that day among
representatives of BancBoston Robertson Stephens and Ofir Kedar, Dale Prouty,
Charles Federman, Michael Cline and Haim Kedar, who constitute SQRIBE's board
of directors. Also that same day, Messrs. Edholm and McNamee met to discuss the
strategy for the negotiation.
On December 18, 1998, representatives of BancBoston Robertson Stephens met
with representatives from Merrill Lynch and Drew Pearson and Amish Mehta of
General Atlantic Partners to discuss SQRIBE's operating model and forecasts.
On December 21, 1998, Mr. Edholm, Ms. Willem, and Tamara L. MacDuff, Vice
President Finance and Operations for Brio, together with representatives of
BancBoston Robertson Stephens, Mr. Wong, and representatives of Merrill Lynch,
met to review SQRIBE's operating model.
On January 4, 1999, representatives of BancBoston Robertson Stephens
presented the valuation analysis which had been updated to reflect Brio's
final, audited financials to Brio senior management, E. Floyd Kvamme and
Bernard J. Lacroute, directors of Brio, in order to develop a final offer for
SQRIBE.
On January 6, 1999, representatives at BancBoston Robertson Stephens extended
a written offer on behalf of Brio for Brio to acquire SQRIBE in a stock-for-
stock merger using an exchange ratio of 0.79 shares of Brio common stock for
each outstanding share of SQRIBE's common stock. The offer also included other
principal terms of the proposed merger, including a 10% escrow. Brio
conditioned its offer on the execution of exclusive negotiation agreements
among Brio, SQRIBE and major holders of SQRIBE stock, as well as Brio's
satisfaction after a due diligence review of SQRIBE.
On January 7, 1999, representatives at Merrill Lynch provided SQRIBE's
counter to Brio's offer by proposing an exchange ratio of 0.85, no escrow
provision, and equal board representation on the combined company's board. On
that same day, at a special meeting of Brio's board of directors, BancBoston
and Brio management presented a report to the board regarding the status of the
negotiations with SQRIBE. The group discussed the strategic rationale
underlying the transaction and considered the risks and benefits of going
forward with a merger of the two companies. The board then authorized
management to counter SQRIBE's offer using an exchange ratio of 0.82.
On January 8, 1999, representatives of Merrill Lynch, in a telephone
conversation with representatives of BancBoston Robertson Stephens, stated that
SQRIBE would accept an exchange ratio of 0.82, but countered as to the escrow
terms and the composition of the board of directors.
On January 11, 1999, representatives of BancBoston Robertson Stephens and
Merrill
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Lynch at a telephonic meeting, discussed the transaction and the outstanding
issues.
On January 13, 1999, Messrs. Edholm and Kedar met to discuss staffing issues
associated with the integration of the two companies.
On January 14, 1999, Ms. Willem, Mr. Wong, Ms. MacDuff, and representatives
from BancBoston Robertson Stephens and Merrill Lynch began conducting business
and financial due diligence review of each company. From January 14 through
February 22, 1999, Brio and SQRIBE, together with their respective legal,
financial and accounting advisors, conducted due diligence reviews and
negotiated the terms of the definitive merger agreement and the other
agreements providing for the merger.
On February 9, 1999, Brio amended its engagement letter with BancBoston
Robertson Stephens.
On February 22, 1999, Brio's board of directors met with senior management,
representatives of BancBoston Robertson Stephens, and representatives of
Venture Law Group, Brio's outside corporate counsel, at a special meeting of
the board to review the status of the negotiations with SQRIBE, the terms of
the draft merger agreement and Brio's due diligence review of SQRIBE. At this
meeting, representatives of Venture Law Group reviewed the terms of the
transaction and the related documents. Representatives of BancBoston Robertson
Stephens presented their analysis of various information to serve as the basis
for evaluating the proposed exchange ratio and informed the board of its
opinion that the exchange ratio was fair, from a financial point of view, to
Brio. BancBoston Robertson Stephens also responded to questions raised by
members of Brio's board of directors regarding its analysis and opinion.
Following these presentations, the board engaged in a full discussion of the
terms of the proposed merger, including the strategic benefits of the
combination, the terms and conditions of the proposed merger agreement, the
risks and benefits associated with the proposed transaction and the analysis
and opinion of BancBoston Robertson Stephens.
At the conclusion of this meeting, Brio's board of directors approved the
merger and the terms of the merger agreement and authorized management to
proceed with the execution of the transaction documents.
Also on February 22, 1999, SQRIBE's board of directors met with senior
management, representatives of SQRIBE's outside corporate counsel, and SQRIBE's
financial advisors to discuss the status of the negotiations with Brio,
SQRIBE's due diligence review of Brio, and the draft merger agreement. SQRIBE's
board of directors concluded that the merger agreement was fair to SQRIBE's
stockholders and that the proposed merger was in the best interest of SQRIBE
and its stockholders. Accordingly, SQRIBE's board of directors approved the
merger and the merger agreement and related documents and authorized management
to proceed with the execution of the merger documents.
During the morning of February 23, 1999, the parties executed the merger
agreement and the related transaction documents.
Brio and SQRIBE jointly announced the merger on the afternoon of February 23,
1999.
Brio's board of directors views the merger as a means to increase the value
of the combined companies to Brio's stockholders. In evaluating the proposed
merger, the board considered and discussed a wide variety of factors, including
the following:
. details of the merger agreement,
. Brio's and SQRIBE's respective products and the potential synergies
between those products and markets,
. the recent trading activity of Brio's stock and
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. the financial terms of the merger agreement.
Brio's board also discussed each component of the merger agreement in light of
its fairness to Brio's stockholders, projected dilution to existing Brio
stockholders resulting from the issuance of additional shares, and the impact
of the merger on current employees of Brio. In addition, Brio's board
considered the advantages and disadvantages that the merger would present to
Brio's achievement of its strategic objectives. As part of the evaluation
process, Brio's board reviewed information about the business, operations and
future prospects of both Brio and SQRIBE, including Brio's recent operating
results, the relative assets, revenues and results of operations of Brio and
SQRIBE, and the opinion of Brio's financial advisor, BancBoston Robertson
Stephens.
Brio's Reasons for the Merger
Brio's board based its approval of the merger and its determination that the
merger agreement is advisible, fair to and in the best interests of Brio and
its stockholders upon a number of factors, including the following advantages
of the merger:
. Enhanced Product Suite. Brio customers have increasingly expressed a
need for Brio products to include capabilities that would address their
production and operational reporting requirements, further leverage
those reporting capabilities through integration with Brio's client-
based business intelligence functionality, and more effectively manage
and deliver reports and corporate information to their users through the
Web. The combination of SQRIBE's enterprise reporting and enterprise
information portal products with Brio's existing product line enhances
Brio's product suite to include these capabilities and enables Brio to
serve as the single vendor in the business intelligence software market
to offer comprehensive "one stop shopping" to its customers. Today, most
customers are limited in their ability to effectively integrate these
product offerings due to heterogeneous reporting and business
intelligence software from multiple vendors. The addition of SQRIBE's
development staff to Brio's product development team gives Brio an
enhanced ability to seamlessly integrate these product offerings and
more rapidly deliver new integrated products that span all of a
customer's enterprise business intelligence needs.
. Increased Market Presence and Greater Economies of Scale. The merger
will create a combined company with significantly greater resources,
most notably, a more complete product offering, expanded services
capacity and greater sales and marketing capabilities. With expanded
resources, the combined company will be able to achieve greater sales
and product leverage throughout its entire distribution channel and
increase operational efficiencies across the organization, as well as
deliver a broader range of services to more effectively service its
customers. Initially, Brio estimates that the combined company will be
able to achieve increased operational efficiencies of approximately $3.3
million.
. Significant Cross-Selling Opportunities. Both companies have significant
installed customer bases. Both Brio and SQRIBE sell to Fortune 500
companies. Despite the significant installed customer bases of both
companies, there is relatively minor overlap in customer bases, creating
an opportunity to cross-sell into one another's customers. The combined
company will be well-positioned to capture
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these opportunities and offer an attractive, unique and integrated
solution to its customers.
. Facilitate Channel Expansion and Strategic Relationships. Both companies
have a large number of high quality channel partners and strategic
relationships. The combined company will be able to leverage the unique
breadth and depth of its expanded product line to enhance these existing
relationships in addition to building new ones.
. Accelerate International Expansion and Increase Distribution. One of
Brio's primary strategic objectives over the past year has been
increasing its international presence. The combined company will have
significantly greater global sales capabilities with an enhanced direct
sales and sales support organization, and improved indirect sales
channels in Europe, Latin America, and Asia/Pacific.
Brio's board of directors also considered the following potentially negative
factors:
. the potential disruption of Brio's business that might result from both
employee uncertainty and customer uncertainty as a result of the merger
and during the combination of the operations of Brio and SQRIBE;
. the risk that, despite the intentions and the efforts of the parties to
reassure Brio's customers and distributors regarding the combined
company's intention to support their future sales efforts, the
announcement of the merger could result in customer or distributor
decisions to delay or cancel purchases of Brio products;
. the possibility that the merger might not be completed and the public's
potentially negative response to the interrupted merger,
. the effects of the public announcement of the merger on Brio's revenues
and operating results, and Brio's ability to attract and retain key
management, marketing and technical personnel;
. the risk that the anticipated benefits of the merger may not be
realized; and
. the other risks described above under "Risk Factors."
After considering the foregoing factors, Brio's board of directors
unanimously approved the merger agreement and the merger, and recommended that
the stockholders of Brio approve and adopt the merger agreement and the merger.
In view of the wide variety of factors considered, both positive and negative,
Brio's board did not find it practicable to, and did not, quantify or otherwise
assign relative weights to the specific factors considered.
Opinion of Brio's Financial Advisor
On December 3, 1998, Brio and BancBoston Robertson Stephens, Inc. executed an
engagement letter, which was subsequently amended on February 9, 1999, pursuant
to which BancBoston Robertson Stephens was engaged to render an opinion as to
the fairness of the exchange ratio, from a financial point of view, to Brio.
On February 22, 1999 at a meeting of the Brio board held to evaluate the
proposed merger, BancBoston Robertson Stephens delivered to the Brio board its
written opinion that as of February 19, 1999 and based on the matters described
in the opinion, the exchange ratio was fair to the shareholders of Brio, from a
financial point of view. No limitations were imposed by the Brio board on
BancBoston Robertson Stephens with respect to the investigations made or
procedures followed by it in furnishing its opinion. The exchange ratio was
determined through negotiations between the respective managements of Brio and
SQRIBE. Although BancBoston
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Robertson Stephens did assist the management of Brio in those negotiations, it
was not asked by, and did not recommend to, Brio that any specific exchange
ratio constituted the appropriate exchange ratio for the merger. BancBoston
Robertson Stephens also assisted Brio's management in the negotiations leading
to an agreement on principal structural terms of the transaction.
BancBoston Robertson Stephens expresses no opinion as to the tax consequences
of the merger, and BancBoston Robertson Stephens opinion as to the fairness of
the exchange ratio does not take into account the particular tax status or
position of any stockholder of Brio. In furnishing its opinion, BancBoston
Robertson Stephens was not engaged as an agent or fiduciary of Brio's
stockholders or any other third party.
The full text of the BancBoston Robertson Stephens opinion, which sets forth,
among other things, assumptions made, matters considered and limitations on the
review undertaken, is attached as Appendix C and is incorporated in this
prospectus/proxy statement by reference. Stockholders of Brio are urged to read
the Bancboston Robertson Stephens opinion in its entirety. The BancBoston
Robertson Stephens opinion was prepared for the benefit and use of the Brio
board in its consideration of the merger and does not constitute a
recommendation to stockholders of Brio as to how they should vote in connection
with the merger. The Bancboston Robertson Stephens opinion does not address:
. the relative merits of the merger and any other transactions;
. business strategies discussed by the Brio board as alternatives to the
plan of merger; or
. the underlying business decision of the Brio board to proceed with the
merger process.
In connection with the preparation of the BancBoston Robertson Stephens
opinion, BancBoston Robertson Stephens, among other things has:
. reviewed financial information relating to Brio and SQRIBE furnished to
it by Brio and SQRIBE, including internal financial analyses, forecasts
and projections for Brio and SQRIBE prepared by the managements of Brio
and SQRIBE, respectively;
. reviewed publicly available information related to Brio;
. held discussions with the respective managements of Brio and SQRIBE
concerning the businesses, past and current operations, financial
conditions and future prospects of both Brio and SQRIBE, independently
and combined, including discussions with the managements of Brio and
SQRIBE concerning cost savings and synergies that are expected to result
from the merger as well as their views regarding the strategic rationale
for the merger;
. reviewed the financial terms and conditions set forth in the merger
agreement;
. reviewed the stock price and trading history of Brio;
. reviewed the contribution by each company to pro forma combined revenue,
earnings before income tax and net income;
. reviewed the valuations of publicly traded companies which we deemed
comparable to Brio and SQRIBE;
. compared the financial terms of the merger with the financial terms, to
the extent publicly available, of other transactions which we deemed
relevant;
. analyzed the pro forma earnings per share of the combined company;
. prepared a discounted cash flow analysis of SQRIBE; and
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. made such other studies and inquiries, and reviewed such other data, as
it deemed relevant.
In conducting its review and arriving at its opinion, BancBoston Robertson
Stephens assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it (including information
furnished to it orally or otherwise discussed with it by management of Brio
and SQRIBE) or publicly available and have neither attempted to verify, nor
assumed responsibility for verifying, any of such information. BancBoston
Robertson Stephens has relied upon the assurances of management of Brio and
SQRIBE that they are not aware of any facts that would make such information
inaccurate or misleading. Furthermore, BancBoston Robertson Stephens did not
obtain or make, or assume any responsibility for assuming or making, any
independent evaluation or appraisal of the properties, assets or liabilities
(contingent or otherwise) of Brio or SQRIBE, nor was BancBoston Robertson
Stephens furnished with any such evaluation or appraisal. BancBoston Robertson
Stephens relied on street estimates with respect to the future financial
condition and performance for Brio and has assumed that such estimates have
been reasonably prepared in good faith on the basis of reasonable assumptions
and reflect the best available estimates as to the future financial condition
and performance of Brio.
With respect to the financial forecasts and projections (and the assumptions
and the basis for such assumptions) for each of Brio and SQRIBE that
BancBoston Robertson Stephens has reviewed, upon the advice of the managements
of Brio and SQRIBE, BancBoston Robertson Stephens has assumed that such
forecasts and projections:
. have been reasonably prepared in good faith on the basis of reasonable
assumptions;
. reflect the best available estimates and judgments of the managements of
Brio and SQRIBE as to the future financial condition and performance of
Brio and SQRIBE, respectively; and
. will be realized in the amounts and in the time periods currently
estimated by the respective managements of Brio and SQRIBE.
In this regard, BancBoston Robertson Stephens notes that each of Brio and
SQRIBE face exposure to the year 2000 problem and are currently undergoing
year 2000 projects. BancBoston Robertson Stephens has not undertaken any
independent analysis to evaluate the reliability or accuracy of the
assumptions made by the respective managements of Brio and SQRIBE with respect
to the potential effect that the year 2000 problem might have on their
respective forecasts.
In addition, BancBoston Robertson Stephens has assumed that:
. the merger will be consummated in accordance with the terms set forth in
the merger agreement, including, among other things, that the merger
will be accounted for as a "pooling-of-interests" business combination
in accordance with generally accepted accounting principles as used in
the United States;
. the merger will be treated as a tax-free reorganization pursuant to the
Internal Revenue Code of 1986, as amended; and
. the historical financial statements of each of Brio and SQRIBE reviewed
by it have been prepared and fairly presented in accordance with
generally accepted accounting principles in the United States
consistently applied.
BancBoston Robertson Stephens has relied as to all legal matters relevant to
rendering its opinion on the advice of counsel. Although developments
following the date of the BancBoston Robertson Stephens opinion may affect the
opinion,
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BancBoston Robertson Stephens assumed no obligation to update, revise or
reaffirm its opinion.
The following is a summary of the material financial analysis performed by
BancBoston Robertson Stephens in connection with rendering the BancBoston
Robertson Stephens opinion. The summary of the financial analysis is not a
complete description of all of the analyses performed by BancBoston Robertson
Stephens. Certain of the information in this section is presented in a tabular
form.
Contribution Analysis. BancBoston Robertson Stephens analyzed the respective
contributions of Brio and SQRIBE to the estimated revenues, earnings before
interest and taxes, and net income of the combined company for fiscal years
1999 and 2000. The table below sets forth the approximate relative
contributions of Brio and SQRIBE:
RELATIVE CONTRIBUTION OF BRIO AND SQRIBE
(Approximate Values)
<TABLE>
<CAPTION>
BRIO SQRIBE
---- ------
<S> <C> <C>
REVENUES:
1999............................................................. 50.3% 49.7%
2000............................................................. 49.1% 50.9%
EARNINGS BEFORE INTEREST AND TAXES:
1999............................................................. 65.8% 34.2%
2000............................................................. 41.9% 58.1%
NET INCOME:
1999............................................................. 74.6% 25.4%
2000............................................................. 47.0% 53.0%
</TABLE>
Based on implied equity exchange ratios ranging from 0.375 to 1.334, these
percentages indicated implied equity valuations from approximately $111 to $410
million for SQRIBE, as compared to the equity value implied by the exchange
ratio in the merger of approximately $265 million based on the closing price of
Brio common stock on February 19, 1999. Based on market capitalizations of Brio
as of February 19, 1999, stockholders of Brio and SQRIBE would own
approximately 55.0% and 45.0%, respectively of the combined company after the
consummation of the merger.
Comparable Companies Analysis. Using publicly available information,
BancBoston Robertson Stephens analyzed, among other things, the market values
plus net debt (the "total capitalization") and trading multiples of Brio and
selected publicly traded companies that have similar business and operating
profiles, including:
. Actuate Software Corporation
. Business Objects S.A.
. Microstrategy Inc.
. Cognos Inc.
. Information Advantage Inc.
From among the companies listed above, BancBoston Robertson Stephens then
selected the following companies Actuate, Microstrategy and Information
Advantage, which will be referred to as the "selected companies." Multiples
compared by BancBoston Robertson Stephens included total capitalization to
estimated revenues for calendar years 1999 and 2000, total capitalization to
earnings before interest and taxes ("EBIT") for calendar year 2000 and
price/earnings multiples for the comparable companies for calendar year 2000.
All multiples were based on closing stock prices as of February 19, 1999. The
following table summarizes selected company multiples based on estimated 1999
revenues, 2000 revenues, 2000 EBIT and the price/earnings estimate:
<TABLE>
<CAPTION>
1999 2000 2000 Estimated
Revenue Revenue EBIT Price/
Estimates Estimates Estimates Earnings
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Selected Company
Multiples...............
2.3x- 1.6x- 12.8x- 22.2x-
7.2x 4.6x 37.7x 56.1x
Resulting Average Total
Capitalization.......... 5.1x 3.5x 28.9x 46.8x
</TABLE>
Based on implied equity exchange ratios ranging from 0.719 to 1.148, these
multiples indicated implied equity valuations from approximately $218 million
to $352 million for SQRIBE, as compared to the equity value implied by the
exchange ratio in the merger of approximately $265 million based on the
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closing price of Brio common stock on February 19, 1999.
Precedent Transaction Analysis. Using publicly available information,
BancBoston Robertson Stephens analyzed the consideration offered plus net debt
assumed (debt less cash on hand) and implied transaction value multiples paid
or proposed to be paid in selected merger or acquisition transactions in the
software industry including:
. Information Advantage/IQ Software Corp. (June 30, 1998);
. Arbor Software Corp./Hyperion Software Corp. (May 27, 1998);
. Aspen Technology/Chesapeake Decision Sciences, Inc. (April 29, 1998);
. i2 Technologies/InterTrans Logistics Solutions (March 24, 1998);
. Siebel Systems/Scopus Technology (March 2, 1998);
. Borland International/Visigenic Software (November 18, 1997);
. Hummingbird Comm/Andyne Computing Ltd. (October 15, 1997);
. i2 Technologies/Think Systems Corp. (May 16, 1997);
. BAAN Company N.V./Aurum Software, Inc. (May 13, 1997);
. Rational Software Corp./Pure Atria Corp. (April 7, 1997);
. and PeopleSoft, Inc./Red Pepper (September 4, 1996).
We refer to these transactions as the "precedent transactions." BancBoston
Robertson Stephens compared, among other things, the total consideration in
such transactions as a multiple of the preceding twelve months ("LTM")
revenues. The transactions illustrated a range of total consideration equal to
1.9x to 30.9x LTM revenues, with an average multiple of 5.6x LTM revenues
(excluding September 4, 1996 PeopleSoft, Inc. acquisition of Red Pepper). All
multiples for the precedent transactions were based on public information
available at the time of the announcement. Based on this information and other
publicly available information, the following table illustrates implied equity
valuations of SQRIBE derived from applying a range of multiples for the
precedent transaction of LTM revenues of 5.5x to 7.5x to corresponding
financial data for SCRIBE, as compared to the equity value implied by the
exchange ratio in the merger based on the closing price of Brio common stock on
February 19, 1999:
IMPLIED EQUITY VALUATION SUMMARY
<TABLE>
<CAPTION>
Range of LTM Range of Implied Equity Value Implied by
Multiples Equity Valuations the Exchange Ratio
- ------------ ----------------- -----------------------
<S> <C> <C>
5.5x-7.5x $217-295 million $265 million
</TABLE>
No company, business or transaction compared in the comparable companies
analysis or precedent transaction analysis is identical to Brio, SQRIBE or the
combined company. Accordingly, an analysis of the results of the foregoing is
not entirely mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that could affect the acquisition, public trading and other
values of the comparable companies, precedent transactions or the business
segment, company or transactions to which they are being compared.
Discounted Cash Flow Analysis. BancBoston Robertson Stephens performed a
discounted cash flow analysis of the after-tax free cash flows of SQRIBE using
a range of earnings estimates for SQRIBE for the calendar years 1999 through
2004. BancBoston Robertson Stephens first discounted the projected, after-tax
free cash flows through December 31, 2004 using a range of discount rates from
18% to 22%. SQRIBE free cash-flows were calculated as the after-tax operating
earnings of SQRIBE adjusted to add back non-cash expenses and deduct uses of
cash not reflected in the income statement. BancBoston Robertson Stephens then
added to the present value of the cash flows the terminal value of SQRIBE in
the fiscal year ended December 31, 2004, discounted back at the same discount
rate to
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represent a present value. The terminal value was computed by multiplying the
projected EBIT for SQRIBE in fiscal 2004 by terminal multiples ranging from
16.0x to 20.0x. The range of terminal multiples selected reflect BancBoston
Robertson Stephens' judgment as to an appropriate range of multiples at the end
of the referenced period. The following table illustrates the implied equity
valuation based on the range of discount rates as compared to the equity value
implied by the exchange ratio based on the closing price of Brio common stock
on February 19, 1999:
DISCOUNTED CASH FLOW ANALYSIS
<TABLE>
<CAPTION>
Range of Implied
Range of Equity Valuations Equity Value Implied by
Discount Rates of SQRIBE the Exchange Ratio
- -------------- ----------------- -----------------------
<S> <C> <C>
18%--22% $265--378 million $265 million
</TABLE>
Pro Forma Earnings Analysis. BancBoston Robertson Stephens analyzed certain
pro forma effects resulting from the merger, including, among other things, the
impact of the merger on the projected earnings per share of the combined
company for fiscal year 2000. Without taking into account certain cost savings
that the combined company may realize in its operations, the results of the pro
forma earnings analysis suggested that the merger will be less than 9% dilutive
to the combined company's earnings per share in fiscal year 2000. Assuming the
realization of certain synergies that the Brio and SQRIBE managements expect to
be realized by the combined company, the pro forma earnings analysis suggested
that the merger will be non-dilutive to the combined company's earnings per
share in fiscal year 2000. The actual results achieved by the combined company
may vary from projected results and the variations may be material.
Other Factors and Comparative Analyses. In rendering its opinion, BancBoston
Robertson Stephens considered certain other factors and conducted certain other
comparative analyses, including, among other things a review of:
. the history of trading prices and volume for Brio common stock, for the
period from May 1, 1998 to February 19, 1999; and
. selected published analysts' reports on Brio, including analysts'
estimates as to the earnings growth potential of Brio.
While the foregoing summary describes certain analyses and factors that
BancBoston Robertson Stephens deemed material in its presentation to the Brio
board, it is not a comprehensive description of all analyses and factors
considered by BancBoston Robertson Stephens. The preparation of a fairness
opinion is a complex process that involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and, therefore, such an
opinion is not readily susceptible to summary description. BancBoston Robertson
Stephens believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, would create an incomplete view of the
evaluation process underlying the BancBoston Robertson Stephens opinion.
Several analytical methodologies were employed and no one method of analysis
should be regarded as critical to the overall conclusion reached by BancBoston
Robertson Stephens. Each analytical technique has inherent strengths and
weaknesses, and the nature of the available information may further affect the
value of particular techniques. The conclusions reached by BancBoston Robertson
Stephens are based on all analyses and factors taken as a whole and also on
application of BancBoston Robertson Stephens own experience and judgment. Such
conclusions may involve significant elements of subjective judgment and
qualitative analysis. BancBoston Robertson Stephens therefore gives no opinion
as to the value or merit standing alone of any one or more parts of the
analysis it performed. In performing its analyses, BancBoston Robertson
Stephens considered general economic, market and financial conditions and other
matters, many
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of which are beyond the control of Brio and SQRIBE. The analyses performed by
BancBoston Robertson Stephens are not necessarily indicative of actual values
or future results, which may be significantly more or less favorable than those
suggested by such analyses. Accordingly, analyses relating to the value of a
business do not purport to be appraisals or to reflect the prices at which the
business actually may be purchased. Furthermore, no opinion is being expressed
as to the prices at which shares of Brio common stock may be traded at any
future time.
The BancBoston Robertson Stephens engagement letter provides that, for its
services, BancBoston Robertson Stephens is entitled to receive, contingent upon
consummation of the merger, a transaction fee of $2.25 million which includes a
$675,000 opinion fee upon delivery of the BancBoston Robertson Stephens
opinion. Brio has also agreed to reimburse BancBoston Robertson Stephens for
its out-of-pocket expenses including legal fees and to indemnify and hold
harmless BancBoston Robertson Stephens and its affiliates and any person,
director, employee or agent of BancBoston Robertson Stephens or any of its
affiliates, or any person controlling BancBoston Robertson Stephens or its
affiliates for losses, claims, damages, expenses and liabilities relating to or
arising out of services provided by BancBoston Robertson Stephens as financial
advisor to Brio. The terms of the fee arrangement with BancBoston Robertson
Stephens, which Brio and BancBoston Robertson Stephens believe are customary in
transactions of this nature, were negotiated at arm's length between Brio and
BancBoston Robertson Stephens, and the Brio board was aware of such fee
arrangements, including the fact that a significant portion of the fees payable
to BancBoston Robertson Stephens is contingent upon completion of the merger.
BancBoston Robertson Stephens and its affiliates have provided financial
advisory and financing services for Brio, including acting as co-managing
underwriter in connection with Brio's initial public offering on May 1, 1998,
for which BancBoston Robertson Stephens received fees of approximately
$670,000. BancBoston Robertson Stephens also maintains a market in the shares
of Brio.
BancBoston Robertson Stephens was retained based on BancBoston Robertson
Stephens' experience as a financial advisor in connection with mergers and
acquisitions and in securities valuations generally, as well as BancBoston
Robertson Stephens' investment banking relationship and familiarity with Brio.
BancBoston Robertson Stephens is a nationally recognized investment banking
firm. As part of its investment banking business, BancBoston Robertson Stephens
is frequently engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and other purposes. BancBoston
Robertson Stephens may actively trade the equity securities of Brio for its own
account and for the account of its customers and, accordingly, may at any time
hold a long or short position in such securities.
SQRIBE's Reasons for the Merger
The SQRIBE board has based its approval of the merger and its determination
that the merger agreement is in the best interests of SQRIBE and its
stockholders upon a number of factors, including the following advantages of
the merger:
. Responding to Customer Needs. SQRIBE's customers have increasingly
expressed a need for additional functionality in reports created with
SQRIBE's enterprise
reporting product suite. The proposed merger with Brio will enable
SQRIBE to more quickly meet these customer needs through development of
a tightly integrated product suite that will combine the business
intelligence and interactive analysis capabilities of Brio's products
with the production and
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<PAGE>
operational reporting functionality of SQRIBE's products.
. Increased Market Presence and Greater Economies of Scale. The merger
will create a combined company with significantly greater resources,
most notably, a more complete product offering and greater sales and
marketing capabilities. With expanded resources, the combined company
should be able to achieve greater sales and product leverage and
operational efficiencies, and more effectively service its customers.
. Strength of Combined Management Team. The merger will potentially create
a combined company with an experienced management team that has the
breadth and depth to effectively lead and manage the combined company's
growth and extend its leadership in the enterprise business intelligence
market. SQRIBE believes that the experience of the Brio management team
will provide significant benefits from both an operational and strategic
standpoint.
. Cross-Selling Opportunities. Both companies have significant installed
customer bases with relatively minor overlap, creating an opportunity to
cross-sell into one another's customers. The combined company will be
well-positioned to capture these opportunities and offer an integrated
solution to its customers.
. Increased Visibility as Public Company. The merger will enable SQRIBE to
achieve a measure of visibility as a public company that will enhance
its position with customers, partners, and employees.
SQRIBE's board of directors also considered the following potentially
negative factors:
. the potential disruption of SQRIBE's business that might result from
both employee and customer uncertainty as a result of the announcement
of the merger;
. the risk that, despite the intentions and efforts of the parties to
reassure SQRIBE's customers and distributors regarding the combined
company's intention to support their future sales efforts, the
announcement of the merger could result in customer and distributor
decisions to delay or cancel purchases of SQRIBE's products;
. the possibility that the merger might not be completed and customer's
potentially negative response to the interrupted merger;
. the effects of the public announcement of the merger on SQRIBE's ability
to attract and retain key management, marketing and technical personnel;
and
. the other risks described above under "Risk Factors."
OPINION OF SQRIBE'S FINANCIAL ADVISOR
SQRIBE retained Merrill Lynch, Pierce Fenner & Smith Incorporated to act as
its exclusive financial advisor with respect to the merger. In connection with
that engagement, SQRIBE requested that Merrill Lynch evaluate the fairness,
from a financial point of view, to the stockholders of SQRIBE, taken as a
whole, of the aggregate number of shares to be issued to the holders of SQRIBE
capital stock. On February 22, 1999, Merrill Lynch delivered to the SQRIBE
board of directors its written opinion, that, as of such date and based upon
and subject to the factors and assumptions set forth in the opinion, the total
number of shares to be issued to the holders of SQRIBE capital stock was fair
from a financial point of view to the stockholders of SQRIBE, taken as a
whole.
The full text of Merrill Lynch's opinion, which sets forth the assumptions
made, matters considered and qualifications and limitations on the scope of
review undertaken by Merrill Lynch, is attached as Appendix C and is
incorporated by reference
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<PAGE>
into this proxy statement/prospectus. This description of Merrill Lynch's
opinion, while materially complete, should be reviewed together with the full
text of the opinion, and stockholders of SQRIBE are urged to read the opinion
in its entirety and consider it carefully. Merrill Lynch's opinion was provided
to the SQRIBE board of directors for its information and is directed only to
the fairness from a financial point of view to the stockholders of SQRIBE,
taken as a whole, of the aggregate number of shares to be issued to the holders
of SQRIBE capital stock, taken as a whole. The terms of the merger, including
the aggregate number of shares to be issued to the holders of SQRIBE capital
stock, were determined through negotiations between SQRIBE and Brio and were
not determined or recommended by Merrill Lynch. Merrill Lynch's opinion does
not address the merits of the underlying decision of SQRIBE to engage in the
merger and does not constitute, nor should be construed as, a recommendation to
any stockholder of SQRIBE as to how to vote on the merger or as to any other
matter related to the merger.
In arriving at its opinion, Merrill Lynch, among other things:
. reviewed certain publicly available business and financial information
relating to Brio that Merrill Lynch deemed to be relevant;
. reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
SQRIBE and Brio furnished to Merrill Lynch by SQRIBE and Brio;
. conducted discussions with members of senior management of SQRIBE and
Brio concerning the matters described above as well as their respective
business and prospects, before and after giving effect to the merger;
. reviewed the market prices and valuation multiples for shares of Brio
common stock and compared them with those of certain publicly traded
companies that Merrill Lynch deemed relevant;
. compared the results of operations of SQRIBE and Brio with those of
certain companies that Merrill Lynch deemed relevant;
. compared the proposed financial terms of the merger with the financial
terms of certain other mergers and acquisitions that Merrill Lynch
deemed relevant;
. reviewed the potential pro forma impact of the merger;
. reviewed drafts of the Merger Agreement and the Voting Agreements, each
dated February 22, 1999; and
. reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as Merrill
Lynch deemed necessary, including Merrill Lynch's assessment of general
economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it,
discussed with or reviewed by or for it, or publicly available, and Merrill
Lynch did not assume any responsibility for independently verifying such
information or undertaking an independent appraisal of the assets or
liabilities of SQRIBE and Brio, nor was Merrill Lynch furnished with any such
appraisals. In addition, Merrill Lynch did not assume any obligation to
conduct, nor did Merrill Lynch conduct, any physical inspection of the
properties or facilities of SQRIBE or Brio. With respect to the financial
forecasts furnished to or discussed with Merrill Lynch by SQRIBE and Brio,
Merrill Lynch assumed that they had been reasonably prepared and reflected the
best currently available estimates and judgment of SQRIBE's or Brio's
management as to the expected future financial performance of SQRIBE or Brio,
as the case may be. Merrill
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<PAGE>
Lynch also assumed that the merger will qualify as a tax-free reorganization
for United States federal income tax purposes and will be accounted for as a
pooling-of-interests under generally accepted accounting principals. Merrill
Lynch also assumed that neither the conduct nor the resolution or decisions of
the litigation involving Business Objects S.A. and Brio will have a material
adverse effect on the business, earnings, cash flow, assets, liabilities or
prospects of Brio.
Merrill Lynch's opinion was necessarily based on market, economic and other
conditions as they existed and could be evaluated on, and the information made
available to it as of, the date of the opinion. Subsequent developments may
affect such opinion. Under its engagement by SQRIBE, Merrill Lynch has no
obligation to update its opinion to take into account events occurring after
the date that its opinion was delivered to SQRIBE's board of directors. As a
result, circumstances could develop prior
to the consummation of the merger that, if known at the time Merrill Lynch
rendered its opinion, would have altered such opinion. Merrill Lynch expressed
no opinion as to the prices at which shares of Brio common stock will trade
following the announcement or consummation of the merger.
The matters considered by Merrill Lynch in arriving at its opinion are based
on numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions, many of which
are beyond the control of SQRIBE and Brio, and involve the application of
complex methodologies and educated judgment. Any estimates incorporated in
these analyses are not necessarily indicative of actual past or future results
or values, which may be significantly more or less favorable than these
estimates. Estimated values do not purport to be appraisals and do not
necessarily reflect the prices at which businesses or companies may be sold in
the future.
At the meeting of SQRIBE's board of directors held on February 22, 1999,
Merrill Lynch presented certain financial analyses accompanied by written
materials in connection with the delivery of its oral opinion at that meeting
and its written opinion as of that date. The following is a summary of the
material financial and comparative analyses performed by Merrill Lynch in
arriving at its opinion. These summaries of analyses include information
presented in tabular format. In order to fully understand the analyses used by
Merrill Lynch, the tables must be read together with the text of each summary.
The tables alone do not constitute a complete description of the analyses.
Valuation of Brio
Comparable Company Analysis. Using publicly available Wall Street research
analyst forecasts Merrill Lynch compared certain financial, operating and stock
market information and ratios of Brio with the corresponding data of certain
publicly traded companies that Merrill Lynch deemed to be relevant. These
comparable companies included:
. Actuate Software Corporation
. Business Objects S.A.
. Cognos Inc.
. Information Advantage, Inc.
. MicroStrategy Incorporated
Based on the multiples of these companies, Merrill Lynch derived a reference
range of multiples for these comparable companies of market value to calendar
year 1999 estimated net income. Merrill Lynch also derived reference ranges of
enterprise value to latest twelve months revenues and calendar year 1999
estimated revenues. These reference ranges are summarized below:
<TABLE>
<CAPTION>
Range of
Category Values/Multiples
-------- ----------------
<S> <C>
Latest twelve months revenues.................................. 3.0x to 8.0x
Calendar year 1999 estimated revenues.......................... 2.5x to 6.0x
Calendar year 1999 estimated net Income........................ 30.0x to 90.0x
</TABLE>
As a result of this analysis, Merrill Lynch established a reference range for
Brio common stock of $9 to $24 per share.
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<PAGE>
Comparable Acquisition Analysis. Using publicly available Wall Street research
analyst forecasts and other information, Merrill Lynch reviewed selected
mergers and acquisitions that Merrill Lynch deemed to be
relevant. These comparable transactions included:
. Concentra Corporation/Oracle Corporation
. Boole & Babbage, Inc./BMC Software, Inc.
. IQ Software Corporation/Information Advantage, Inc.
. Hyperion Software Corporation/Arbor Software Corporation
. Logic Works, Inc./PLATINUM Technology, Inc.
. Scopus Technology, Inc./Siebel Systems, Inc.
. BGS Systems, Inc./BMC Software, Inc.
. State of the Art, Inc./Sage Group plc
. Software Artistry, Inc./International Business Machines Corporation
. Infinity Financial Technology, Inc./SunGard Data Systems Inc.
. Andyne Computing Ltd./Hummingbird Communications Ltd.
Based on the multiples of these transactions, Merrill Lynch derived reference
ranges for the multiples of the transaction value to sales for the latest
twelve months and estimated sales for the next twelve months. These reference
ranges are summarized below:
<TABLE>
<CAPTION>
Range of
Category Values/Multiples
-------- ----------------
<S> <C>
Latest twelve months revenues.................................. 2.0x to 5.5x
Estimated sales for the next twelve months..................... 1.5x to 4.0x
</TABLE>
As a result of this analysis, Merrill Lynch established a reference range for
Brio common stock of $7 to $17 per share.
Discounted Cash Flow Analysis. Merrill Lynch calculated ranges of equity
value for Brio based upon the value discounted to the present of its five year
stream of projected unlevered net income and its projected fiscal year 2004
terminal value based upon a range of multiples of its projected fiscal year
2004 net income. In conducting its analyses, Merrill Lynch relied upon a set of
management projections provided by Brio and based on publicly available Wall
Street research analyst forecasts.
Applying discount rates ranging from 14.0% to 18.0% and terminal value
multiples of estimated 2004 net income ranging from 12.0x to 16.0x, Merrill
Lynch calculated the following range of implied per share equity values of
Brio:
<TABLE>
<CAPTION>
Low High
--- ----
Implied equity value per share of Brio
<S> <C> <C>
common stock based on management
estimates............................................................ $18 $28
Implied equity value per share of Brio common stock based on publicly
available Wall Street research analyst forecasts..................... $16 $24
</TABLE>
Valuation of SQRIBE
Comparable Company Analysis. Using publicly available Wall Street research
analyst forecasts and management estimates for SQRIBE, Merrill Lynch compared
certain financial, operating and stock market information and ratios of SQRIBE
with the corresponding data of Brio together with the same comparable companies
used in connection with its valuation of Brio.
Based on the multiples of these companies, Merrill Lynch derived a reference
range of multiples for these comparable companies of market value to calendar
year 1999 estimated net income. Merrill Lynch derived reference ranges of
enterprise value to latest twelve months revenues and calendar year 1999
estimated revenues. These reference ranges are summarized below:
<TABLE>
<CAPTION>
Range of
Category Values/Multiples
-------- ----------------
<S> <C>
Latest twelve months revenues.................................. 3.0x to 7.0x
Calendar year 1999 estimated revenues.......................... 2.5x to 5.0x
Calendar year 1999 estimated net income........................ 30.0x to 80.0x
</TABLE>
43
<PAGE>
As a result of this analysis, Merrill Lynch established an equity valuation
range for SQRIBE of $120 million to $320 million as compared to an implied
equity valuation of SQRIBE of $266 million based on the closing price of Brio
common stock of $20.25 on February 19, 1999.
Comparable Acquisition Analysis. Merrill Lynch applied the same reference
ranges utilized in the Brio valuation analysis to the applicable data and
estimated data for SQRIBE, using management estimates for SQRIBE. These
reference ranges are summarized below:
<TABLE>
<CAPTION>
Range of
Category Values/Multiples
-------- ----------------
<S> <C>
Latest twelve months revenues.................................. 2.0x to 5.5x
Estimated sales for the next twelve months..................... 1.5x to 4.0x
</TABLE>
As a result of this analysis, Merrill Lynch established a reference equity
valuation range for SQRIBE of $90 million to $250 million as compared to an
implied equity valuation of SQRIBE of $266 million based on the closing price
of Brio common stock of $20.25 on February 19, 1999.
None of the companies that Merrill Lynch compared to SQRIBE or Brio is
identical to SQRIBE or Brio, and none of the comparable merger or acquisition
transactions utilized as a comparison is identical to the transactions
contemplated by the Merger Agreement. Accordingly, a complete analysis of the
results of the comparable companies and comparable merger and acquisitions
cannot be limited to a quantitative review of these results. A complete
analysis involves complex considerations and judgments concerning differences
in financial and operating characteristics of the comparable companies and
transactions and other factors that could affect the public trading values of
such comparable companies to which they are being compared.
Discounted Cash Flow Analysis. Merrill Lynch calculated ranges of equity
value for SQRIBE based upon the value discounted to the present of its
annualized five-year stream of projected unlevered net income and its projected
calendar year 2003 terminal values based upon a range of multiples of its
projected calendar year 2003 unlevered net income. In conducting its analysis,
Merrill Lynch relied upon financial projections provided by the management of
SQRIBE.
Applying discount rates ranging from 16.0% to 20.0% and multiples of terminal
net income ranging from 12.0x to 16.0x, Merrill Lynch calculated the following
equity values of SQRIBE:
<TABLE>
<CAPTION>
Low High
------------ ------------
<S> <C> <C>
Implied equity value of SQRIBE ....................... $250 million $380 million
</TABLE>
Pro Forma Analyses
Pro Forma Contribution Analysis. Merrill Lynch analyzed the relative pro
forma contributions made by each of SQRIBE and Brio to the combined company,
using historical data for the latest twelve months and estimated financial data
for Brio's fiscal year ending March 31, 2000. The analyses for fiscal year 2000
were based on publicly available Wall Street research analyst forecasts for
Brio and upon sets of management projections provided by SQRIBE and Brio. These
analyses were performed without taking into account any potential synergies
resulting from the merger.
Under these analyses, revenue were analyzed and compared for the combined
company for the latest twelve months, and revenue, earnings before interest and
taxes and net income for the combined company were analyzed and compared for
fiscal year 2000. The pro forma contribution analyses indicate that, excluding
any potential synergies resulting from the merger, SQRIBE would make the
following pro forma contributions to the combined company:
<TABLE>
<CAPTION>
Percent of
estimated
combined
Percent of earnings Percent of
estimated before estimated
combined interest combined
Year revenues and taxes net income
--------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Latest twelve months.......................... 49.2% NA NA
Fiscal 2000 (based on publicly available
Wall Street research analyst forecasts for
Brio)........................................ 52.4% 53.3% 53.1%
Fiscal 2000 (based on management
projections provided by Brio)................ 48.1% 47.9% 44.4%
</TABLE>
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<PAGE>
Pro Forma Earnings Analysis. Merrill Lynch analyzed the estimated pro forma
effect of the merger on the earnings per share of the combined company. These
analyses were based upon a set of management projections provided by Brio and
on publicly available Wall Street research analyst forecasts, in the case of
Brio, and on management projections, in the case of SQRIBE. These analyses did
not include any estimates of synergies that Brio and SQRIBE may realize as a
result of the merger. Based upon the set of management projections provided by
Brio, Merrill Lynch estimated that the merger would have the following pro
forma effects on earnings per share of common stock of the combined company:
<TABLE>
<CAPTION>
Year EPS Impact
---- ----------
<S> <C>
Fiscal year ending March 31, 1999.................................... ($0.01)
Fiscal year ending March 31, 2000.................................... ($0.02)
</TABLE>
Based upon publicly available Wall Street research analyst forecasts, Merrill
Lynch estimated that the merger would have the following pro forma effects on
earnings per share of common stock of the combined company:
<TABLE>
<CAPTION>
Year EPS Impact
---- ----------
<S> <C>
Fiscal year ending March 31, 1999.................................... no impact
Fiscal year ending March 31, 2000.................................... $ 0.04
</TABLE>
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at its opinion or the
presentation made by Merrill Lynch to the SQRIBE board of directors. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances. Therefore, such an opinion is not readily susceptible to partial
analysis or summary description. In arriving at its opinion, Merrill Lynch did
not attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, Merrill Lynch believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
of the factors considered by it, without considering all of its analyses and
factors, would create an incomplete view of the process underlying Merrill
Lynch's opinion.
SQRIBE retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking
firm with substantial experience in transactions similar to the merger. Merrill
Lynch, as part of its investment banking business, is continually engaged in
the valuation of businesses and securities in connection with mergers and
acquisitions and for other purposes.
SQRIBE has agreed to pay Merrill Lynch a fee totaling $2.7 million for its
services, the payment of which is contingent on the consummation of the merger.
SQRIBE has also agreed to reimburse Merrill Lynch for its reasonable out-of-
pocket expenses, including reasonable fees and disbursements of its legal
counsel. In addition, SQRIBE has agreed to indemnify Merrill Lynch and certain
related persons for certain liabilities related to or arising out of its
engagement, including certain liabilities under the federal securities laws.
In the ordinary course of its business, Merrill Lynch and its affiliates may
actively trade the debt and equity securities of Brio for their own accounts
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities.
Management and Operations Following the Merger
Following the merger, Brio plans to integrate the operations, facilities and
personnel of the two companies. The result will be a single sales, marketing
and administrative organization. In eliminating duplicative operations, the
companies currently anticipate the layoff of certain current SQRIBE and Brio
employees. Ofir Kedar, currently SQRIBE's President and Chief Executive
Officer, will serve as Chairman and
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<PAGE>
Executive Vice President, Business Development of the combined company. Yorgen
H. Edholm will be President, CEO and director of the combined company.
Interests of Certain Persons in the Merger
In considering the recommendations of the Brio board of directors and the
SQRIBE board of directors with respect to the merger agreement and the related
transactions stockholders of Brio and SQRIBE should be aware that some members
of the management of Brio and SQRIBE have interests in the merger that are in
addition to the interests of stockholders generally. These interests are
detailed below.
Employment Agreements
In connection with the merger agreement, Ofir J. Kedar, the current President
and Chief Executive Officer of SQRIBE, Scott Chalmers, the current Vice
President, Worldwide Sales of SQRIBE, and John Schroeder, the current Senior
Vice President, Products of SQRIBE, have entered into employment agreements
with Brio. Under the terms of these agreements, Brio will pay Messrs. Kedar,
Chalmers and Schroeder annual salaries of $200,000, $200,000 and $240,000,
respectively, and performance bonuses of $70,000, $35,500 and $48,000,
respectively. The employment agreements also provide that Brio will pay
severance benefits equal to six months salary, twelve months salary, and six
months salary, respectively, and a pro-rated amount of their annual salary and
bonus in the event of an involuntary termination. In consideration for the
commitments to him, Mr. Kedar has agreed that until the earlier of three years
from the date of his employment agreement or one year following his termination
of employment from Brio for any reason he will not:
. carry on any sales, marketing or business development activities that
are competitive with Brio's then primary products or otherwise conflict
with his obligations to Brio;
. solicit any of Brio's customers or clients; or
. solicit any Brio employee to terminate or otherwise cease employment
with Brio.
In addition, Brio has agreed to grant Mr. Schroeder an option to purchase
40,000 shares of Brio common stock, at an exercise price equal to the fair
market value of such shares on the date of the grant. One half of the shares
subject to this option shall vest on the one-year anniversary of the date of
the grant, and the remainder shall vest ratably over the next year.
Stock Options Accelerated Upon the Merger
Pursuant to their existing employment agreements, assuming the merger is
consummated on July 31, 1999, vesting of stock options to purchase SQRIBE
capital stock held by Steven Wong, currently the Chief Financial Officer of
SQRIBE, will fully accelerate and vesting of stock options to purchase SQRIBE
capital stock held by John Schroeder will partially accelerate as set forth
below:
<TABLE>
<CAPTION>
Option
Shares Exercise
Name Accelerated Price
- ---- ----------- --------
<S> <C> <C>
Steve Wong................................................. 48,375 $1.00
21,000 1.50
John Schroeder............................................. 53,020 1.00
32,083 1.50
</TABLE>
These options will be assumed by Brio in the merger and will become options to
purchase Brio common stock.
Stock Options Accelerated Upon Termination of Employment Following the Merger
In addition, the existing employment agreements of Scott Chalmers and John
Schroeder provide that their stock options to purchase SQRIBE common stock are
subject to full acceleration after the merger in the following circumstances:
For Mr. Chalmers, the acceleration feature applies if he is not offered a
comparable position with the same or better compensation and benefits at a
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<PAGE>
location within 50 miles from his current place of employment; Mr. Schroeder's
full acceleration feature only applies if he is not offered a reasonably
similar position with compensation at least equal to the higher of 120% of his
last fiscal year compensation including 100% of his bonus, W-2 income, or his
last twelve month's actual income. These provisions will not be triggered as a
result of the consummation of the merger alone.
Severance Arrangements
Messrs. Chalmers, Schroeder, and Wong are eligible to receive the salary
continuation and severance benefits described in their employment or other
agreements with SQRIBE if their employment is terminated without cause as set
forth in their individual employment agreements with SQRIBE. The salary
continuation obligations of SQRIBE are more particularly set forth below:
<TABLE>
<CAPTION>
Number of
Name Months Total
- ------------------------------------------------------------- --------- --------
<S> <C> <C>
Scott Chalmers............................................... 6 $ 70,000
John Schroeder............................................... 6 $100,000
Steven Wong.................................................. 6 $ 87,000
</TABLE>
None of these agreements was entered into in connection with the negotiation
of the merger. These provisions will not be triggered as a result of
consummation of the merger alone. The employment of Mr. Wong will be terminated
effective on the date of the closing of the merger.
Indemnification Arrangements
Under the merger agreement, Brio has agreed that, from and after the
effective time of the merger, Brio will cause SQRIBE to fulfill and honor in
all respects the obligations of SQRIBE under (1) any indemnification agreements
that exist between SQRIBE and its officers and directors at the effective time
of the merger and (2) any indemnification provisions under SQRIBE's certificate
of incorporation or bylaws that are in effect on the date of the merger
agreement.
Dissenters Rights
Brio stockholders will not have dissenters' rights of appraisal with respect
to the merger.
Governmental And Regulatory Matters
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
related rules of the Federal Trade Commission, the merger may not be
consummated until notifications have been given and certain information has
been furnished to the FTC and the Antitrust Division of the United States
Department of Justice and specified waiting period requirements have been
satisfied. Brio and a significant stockholder of SQRIBE filed notification and
report forms with the FTC and the Department of Justice in March 1999 and
received early termination of the applicable waiting period by the FTC and
Department of Justice in April 1999. At any time before or after the merger,
the FTC, the Department of Justice or any state could take any action under
applicable antitrust laws as it deems necessary or desirable, including seeking
to enjoin the merger or the divestiture of particular assets or businesses of
Brio or SQRIBE. Private parties may also initiate legal actions under the
antitrust laws under certain circumstances.
Federal Income Tax Considerations
Brio has received a tax opinion on the material tax consequences of the
merger. In the opinion of Venture Law Group, A Professional Corporation,
counsel to Brio, none of Brio, its wholly owned subsidiary or Brio's
stockholders will recognize any gain or loss for U.S. federal income tax
purposes solely as a result of the merger.
SQRIBE has received a tax opinion on the material tax consequences of the
merger. The opinion is described below.
In the opinion of Morrison & Foerster LLP, counsel for SQRIBE, the following
is a discussion of the material United States federal income tax considerations
applicable to SQRIBE stockholders who receive shares of Brio's common stock in
exchange for their shares of SQRIBE capital stock pursuant to the merger of
Brio and SQRIBE. This discussion does not deal with all income tax
considerations that may be relevant to particular SQRIBE stockholders in
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light of their particular circumstances, such as stockholders who are dealers
in securities, foreign persons, banks, insurance companies or tax-exempt
entities, stockholders who acquired their shares in connection with previous
mergers involving SQRIBE or an affiliate, stockholders who hold their shares
as part of a hedging, straddle, conversion or other risk reduction
transaction, or stockholders who acquired their shares in connection with
stock option or stock purchase plans or in other compensatory transactions.
In addition, the following discussion does not address the tax consequences
of transactions effectuated prior to or after the merger, whether or not such
transactions are in connection with the merger, including without limitation
transactions in which shares of SQRIBE common stock were or are acquired or
shares of Brio common stock were or are disposed of. Furthermore, no foreign,
state or local tax considerations are addressed in this proxy
statement/prospectus.
The discussion is based on federal income tax law in effect as of the date
of this proxy statement/prospectus, which could change at any time, possibly
with retroactive effectiveness. In addition, the discussion is not intended to
be, and should not be construed to be, legal, business or tax advice to any
particular stockholder. Accordingly, SQRIBE stockholders are urged to consult
their own tax advisors as to the specific tax consequences of the merger,
including the applicable federal, state, local and foreign tax consequences to
them of the merger and applicable tax return reporting requirements.
Subject to the limitations and qualifications referred to in this document,
in the opinion of Morrison & Foerster LLP, the merger will constitute a
"reorganization" within the meaning of Section 368 of the Internal Revenue
Code of 1986, with the following federal income tax consequences:
. No gain or loss will be recognized by holders of SQRIBE common stock
solely upon their receipt of Brio common stock in the merger, except to
the extent of cash received instead of a fractional share of Brio common
stock;
. The aggregate tax basis of the Brio common stock received in the merger
by a SQRIBE stockholder, including any fractional share not actually
received, will be the same as the aggregate tax basis of SQRIBE common
stock surrendered in exchange for the Brio common stock;
. The holding period of the Brio common stock received in the merger by a
SQRIBE stockholder will include the period during which the stockholder
held the SQRIBE common stock surrendered in exchange for such Brio
common stock, provided that the SQRIBE common stock is held as a capital
asset at the time of the merger;
. Cash payments received by holders of SQRIBE common stock instead of a
fractional share of Brio common stock will be treated as if the
fractional share of Brio common stock had been issued in the merger and
then repurchased by Brio. A SQRIBE stockholder receiving such cash will
generally recognize gain or loss upon such payment, equal to the
difference between the stockholder's basis in the fractional share and
the amount of cash received; and
. A SQRIBE stockholder who exercises dissenters' rights with respect to
all of such holder's shares of SQRIBE stock will generally recognize
gain or loss for federal income tax purposes, measured by the difference
between the holder's basis in such shares and the amount of cash
received, provided that the payment is neither essentially equivalent to
a dividend within the meaning of Section 302 of the Code nor has the
effect of a distribution of a dividend within the
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meaning of Section 356(a)(2) of the Code. This gain or loss will be
capital gain or loss, provided that the SQRIBE stock is held as a
capital asset at the time of the merger.
. SQRIBE will not recognize gain or loss solely as a result of the merger.
The parties are not requesting a ruling from the Internal Revenue Service in
connection with the merger.
It is a condition to SQRIBE's participation in the merger that SQRIBE receive
an additional opinion from Morrison & Foerster LLP, its counsel, confirming
that the merger will qualify as a reorganization within the meaning of Section
368 of the Code.
Neither the opinion in this proxy statement/prospectus nor the opinion SQRIBE
will receive from Morrison & Foerster LLP will bind the IRS or prevent the IRS
from adopting a contrary position. In addition, the opinion included here is,
and the opinion SQRIBE will receive at the closing of the merger will be,
subject to assumptions and qualifications and based on the truth and accuracy
of representations and covenants made by Brio, Socrates Acquisition Corporation
and SQRIBE, including representations and covenants in certificates to be
delivered to counsel prior to the effective time by the respective management
of Brio, Socrates Acquisition Corporation and SQRIBE.
A successful IRS challenge to the reorganization status of the merger would
result in a SQRIBE stockholder recognizing gain or loss with respect to each
share of SQRIBE common stock surrendered equal to the difference between the
stockholder's basis in such share and the fair market value, as of the
effective time of the merger, of the Brio common stock received in exchange.
After a successful IRS challenge, a stockholder's aggregate basis in the Brio
common stock so received would equal its fair market value and his holding
period for such stock would begin the day after the merger.
The discussion set forth above does not address the state, local or foreign
tax aspects of the merger. In addition, it does not discuss the federal income
tax considerations that may be relevant to some stockholders, including holders
of options or warrants, and may not apply to holders subject to special tax
rules, including holders who acquired SQRIBE common stock by exercising
employee stock options or rights or otherwise received SQRIBE common stock as
compensation, dealers in securities and foreign holders.
Each SQRIBE stockholder should consult his or her own tax advisor with
respect to the specific tax consequences of the merger to him or her, including
the application and effect of state, local and foreign tax laws.
Accounting Treatment
The merger is intended to qualify as a pooling of interests for accounting
purposes and financial reporting purposes. Under this method of accounting, the
recorded historical cost basis of the assets and liabilities of Brio and SQRIBE
will be carried forward to the operations of the combined companies at their
recorded amounts, results of the operations of the combined companies will
include income of Brio and SQRIBE for the entire fiscal period in which the
combination occurs and the historical results of operations of the separate
companies for fiscal years prior to the merger will be combined and reported as
the results of operations of the combined companies.
Consummation of the merger is conditioned upon receipt by Brio and SQRIBE of
a letter from their respective independent public accountants stating that, in
their respective opinions, they agree with management's conclusion that the
merger will qualify as a pooling of interests for accounting purposes. See "The
Merger Agreement--Conditions to the Merger" for a description of the conditions
that SQRIBE and Brio must satisfy prior to completion of the merger. Certain
events, including certain
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transactions with respect to SQRIBE capital stock or Brio common stock by
affiliates of Brio and SQRIBE, respectively, may prevent the merger from
qualifying as a pooling of interests for accounting and financial reporting
purposes. See "Proposal No. 1: The Merger--Resale Restrictions" for information
concerning restrictions to be imposed on the transferability of Brio common
stock to be received by affiliates of SQRIBE in order, among other things, to
ensure the availability of pooling of interests accounting treatment.
Termination
The obligations of Brio and SQRIBE to consummate the merger are subject to
the condition that there be no preliminary or permanent injunction or other
order by any federal, state or foreign court of competent jurisdiction that
prevents consummation of the merger, and that there be no statute, rule,
regulation, executive order, stay, decree or judgment by any court or
governmental authority that prohibits or restricts the consummation of the
merger. See "The Merger Agreement--Conditions to the Merger" for a description
of the conditions that SQRIBE and Brio must satisfy prior to completion of the
merger. Either Brio or SQRIBE may terminate the merger agreement if any court
of competent jurisdiction in the United States or other United States
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the merger and the
order, decree, ruling or any other action shall have become final and non-
appealable, provided that the party seeking to terminate the merger agreement
for such reason shall have used all reasonable efforts to remove such order,
decree or ruling. See "The Merger Agreement--Termination" for a description of
the termination procedures in the merger agreement.
Resale Restrictions
All shares of Brio common stock received by SQRIBE stockholders in the merger
will be freely transferable, except that shares of Brio common stock received
by persons who are deemed to be "affiliates," as such term is defined under the
Securities Act, of SQRIBE may be resold by them only in transactions permitted
by the resale provisions of Rule 145 promulgated under the Securities Act, or
Rule 144 in the case of persons who become affiliates of Brio, or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of SQRIBE or Brio generally include individuals or entities that control, are
controlled by, or are under common control with, that party and may include
officers and directors of that party as well as principal stockholders of that
party.
Voting and Affiliate Agreements
Voting Agreements
Concurrently with the execution of the merger agreement, Ofir J. Kedar,
General Atlantic Partners 18, L.P. and General Atlantic Partners 43, L.P., who
collectively hold more than 52% of the issued and outstanding voting stock of
SQRIBE, entered into a voting agreement with Brio. Each party to the voting
agreement has agreed to vote any shares of SQRIBE capital stock beneficially
owned by them in favor of approval of the merger agreement, the merger and any
matter that could reasonably be expected to facilitate the merger. The voting
agreement also requires these stockholders to take all reasonable actions
necessary to call a meeting to approve the merger and irrevocably appoint Brio
or its nominee to vote the stockholders' shares of SQRIBE in any matter
permitted or required by Delaware law.
Concurrently with the execution of the merger agreement, Yorgen H. Edholm,
Katherine Glassey, the Edholm Family Limited Partnership, trusts affiliated
with Yorgen Edholm and Katherine Glassey, Kleiner Perkins Caufield & Byers VII,
KPCB Information Sciences Zaibatsu Fund II, Integral Capital Partners III,
L.P., Integral Capital Partners IV, L.P., and Integral Capital Partners
International III, L.P., collectively holding, as of March 31, 1999,
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approximately 55% of the issued and outstanding voting stock of Brio entered
into a voting agreement with SQRIBE, whereby each of these parties has agreed
to vote any shares of Brio capital stock beneficially owned by them in favor of
approval of the merger agreement, the merger and any matter that could
reasonably be expected to facilitate the merger. The voting agreement also
requires these stockholders to take all reasonable actions necessary to call a
meeting to approve the merger and irrevocably appoint SQRIBE or its nominee to
vote the stockholders' shares of Brio in any matter permitted or required by
Delaware law.
Affiliate Agreements
Concurrently with the execution of the merger agreement, Ofir J. Kedar and
Steven Wong of SQRIBE, and Yorgen H. Edholm, Katherine Glassey, E. Floyd
Kvamme, Chris Grejtak, Bernard J. Lacroute, Mark B. Weeks and Karen J. Willem
of Brio entered into an affiliate agreement with Brio, in which each of these
affiliates agreed not to dispose of any shares of Brio common stock owned by
them or acquired in the merger until financial results covering at least thirty
days of operating results of the combined company formed in the merger have
been released to the public. Each affiliate also made representations and
warranties in the affiliate agreement with respect to their ownership of shares
of Brio common stock and agreed to the appointment of the stockholders agent
and the indemnification provisions of the escrow agreement.
Contracts Between Brio and SQRIBE
On September 15, 1997, Brio and SQRIBE entered into a SQRIBE Technologies
Alliance Program Sublicense Agreement which allowed Brio to sublicense SQRIBE's
products to Brio's customers in conjunction with Brio's products. Both
companies committed to using best efforts to develop an interface which would
allow the successful exchange of data between the products of the two companies
by December 31, 1997. SQRIBE agreed not to grant named competitors of Brio
sublicense rights to SQRIBE's products in return for Brio's continued payment
to SQRIBE of specified quarterly royalty payments. The agreement's term was six
months from the September 15, 1997 effective date with optional extension
periods. In addition, on May 1, 1998, Brio and SQRIBE executed a mutual
referral agreement, modifying their prior contractual relationship, and
allowing either company to refer customers to the other company in exchange for
a referral fee. The referring company was to receive 8% of the net license fee
of the transaction from the other company.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the merger
agreement, a copy of which is attached as Appendix A to this proxy
statement/prospectus and is incorporated herein by reference.
The Merger
According to the terms of the merger agreement, and as long as all the
conditions in the agreement are met and/or waived, at the effective time of the
merger, a wholly-owned subsidiary of Brio will be merged with SQRIBE. SQRIBE
will be the surviving corporation and become a wholly-owned subsidiary of Brio.
Effective Time of the Merger
The closing of the transactions contemplated by the merger agreement will
take place as soon as practicable following the later of (i) the date after
which both SQRIBE and Brio stockholders have approved the merger and (ii) the
day on which all of the conditions to the merger are satisfied or waived, or at
any other date as Brio and SQRIBE agree. See "The Merger Agreement--Conditions
to the Merger" for a description of the conditions that SQRIBE and Brio must
satisfy prior to completion of the merger.
As soon as practicable after the closing, a plan of merger will be filed with
the Secretary of State of the State of Delaware as provided in Section 251 of
the Delaware General Corporation Law. The time at which the plan of merger is
filed in Delaware is referred to as the "effective time" of the merger.
Changes to Charter, Officers and Directors
As a result of the merger, the certificate of incorporation and bylaws of a
wholly-owned subsidiary of Brio will be the surviving corporation's certificate
of incorporation and bylaws. The directors and officers of Brio's subsidiary
will be the initial directors and the officers of the surviving corporation.
Exchange Ratio
As a result of the merger and without any action on the part of the holders
of SQRIBE capital stock, each share of SQRIBE capital stock issued and
outstanding immediately prior to the effective time of the merger--other than
shares held by a dissenting holder as to which appraisal has been perfected,
which shares will be excluded--will be converted into the right to receive the
number of shares of Brio common stock determined by a ratio called the
"exchange ratio." The exact number of shares to be received will be determined
immediately prior to the closing of the transaction using the following
formula:
Each share of SQRIBE capital stock shall receive a number of shares of Brio
common stock equal to the quotient obtained by dividing
(1) the product of
(a) the total number of shares of Brio capital stock outstanding
immediately prior to the effective time of the merger--assuming exercise
and conversion of all outstanding Brio options, warrants and convertible
securities, as calculated using the treasury method, but excluding options
granted after February 23, 1999, plus 55% of the total number of shares
subject to options granted by Brio and SQRIBE from February 24, 1999
through the effective time of the merger, as calculated using the treasury
method--and
(b) 0.8181818,
by (2) the sum obtained by adding (x) the total number of shares of SQRIBE
capital stock outstanding immediately prior to the effective time of the
merger--assuming exercise and conversion of all outstanding SQRIBE options,
warrants and convertible securities, as calculated using the treasury
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method, but excluding options granted after February 23, 1999, plus 45% of the
total number of shares subject to options granted by Brio and SQRIBE from
February 24, 1999 through the effective time of the merger calculated using the
treasury method--plus (y) 30,000.
(number of fully diluted Brio shares outstanding, not including Brio options
granted after Feb. 23, plus 55% of Brio and SQRIBE shares subject to options
granted after Feb. 23)(0.8181818)
- --------------------------------------------------------------------------------
(number of fully diluted SQRIBE shares outstanding, not including SQRIBE
options granted after Feb. 23, plus 45% of Brio and SQRIBE shares subject to
options granted after Feb. 23 +30,000)
The exchange ratio is based upon the total number of shares of Brio and
SQRIBE common stock outstanding on a fully diluted basis at the time of the
merger. Should the number of shares of either company change between now and
the closing of the merger, the exchange ratio and the total number of shares
that Brio will issue in the merger will likely also change. The number of
shares that Brio will issue to the holders of each class and series of SQRIBE
capital stock in the merger will also vary based upon the market price of Brio
common stock at the time of the merger.
Under the terms of SQRIBE's certificate of incorporation, the holders of
SQRIBE series A preferred stock and series B preferred stock are each entitled
to a liquidation preference as a result of the merger. Instead of the
liquidation preference, the holders of SQRIBE series B preferred stock will
receive consideration as if the SQRIBE series B preferred stock had been
converted into SQRIBE common stock.
SQRIBE's series A stockholders are entitled to a liquidation preference as
follows: In the event that the average consideration that all SQRIBE
stockholders will receive in the merger is less than $17.00 per share, the
series A stockholders will receive $3.40 worth of Brio common stock per share
prior to any other distributions. The SQRIBE series A stockholders will be
entitled to receive their preferential distribution if the Brio common stock
price is less than approximately $19.50.
Following the preferential distribution to the holders of SQRIBE series A
preferred stock, the holders of SQRIBE series A preferred stock and series B
preferred stock will be entitled to participate in the distribution of
consideration with the holders of SQRIBE common stock as if they had converted
their SQRIBE series A preferred stock and series B preferred stock into SQRIBE
common stock.
Had the merger been consummated on June 14, 1999, the SQRIBE shareholders
would have received approximately the following number of Brio common shares
for each share of SQRIBE capital stock they hold:
<TABLE>
<CAPTION>
Number of Brio
common shares
issuable at
6/30/99
<S> <C>
SQRIBE class/series
Series A preferred 0.87
Series B preferred 0.87
Common 0.87
</TABLE>
This is equivalent to a total of approximately 13.4 million shares of Brio
common stock with a value of approximately $267 million. As of June 30, 1999,
Brio had approximately 16.2 million shares of common stock outstanding on a
fully diluted basis, SQRIBE had approximately 15.2 million shares of common
stock outstanding on a fully diluted basis, and the closing price of Brio
common stock on the Nasdaq National Market was $20.00 per share. The following
table describes the exchange ratios for SQRIBE's series A, series B and common
stock at various Brio common stock prices assuming Brio had 16,226,880 shares
of common stock outstanding on a fully diluted basis and SQRIBE had 15,189,492
shares of common stock outstanding on a fully diluted basis.
<TABLE>
<CAPTION>
Market price of Brio common stock
Class/series of
stock $14.00 $15.00 $16.00 $17.00 $18.00 $19.00 $20.00 $21.00
- --------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series A Preferred 1.08 1.07 1.05 1.04 1.03 1.03 0.87 0.87
Series B Preferred 0.84 0.84 0.84 0.84 0.84 0.85 0.87 0.87
Common 0.84 0.84 0.84 0.84 0.84 0.85 0.87 0.87
</TABLE>
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The value of the consideration to be received and the exact exchange ratio
depend on a number of factors that will not be known with certainty until the
effective time of the merger, including:
. the number of shares of Brio common stock outstanding immediately prior to
the effective time;
. the number of options to purchase Brio common stock outstanding immediately
prior to the effective time and the exercise prices of these options;
. the number of shares of SQRIBE common stock outstanding immediately prior to
the effective time;
. the number of options to purchase SQRIBE common stock outstanding
immediately prior to the effective time and the exercise prices of these
options; and
. the trading price of Brio's common stock immediately prior to the effective
time of the merger.
After the merger is completed, former holders of SQRIBE capital stock will own
approximately 45% of the fully diluted common stock of the combined company.
Neither Brio nor SQRIBE stockholders will know at the time they vote for the
merger the number and value of the shares to be issued in the merger. Brio
anticipates that the merger will be finalized on , 1999, which is the
date immediately following the annual meeting. Brio does not anticipate that it
or SQRIBE will issue a number of shares or options prior to the date of the
annual meeting which would result in a material change in the exchange ratio.
The market price for Brio's common stock is highly volatile. For example,
during the period from February 23, 1999 through June 30, 1999, the closing
price of Brio common stock ranged from a high of $25.44 per share to a low of
$11.25 per share. Page 60 has more information regarding the historic stock
price for Brio common stock. Because of this volatility, there is a risk that
the market price may drop significantly at any time between now and the closing
of the merger.
A decline in the value of Brio common stock would reduce the value of the
consideration SQRIBE stockholders will receive in exchange for their shares of
SQRIBE capital stock. An increase in the value of Brio common stock would
increase the value of the consideration SQRIBE stockholders will receive in
exchange for their shares of SQRIBE capital stock.
In addition, as discussed in the preceding paragraphs, the closing price of
Brio common stock will determine whether the holders of SQRIBE series A
preferred stock will receive an additional $3.40 per share of SQRIBE series A
preferred stock held by them.
Neither Brio nor SQRIBE has "walk-away" or other termination rights if the
market price of Brio common stock falls below or rises above a particular
price, respectively.
Stock Options
As of the effective time of the merger, each of the options to acquire SQRIBE
common stock outstanding as of the date of the merger agreement will be
converted into or replaced with an option to purchase the number of whole
shares of Brio common stock equal to the number of shares of SQRIBE common
stock subject to such option multiplied by the exchange ratio. The exercise
price per share of Brio common stock for the converted or substituted option
will equal the former exercise price per share of SQRIBE immediately prior to
the effective time of the merger divided by the exchange ratio rounded down to
the nearest whole penny. In the case of any SQRIBE stock option to which
Section 421 of the Internal Revenue Code applies by reason of its qualification
under Section 422 of the Internal Revenue Code, the conversion formula shall be
adjusted, if necessary, to comply with Section 424(a) of the Internal Revenue
Code. Except as provided above, the converted or substituted SQRIBE stock
options will be subject to the same terms and conditions as were applicable to
SQRIBE stock options immediately prior to the effective time of the merger.
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As soon as practicable after the effective time of the merger, Brio will file
one or more registration statements on Form S-8 under the Securities Act, or
amendments to its existing registration statements on Form S-8 or amendments to
such other registration statements as may be available, in order to register
the shares of Brio common stock issuable upon exercise of the converted SQRIBE
stock options.
Exchange of Shares
As soon as reasonably practicable after the effective time of the merger, but
in no event more than ten days after the effective time, Boston EquiServe, the
exchange agent for the merger, will mail to each holder of record of SQRIBE
capital stock:
. a letter of transmittal; and
. instructions for use in effecting the surrender of the certificates in
exchange for certificates representing shares of Brio common stock.
Upon surrender of a certificate to the exchange agent together with such
letter of transmittal, duly executed, the holder of such certificate will be
entitled to receive in exchange:
. a certificate representing that number of whole shares of Brio common
stock; and
. a check representing the amount of cash instead of fractional shares, if
any, which the holder has the right to receive in exchange for the
certificate surrendered.
SQRIBE stockholders should not send in their certificates until they receive
a letter of transmittal.
Brio will not issue fractional shares of Brio common stock pursuant to the
merger. Instead, Brio will pay cash adjustments in an amount equal to the
product of the fraction of a share of Brio common stock that would otherwise be
issuable multiplied by the closing price of Brio common stock on the date on
which the merger becomes effective.
Brio will not pay dividends on shares of Brio common stock to persons
entitled to receive certificates representing shares of Brio common stock until
such persons surrender their certificates. Upon surrender of the certificates,
Brio will pay any dividends that have become payable between the effective time
of the merger and the surrender of the certificate to the person in whose name
the certificates representing the shares of Brio common stock will be issued.
In no event will the person entitled to receive such dividends be entitled to
receive interest on such dividends.
If any certificates for shares of Brio common stock are to be issued in a
name other than that in which the certificate surrendered in exchange is
registered, the transfer must be proper and legal, and the person requesting
such exchange must pay to the exchange agent any transfer fees or taxes
required by reason thereof.
Neither party to the merger agreement is liable to a holder of shares of
SQRIBE common stock for any shares of Brio common stock or dividends or the
cash payment for fractional interests delivered to a public official pursuant
to applicable escheat laws.
In the event that any certificate has been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming such certificate
to be lost, stolen or destroyed, Brio will issue or cause to be issued in
replacement for the lost, stolen or destroyed certificate the number of whole
shares of Brio common stock and cash instead of fractional shares into which
the shares of SQRIBE common stock represented by the certificate are converted
in the merger.
SQRIBE stockholders are entitled to dissent from the merger and demand
appraisal of any SQRIBE common stock in accordance with the provisions of
Chapter 13 of the California Corporations Code. Shares held by a party
exercising these rights will not be converted, and instead the party will
receive cash in accordance with the California Corporations Code.
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Representations and Warranties
SQRIBE. The merger agreement contains certain representations and warranties
by SQRIBE relating to, among other things:
. SQRIBE's due organization, valid existence and good standing;
. SQRIBE's capital structure;
. the authorization, execution, delivery and enforceability of the merger
agreement;
. required consents and approvals and the absence of breaches or violations of
SQRIBE's certificate of incorporation and bylaws, agreements and
instruments, and applicable law;
. the absence of certain changes or events;
. the accuracy of information in this proxy statement/prospectus;
. litigation affecting SQRIBE;
. material contracts and agreements;
. SQRIBE's employee benefit plans;
. taxes;
. compliance with applicable environmental law;
. SQRIBE's subsidiaries;
. interested party transactions;
. labor and employment matters;
. insurance;
. proprietary rights;
. governmental authorizations;
. certain accounting matters;
. accounts receivable;
. customers and suppliers;
. SQRIBE's year 2000 compliance;
. absence of undisclosed liabilities; and
. the accuracy of the SQRIBE disclosures.
Brio. The merger agreement also contains representations and warranties by
Brio relating to, among other things:
. Brio's due organization, valid existence and good standing;
. Brio's capital structure;
. the authorization, execution, delivery and enforceability of the merger
agreement;
. required consents and approvals and the absence of breaches or violations of
Brio's certificate of incorporation and bylaws, agreements and instruments,
and applicable law;
. the absence of certain changes or events;
. the accuracy of information in this proxy statement/prospectus;
. litigation affecting Brio;
. material contracts and agreements;
. taxes;
. compliance with applicable environmental law;
. Brio's subsidiaries;
. interested party transactions;
. labor and employment matters;
. insurance;
. the filing of required reports with the SEC and absence of change;
. the accuracy of information in this proxy statement/prospectus;
. proprietary rights;
. governmental authorizations;
. certain accounting matters;
. accounts receivable;
. customers and suppliers; and
. Brio's year 2000 compliance.
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Certain Covenants
Brio and SQRIBE. Brio and SQRIBE have agreed that prior to the effective
time of the merger they will, among other things:
. conduct their business only in the ordinary and usual course in
substantially the same manner as previously conducted;
. use all reasonable efforts consistent with past practice to preserve intact
their business organizations and to preserve the goodwill of those having
business relationships with them;
. to take all actions necessary to comply promptly with all requirements
under applicable federal and state securities laws which may be imposed on
such party or its subsidiaries with respect to the merger and the
consummation of the transactions contemplated by the merger agreement,
subject to the appropriate vote or consent of stockholders;
. to obtain approvals and consents of any governmental entity and all
consents and authorizations of third parties which are required to be
obtained or made by such party or any of its subsidiaries in connection
with the merger and the transactions contemplated by the merger agreement;
. not take or omit to take any action, and not agree to take or omit to take
any action, the effect of which action or omission would be to make any
representation or warranty of Brio or SQRIBE, as applicable, in the merger
agreement untrue or incorrect in any material respect;
. to recommend approval and adoption of the merger agreement by their
respective stockholders and to use their respective best efforts to obtain
such approval; and
. to cause certain persons who are "affiliates" for purposes of Rule 145
under the Securities Act to deliver to the other party a written affiliates
agreement restricting the disposition by an affiliate of the shares of
capital stock held by that affiliate or to be received by that affiliate in
the merger.
Brio. Brio has agreed to notify Nasdaq of the listing of the shares of Brio
common stock to be issued in the merger and to cause any additional shares to
be approved for listing. Brio has also agreed to ensure compliance with state
securities laws.
SQRIBE. SQRIBE has agreed that, prior to the effective time of the merger,
neither it nor any of its subsidiaries will, among other things:
. amend its articles of incorporation or bylaws;
. sell or purchase shares of its capital stock , other than the issuance of
shares pursuant to the exercise of options, conversion of SQRIBE preferred
stock, and the issuance of stock options in the ordinary course of
business;
. acquire, dispose of, transfer, lease, license, or encumber any assets,
other than in the ordinary course of business;
. incur any indebtedness or issue any debt securities;
. guarantee the obligations of any other person other than customer credit
extended in the ordinary course of business;
. enter into any agreement other than in the ordinary course of business;
. make any capital expenditures in excess of $250,000 in total or in excess
of $100,000 as to any individual matter;
. grant any additional severance or termination pay to any officer;
. acquire or agree to acquire any other business;
. change any tax election or take action if such action should increase the
tax liability of SQRIBE;
. revalue any assets other than in accordance with past practice; or
57
<PAGE>
. change its methods of accounting except as contemplated by the merger
agreement or as required by changes in generally accepted accounting
principles.
No Solicitation
Brio and SQRIBE have agreed that neither will take any action to solicit,
initiate, seek, encourage or support any inquiry, proposal or offer from,
furnish any information to, or participate in any negotiations with, any
corporation, partnership, person or other entity or group regarding any
acquisition of either, any merger or consolidation with or involving either, or
any acquisition of any material portion of the stock or assets of either or any
material license, or enter into an agreement concerning any acquisition
transaction with any party other than the other.
If either SQRIBE or Brio receives from a third party any offer or indication
of interest regarding any acquisition transaction, or any request for
information regarding any acquisition transaction, the receiving party has
agreed to notify the other immediately of the offer, indication of interest or
request, including the identity of the party and the full terms of any proposal
therein, and notify the third party of the receiving party's obligations under
the merger agreement.
Management After the Merger
The existing directors and officers of Brio shall remain in the President and
Chief Executive Officer, Executive Vice President Finance & Operations and
Chief Financial Officer, and Executive Vice President Marketing positions
following the merger. In the merger agreement, Brio has agreed to offer Scott
Chalmers and John Schroeder employment as Executive Vice President Worldwide
Sales and Executive Vice President, Research and Development, respectively.
Conditions to the Merger
Brio and SQRIBE's obligations to effect the merger are subject, among other
things, to the following:
. obtaining Brio and SQRIBE stockholder approvals;
. the absence of any injunction prohibiting consummation of the merger;
. receipt of all necessary government and other consents and approvals;
. the absence of any action by any federal or state governmental entity that
imposes any condition upon Brio or SQRIBE that would render the merger
illegal;
. the absence of any change, or any event involving a prospective change, in
the other party's business, assets, financial condition or results of
operation which has had, or is reasonably likely to have, a material adverse
effect on the party and its subsidiaries taken as a whole;
. all authorizations, consents, or approvals of, or declarations or filings
with, and all expirations of waiting periods imposed by, any governmental
entity which are necessary for the consummation of the merger, have been
filed, occurred or been obtained and are in full force and effect;
. Brio and SQRIBE will have each received letters from their respective
independent accounting firms indicating that they agree with management's
conclusions that the merger qualifies for a pooling of interests treatment
for financial reporting purposes;
. the other party has performed its obligations under the merger agreement
prior to the effective time of the merger;
. the representations and warranties of the other party are true as of the
closing date; and
58
<PAGE>
. both Brio and SQRIBE have received an opinion of counsel to the other.
In the event Brio or SQRIBE waives the receipt of their accountant's letter
that the merger qualifies as a pooling of interests and the receipt of the
legal opinion that the merger is not taxable to SQRIBE shareholders, Brio will
resolicit stockholder approval for the merger.
In addition to the mutual conditions described above, SQRIBE's obligation to
effect the merger is subject to the following:
. the listing of the Brio common stock to be issued in the merger on the
Nasdaq National Market; and
. SQRIBE's receipt of an opinion of its counsel, substantially to the effect
that the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code and that Brio and SQRIBE will each be a party to the reorganization
within the meaning of Section 368(b) of the Code.
In addition to the mutual conditions described above, Brio's obligation to
effect the merger is subject to the following:
. SQRIBE's obtaining the consent or approval of each person whose consent or
approval shall be required in connection with the transactions contemplated
by the merger agreement; and
. the execution and delivery of ancillary agreements as contemplated in the
merger agreement.
Termination
Brio or SQRIBE may terminate and abandon the merger agreement at any time
prior to the effective time of the merger, whether before or after approval by
the stockholders of Brio and SQRIBE:
. by mutual written consent of Brio and SQRIBE;
. by either Brio or SQRIBE, if the merger has not been consummated on or
before June 30, 1999, or August 31, 1999 if the SEC review of this proxy
statement/prospectus necessitates a later closing date;
. by either Brio or SQRIBE, if there has been any material breach of a
representation and warranty or covenant of the other under the merger
agreement;
. by either Brio or SQRIBE if any court of competent jurisdiction in the
United States or other United States governmental body has issued an order,
decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the merger; or
. by either of Brio or SQRIBE, if the other party fails to obtain any
requisite stockholder approval.
In the event of termination, the merger agreement is of no further effect
and, except for a termination resulting from a breach by a party of the merger
agreement, there is no liability or obligation on the part of either Brio or
SQRIBE or their respective officers or directors, except as specifically
provided in the merger agreement.
Amendment; Waiver
The merger agreement may be amended by written action by Brio and SQRIBE at
any time before or after approval by the stockholders of Brio or SQRIBE, but,
after any such approval, no amendment may be made which by law requires further
approval of stockholders without obtaining the required further approval.
Expenses
Except for certain investment banking, legal and accounting fees, all costs
and expenses incurred in connection with the merger agreement and the
transactions contemplated in the agreement will be paid by the party incurring
such expenses.
59
<PAGE>
COMPARATIVE STOCK PRICE DATA AND DIVIDEND HISTORY
The Brio common stock is quoted on Nasdaq under the trading symbol "BRYO."
The following table sets forth, for the periods indicated, the quarterly high
and low sale prices per share of Brio common stock.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1999 (Brio's initial public offering took place on May 1,
1998)
First Quarter (ending June 30, 1998)........................ 19.063 11.000
Second Quarter (ending September 30, 1998).................. 13.875 7.375
Third Quarter (ending December 31, 1998).................... 18.250 7.000
Fourth Quarter (ending March 31, 1999)...................... 26.500 14.375
</TABLE>
On February 22, 1999, the last trading day prior to the announcement by Brio
and SQRIBE that they had reached an agreement concerning the merger, the
closing sales price of Brio common stock as reported on the Nasdaq National
Market was $20.75 per share. The equivalent per share value of SQRIBE common
stock as of such date was approximately $18.05 assuming an exchange ratio of
0.87 shares of Brio common stock for each share of SQRIBE capital stock. On
June 30, 1999, the closing sales price of Brio common stock as reported on the
Nasdaq National Market was $20.00 per share.
As of March 31, 1999, Brio had approximately 196 stockholders of record,
which includes brokerage firms and shares held in the "street name" of those
brokerage firms. Based on responses from brokers, Brio believes that as of
March 31, 1999 there were approximately 2,000 additional beneficial owners of
Brio common stock.
Because the market price of Brio common stock is subject to fluctuation, the
market value of the shares of Brio common stock that the SQRIBE stockholders
will receive in the merger may increase or decrease prior to the merger. SQRIBE
stockholders are urged to obtain a current market quotation for Brio common
stock.
Following the merger, Brio common stock will continue to be traded on the
Nasdaq National Market under the symbol "BRYO."
Neither Brio nor SQRIBE has ever paid cash dividends on its capital stock.
60
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
give effect to the proposed merger between Brio and SQRIBE and should be read
in conjunction with the respective historical consolidated financial statements
and accompanying notes included elsewhere in this proxy statement/prospectus.
The merger is subject to approval by the Brio and SQRIBE stockholders.
The unaudited pro forma condensed combined balance sheet has been prepared as
if the merger, which will be accounted for as a pooling-of-interests, had been
completed as of March 31, 1999, and combines the audited consolidated balance
sheet of Brio and the unaudited consolidated balance sheet of SQRIBE as of
March 31, 1999. The unaudited pro forma condensed combined statements of
operations for the fiscal years ended March 31, 1999, 1998 and 1997 give effect
to the proposed merger as if the merger had been completed at the beginning of
the periods presented. SQRIBE has a fiscal year that ends on December 31 of
each year. For purposes of the unaudited pro forma condensed combined
statements of operations, Brio's consolidated statements of operations for the
fiscal years ended March 31, 1999, 1998 and 1997, have been combined with
SQRIBE's consolidated statements of operations for the fiscal years ended
December 31, 1998, 1997 and 1996, respectively. The results of operations of
SQRIBE for the three months ended March 31, 1999, which reflected total
revenues of $10.8 million and a net loss of $3.6 million, will be reflected as
an adjustment to equity in the combined consolidated statement of stockholders'
equity.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if these transactions had been consummated at the beginning
of the earliest period presented, nor is it necessarily indicative of future
operating results or financial position.
61
<PAGE>
BRIO AND SQRIBE
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
MARCH 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Brio SQRIBE Adjustments Total
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..... $ 18,587 $ 2,439 $ 21,026
Short-term investments........ 13,862 423 14,285
Accounts receivable, net of
allowance.................... 7,875 12,799 20,674
Inventories................... 376 -- 376
Deferred income taxes......... -- 1,990 1,990
Prepaid expenses and other
current assets............... 1,287 376 (100)(2) 1,563
-------- -------- --------
Total current assets........ 41,987 18,027 59,914
Property and Equipment, net..... 4,130 2,410 6,540
Other Assets.................... 937 869 1,806
-------- -------- --------
$ 47,054 $ 21,306 $ 68,260
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.............. $ 1,778 $ 2,473 $ 4,251
Accrued liabilities--
Payroll and related
benefits................... 3,353 2,549 5,902
Other....................... 2,460 3,256 8,000 (1) 13,716
Line of credit.............. -- 2,000 2,000
Deferred revenue.............. 9,071 9,745 (150)(2) 18,666
-------- -------- --------
Total current liabilities. 16,662 20,023 44,535
Noncurrent Deferred Revenue..... 1,200 994 2,194
Other Noncurrent Liabilities.... 37 96 133
-------- -------- --------
Total liabilities......... 17,899 21,113 46,862
-------- -------- --------
Redeemable common stock......... -- 3,110 (3,110)(3) --
-------- -------- --------
Stockholders' Equity (Deficit):
Convertible preferred stock... -- 5 (5)(3) --
Common stock--26,061,584
shares issued and outstanding
pro forma at March 31, 1999.. 15 8 3 (3) 26
Additional paid-in capital.... 48,348 17,830 3,112 (3) 69,290
Notes receivable from
stockholders................. (217) (1,603) (1,820)
Deferred compensation......... (268) (188) (456)
Accumulated components of
comprehensive loss........... 33 (165) (132)
Accumulated deficit........... (18,756) (18,804) (7,950)(1),(2) (45,510)
-------- -------- --------
Total stockholders' equity
(deficit) ............... 29,155 (2,917) 21,398
-------- -------- --------
$ 47,054 $ 21,306 $ 68,260
======== ======== ========
</TABLE>
- --------
(1) Reflects anticipated expenses of the merger with SQRIBE.
(2) Reverse intercompany transaction.
(3) Reflects conversion of SQRIBE's redeemable common stock and convertible
preferred stock to Brio common stock.
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
62
<PAGE>
BRIO AND SQRIBE
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1999
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Brio SQRIBE Adjustments Total
------- ------- ----------- -------
<S> <C> <C> <C> <C>
Revenues:
License fees.......................... $34,247 $24,035 $58,282
Services.............................. 12,277 15,127 27,404
------- ------- -------
Total revenues...................... 46,524 39,162 85,686
------- ------- -------
Cost of revenues:
License fees.......................... 1,517 1,090 (25) (1) 2,582
Services.............................. 5,425 5,043 10,468
------- ------- -------
Total cost of revenues.............. 6,942 6,133 13,050
------- ------- -------
Gross Profit............................ 39,582 33,029 72,636
------- ------- -------
Operating Expenses:
Research and development.............. 7,180 6,552 13,732
Sales and marketing................... 27,598 20,872 48,470
General and administrative............ 4,825 5,723 10,548
In-process research and development... 1,653 -- 1,653
------- ------- -------
Total operating expenses............ 41,256 33,147 74,403
------- ------- -------
Loss from operations.................... (1,674) (118) (1,767)
Interest and other income (expense),
net.................................... 1,084 1,593 2,677
------- ------- -------
Net income (loss) before income taxes... (590) 1,475 910
Income taxes............................ 297 450 747
------- ------- -------
Net income (loss)....................... (887) 1,025 163
Increase in redemption value of
redeemable common stock................ -- (916) (916)
------- ------- -------
Net income (loss) applicable to common
stock.................................. $ (887) $ 109 $ (753)
======= ======= =======
Basic net income (loss) per share....... $ (0.06) $ 0.02 $ (0.03)
======= ======= =======
Diluted net income (loss) per share..... $ (0.06) $ 0.01 $ (0.03)
======= ======= =======
Shares used in computing basic net
income (loss) per share................. 13,709 7,126 (3,536) (2) 24,371
======= ======= =======
Shares used in computing diluted net
income (loss) per share................. 13,709 13,105 (2,443) (2) 24,371
======= ======= =======
</TABLE>
- --------
(1) Reverse intercompany transaction.
(2) Converts SQRIBE's weighted average common shares outstanding and SQRIBE's
convertible preferred stock to Brio common stock based on an assumed
exchange ratio of 0.885 shares of Brio common stock for each share of
SQRIBE capital stock.
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
63
<PAGE>
BRIO AND SQRIBE
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Brio SQRIBE Adjustments Total
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
License fees........................ $19,795 $15,936 $ 35,731
Services............................ 6,977 9,187 16,164
------- ------- ---------
Total revenues.................... 26,772 25,123 51,895
------- ------- ---------
Cost of revenues:
License fees........................ 1,008 946 (25) (1) 1,929
Services............................ 2,595 2,506 5,101
------- ------- ---------
Total cost of revenues............ 3,603 3,452 7,030
------- ------- ---------
Gross Profit.......................... 23,169 21,671 44,865
------- ------- ---------
Operating Expenses:
Research and development............ 5,218 4,612 9,830
Sales and marketing................. 22,728 12,434 35,162
General and administrative.......... 2,954 4,906 7,860
Stock compensation to principal
stockholders....................... -- 7,707 7,707
------- ------- ---------
Total operating expenses.......... 30,900 29,659 60,559
------- ------- ---------
Loss from operations.................. (7,731) (7,988) (15,694)
Interest and other income (expense),
net.................................. (341) 416 75
------- ------- ---------
Net loss before income taxes.......... (8,072) (7,572) (15,619)
Income taxes.......................... -- 104 104
------- ------- ---------
Net loss.............................. $(8,072) $(7,676) $ (15,723)
======= ======= =========
Basic and diluted net loss per share.. $ (1.41) $ (0.95) $ (1.00)
======= ======= =========
Shares used in computing basic and
diluted net loss per share........... 5,724 8,112 1,907 (2) 15,743
======= ======= =========
</TABLE>
- --------
(1) Reverse intercompany transaction
(2) Converts SQRIBE's weighted average common shares outstanding and SQRIBE's
convertible preferred stock to Brio common stock based on an assumed
exchange ratio of 0.885 shares of Brio common stock for each share of
SQRIBE capital stock.
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
64
<PAGE>
BRIO AND SQRIBE
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1997
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Brio SQRIBE Adjustments Total
------- ------- ----------- -------
<S> <C> <C> <C> <C>
Revenues:
License fees.......................... $10,328 $12,862 $23,190
Services.............................. 3,058 5,135 8,193
------- ------- -------
Total revenues...................... 13,386 17,997 31,383
------- ------- -------
Cost of revenues:
License fees.......................... 839 1,258 2,097
Services.............................. 817 1,171 1,988
------- ------- -------
Total cost of revenues.............. 1,656 2,429 4,085
------- ------- -------
Gross Profit............................ 11,730 15,568 27,298
------- ------- -------
Operating Expenses:
Research and development.............. 2,447 3,371 5,818
Sales and marketing................... 13,588 8,633 22,221
General and administrative............ 1,685 6,192 7,877
------- ------- -------
Total operating expenses............ 17,720 18,196 35,916
------- ------- -------
Loss from operations.................... (5,990) (2,628) (8,618)
Interest and other income, net.......... 25 23 48
------- ------- -------
Net loss before income taxes............ (5,965) (2,605) (8,570)
Income taxes............................ -- 54 54
------- ------- -------
Net loss................................ $(5,965) $(2,659) $(8,624)
======= ======= =======
Basic and diluted net income (loss) per
share.................................. $ (1.14) $ (0.30) $ (0.58)
======= ======= =======
Shares used in computing basic and
diluted net income (loss) per share.... 5,218 8,854 791 (1) 14,863
======= ======= =======
</TABLE>
- --------
(1) Converts SQRIBE's weighted average common shares outstanding and SQRIBE's
convertible preferred stock to Brio common stock based on an assumed
exchange ratio of 0.885 shares of Brio common stock for each share of
SQRIBE capital stock.
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
65
<PAGE>
BRIO AND SQRIBE
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Basis of Presentation
The unaudited pro forma condensed combined financial statements combine the
historical consolidated financial statements of Brio and SQRIBE for all periods
presented following the pooling-of-interests method of accounting. No
adjustments were necessary to conform the accounting policies of Brio and
SQRIBE.
The unaudited pro forma condensed combined financial statements included in
this proxy statement/prospectus have been prepared by Brio and SQRIBE, without
audit, following the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted complying with
such rules and regulations. However, Brio and SQRIBE believe that the
disclosures are adequate to make the information presented not misleading.
The preparation of unaudited pro forma condensed combined financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the unaudited pro forma condensed combined financial statements and
the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Pro Forma Basic and Diluted Net Income (Loss) Per Share
The pro forma basic and diluted net loss per share is based on the combined
weighted average number of common shares of Brio and SQRIBE based upon an
assumed exchange ratio of 0.885 shares of Brio common stock for each share of
SQRIBE capital stock. For fiscal 1999, pro forma diluted net income per share
includes 1,689,000 shares of potential Common Stock of Brio. For fiscal 1998
and 1997, potential common stock from outstanding Brio and SQRIBE stock options
and warrants have been excluded as they are antidilutive.
The following table presents the calculation of the shares used in computing
pro forma basic net loss per share (in thousands):
<TABLE>
<CAPTION>
Years Ended March
31,
----------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Shares used in computing SQRIBE historical basic net
income (loss) per share............................... 7,126 8,112 8,854
Adjustment to reflect assumed conversion of SQRIBE's
weighted average convertible preferred stock to Brio
common stock.......................................... 4,922 3,209 2,044
------ ------ ------
Weighted average shares of SQRIBE common and preferred
stock outstanding..................................... 12,048 11,321 10,898
Adjustment to reflect conversion of SQRIBE common and
preferred stock outstanding to Brio common stock based
on an assumed exchange ratio of 0.885................. (1,386) (1,302) (1,253)
------ ------ ------
Pro forma weighted average shares of SQRIBE common and
preferred stock outstanding........................... 10,662 10,019 9,645
Shares used in computing Brio historical basic net loss
per share............................................. 13,709 5,724 5,218
------ ------ ------
Shares used in computing pro forma basic net loss per
share................................................. 24,371 15,743 14,863
====== ====== ======
</TABLE>
66
<PAGE>
Merger Related Expenses of Brio and SQRIBE
Brio and SQRIBE estimate that they will incur approximately $8 million of
merger-related expenses, consisting of transaction costs for investment
bankers, attorneys, accountants, financial printing and other related charges.
These costs are preliminary and therefore subject to change. These charges do
not include any integration charges which may be incurred as a result of the
merger, such as severance, relocation, consolidation of facilities, and
elimination of redundant information technology systems. This estimate is
subject to change. These non-recurring expenses will be charged to operations
during the period in which the merger occurs. The pro forma condensed combined
balance sheet reflects these expenses as if they had been incurred as of March
31, 1999, but the pro forma condensed combined statements of operations do not
reflect these expenses as these expenses are non-recurring.
67
<PAGE>
DESCRIPTION OF BRIO CAPITAL STOCK
The authorized capital stock of Brio consists 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 June 30, 1999, there were 14,808,297 shares of common stock
outstanding, held by 188 stockholders of record, which includes brokerage firms
and shares held under the "street name" of these brokerage firms, and options
to purchase an aggregate of 2,265,312 shares of common stock were also
outstanding. 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.
In the event of liquidation, dissolution or winding up of Brio, 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 the merger
will be, fully paid and non assessable.
Preferred Stock
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 of the preferred stock, 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 Brio 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. The
issuance of the preferred stock could have the effect of decreasing the market
price of the common stock. No shares of preferred stock are outstanding and
Brio currently has no plans to issue any shares of preferred stock.
Transfer Agent and Registrar
The transfer agent and registrar for the Brio common stock is Boston
EquiServe, L.P. located at 150 Royal Street, Canton, Massachusetts, (781) 575-
2000.
68
<PAGE>
COMPARISON OF RIGHTS OF STOCKHOLDERS OF BRIO AND STOCKHOLDERS OF SQRIBE
Both Brio and SQRIBE are incorporated in the state of Delaware. If the merger
is consummated, holders of SQRIBE common stock and preferred stock will become
holders of Brio common stock and the rights of the former SQRIBE stockholders
will be governed by Brio's certificate of incorporation and bylaws. The rights
of Brio stockholders under Brio's certificate of incorporation and bylaws
differ in limited respects from the rights of the SQRIBE stockholders under
SQRIBE's certificate of incorporation and bylaws. These differences are
summarized below.
The Rights of SQRIBE Preferred Stockholders
If the merger is consummated, holders of SQRIBE preferred stock will become
holders of Brio common stock. Under SQRIBE's certificate of incorporation, the
holders of SQRIBE preferred stock have the right to receive a liquidation
preference, and in the case of the series A preferred stock, to participate
with the common stock in receiving liquidating distributions, and the right to
convert to common stock. The holders of SQRIBE series A preferred stock are
entitled to receive a liquidation preference of $3.40 per share prior to
distributions to any other stockholder. As a result, the holders of SQRIBE
series A preferred stock are entitled to receive $3.40 worth of Brio common
stock per share of series A preferred stock prior to the distribution of Brio
common stock to any other SQRIBE stockholder in the event the average
consideration to be received per share of SQRIBE common stock is less than
$17.00. The holders of SQRIBE series B preferred stock are entitled to receive
a liquidation preference of $4.50 per share. Holders of the SQRIBE series B
preferred stock will not receive their liquidation preference in the merger and
will instead participate with the common stock in receiving distributions on an
as converted basis. Holders of Brio common stock have no preference rights and
are treated equally in terms of liquidation rights.
Blank Check Preferred
The Brio certificate of incorporation permits the Brio board of directors to
determine the rights, preferences, privileges and restrictions of authorized
but unissued preferred stock, commonly referred to as "blank check" preferred
stock. The issuance of preferred stock with extraordinary rights may be used to
deter hostile takeover attempts. The Brio board could issue the Brio preferred
stock at any time in the future without stockholder approval. The SQRIBE
certificate of incorporation does not permit the SQRIBE board of directors to
issue "blank check" preferred stock and requires the approval of the holders of
SQRIBE preferred stock in order to issue any stock with preferences or
priorities superior to or on parity with the currently outstanding SQRIBE
preferred stock.
Differences in the Composition of the Boards of Directors
Under SQRIBE's certificate of incorporation and bylaws, the stockholders of
SQRIBE have to approve a change in the composition of the board of directors
that would create a classified board. SQRIBE does not currently have a
classified board of directors and SQRIBE stockholders are entitled to elect all
members of SQRIBE's board of directors each year. Brio's board of directors, on
the other hand, is classified into two classes, and only one class of director
is elected each year.
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<PAGE>
PROPOSAL NO. 2
ELECTION OF DIRECTORS
General
In connection with the merger, Brio's board of directors increased the size
of the board from six to seven members. Under the terms of Brio's certificate
of incorporation, Brio's board is divided into two classes: Class I, whose term
will expire at the Brio annual meeting and Class II, whose term will expire at
the annual meeting of stockholders to be held in 2000. Accordingly, only the
Class I directors are standing for reelection at the annual meeting. However,
in connection with the merger, Brio has agreed to nominate Ofir Kedar, Michael
Cline and Charles Federman to serve on the board of directors. Therefore, you
will vote to elect a total of five directors at the annual meeting, four of
whom will be Class I directors and one of whom will be a Class II director.
Directors Weeks and Vincent will resign from the Brio board at the effective
time of the merger.
Nominees
At the annual meeting, you will be asked to elect five directors, each to
serve until the next annual meeting at which elections of the class of
directors to which the director belongs are held, or, in each case, until their
respective successors are elected and qualified. The Class I directors are
elected to serve until the annual meeting of stockholders to be held in 2001,
and the Class II directors will serve until the annual meeting of stockholders
to be held in 2000. In the event any nominee is unable or unwilling to serve as
a director at the time of the annual meeting, the proxies may be voted for the
balance of those nominees named and for any substitute nominee designated by
the present board or the proxy holders to fill such vacancy, or for the balance
of the nominees named without nomination of a substitute, or the size of the
board may be reduced in accordance with the bylaws of Brio. The board has no
reason to believe that any of the persons named below will be unable or
unwilling to serve as a nominee or as a director if elected.
The names of the nominees, their ages as of March 31, 1999 and certain other
information about them are set forth below:
<TABLE>
<CAPTION>
Director
Name of Directors Age Principal Occupation Since Class
----------------- --- -------------------- -------- -----
<C> <C> <S> <C> <C>
Michael Cline........... 39 Director of SQRIBE and Managing
Member,
General Atlantic Partners, LLC N/A I
Charles Federman........ 42 Director of SQRIBE and Managing
Director,
BRM Group N/A II
Katherine Glassey....... 40 Executive Vice President,
Products and
Services, Chief Technology
Officer and Director 1989 I
Ofir J. Kedar........... 42 President, Chief Executive
Officer and Director of SQRIBE N/A I
E. Floyd Kvamme ........ 60 Director 1995 I
</TABLE>
Michael Cline has served as a director of SQRIBE since 1995. He is a managing
member of General Atlantic Partners, LLC, a private equity firm that invests
globally in software and services and related information-technology
businesses, and has been with General Atlantic since 1989. He is a director of
Manugistics Group, Inc., and several private companies in the information
technology industry. He holds a B.S. in Business from Cornell University and an
M.B.A. from Harvard Business School.
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<PAGE>
Charles Federman is a Managing Director of the BRM Group, located in New
Jersey. Mr. Federman currently sits on a number of public company boards
including: Phoenix Technologies, LTD, International Microcomputer Software Inc.
and Mathsoft. Prior to joining BRM, he was Chairman of Broadview Associates
LLC, a merger and acquisitions advisory firm focused on the Information
Technology Industry. Mr. Federman graduated from the Wharton School of the
University of Pennsylvania.
Katherine Glassey is a co-founder of Brio and has been its Executive Vice
President, Products and Services and Chief Technology Officer since January
1997 and has been a director since inception. Prior to joining Brio, Ms.
Glassey established and managed application development and consulting
organizations for Metaphor Computer Systems, Inc., 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.
Ofir J. Kedar is the co-founder of SQRIBE and served as vice president of
SQRIBE from February 1988 to January 1993. He has been SQRIBE's chairman and
chief executive officer since 1993. Before joining SQRIBE, he was the general
manager of the current Oracle Corporation subsidiary in Israel from 1985 to
1987. He serves on the board of directors of several high technology companies
including A2i, Inc., a provider of high-end catalog solutions for Internet and
CD-ROM and order entry systems. Mr. Kedar holds a bachelor's degree in computer
science from Hebrew University in Jerusalem, Israel.
E. Floyd Kvamme has been a director of Brio since March 1995 and is a member
of Brio's audit committee and compensation committee. He is currently also a
director of Harmonic Lightwaves, Inc., National Semiconductor, Photon Dynamics,
Inc., Power Integrations, Prism Solutions, TriQuint Semiconductor, Inc., and
several privately held companies. He has been a partner of Kleiner Perkins
Caufield & Byers, a venture capital firm, since 1984. In 1982 he became
Executive Vice President of Sales and Marketing for Apple Computer. While at
Apple, his responsibilities included worldwide sales, marketing, distribution
and support. He holds two degrees in Electrical Engineering, a B.S. degree from
the University of California and a M.S. degree from Syracuse University.
Meetings and Committees of the Board of Directors
During the period from March 31, 1998 through March 31, 1999 the board met 11
times. Except for Mr. Weeks, who attended five meetings of the board, no
director attended fewer than 75% of the aggregate number of meetings of the
board and meetings of the committees of the board on which he or she serves.
The board has an audit committee and a compensation committee. The board does
not have a nominating committee or a committee performing the functions of a
nominating committee. Although there are no formal procedures for stockholders
to nominate persons to serve as directors, the board will consider nominations
from stockholders, which should be addressed to Karen J. Willem at our address
set forth above.
In the last fiscal year the audit committee consisted of directors Kvamme,
Lacroute, Vincent and Weeks, four of Brio's non-employee directors, and held
two meetings during the last fiscal year. Following the annual meeting, Brio
anticipates that the audit committee will consist of Messrs. Kvamme and
Lacroute and two other non-employee directors of Brio. The audit committee
functions are to recommend the engagement of the firm of certified public
accountants to audit the financial statements of Brio and monitor the
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<PAGE>
effectiveness of the audit effort, Brio's financial and accounting organization
and Brio's system of internal accounting controls.
In the last fiscal year the compensation committee consisted of directors
Kvamme, Lacroute, Vincent and Weeks, and held two meetings during the last
fiscal year. Following the annual meeting, Brio anticipates that the
compensation committee will consist of Messrs. Kvamme and Lacroute and two
other non-employee directors of Brio. The compensation committee's functions
are to establish and administer Brio's policies regarding executive salaries
and cash and long-term equity incentives. The compensation committee
administers Brio's 1998 stock option plan, 1998 employee stock purchase plan
and 1998 directors' stock option plan.
Compensation of Directors
Brio 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. Employee directors
are eligible to participate in Brio's 1998 employee stock purchase plan and
non-employee directors are eligible to participate in the 1998 directors' stock
option plan. Under the directors' plan, each person who becomes a nonemployee
director of Brio is automatically granted a nonstatutory stock option to
purchase 20,000 shares of common stock on the date on which the optionee first
becomes a nonemployee director of Brio. Thereafter, on the date of each annual
meeting of stockholders following which a nonemployee director is serving on
the board of directors, each nonemployee director shall be granted an option to
purchase 5,000 shares of common stock if, on such date, he or she has served on
Brio's board of directors for at least six months. Mr. Kvamme, and Bernard J.
Lacroute, who will have served for more than six months prior to the date of
the annual meeting, will each receive options to purchase 5,000 shares of
common stock under the directors' plan, in Mr. Kvamme's case assuming he is
reelected at the meeting. Messrs. Cline and Federman will each receive options
to purchase 20,000 shares of common stock under the directors' plan if elected
at the meeting.
In March 1989, Mr. Edholm and Ms. Glassey purchased 3,750,000 shares and
1,250,000 shares, respectively, of restricted common stock.
Recommendation of the Brio Board of Directors:
The Brio board of directors unanimously recommends a vote for the election of
all nominees named above.
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<PAGE>
BRIO COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information that has been provided to Brio
with respect to beneficial ownership of shares of Brio's common stock as of
March 31, 1999 for:
. each person who is known by Brio to own beneficially more than five
percent of the outstanding shares of common stock,
. each director of Brio,
. each of the executive officers named in the Summary Compensation Table
of this proxy statement/prospectus, and
. all directors and executive officers of Brio as a group.
An * represents less than 1% ownership.
<TABLE>
<CAPTION>
Shares of Common
Stock Beneficially Owned
--------------------------- Pro Forma
Officers, Directors and Principal Ownership of
Stockholders Number Percent Brio
- --------------------------------- -------------- ------------ ------------
<S> <C> <C> <C>
Entities affiliated with
Kleiner Perkins Caufield & Byers...... 2,152,228 14.7% 6.9%
2750 Sand Hill Road, Suite 250
Menlo Park, CA 94025
Entities affiliated with
Integral Capital Partners............. 805,147 5.5% 2.6%
2750 Sand Hill Road
Menlo Park, CA 94025
Yorgen H. Edholm....................... 4,749,996 32.6% 15.1%
Katherine Glassey...................... 4,749,996 32.6% 15.1%
Robert W. Currie....................... 129,716 * *
Chris M. Grejtak....................... 88,546 * *
Karen Willem........................... 45,529 * *
E. Floyd Kvamme........................ 2,138,289 14.7% 6.8%
Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Bernard J. Lacroute.................... 2,146,501 14.7% 6.8%
Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Norman Vincent......................... 6,500 * *
Mark B. Weeks.......................... 13,558 * *
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
All current Brio directors and
executive
officers as a group (9 persons)....... 7,991,220 54.7% 25.5%
</TABLE>
The entries in this table for each of Messrs. Kvamme and Lacroute and for
entities affiliated with Kleiner Perkins Caufield & Byers consists of 2,113,144
shares held by Kleiner Perkins Caufield & Byers VII, 19,418 shares held by KPCB
Information Sciences Zaibatsu Fund II, 5,727 shares held by E. Floyd Kvamme,
and 13,939 shares by Bernard J. Lacroute. Both Mr. Kvamme and Mr. Lacroute are
directors of Brio and 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.
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<PAGE>
The entry in this table for entities affiliated with Integral Capital
Partners 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.
The general partner of Integral Capital Partners III, L.P. and Integral Capital
Partners International III, L.P. is Integral Capital Management III, L.P. a
Delaware limited partnership. The general partners of Integral Capital
Management III, L.P. are Roger McNamee, John Powell and Pamela Hagenah, each of
whom disclaims beneficial ownership of Integral Capital Partners' shares except
to the extent of their respective pecuniary interests therein.
The entries in this table for Yorgen Edholm and Katherine Glassey include
1,627,509 shares held by Mr. Edholm, 542,503 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.
The entry in this table for Mr. Weeks includes 10,000 shares held by VLGI
Investments 1994, an investment partnership affiliated with Venture Law Group,
A Professional Corporation, a law firm of which Mr. Weeks is a director. Mr.
Weeks disclaims beneficial ownership of any of such shares as to which he has
no pecuniary interest.
Mr. Weeks and Mr. Vincent are resigning from the Brio board of directors at
the effective time of the proposed merger with SQRIBE.
Except pursuant to applicable community property laws or as indicated in the
footnotes to this table, to Brio'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 that stockholder. Applicable
percentage of ownership for each stockholder is based on 14,600,425 shares of
common stock outstanding as of March 31, 1999 together with applicable options
for the 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 March 31, 1999. Such shares issuable pursuant to
such options are deemed outstanding for computing the percentage ownership of
the person holding the 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., 3460 West Bayshore Road, Palo Alto, CA
94303.
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<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation earned by:
. the individual who served as Brio's Chief Executive Officer during the
fiscal year ended March 31, 1999;
. the four other most highly compensated individuals who served as an
executive officer of Brio during the fiscal year ended March 31, 1999;
and
. the compensation received by each of the individuals referenced above
for Brio's preceding fiscal year. The bonus includes amounts earned with
respect to the individual's performance in the applicable fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- ------------
Securities
Fiscal Salary Bonus Underlying
Name and Principal Position Year ($) ($) Options
- --------------------------- ------ ------------------- ------------
<S> <C> <C> <C> <C>
Yorgen H. Edholm...................... 1999 200,000 91,161 --
President, Chief Executive Officer
and Chairman of 1998 175,000 44,723 --
the Board of Directors 1997 160,000 8,000 --
Katherine Glassey..................... 1999 170,000 54,697 --
Executive Vice President, Products
and Services, 1998 145,000 33,542 --
Chief Technology Officer and Director 1997 107,500 6,500 --
Robert W. Currie...................... 1999 170,000 90,831 --
Executive Vice President and General
Manager, 1998 170,000 108,419 --
Worldwide Operations 1997 78,125 18,750 262,500
Chris M. Grejtak...................... 1999 180,000 45,620 40,000
Executive Vice President, Marketing 1998 175,000 22,362 25,000
1997 41,843 -- 75,000
Karen J. Willem(2).................... 1999 175,000 50,625 40,000
Executive Vice President, Finance and
Operations, 1998 99,519 22,362 87,500
and Chief Financial Officer 1997 -- -- --
</TABLE>
Amounts listed under the "Bonus" column for Mr. Currie represent sales
commission.
Ms. Willem joined Brio in August 1997.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to stock
options granted to the named executive officers in the last fiscal year. In
addition, as required by SEC rules, the table sets forth the hypothetical gains
that would exist for the options based on assumed rates of annual compound
stock price appreciation during the option term.
<TABLE>
<CAPTION>
Potential Realizable
Value At Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants For Option Term
------------------------------------------------- ----------------------
Number Of Percent Of
Securities Total Options
Underlying Granted To Exercise Or Market Price
Options Employees In Base Price on Date of Expiration
Name Granted Fiscal Year ($/Sh) Grant Date 5% ($) 10% ($)
---- ---------- ------------- ----------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Yorgen H. Edholm........ -- -- -- -- -- -- --
Katherine Glassey....... -- -- -- -- -- -- --
Robert W. Currie........ -- -- -- -- -- -- --
Chris M. Grejtak........ 40,000 2.7% $12.56 $12.56 6/23/2003 $ 138,804 $ 306,720
Karen Willem............ 40,000 2.7% $12.56 $12.56 6/23/2003 $ 138,804 $ 306,720
</TABLE>
With respect to Mr. Grejtak's and Ms. Willem's options, 1/48 of the total
shares vest 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. The percent of total options granted to employees is based on an
aggregate of 1,504,035 options granted to employees, consultants and directors
during the last fiscal year.
The exercise price per share of each option was equal to the fair value of
the common stock on the date of grant based upon the closing price of Brio's
common stock on the Nasdaq Stock Market on the date of grant.
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.
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<PAGE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth the number of shares covered by stock options
as of the fiscal year ended March 31, 1999, and the value of "in-the-money"
stock options, which represents the positive spread between the exercise price
of a stock option and the market price of the shares subject to such option at
the end of the fiscal year ended March 31, 1999.
The value of unexercised in-the-money options is based on a value of $21.00
per share of Brio's common stock. Amounts reflected are based on the assumed
value minus the exercise price multiplied by the number of shares acquired on
exercise.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at March 31, 1999 at March 31, 1999
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Yorgen H. Edholm............ -- -- -- --
Katherine Glassey........... -- -- -- --
Robert W. Currie............ 123,282 111,718 2,508,859 2,262,641
Chris M. Grejtak............ 36,147 53,853 630,499 697,101
Karen Willem................ 35,834 86,666 587,067 1,268,038
</TABLE>
Notwithstanding anything to the contrary set forth in any of Brio's filings
under the Securities Act of 1933 or the Securities Exchange Act of 1934 that
might incorporate future filings, including this proxy statement/prospectus, in
whole or in part, the following report and the stock performance graph which
follows shall not be deemed to be incorporated by reference into any such
filings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is a report of the compensation committee of the board of
directors describing the compensation policies applicable to Brio's executive
officers during the fiscal year ended March 31, 1999. The committee is
responsible for establishing and monitoring Brio's general compensation
policies and compensation plans, as well as the specific compensation levels
for executive officers. Executive officers who are also directors have not
participated in deliberations or decisions involving their own compensation.
General Compensation Policy
Under the supervision of the board of directors, Brio's compensation policy
is designed to attract and retain qualified key executives critical to Brio's
growth and long-term success. It is the objective of the board of directors to
have a portion of each executive's compensation contingent upon Brio's
performance as well as upon the individual's personal performance. Accordingly,
each executive officer's compensation package is comprised of three elements:
. base salary which reflects individual performance and expertise;
. variable bonus awards payable in cash and tied to the achievement of
certain performance goals that the board of directors establishes from
time to time; and
. long-term stock-based incentive awards which are designed to strengthen
the mutuality of interests between the executive officers and Brio's
stockholders.
The summary below describes in more detail the factors which the board of
directors considers in establishing each of the three primary components of the
compensation package provided to the executive officers.
Base Salary
The level of base salary is established primarily on the basis of the
individual's
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<PAGE>
qualifications and relevant experience, the strategic goals for which he or she
has responsibility, the compensation levels at companies which compete with
Brio for business and executive talent, and the incentives necessary to attract
and retain qualified management. Base salary is adjusted each year to take into
account the individual's performance and to maintain a competitive salary
structure. Company performance does not play a significant role in the
determination of base salary.
Cash-Based Incentive Compensation
Cash bonuses are awarded on a discretionary basis to executive officers on
the basis of their success in achieving designated individual goals and Brio's
success in achieving specific company-wide goals, such as customer
satisfaction, revenue growth, earnings growth, expense control and new product
introductions.
Long-Term Incentive Compensation
Brio has utilized its stock option plans to provide executives and other key
employees with incentives to maximize long-term stockholder values. Awards
under this plan by the board of directors take the form of stock options
designed to give the recipient a significant equity stake in Brio and thereby
closely align his or her interests with those of Brio's stockholders. Factors
considered in making such awards include the individual's position in Brio, his
or her performance and responsibilities, and internal comparability
considerations.
Each option grant allows the executive officer to acquire shares of common
stock at a fixed price per share (the fair market value on the date of grant)
over a specified period of time (up to 10 years). The options typically vest in
periodic installments over a four-year period, contingent upon the executive
officer's continued employment with Brio. Accordingly, the option will provide
a return to the executive officer only if he or she remains in Brio's service,
and then only if the market price of the common stock appreciates over the
option term.
Compensation of the Chief Executive Officer
Yorgen H. Edholm has served as our President and Chief Executive Officer
since 1989. His base salary for fiscal 1999 was $200,000.
The factors discussed above in "Base Salary" and "Cash-Based Incentive
Compensation" were also applied in establishing the amount of Mr. Edholm's
salary. Significant factors in establishing Mr. Edholm's compensation were
Brio's significant rate and amount of revenue growth, our ability to hire and
retain key employees, Brio's achievement of certain of its goals relative to
the introduction of new products and expansion into new markets.
Deductibility of Executive Compensation
The compensation committee has considered the impact of Section 162(m) of the
Internal Revenue Code adopted under the Omnibus Budget Reconciliation Act of
1993, which disallows a deduction for any publicly held corporation for
individual compensation exceeding $1 million in any taxable year for the CEO
and four other most highly compensated executive officers, respectively, unless
such compensation meets the requirements for the "performance-based" exception
to Section 162(m). As the cash compensation paid by Brio to each of its
executive officers is expected to be below $1 million and the committee
believes that options granted under Brio's 1992 stock option plan, 1998 stock
option plan, or 1998 directors' stock option plan to such officers will meet
the requirements for qualifying as performance-based, the committee believes
that Section 162(m) will not affect the tax deductions available to Brio with
respect to the compensation of its executive officers. It is the committee's
policy to qualify, to the extent reasonable, its executive officers'
compensation for deductibility under applicable tax law. However, Brio may from
time to time pay compensation to its executive officers that may not be
deductible.
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<PAGE>
Compensation Committee:
E. Floyd Kvamme
Bernard J. Lacroute
Norman L. Vincent
Mark B. Weeks
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 Brio, an officer or employee of
Brio. No executive officer of Brio serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving on Brio's board or compensation committee.
Certain Relationships and Related Transactions
In March 1999, Brio entered into an agreement with Yorgen Edholm providing
that, in certain cases of involuntary termination, Mr. Edholm will be paid a
sum equal to six months salary, less applicable withholding. This agreement
replaces Brio's prior agreement on the same subject with Mr. Edholm.
Brio has entered into indemnification agreements with its officers and
directors containing provisions which may require Brio, among other things, to
indemnify Brio's 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. Brio also intends to execute such agreements with
its future directors and executive officers.
Brio believes that all of the transactions set forth above were in Brio's
best interests. As a matter of policy, the transactions were, and all future
transactions between Brio 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 Brio than could
be obtained from unaffiliated third parties.
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<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return data for
Brio common stock for the period from April 30, 1998, the date on which Brio
completed its initial public offering of its common stock through May 12, 1999
to the cumulative return over such period of (i) the Nasdaq National Market
Composite Index and (ii) the S&P Computer Software and Services Index. The
graph assumes that $100 was invested on April 30, 1998 in the common stock of
Brio and in each of the comparative indices. The graph further assumes that
such amount was initially invested in the common stock of Brio at a per share
price of $11.00, the price to which such stock was first offered to the public
by Brio on the date of Brio's initial public offering, and reinvestment of any
dividends. The stock price performance on the following graph is not
necessarily indicative of future stock price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG BRIO, THE NASDAQ NATIONAL MARKET
COMPOSITE INDEX AND THE S&P COMPUTER SOFTWARE AND SERVICES INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
S&P COMPUTER
SOFTWARE &
Measurement Period SERVICES
(Fiscal Year Covered) BRIO INDEX NASDAQ
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt- 4/30/98 $100 $100 $100
FYE 5/29/98 $135 $ 93 $ 95
FYE 6/26/98 $122 $111 $100
FYE 7/27/98 $104 $116 $103
FYE 8/24/98 $106 $108 $ 95
FYE 9/22/98 $ 83 $109 $ 90
FYE 10/20/98 $ 88 $100 $ 87
FYE 11/17/98 $ 72 $112 $100
FYE 12/16/98 $109 $129 $107
FYE 1/15/99 $231 $143 $125
FYE 2/16/99 $164 $149 $123
FYE 3/16/99 $200 $157 $130
</TABLE>
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<PAGE>
PROPOSAL NO. 3
APPROVAL OF AMENDMENT TO BRIO'S 1998
EMPLOYEE STOCK PURCHASE PLAN
At the annual meeting, you are being asked to approve an amendment to the
1998 employee stock purchase plan to provide for an increase in the number of
shares reserved for issuance under the plan by 1,000,000 shares of Common Stock
to an aggregate of 1,500,000, plus an automatic annual increase on the first
day of each of Brio's fiscal years in 2000, 2001, 2002, 2003 and 2004 equal to
the lesser of 600,000 shares or 2% of the outstanding common stock on the last
day of the immediately preceding fiscal year. The new shares being added to the
plan will only be available for offering periods that commence after the date
of shareholder approval of the amendment. As of March 31, 1999, 481,048 shares
were available for future issuance under the plan. The proposed amendment to
the plan was approved by the board of directors in March 1999. At that time,
the board of directors also approved other amendments to the plan that do not
require stockholder approval but which are described below.
Brio implemented the plan in 1998 as an incentive to its employees and
executives as a means to promote increased stockholder value. The purpose of
the plan is to provide employees of Brio with an opportunity to purchase common
stock of Brio through accumulated payroll deductions. Management believes that
stock ownership is one of the prime methods of attracting and retaining key
personnel responsible for the continued development and growth of Brio's
business.
The following is a summary of the principal provisions of the amended plan,
but it is not intended to be a complete description of all of the terms and
provisions of the plan. A copy of the plan will be furnished to any shareholder
upon written request to Brio's Chief Financial Officer at Brio's principal
executive offices in Palo Alto, California.
Description of the 1998 Employee Stock Purchase Plan
The 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
was initially reserved for issuance under plan, plus an automatic annual
increase on the first day of each of Brio's fiscal years in 1999, 2000, and
2001 equal to the lesser of 300,000 shares or 2% of Brio's outstanding common
stock on the last day of the immediately preceding fiscal year.
During the year ended March 31, 1999:
. 5,460 shares were purchased under the plan by Brio's current executive
officers as a group (three persons);
. no shares were purchased under the plan by Brio's current directors who
are not executive officers (four persons); and
. 99,677 shares were purchased under the plan by all eligible Brio
employees, including current officers who are not executive officers
(140 persons).
The plan, which is intended to qualify under Section 423 of the Internal
Revenue Code, is implemented by a series of offering periods of twenty-four
months duration. Each offering period commences on or about May 1 and November
1 of each year. Each offering period generally consists of four consecutive
purchase periods of six months duration, with the last day of each period being
designated a purchase date. The board of directors has also determined that an
offering period will commence on August 1, 1999 so that the employees of
SQRIBE, a designated subsidiary under the plan following the effective date of
the merger, will be allowed to participate in the plan immediately following
the effective date of the merger. The first purchase date
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under the plan occurred on October 31, 1998, with subsequent purchase dates to
occur every six months thereafter. The plan is administered by the board of
directors. Brio employees, including officers and employee directors, are
eligible to participate in the plan if they are employed by Brio (or a
designated subsidiary) for at least 20 hours per week and more than five months
per year. The 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 Brio'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 begin 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 upon termination of
employment with Brio. If not terminated earlier, the plan will have a term of
20 years.
The plan provides that in the event of the proposed dissolution or
liquidation of Brio, each 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 Brio with or into another corporation or a
sale of all or substantially all of Brio's assets, each right to purchase stock
under the 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 plan are exercised
prior to the merger or sale of assets. The board of directors has the power to
amend or terminate the plan as long as such action does not adversely affect
any outstanding rights to purchase stock thereunder and provided that the board
of directors can terminate the plan or any offering period under the plan in
the event that prevailing accounting rules change in such a way that would have
an adverse effect on Brio if it did not terminate the plan or offering period.
Stockholder approval will be obtained for any plan amendment as required by
applicable law.
United States Federal Income Tax Information
The following is a general summary as of the date of this proxy statement
prospectus of the United States federal income tax consequences associated with
participation in the plan. The federal tax laws may change and the federal,
state and local tax consequences for any participant will depend upon his or
her individual circumstances. All participants are advised to seek the advice
of a tax advisor regarding the tax consequences of participation in the plan.
The plan is intended to qualify as an "employee stock purchase plan" within
the meaning of section 423 of the Internal Revenue Code. Under these
provisions, no income will be taxable to a participant at the time of grant of
the option or purchase of shares. A participant may become liable for tax upon
disposition of the shares acquired, as summarized below.
If the shares are sold or disposed of (including by way of gift) more than
two years after the first day of the offering period during which shares were
purchased or more than one year after a purchase date. In this event, the
lesser of (a) the excess of the fair market value of the shares at the time of
such disposition over the purchase price of the shares subject to the option or
(b) 15% of the fair market value of the shares on the first day of the offering
period, will be treated as ordinary income to the participant. Any further gain
upon such disposition will be treated as long-term capital gain, taxable at a
maximum tax rate of 20%. If the shares are sold and the sale price is less than
the purchase price, no ordinary income is recognized and the participant has a
capital loss for the difference.
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If the shares are sold or disposed of (including by way of gift) before the
expiration of the holding periods described above. In this event, referred to
as a disqualifying disposition, the excess of the fair market value of the
shares on the purchase date over the option price will be treated as ordinary
income to the participant. This excess will constitute ordinary income in the
year of sale or other disposition even if no gain is realized on the sale or a
gift of the shares is made. The balance of any gain will be treated as capital
gain and will be treated as long-term capital gain if the shares have been held
more than one year. Even if the amount realized upon disposition of the shares
is less than their fair market value on the purchase date, the same amount of
ordinary income is attributed to a participant and a capital loss is recognized
equal to the difference between the sales price and the value of the shares on
such purchase date.
The ordinary income reported under the rules described above, added to the
actual purchase price of the shares, determines the tax basis of the shares for
the purpose of determining capital gain or loss on a sale or exchange of the
shares.
Tax Treatment of Brio
Brio will be entitled to a deduction for federal income tax purposes to the
extent that a participant recognizes ordinary income on a disqualifying
disposition of the shares, but not if a participant meets the holding period
requirements.
Recommendation of the Brio Board of Directors:
The Brio board of directors unanimously recommends a vote for the approval of
the amendment to the plan.
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PROPOSAL NO. 4
APPROVAL OF AMENDMENT TO BRIO'S 1998 STOCK OPTION PLAN
At the annual meeting, you are being asked to approve an amendment to the
Brio 1998 stock plan to increase the number of shares of common stock reserved
for issuance under the plan by 2,250,000 shares to a total of 4,500,000, plus a
previously approved automatic annual increase on the first day of each of
Brio's fiscal years in 1999, 2000 and 2001 equal to the lesser of 600,000
shares or 3% of the shares outstanding on the last day of the immediately
preceding fiscal year. The board of directors adopted the amendment in March
1999, subject to stockholder approval at the annual meeting.
Brio believes that long-term equity compensation in the form of stock options
is critical in order to attract qualified employees to Brio and to retain and
provide incentives to current employees, particularly in light of the
increasingly competitive environment for talented personnel. As of March 31,
1999, options to purchase 1,253,112 shares were outstanding under the plan,
12,525 shares had been issued pursuant to the exercise of options granted under
the plan and 984,363 shares remained available for future grants. The board
believes that the number of shares currently available under the plan is likely
to be insufficient in light of potential continued growth in Brio's operations,
including potential increases in the number of employees if and to the extent
Brio completes acquisitions of other companies or businesses. For this reason,
the board of directors has determined that it is in the best interests of Brio
to increase the number of shares available for issuance under the stock plan by
2,250,000 shares.
The following is a summary of the principal features of the plan, but it is
not intended to be a detailed description of all of the terms and provisions of
the plan. A copy of the plan will be furnished to any shareholder upon written
request to Brio's Chief Financial Officer at Brio's principal executive offices
in Palo Alto, California.
Description of the 1998 Stock Option Plan
The 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
was initially reserved for issuance under the plan, plus an automatic annual
increase on the first day of each of Brio's fiscal years in 1999, 2000 and 2001
equal to the lesser of 600,000 shares or 3% of the shares outstanding on the
last day of the immediately preceding fiscal year.
The plan is not a tax-qualified deferred compensation plan under Section
401(a) of the Code, and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
During the year ended March 31, 1999, 2 of Brio's current executive officers
received grants under the plan of options to purchase 120,000 shares of common
stock of Brio; no option grants were made to Brio's 4 current directors who are
not executive officers; and all other 227 Brio employees, including current
officers who are not executive officers, received grants of options to purchase
1,222,571 shares of common stock.
The plan is administered by the board of directors or by a committee of the
board of directors. The compensation committee has the exclusive authority to
grant stock options and otherwise administer the plan with respect to the
officers and directors.
The plan provides that either incentive stock options or nonstatutory stock
options may be granted to employees, including officers and directors, of Brio
or any of its subsidiaries or affiliates, including an entity in which Brio
owns any equity interest, provided, however, that employees of an affiliate are
not eligible to receive incentive stock options. In addition, the plan provides
that nonstatutory stock options may be
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granted to consultants, including directors who are not employees of Brio, or
any of its subsidiaries or affiliates. The board of directors or the
compensation committee selects the optionees and determines the number of
shares to be subject to each option. In making such determination, a number of
factors are taken into account, including the duties and responsibilities of
the optionee, the value of the optionee's services to Brio, the optionee's
present and potential contribution to the success of Brio, and other relevant
factors. As of March 31, 1999, there were approximately 260 employees,
officers, consultants and directors eligible to receive grants under the plan.
The plan provides that the maximum number of shares of common stock which may
be granted under options to any one employee during any fiscal year is
1,000,000, subject to adjustment as provided in the plan. There is also a limit
on the overall market value of shares subject to all incentive stock options
that may be granted to an optionee during any calendar year.
Each option is evidenced by a stock option agreement between Brio and the
optionee which contains terms and conditions not inconsistent with the plan as
determined by the board of directors or its committee.
In the event any change, such as a stock split or dividend, is made in Brio's
capitalization that results in an increase or decrease in the number of
outstanding shares of common stock without receipt of consideration by Brio,
appropriate adjustment shall be made in the exercise price of each outstanding
option, the number of shares subject to each option, the annual limitation on
grants to employees, as well as the number of shares available for issuance
under the plan. In the event of the proposed dissolution or liquidation of
Brio, each option will terminate unless otherwise provided by the board of
directors or its committee. In the event of a merger of Brio with or into
another corporation or a sale of all or substantially all of Brio's assets,
each option will be assumed or an equivalent right substituted by the successor
corporation unless the board of directors or its committee determines that the
option shall be fully exercisable prior to the date of the transaction. The
board of directors has the power to amend or terminate the plan as long as such
action does not adversely affect any outstanding options. Stockholder approval
of plan amendments will be obtained as required by applicable law.
United States Federal Income Tax Information
Options granted under the plan may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code, or nonstatutory stock
options.
The recipient of an incentive stock option does not incur ordinary taxable
income at the time of grant or exercise of the option. However, the optionee
may incur alternative minimum tax upon exercise of the option. Brio is not
entitled to a tax deduction at the time of exercise of an incentive stock
option regardless of the applicability of the alternative minimum tax. Upon the
sale or exchange of the shares at least one year after exercise of the option
by the optionee and two years after grant of the incentive stock option, any
gain is treated as long-term capital gain. If these holding periods are not
satisfied, the optionee recognizes ordinary taxable income equal to the
difference between the exercise price, and the lower of the fair market value
of the stock at the date of the option exercise or the sale price of the stock.
In turn, any gain to the optionee in excess of the ordinary income from a
disposition which does not meet the statutory holding period requirements, is
long-term capital gain if the sale occurs more than one year after exercise or
short-term capital gain if the sale occurs less than one year after the
exercise. The current federal tax rate on long-term capital gain is capped at
20%.
Options which do not qualify as incentive stock options are nonstatutory
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stock options. An optionee does not recognize taxable income at the time of
grant of a nonstatutory stock option. However, upon exercise, the optionee does
recognize ordinary taxable income equal to the excess of the fair market value
of the shares at time of exercise over the exercise price. The income
recognized by an optionee who is also an employee of Brio is subject to income
tax withholding. Brio is entitled to a tax deduction for the amount of the
ordinary income recognized by the optionee. Upon resale of such shares by the
optionee, any difference between the sale price and the optionee's tax basis--
exercise price plus the income recognized upon exercise--is treated as capital
gain or loss.
Recommendation of the Brio Board of Directors:
The Brio board of directors unanimously recommends a vote for the approval of
the amendment to the 1998 stock option plan as described above.
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PROPOSAL NO. 5
AMENDMENT OF BRIO'S CERTIFICATE OF INCORPORATION
At the annual meeting, you are being asked to approve an amendment to Brio's
certificate of incorporation that will conform the certificate of incorporation
to the recently modified provisions of California law with respect to the
classification of the board of directors and the election of directors.
Even though Brio is a Delaware corporation, certain provisions of California
law may from time to time apply to Brio because of its substantial presence in
California, including certain laws regarding the classification of the board of
directors and the election of directors.
Under California law, a company may divide its board of directors into
classes with staggered terms when the company becomes a "listed company" as
defined under applicable provisions of the California Corporations Code.
Previously, California law defined a "listed company" as one that, among other
things, has at least 800 holders of its equity securities. Article V(A) of
Brio's certificate of incorporation includes this requirement. Brio's board of
directors is currently classified, because Brio's stock is listed on the Nasdaq
National Market and Brio has more than 800 holders of its equity securities.
California law has been changed recently and a "listed company" no longer
needs to have at least 800 holders of its equity securities. Accordingly,
Brio's management recommends amending article V(A) of Brio's certificate of
incorporation to remove requirements that Brio have 800 holders of equity
securities in order to have a classified board. This amendment will enable Brio
to maintain a classified board of directors with classes of directors holding
staggered terms regardless of the number of stockholders Brio has and even if
the number of holders of every security of Brio falls below 800. The Brio board
of directors approved this amendment in March 1999.
A classified board of directors may have the effect of delaying or deterring
a change of control by Brio because the Brio directors' staggered term of
offices may make it more difficult to take control of Brio's board in a short
period of time.
Recommendation of the Brio Board of Directors:
The Brio board of directors unanimously recommends a vote for approval of the
amendment to Brio's certificate of incorporation.
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PROPOSAL NO. 6
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has served as Brio's independent public accountants
since 1993 and has been appointed by the board to continue as Brio's
independent public accountants for the fiscal year ending March 31, 2000. In
the event that ratification of this selection of independent public
accountants is not approved by a majority of the shares of common stock voting
at the annual meeting in person or by proxy, the board will reconsider its
selection of independent public accountants.
A representative of Arthur Andersen LLP is expected to be present at the
annual meeting. This representative will have an opportunity to make a
statement and will be available to respond to appropriate questions.
Recommendation of the Brio Board of Directors:
The Brio board of directors unanimously recommends a vote for ratification
of the appointment of Arthur Andersen LLP as our independent public
accountants for the fiscal year ending March 31, 2000.
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INFORMATION REGARDING BRIO
BUSINESS OF BRIO
Overview
Brio Technology is a leader in developing, marketing and supporting
enterprise business intelligence software. Enterprise business intelligence
software is software that enables organizations to maximize the value of their
corporate information through intuitive, interactive data access and analysis,
resulting in more informed business decisions. Brio's product suite offers a
comprehensive platform for rapidly implementing and deploying business
intelligence solutions that meet the needs of both information technology-savvy
"information producers" and non-technical "information consumers" throughout an
organization. Brio's products are flexible enough to accomodate the growth of
Brio's customers and to effectively incorporate a wide range of available
corporate data sources, including data marts, data warehouses, operational data
stores, and other computer software applications.
Brio sells and markets its software and services through a direct sales and
services organization located in North America, the United Kingdom, France and
Australia as well as worldwide through its indirect channel of value-added
resellers and distributors. See Note 4 of Notes to Consolidated Financial
Statements for additional information about geographic revenue.
Brio currently serves thousands of organizations worldwide with over 4,000
sites and features over one third of the Fortune 500 as customers. Brio
customers include ARCO, Avis Rent a Car Systems, California State University
System, Carrefour, Comcast Cable Communications, Hewlett-Packard, Hoffman
LaRoche, IBM, Motorola, Sun Microsystems, the U.S. Army and Worldcom Network
Services.
Industry Background. In today's increasingly competitive markets, organizations
in virtually every industry are seeking to improve the ability of business
professionals to make more timely, fact-based business decisions. To accomplish
this objective, organizations must establish and maintain a computer software
infrastructure that empowers business professionals with the analytical tools
and information to improve their decision making. Brio refers to this software
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.
At the same time, the Web has transformed the production and distribution of
information throughout business organizations. The Web has created the
opportunity for new populations of business professionals throughout the
enterprise to have access to published business information. To fully
capitalize on this opportunity, however, organizations require that:
. their business intelligence software products take full advantage of the
distribution and delivery benefits offered by the Web;
. their software integrate with the organization's existing systems; and
. their software provides a comprehensive solution to the organization's
information needs.
In the absence of a comprehensive platform, organizations have deployed
partial solutions for their reporting and analysis needs. However, many
organizations are realizing that incompatible, and disparate reporting and
anlaysis tools have inhibited the production and distribution of information.
As a result, Brio's believes that organizations need an
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integrated, end-to-end business intelligence product suite that unifies access
to all business information, meets the needs of all users throughout the
enterprise and is effective in traditional network as well as email and Web
environments.
Brio believes that the proposed merger will create a combined company that
addresses these needs with the most comprehensive product suite in the business
intelligence market.
Brio Solution. Brio's Enterprise product suite and related services enable
organizations to develop and deploy effective business intelligence solutions
across an entire organization. Brio believes that its solution provides the
following benefits for the enterprise and its information consumers and
producers.
Architected for the Enterprise
Integrated, Comprehensive Product Suite. Brio provides a product suite that can
be used either separately or together in a combined distributed client-server
and/or Web-based implementation. By incorporating the same easy-to-use
interface across all supported platforms and the same underlying core
technologies, Brio products provide simple viewing capabilities, robust
analysis and reporting features and powerful administrative functions for
information producers and consumers.
Scalable for Enterprise Deployment. Brio's multi-tier architecture utilizes the
computing power of the server and the local computing power of the client,
allowing Brio's solution to accommodate increases in the numbers and location
of users, and in the quantity and types of source data accessed by users.
Leverages Email and the Web. Brio's product suite economically enables
information producers to broadcast data and reports to information consumers
via email, printers and the Internet.
Adaptive Reporting. Brio adaptive reporting feature permits information
producers to control, on a report-by-report basis, the functionality available
to 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. Brio'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. Brio'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. Brio designs its product suite to be quickly and
easily installed. Brio's technology centralizes and automates the installation
and upgrade of Brio's Web-based client software. Brio's server products enable
information technology departments to control user access and security
privileges and to audit and manage user activity.
Leverages Existing Customer Investments in Technology. Brio's products are
designed to be compatible 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
Brio's strategy is to be a leading provider of enterprise business
intelligence
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software solutions. The following are key elements of Brio's strategy:
Extend Technology Leadership. Brio has designed its products to satisfy
customers' desire for rapid implementation, intuitive user interfaces, easy
integration with existing database and other system software, high
performance and limited information technology staff support. Brio'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, Brio shipped its Web-based
analysis extension to its product suite (Brio.Insight) in November 1996. In
November 1997, Brio shipped its Java-based server extension to its product
suite (on Demand Server). Brio intends to devote significant resources to
research and development efforts and to form strategic relationships that
will enable Brio to further enhance its products' functionality and ease of
use.
Broaden Distribution Channels. To date, Brio 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, resellers
and distributors. Brio 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, Brio 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. Brio's products and
related services are designed to enable its customers to deploy business
intelligence throughout their organization. Although most organizations
initially deploy Brio's products on a departmental or pilot basis, Brio
believes that initial customer success with this deployment can lead to
significant opportunities for larger scale adoption of Brio's products
within the organization. Brio intends to focus its sales and services
efforts on large organizations seeking large-scale business intelligence
deployments and on making initial customer pilots or deployments
successful.
Leverage Industry Relationships. To accelerate the adoption of Brio's
products as a standard platform for business intelligence, Brio has formed
strategic relationships that provide for enhanced compatibility with
partner technology as well as increased market exposure and sales
opportunities for Brio's products and services. Brio's partners include
industry-leading providers of software and hardware, such as Microsoft,
Oracle and IBM, that complement Brio's product and service offerings, and
providers of a wide range of training, implementation and application
development services related to Brio's products. Brio's strategic
relationships with Microsoft, Oracle and IBM have to date consisted of:
. Brio's participation in various sales and marketing initiatives
sponsored by these companies, including joint presentations at industry
trade shows and conferences, and
. agreements by Brio to support certain technology standards promoted by
these companies.
Increase International Presence. Outside of the United States, Brio
. 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
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. has localized products in Chinese, French, Italian and Japanese.
Brio 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. Brio believes that offering
quality service and support is important to customer satisfaction and
provides a significant opportunity to build customer loyalty and to
differentiate itself from its competition. Brio 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, Brio 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 business intelligence software product suite providing
powerful query, analysis and reporting functionality across both client-server
and Web-based computing environments. Designed to meet the needs of users
throughout an organization, Brio's products combine powerful functionality with
intuitive, easy-to-use interfaces. Brio's products are designed to enable an
information technology department to maintain centralized control with
auditing, security and simplified deployment while incorporating a system
design that accommodates the needs of growing and diverse user populations and
increasing amounts of data.
Brio's products use advanced server technology to optimize use of computer
network resources. Brio's system design, built on Brio's proprietary analytical
processing technology, enables analytical processing to take place on the
server or on the client computer. This design enhances the flexibility of the
solution without losing analytical capabilities required for individuals to
answer complex data-related business questions. Brio's "adaptive reporting"
capability further enhances this flexibility by giving information technology
departments the ability to control the analytical functionality available to an
information consumer on a report-by-report basis.
Brio Enterprise Client Products
Brio's client products, whether Web-based or client-server based, share the
same user-centric design, functionality and intuitive interface. Brio believes
that the result is an easy-to-navigate suite of products that consistently
guide the user from query and analysis through reporting and charting. Brio'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 information technology 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 setup features to
enable information technology 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
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 pre-
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defined data and reports that they can use as a basis for independent
analyses.
Web-based Products. Brio's Web-based client products provide users with a
wide range of report, query and analytical capabilities within standard Web
browsers. Together with Brio's server-based products, they enable organizations
to deploy software that facilitates simplified administration and maintenance.
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 information technology departments with centralized control,
administration and security management functionality.
Broadcast Server. The Broadcast Server enables information technology
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
and documents in a highly compressed format out to Web, client-server and
mobile users via file transfer protocol, email, Web servers, and network file
servers and printers.
OnDemand Server. The OnDemand Server offers both mobile and desktop users
easy and secure access to a variety of data sources. Users can make queries
over the Web or on the server; the server can then pre-build reports and
transmit them to Brio's Web client products, Brio.Insight and Brio.Quickview.
With the OnDemand Server and Brio's adaptive reporting feature, information
technology 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 Brio's Web client software.
Platforms and Pricing
Brio'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). Brio'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
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$50 for Brio.Quickview to $4,000 for BrioQuery Designer.
Brio's success in the future will depend upon its ability to develop new
products and its ability to sell larger, organization-wide sales of its
products.
Sales and Marketing
Sales. To date, Brio 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, or "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. Brio's field sales
force conducts multiple presentations and demonstrations of Brio's products to
management and users at customer sites as part of the direct sales effort.
Sales cycles typically range 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 Brio's VARs, resellers and distributors.
To date, Brio 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.
Brio generally offers such parties discounts on products and training, a
cooperative marketing program and field level assistance from Brio's direct
sales force. Brio intends to leverage sales and marketing through indirect
channel partners that will distribute or resell Brio's products in their
respective markets. Indirect channel partners accounted for approximately 9% of
total revenues for fiscal 1996, 7% of total revenues for fiscal 1997 and 15% of
Brio's total revenues in fiscal 1998. respectively.
Brio intends to grow its direct sales organization and its telesales
operation to cover smaller organizations. In addition, Brio will continue to
leverage and grow its existing network of VARs, resellers and distributors to
expand its indirect distribution channel worldwide. Brio currently expects that
it will fund such expansion out of its working capital. Brio's agreements with
its VARs generally provide VARs with a right to resell a customized version of
Brio's products in conjunction with sales of the VAR's products or services.
Brio typically offers its VARs a purchase discount to incent the VAR to sell
Brio's products. Brio's agreements with its distributors generally require that
such distributors make certain minimum purchases of Brio's products, none of
which minimum purchases are material in amount either individually or in the
aggregate. Brio recognizes revenue from such minimum purchases as the
distributors sell Brio's products through to end customers. Brio does not
typically grant exclusive sales territories to its distributors.
Marketing. Brio is focused on building market awareness and acceptance of
Brio and its products as well as on developing strategic partnerships. Brio 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. Brio'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. Brio's direct marketing activities include
participation in selected trade shows and conferences, targeted advertising, as
well as ongoing
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direct mail efforts to existing and prospective customers. Brio has effectively
used local, regional and Web-based seminars to assist prospects in selecting
enterprise business intelligence solutions. Brio 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. Brio's Web site has become an
effective lead generation program. Brio 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 Brio 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.
Brio's sales and marketing organization consisted of 139 full-time employees
as of March 31, 1999. The sales and marketing staff is based at Brio's
corporate headquarters in Palo Alto, California. Brio 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
Brio's success, and Brio intends to make substantial investments in research
and development and related activities to maintain and enhance its product
lines. Brio believes that its future success will, in large part, depend on its
ability to maintain and improve current products, and to develop new products
that meet enterprise business intelligence needs. Brio's research and
development organization is divided into teams consisting of development
engineers, product managers, quality assurance engineers and technical writers.
As of March 31, 1999, Brio's research and development organization consisted of
52 full-time employees. Brio has expended $2.4 million in fiscal 1997, $5.2
million in fiscal 1998 and $7.2 million in fiscal 1999, on research and
development. 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 Brio's products.
Customer and Technical Support
Brio 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 Brio'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, Brio offers classes and training programs at
Brio'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. Brio supplements its standard
telephone hotline support with a number of Web-based support services,
including access to frequently asked questions, a patch download area, and an
interface to Brio'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 Brio's products can attend regional user group
conferences throughout the year. To improve user access to explanatory
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materials, Brio 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 Brio operates is still developing, and is intensely
competitive, highly fragmented and characterized by rapidly changing technology
and evolving standards. Brio's current and potential competitors offer a
variety of software solutions and generally fall within four categories:
. vendors of business intelligence software such as Cognos, Business
Objects, Seagate and Hummingbird;
. vendors offering alternative approaches to delivering analysis
capabilities to users, such as MicroStrategy, Information Advantage and
Actuate;
. database vendors that offer products which operate specifically with
their proprietary database, such as Microsoft, IBM, Oracle and Arbor;
and
. other companies that may in the future announce offerings of an
enterprise business intelligence solution.
Brio'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. Brio 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
Brio. 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 Brio. Brio
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
Brio'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 Brio's
prospective customers. Brio's current or future indirect channel partners may
establish cooperative relationships with current or potential competitors of
Brio, thereby limiting Brio'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
Brio's ability to obtain new licenses, and maintenance and support renewals for
existing licenses, on terms favorable to Brio. Further, competitive pressures
may require Brio to reduce the price of its products, which could have a
material adverse effect on Brio's business, operating results and financial
condition. There can be no assurance that Brio will be able to compete
successfully against current and future competitors, and the failure to do so
could have a material adverse effect upon Brio's business, operating results
and financial condition.
Brio competes on the basis of the following factors:
. product features;
. time to market;
. ease of use;
. product performance;
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. product quality;
. analytical capabilities;
. user scalability;
. open architecure;
. customer support; and
. price.
Brio believes it presently competes favorably with respect to each of these
factors. However, Brio's market is still evolving and there can be no assurance
that Brio 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 Brio's business, operating results and financial condition.
Proprietary Rights
Brio currently relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. Brio 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.
Brio seeks to protect its software, documentation and other written materials
under trade secret and copyright laws, which afford only limited protection.
Brio currently has one United States patent application. There can be no
assurance that Brio'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 Brio or that any of Brio's future patent applications, if any, will be
issued with the scope of the claims sought by Brio, if at all.
Furthermore, there can be no assurance that others will not develop
technologies that are similar or superior to Brio's technology or design around
any patent that may come to be owned by Brio. Despite Brio's efforts to protect
its proprietary rights, unauthorized parties may attempt to copy aspects of
Brio's products or to obtain and use information that Brio regards as
proprietary. Policing unauthorized use of Brio's products is difficult, and
while Brio 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 Brio's proprietary
rights as fully as do the laws of the United States. There can be no assurance
that Brio'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.
Brio has entered into source code escrow agreements with a number of
customers and indirect channel partners requiring release of source code. Such
agreements provide that the contracting party will have a limited, non-
exclusive right to use the code subject to the agreement in the event that:
. there is a bankruptcy proceeding by or against Brio;
. if Brio ceases to do business; or
. in some cases, if Brio fails to meet its contractual obligations.
The provision of source code escrows may increase the likelihood of
misappropriation by third parties.
Brio expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in Brio's
industry segment grows and the functionality of products in different industry
segments overlaps. Any claims, with or without merit, could:
. be time consuming to defend;
. result in costly litigation;
. divert management's attention and resources;
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. cause product shipment delays; or
. require Brio to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. In the event of a successful claim of product
infringement against Brio and its failure or inability to license the infringed
or similar technology, Brio's business, operating results and financial
condition could be materially adversely affected.
Finally, in the future Brio may rely upon software that it may license from
third parties, including software that may be integrated with Brio's internally
developed software and used in Brio's products to perform key functions. There
can be no assurance that these third-party software licenses will be available
on commercially reasonable terms. Brio's inability to obtain or maintain any
third party 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 Brio's business,
operating results and financial condition.
Employees
As of March 31, 1999, Brio had 257 employees, including 139 in sales and
marketing, 30 in services and support, 52 in research and development and 36 in
general and administrative functions. Brio believes its employee relations are
good. Brio'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. Brio has employment
contracts with only three members of its executive management personnel, and
currently maintains "key person" life insurance only on Yorgen Edholm, Brio's
President and Chief Executive Officer, and Katherine Glassey, Brio's Executive
Vice President, Products and Services and Chief Technology Officer. Brio does
not believe such insurance would adequately compensate it for the loss of
either Mr. Edholm or Ms. Glassey.
Brio 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 Brio 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 Brio's business, operating results and financial condition.
In particular, Brio has from time to time experienced and may continue to
experience 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 Brio's sales force.
Properties
Brio's principal executive offices are located in Palo Alto, California where
Brio leases approximately 12,145 square feet under a lease that expires in
October 2003 and approximately 30,000 square feet under a lease that expires in
March 2000. Brio also leases space (typically less than 4,000 square feet) in
various geographic locations primarily for sales and support personnel. Brio
believes that its current facilities are adequate to meet its needs through the
end of 1999, at which time Brio may need to lease additional space.
Brio was incorporated in California in February 1989 and was reincorporated
in Delaware in April 1998. Its principal executive offices are located at 3460
West Bayshore Road, Palo Alto CA 94303. Its telephone number at that location
is (650) 856-8000.
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Legal Proceedings
On January 20, 1997, Business Objects, S.A. filed a complaint against Brio in
the U.S. District Court for the Northern District of California in San Jose,
California alleging that certain of Brio'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, Brio 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 Brio 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. Based upon the advice of Brio's patent counsel, Blakely, Sokoloff,
Taylor & Zafman, LLP, Brio believes that it has meritorious defenses to the
claims made in the complaint and intends to defend the suit vigorously. A
claims construction hearing was held on April 5, 1999. At the hearing, the
court set the trial date for September 13, 1999. The court also issued its
claims construction ruling on April 6, 1999. Brio and Business Objects, S.A.
are currently conducting discovery.
The pending litigation could result in substantial expense to Brio and
significant diversion of effort by Brio'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. Brio'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 Brio's business, operating results and financial condition.
There can be no assurance that Brio 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
Brio is unsuccessful in the litigation, Brio may be required to pay damages to
Business Objects, S.A. and could be prohibited from marketing its BrioQuery
Navigator, BrioQuery Explorer and BrioQuery Designer products without a
license, which license may not be available on acceptable terms. If Brio is
unable to obtain such a license, Brio may be required to license a substitute
technology or redesign to avoid infringement, in which case Brio'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 Brio's revenues in fiscal
1996 and represented a majority of Brio's revenues in fiscal 1997 and fiscal
1998 and a significant portion of Brio's revenues in fiscal 1999.
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BRIO 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 Report.
Overview
Brio designs, develops, markets and supports enterprise business intelligence
software, which is software that enables organizations to maximize the value of
their corporate information through intuitive, interactive data access and
analysis. Brio had net losses of $6.0 million in fiscal 1997, $8.1 million in
fiscal 1998 and $887,000 in fiscal 1999. Brio had an accumulated deficit of
approximately $18.8 million as of March 31, 1999. See "Risk Factors--The
combined company anticipates increased operating expenses and may experience
losses" for a description of the risks related to Brio and SQRIBE's operating
results fluctuating in future periods.
Brio's revenues consist of license fees for software products and fees for
services, 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 Brio's products. Brio
generally discontinues marketing older product versions when a new product
version is introduced. The products are typically licensed on a per user basis
with the price per user varying based on the selection of products licensed.
Additionally, Brio also sells larger enterprise-wide implementations of their
products through site licenses 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 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. If vendor-
specific objective evidence does not exist to allocate the total fee to
all delivered and undelivered elements of the arrangement, revenue is
deferred until such evidence does exist, or until all elements are
delivered, whichever is earlier.
If payments are subject to extended payment terms and are not deemed fixed or
determinable, Brio defers revenue until payments become due. If an acceptance
period is required, Brio recognizes revenue upon the earlier of customer
acceptance or the expiration of the acceptance period. Brio establishes
allowances for potential product returns and credit losses, which have been
insignificant to date. Brio charges fees for services separately from license
fees. Brio recognizes revenues from maintenance and support services, including
ongoing product support and periodic product updates, 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. Brio
recognizes revenues from training and consulting services when the services are
performed.
To date, Brio has derived revenues from license fees principally from direct
sales of software products to end users through Brio's direct sales force.
Although Brio believes that such direct sales will continue to account for a
significant portion of revenues from license fees in the foreseeable future,
Brio has recently developed and intends to continue to develop reselling
relationships with value added resellers, resellers and distributors. Brio
expects that
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revenues from sales through value added resellers, resellers and distributors
will increase in the future as a percentage of revenues from license fees.
Revenues from value added resellers, resellers and distributors were 7% of
total revenues for fiscal 1997 and 15% of total revenues for fiscal 1998 and
1999. Brio'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 relationships with value added
resellers, resellers and distributors. See "Risk Factors--Brio's dependence on
its direct sales force exposes it to potentially significant financial and
operational risks" and "--Brio's failure to develop and manage indirect sales
channels would limit its sales growth and financial performance" for a
description of the risks related to Brio's sales strategy.
Brio is also increasing its efforts to sell customers licenses to larger,
enterprise-wide implementations of Brio's products, rather than departmental or
local network sales, which may increase the complexity and length of the sales
cycle. Brio has in the past and may in the future choose to grant greater
pricing and other concessions, such as discounted training and consulting, for
sales of site licenses. See "Risk Factors-- Because the sales cycle for Brio's
and SQRIBE's products is long, the timing of sales is difficult to predict" for
a description of the risks related to the sales cycle of Brio's products.
Brio 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. Brio's direct sales
offices in the United Kingdom and Australia were formed through the acquisition
of distributors in those countries. Sales to customers outside of the United
States and Canada, including sales generated by Brio's foreign subsidiaries,
represented 14% of total revenues for fiscal 1997, 19% of total revenues for
fiscal 1998, and 17% of total revenues for fiscal 1999. A substantial portion
of Brio's international sales in the past have been denominated and collected
in foreign currencies and Brio believes that a portion of Brio's cost of
revenues and operating expenses will continue to be incurred in foreign
currencies. To date, there have been no material effects of changes in foreign
currency exchange rates on revenues or operating expenses. During fiscal 1999,
Brio incurred foreign currency transaction losses of $127,000 resulting from
intercompany receivables from its foreign subsidiaries. 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 Brio'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 Brio
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--Brio's plans to expand internationally expose the combined company to
financial and operational risks" for a description of the risks related to
Brio's international sales strategy.
Although Brio has experienced significant quarter-to-quarter revenue growth
in fiscal 1997, 1998 and 1999, the same rate of sequential quarterly revenue
growth may not be sustainable and profitability may not be attained in the
future. Brio currently intends to commit substantial financial resources to
. research and development,
. customer support,
. sales and marketing, including the expansion of its direct sales force,
third-party partnering relationships and its indirect channel sales
organization, and
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. increased staffing and systems infrastructure to support Brio's
expanding operations
Brio also expects that expenses relating to its litigation with Business
Objects, S.A. will increase in future periods. As a result, Brio expects that
its operating expenses will increase significantly in fiscal 2000. See "Risk
Factors--The combined company's quarterly operating results will likely
fluctuate" and "--The outcome of Brio's litigation with Business Objects, S.A.
may be unfavorable" for a description of Brio's litigation and its impact on
Brio's financials.
Results of Operations
The following table includes consolidated statements of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues:
License fees.................................... 77% 74% 74%
Services........................................ 23 26 26
------ ------ ------
Total revenues................................ 100 100 100
------ ------ ------
Cost of revenues:
License fees.................................... 6 4 3
Services........................................ 6 10 12
------ ------ ------
Total cost of revenues........................ 12 14 15
------ ------ ------
Gross profit...................................... 88 86 85
------ ------ ------
Operating expenses:
Research and development........................ 18 19 15
Sales and marketing............................. 102 85 59
General and administrative...................... 13 11 10
In-process research and development............. -- -- 4
------ ------ ------
Total operating expenses...................... 133 115 88
------ ------ ------
Loss from operations.............................. (45) (29) (3)
Interest and other income (expense), net.......... -- (1) 2
------ ------ ------
Net loss before income taxes...................... (45) (30) (1)
Income taxes...................................... -- -- (1)
------ ------ ------
Net loss.......................................... (45)% (30)% (2)%
====== ====== ======
</TABLE>
Fiscal Years Ended March 31, 1997, 1998 and 1999
Revenues
Brio derives revenues from license fees and services, which include software
maintenance and support, training and system implementation consulting. Total
revenues increased by 100% from $13.4 million in fiscal 1997 to $26.8 million
in fiscal 1998 and by 74% to $46.5 million in fiscal 1999.
Revenues by geographic location were as follows for fiscal 1997, 1998 and
1999:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenues by Geography:
Domestic................................................ $11,454 $21,593 $38,426
International........................................... 1,932 5,179 8,098
------- ------- -------
Total revenues......................................... $13,386 $26,772 $46,524
======= ======= =======
</TABLE>
Revenue from international sources increased by 168% from $1.9 million in
fiscal 1997 to $5.2 million in fiscal 1998 and by 56% to $8.1 million in fiscal
1999. The
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increase in fiscal 1998 was due to Brio establishing direct sales offices in
Australia, the United Kingdom and France, which resulted in increases in both
license fees and services revenue in Europe and Asia. The increase in fiscal
1999 was due to increased demand for Brio products in Europe and Asia as Brio
continued to expand direct and indirect sales efforts in these areas. See Note
4 of Notes to Consolidated Financial Statements for additional information
about revenues in geographic areas.
License Fees. Revenues from license fees increased by 92% from $10.3 million
in fiscal 1997 to $19.8 million in fiscal 1998 and by 73% to $34.2 million in
fiscal 1999. The increases in fiscal 1998 and 1999 were due to growing sales to
new customers--approximately $4.8 million of the increase in fiscal 1998 and
approximately $9.2 million of the increase in fiscal 1999--and increased
follow-on sales to existing customers--approximately $4.7 million of the
increase in fiscal 1998 and approximately $5.2 million of the increase in
fiscal 1999.
Services. Service revenues increased by 128% from $3.1 million in fiscal 1997
to $7.0 million in fiscal 1998 and by 76% to $12.3 million in fiscal 1999. The
increases in fiscal 1998 and 1999 were due to an increase in maintenance and
support revenues--approximately $2.2 million of the increase in fiscal 1998 and
approximately $4.7 million of the increase in fiscal 1999--and an increase in
training and consulting revenues--approximately $1.7 million of the increase in
fiscal 1998 and approximately $600,000 of the increase in fiscal 1999--related
to increases in Brio's installed customer base.
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 by 20% from
$839,000 in fiscal 1997 to $1.0 million in fiscal 1998 and by 50% to $1.5
million in fiscal 1999. The increase in absolute dollars was due to the
increase in the number of licenses sold. The decrease as a percentage of total
revenues 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, and economies of scale associated with absorbing fixed
costs over a larger revenue base. Cost of revenues from license fees may vary
between periods due to the mix of customers purchasing master disks relative to
customers purchasing "shrinkwrapped" product.
Services. Cost of revenues from services consists primarily of personnel
costs and third-party consulting fees associated with providing software
maintenance and support, training and consulting services. Cost of revenues
from services increased by 218% from $817,000 in fiscal 1997 to $2.6 million in
fiscal 1998 and by 109% to $5.4 million in fiscal 1999. The increases in fiscal
1998 and 1999 were due principally to increases in personnel and related costs
resulting from Brio's expansion of its support services in response to
increased demand for maintenance and support, training and consulting
services--approximately $1.7 million of the increase in fiscal 1998 and
approximately $2.3 million of the increase in fiscal 1999--and increases in the
use of outside consultants for training and consulting services--approximately
$900,000 of the increase in fiscal 1998 and approximately $500,000 of the
increase in fiscal 1999. Cost of revenues from services may vary between
periods due to the mix of services provided by Brio'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 by 113% from $2.4 million
in fiscal
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1997 to $5.2 million in fiscal 1998 and by 38% to $7.2 million in fiscal 1999.
The increases from year to year were primarily due to increased personnel and
related costs required to continue to develop new products and enhance existing
products. Brio believes that significant investment for 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. Brio 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 by 67% from $13.6
million in fiscal 1997 to $22.7 million in fiscal 1998 and by 21% to $27.6
million in fiscal 1999. The increases were attributable to the costs associated
with the expansion of Brio's sales and marketing organization, including
domestically through the growth of the telesales organization, internationally
through the establishment of subsidiary offices in the United Kingdom,
Australia, and France and through the expansion of the worldwide field sales
organization--approximately $5.7 million of the increase in fiscal 1998 and
approximately $1.5 million of the increase in fiscal 1999--higher sales
commissions, bonuses and sales incentives associated with increased revenues--
approximately $1.9 million of the increase in fiscal 1998 and approximately
$2.1 million of the increase in fiscal 1999--and increased domestic and
international marketing expenses, including marketing activities, personnel and
related costs--approximately $1.5 million of the increase in fiscal 1998 and
approximately $1.3 million of the increase in fiscal 1999. The decrease as a
percentage of total revenues was generally attributable to increases in
revenues for the periods. Brio 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.
These expenses are currently intended to be funded by Brio's working capital.
In particular, Brio expects that sales compensation, travel and related
expenses will increase significantly as Brio continues to increase the number
of its direct sales personnel and its emphasis on direct field sales efforts.
Nonetheless, Brio 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 by 75% from $1.7
million in fiscal 1997 to $3.0 million in fiscal 1998 and by 63% to $4.8
million in fiscal 1999. Substantially all of the increases were due to
increased personnel and related costs--approximately $1.1 million of the
increase in fiscal 1998 and 1999--and professional fees--approximately $200,000
of the increase in fiscal 1998 and approximately $700,000 of the increase in
fiscal 1999--necessary to manage and support Brio'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 Brio's
administrative operations and increased revenues. Brio expects that its general
and administrative expenses will increase in absolute dollars as Brio expands
its staffing to support expanded operations, incurs expenses in its litigation
with Business Objects, S.A., and continues its responsibilities as a public
company. Brio expects that such expenses will continue to vary as a percentage
of total revenues.
Deferred Compensation. In connection with the granting of 1,369,368 stock
options
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to employees during fiscal 1998, with a weighted average exercise price of
$1.49 per share and a weighted average deemed fair market value of $1.91 per
share, Brio 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 stockholders' equity and amortized ratably over
the vesting period of the applicable options. Approximately $105,000 was
expensed during fiscal 1998 and approximately $129,000 was expensed during
fiscal 1999, and the balance will be expensed ratably over the next three years
as the options vest. See Note 7 of Notes to Consolidated Financial Statements
for additional information regarding deferred compensation.
Purchased In-Process Research and Development
In connection with the acquisition of MerlinSoft, Inc. (MerlinSoft), Brio
allocated $1.7 million of the purchase price to in-process research and
development projects. This allocation represented the estimated fair value
based on future cash flows that have been adjusted by the projects' completion
percentage. While Brio relied upon an independent appraisal of the acquired
intangible assets, management was primarily responsible for estimating their
fair values.
At the acquisition date, the development of these projects had not yet
reached technological feasibility and the research and development in progress
had no alternative future uses. Accordingly, these costs were expensed as of
the acquisition date. The excess of the purchase price over identified
intangible assets was approximately $600,000.
Brio used a third-party appraiser to assess and value the in-process research
and development. The value assigned to this asset was determined by identifying
significant research projects for which technological feasibility had not been
established. This included the development, programming and testing activities
associated with the creation of software components which enable delivery of
analytical applications. Valuation of development efforts in the future was
excluded from the research and development appraisal.
The purchased in-process research and development consisted of two projects.
Both of these projects are aimed at the delivery of timely, in-depth,
sophisticated analytical applications. The first product will provide data
models for analysis in specific industries and functional areas, metric
libraries, a web-based client and the ability for business users to manage
application components ("Analysis Product"). The second product will include
in-depth modeling features for margin analysis and what-if scenarios to
determine the impact of various decisions and parameters ("Modeling Product").
The research and development costs incurred by MerlinSoft in the development of
the Analysis Product were approximately $4,000 in 1997 and approximately
$298,000 in 1998. The research and development costs incurred by MerlinSoft in
the development of the Modeling Product were approximately $34,000 in 1998. At
the date of acquisition, the research and development costs to complete the
Analysis Product were estimated by MerlinSoft to be approximately $855,000 in
fiscal 1999 and 2000. At the date of acquisition, the research and development
costs to complete the Modeling Product project were estimated by Merlinsoft to
be approximately $933,000 in fiscal 1999 and 2000. Management believes it is on
schedule with the Analysis and Modeling Products and expects successful
completion of the projects.
The developmental technologies were evaluated in the context of
Interpretation 4 of SFAS No. 2 and SFAS No. 86, where appropriate. In
accordance with these provisions, research and development projects were
evaluated individually to determine if technological feasibility had been
achieved and if there was any alternative future use. Such evaluation
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consisted of a specific review of the efforts, including the overall objectives
of the project, progress toward the objectives, and uniqueness of developments
to these objectives. The issue of alternative future use was addressed in
discussions with the management of Brio. This process included on-site
management interviews and review of technical data. These projects had not
reached technological feasibility due to issues involving the completion of
scability, performance and security functions.
Once completed, the technologies under development could only be economically
used for the specific and intended purpose. The architecture, design, software
code, interfaces, features, and functions of the technologies being developed
are for specific purposes, and if Brio fails in its efforts, no alternative
economic value will result from its efforts. If the projects fail, the economic
contribution expected to be made by the research and development will not
materialize.
The value assigned to purchased in-process research and development was
determined by estimating the contribution of the purchased in-process
technology in developing a commercially viable product, estimating the
resulting net cash flows from the expected sales of such a product, and
discounting the net cash flows to their present value using an appropriate
discount rate.
Revenue growth rates for MerlinSoft were estimated based on a detailed
forecast prepared by management, which took into account input from finance,
marketing, and engineering representatives of Brio and MerlinSoft. Revenue
growth rates beyond 2000 were based on industry growth expectations. The
projections utilized in the transaction pricing and purchase price allocation
analysis exclude the potential synergistic benefits related specifically to
Brio's ownership.
Selling, general and administrative expenses and profitability estimates were
determined based on management forecasts as well as an analysis of comparable
company's margin expectations.
Due to the relatively early stage of the development and reliance on future,
unproven products and technologies, the cost of capital (discount rate) for
MerlinSoft was estimated using venture capital rates of return. Due to the
nature of the forecast and the risks associated with the projected growth and
profitability of the development projects, a discount rate of 25 to 30 percent
was used to discount cash flows from the in-process projects.
Brio believes that the foregoing assumptions used in the forecasts were
reasonable at the time of the acquisition. No assurance can be given, however,
that the underlying assumptions used to estimate sales, development costs or
profitability, or the events associated with such projects, will transpire as
estimated. For these reasons, actual results may vary from projected results.
Remaining development efforts for MerlinSoft's research and development
include various phases of development, programming and testing. Funding for
such projects is expected to be obtained from internally generated sources.
As evidenced by the continued support of the development of the in-process
technology, and derivative products, management believes Brio has a reasonable
chance of successfully completing the research and development programs.
However, as with all of Brio's software development efforts, there is risk
associated with the completion of the MerlinSoft research and development
projects, and there is no assurance that technological or commercial success
will be achieved.
If the development of the in-process technology, and derivative products, is
unsuccessful, the sales and profitability of Brio may be adversely affected in
future periods. Commercial results are also subject to uncertain market events,
and risks, which are beyond Brio's control, such as trends in technology,
changes in government regulation, market size and growth, and product
introduction or other actions by competitors.
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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, and realized gains or
losses from the sale of investments, net of interest expense. Interest expense
is comprised of interest incurred on Brio's bank line of credit. Interest and
other income (expense), net, increased from a net expense of $341,000 in fiscal
1998 to interest income, net, of $1,084,000 in fiscal 1999. The increase in
interest and other income, net, is attributable to a decrease in the amount of
borrowings on Brio's line of credit as a result of Brio's initial public
offering and an increase in interest income due to larger cash balances
associated with the closing of Brio's initial public offering in May 1998,
offset by foreign currency transaction losses of approximately $127,000. See
Note 2 of Notes to Consolidated Financial Statements for a description of
foreign currency transactions, and Brio's policy related to accounting for
short-term investments.
Provision for Income Taxes
The provision for income taxes of $297,000 in fiscal 1999, consisted of
Federal and state alternative minimum taxes, as the Company utilized net
operating loss carryforwards to offset income taxes generated from domestic
operations.
As of March 31, 1999, Brio had Federal net operating loss carryforwards of
approximately $800,000 and state net operating loss carryforwards of
approximately $400,000 available to offset future taxable income, and expiring
at various dates through 2018 if not utilized. Further, as of March 31, 1999,
Brio had tax credit carryforwards of approximately $644,000 which expire at
various dates through 2018. 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. Brio has
net deferred tax assets, including its net operating loss carryforwards,
totaling approximately $5.6 million as of March 31, 1999. Brio has recorded a
valuation allowance for its net deferred tax assets, to the extent the net
deferred tax assets exceed current and prior year's regular tax, as a result of
significant uncertainties regarding the realization of most of its assets,
including the limited operating history of Brio, a recent history of losses and
the variability of operating results. See Note 9 of Notes to Consolidated
Financial Statements for additional information about Brio's income taxes.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." SFAS No. 130 was adopted by Brio in its fiscal year
beginning April 1, 1998. The adoption of SFAS No. 130 did not have a material
effect on Brio's consolidated financial statements.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 was adopted by Brio in
its fiscal year beginning on April 1, 1998. SFAS No. 131 establishes standards
for disclosures about operating segments, products and services, geographic
areas and major customers. The adoption of SFAS No. 131 did not have a material
effect on Brio's consolidated financial statements.
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2 which superseded SOP 91-1, "Software
Revenue Recognition." SOP 97-2 was effective for transactions entered into in
Brio's fiscal years beginning April 1, 1998. Brio adopted SOP 97-2 for all
transactions entered into beginning April 1, 1998. The adoption of SOP 97-2 did
not have a material effect on Brio's consolidated financial position or the
timing of Brio's
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revenue recognition, or cause changes to its revenue recognition policies.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. Management
believes the adoption of SFAS No. 133 will not have a material effect on Brio's
financial statements.
Liquidity and Capital Resources
As of March 31, 1999, Brio had cash, cash equivalents and short-term
investments of $32.4 million. In addition, Brio maintains a bank line of credit
which provides for up to $10.0 million in borrowings, with interest at the
bank's prime rate. Brio can borrow up to 80% of eligible accounts receivable
against this line, with an additional $1.5 million in non-formula availability.
Borrowings are secured by substantially all of Brio's assets, including Brio's
copyrights and trademarks to the extent required to secure the Bank's interest
in the accounts receivables. The line of credit requires Brio to comply with
various financial covenants, including quarterly requirements to maintain a
minimum quick ratio of 2.0:1.0 and a minimum tangible net worth covenant. The
line expires on December 1, 1999, when any amounts outstanding thereunder would
be due and payable. As of March 31, 1999, there were no outstanding bank
borrowings.
Net cash used in operating activities was $4.7 million in fiscal 1997 and
$3.8 million in fiscal 1998. Net cash generated by operating activities was
$6.0 million in fiscal 1999. The decrease in fiscal 1998 was due primarily to
favorable changes in the balances of operating assets and liabilities.
Approximately $7.2 million of the increase in fiscal 1999 was due to decreases
in net losses and approximately $2.7 million of the increase in fiscal 1999 was
due to favorable changes in operating assets and liabilities.
Net cash used in investing activities was $2.0 million in fiscal 1997,
consisting of approximately $1.9 million for the purchase of property and
equipment and approximately $95,000 for a one-time payment in connection with
the acquisition of Brio's Australian subsidiary. Net cash used in investing
activities was $1.7 million in fiscal 1998, consisting of purchases of property
and equipment. Net cash used in investing activities was $18.3 million in
fiscal 1999, consisting primarily of $13.9 million for the purchase of short-
term investments, net, approximately $2.2 million for the purchase of property
and equipment and approximately $2.2 million for the purchase of MerlinSoft,
net of cash acquired.
Net cash provided by financing activities was $7.1 million in fiscal 1997,
$7.2 million in fiscal 1998 and $28.1 million in fiscal 1999, consisting
primarily of proceeds from private sales of Preferred Stock--approximately $6.0
million in fiscal 1997 and approximately $5.8 million in fiscal 1998--periodic
borrowings, net of repayments, on the bank line of credit--approximately
$1.1 million in fiscal 1997 and approximately $1.3 million in fiscal 1998--and
the net proceeds from Brio's initial public offering--approximately $31.5
million in 1999.
Quantitative and Qualitative Disclosures about Market Risk
Brio's exposure to market risk for changes in interest rates relates
primarily to Brio's investment portfolio. Brio maintains an investment policy
which ensures the safety and preservation of its invested funds by limiting
default risk, market risk, and reinvestment risk. As of March 31, 1999, Brio
had $18.6 million of cash and cash equivalents with a weighted average variable
rate of 4.2% and $13.9 million of short-term investments with a weighted
average variable rate of 5.1%.
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Brio mitigates default risk by attempting to invest in high credit quality
securities and by constantly positioning its portfolio to respond appropriately
to a significant reduction in a credit rating of any investment issuer or
guarantor. The portfolio includes only marketable securities with active
secondary or resale markets to ensure portfolio liquidity and maintains a
prudent amount of diversification.
Brio has no cash flow exposure due to rate changes for long-term debt
obligations. Brio has entered into borrowing agreements to support general
corporate purposes including capital expenditures and working capital needs,
should the need arise. Brio currently has no short-term or long-term debt
outstanding.
Brio conducts business on a global basis in international currencies. As
such, it is exposed to adverse or beneficial movements in foreign currency
exchange rates. In the future, Brio may enter into foreign currency forward
contracts to minimize the impact of exchange rate fluctuations on certain
foreign currency commitments and balance sheet positions. At March 31, 1999,
there were no outstanding foreign currency exchange contracts.
Year 2000 Readiness
Background. Computer systems have traditionally used a two-digit field to
designate a year. This format will not recognize the century date change that
will take place at the end of 1999. Such systems will recognize the year 2000
as 1900, not at all, or some year other than 2000. The inability to recognize
the proper date can and will cause systems to process information incorrectly,
resulting in system failures or other serious business problems.
Risks. Although Brio has been committed to ensuring all our systems are year
2000 compliant prior to December 1999, we may experience some operational
interruptions due to the year 2000 problem. We may also experience operational
difficulties caused by undetected errors or defects in the technology we use in
our internal systems. Brio's year 2000 readiness team has developed and is
implementing a four phase approach in order to prepare the organization for any
interruption which may occur on the advent of the year 2000.
Assessment Plan. Brio's year 2000 readiness team developed a plan which
consisted of four phases.
. In phase one, Brio identified and contacted the vendors of all of Brio's
internal information systems and non-informational technology systems to
determine whether these systems could potentially present a year 2000
problem. Brio requires that all vendors who provide material hardware or
software for Brio's information technology systems, or upgrades or
replacements of those products, provide assurances of their year 2000
compliance. Brio completed phase one in December 1998.
. In phase two, Brio will identify mission critical technology systems and
proceed to test these systems for their year 2000 compliance. Testing will
include automated polling of networked client and server computers,
compilation of relevant data regarding the software used by Brio, and a
manual review of the compiled data to locate systems which may be vulnerable
to year 2000 problems. This phase will also include the establishment of
replica systems for critical software and hardware systems, rolling forward
the replica date to December 31, 1999, allowing the system to roll over into
the year 2000 and observing the results. End users and Brio's year 2000
readiness team will then conduct simulations, and verify and evaluate
compliance and test integrated systems for potential failure which might
occur. Phase two is scheduled to be completed in September 1999.
. In phase three, Brio's year 2000 readiness team, working with end users and
management, will develop contingency plans for mission-critical technology
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systems. Phase three is scheduled to be completed in October 1999.
. In phase four, Brio's year 2000 readiness team, information technology
department staff and end users will perform tests and evaluate readiness of
mission critical technology systems on December 31, 1999. In order to
circumvent system failures resulting from any unanticipated year 2000
failures, all mission critical technology systems must be judged ready for
the start of the next business day or the steps outlined in Brio's
contingency plans will be initiated.
Cost. Brio anticipates that the total cost of the year 2000 program,
including the cost of material upgrades, purchase of replica servers, software
modifications and related consulting fees, will be approximately $150,000.
Contingency Plans. Brio has not yet finalized any contingency plans as a
result of its year 2000 readiness program, but will prepare contingency plans
upon the conclusion of its assessment of the results of our year 2000
simulation testing and third-party vendor and service provider responses.
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INFORMATION REGARDING SQRIBE
BUSINESS OF SQRIBE
Overview
SQRIBE develops, markets and supports reporting software that enables entire
organizations to improve the quality and speed of decision making at every
level of the organization. SQRIBE's product suite is a comprehensive, scalable
software solution for processing, distributing and accessing enterprise reports
throughout an entire organization, including through the Internet. In addition
to its reporting products, SQRIBE pioneered the enterprise information portal,
which is software that enables organizations to make information available to
non-technical users throughout an entire organization, and allows those users
to interact with the information dynamically through a Web-browser. SQRIBE
markets its software primarily through its direct sales organization, augmented
by indirect sales channels including distributors, value-added resellers and
system integrators.
SQRIBE Products
SQRIBE Enterprise. SQRIBE Enterprise is an integrated product suite designed
to leverage a company's investment in software, hardware and networking
infrastructure, that allows companies to do better business planning. SQRIBE
Enterprise consists of four key components, SQR Enterprise Reporting Server,
VisualSQRIBE Interactive Report Builder, ReportMart Enterprise Information
Portal (for Web-based information delivery), and PowerSQRIBE Visual Query and
Analysis. Customers can purchase any combination of these components.
SQR Enterprise Reporting Server. SQR Enterprise Reporting Server is a high-
performance, distributable and scalable server technology for processing and
delivering reports of any magnitude.
VisualSQRIBE Interactive Report Builder. VisualSQRIBE Interactive Report
Builder is a software tool that simplifies report creation and can be used by
information technology professionals as well as business analysts. End-users
benefit as well from VisualSQRIBE's ability to embed interactive analysis
capabilities into any report.
ReportMart Enterprise Information Portal. ReportMart Enterprise Information
Portal is a software platform that provides repository, management and security
capabilities for the delivery of any type of information an organization might
store. The software's architecture enables information technology departments
to maintain centralized control without compromising end-user information
access. With the recent launch of SQRIBE Enterprise, ReportMart now includes a
number of ways for streamlining integration with other systems in use within an
organization, including automated content management and security features.
PowerSQRIBE Visual Query and Analysis. PowerSQRIBE Visual Query and Analysis
is SQRIBE's interactive analysis and query software product. PowerSQRIBE is
written in the Java programming language, for accessing and analyzing
information wherever it is stored in an organization's systems. It allows users
of a report to drill down for more detail, change data relationships
dynamically or import data into existing desktop software for further analysis.
It may be deployed with limited costs.
Services and Customer Support
SQRIBE has formed a worldwide professional services organization, including
consultants, field engineers, training specialists and project directors, to
deliver a full range of report creation and development, deployment, education
and support services to customers and partners. SQRIBE offers a series of
deployment and education services, including custom
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engagements that provide pre-deployment proof of concept for enterprise
reporting to senior executives. SQRIBE also offers a technical education
program designed for technical professionals implementing SQRIBE Enterprise.
Sales and Marketing
SQRIBE sells its software and services primarily through a direct sales
organization consisting of regionally based sales managers, system engineers
and consultants in North America, France, Germany, the United Kingdom and
Australia. In other international markets, SQRIBE markets its software through
designated distributors. SQRIBE also has alliances with value-added resellers,
systems integrators and complementary software providers. A number of SQRIBE's
industry partners have integrated and embedded SQRIBE technology with their
leading applications.
Proprietary Rights
SQRIBE relies on a combination of the protections provided under applicable
copyright, trademark and trade secret laws, as well as confidential procedures
and licensing agreements to establish and protect its rights in its software.
SQRIBE licenses its software products to customers under license agreements
which are generally standard in form, although each license is individually
negotiated and may contain variations. The standard agreement allows the
customer to use SQRIBE's products solely on the customer's computer equipment
for internal purposes, and the customer is generally prohibited from
sublicensing or transferring SQRIBE's products. The agreements generally
provide that SQRIBE's warranty for its products is limited to correction or
replacement of the affected product, and in most cases SQRIBE's warranty
liability may not exceed the licensing fees from the customer. The standard
agreement also includes a confidentiality clause protecting proprietary
information.
Employees
As of March 31, 1999, SQRIBE had 235 employees, including 52 in product
development and product management, 116 in sales and marketing and business
development, 41 in professional services, customer education and customer
support and 26 in administration. None of SQRIBE's employees is represented by
a labor union with respect to his or her employment with SQRIBE. SQRIBE has
experienced no organized work stoppages.
Facilities
SQRIBE's principal offices are located in Redwood City, California where
SQRIBE leases approximately 41,000 square feet under a lease that expires in
the beginning of 2004. SQRIBE also has an office in Long Beach, California
where SQRIBE leases approximately 8,380 square feet under a lease that expires
in January 2002. SQRIBE also occupies 9,826 square feet in Fairborn, Ohio under
a lease which expires in February 2003.
Litigation
SQRIBE is the defendant in two lawsuits by related companies filed in April,
1999, initially in the state court for Fairfax County, Virginia and
subsequently removed by SQRIBE to the Federal District Court for the Eastern
District of Virginia: Object Gems LLC. v. Fortado and Sqribe Technologies,
Civil Action No. 99-546-A and Compumatics Inc. v. Fortado and Sqribe
Technologies, Civil Action No. 547-A. The causes of action asserted against
SQRIBE include breach of contract, interference with contract and conspiracy to
breach contract. The plaintiff in each action seeks $5 million in compensatory
damages from SQRIBE, allegedly arising from SQRIBE's contracts with John
Fortado, a former subcontractor of each of the plaintiffs, and seeks trebling
of that amount under Virginia statute. Mr. Fortado, a former independent
subcontractor of SQRIBE, was named as a co-defendant in each suit. Both actions
are in the initial stages, and discovery is just beginning. While SQRIBE
intends to vigorously defend both actions, at this early stage SQRIBE and its
counsel are unable to determine the likelihood of an unfavorable outcome.
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SQRIBE MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the SQRIBE
Consolidated Financial Statements and the Notes thereto and the other
information included elsewhere in this report.
Overview
SQRIBE develops, markets, licenses and supports enterprise reporting software
that enables organizations to improve the quality and speed of decision making
at every level of the organization. SQRIBE's flagship product is SQR, an
enterprise production reporting software product, which SQRIBE acquired from
Sybase Corporation in 1995. In 1998, SQRIBE introduced a number of new products
including:
. ReportMart, an open infrastructure that provides comprehensive repository,
management and security capabilities for enterprise information delivery of
any information object;
. PowerSQRIBE, an interactive analysis and query technology; and
. VisualSQRIBE, a visual report development environment.
Through the first quarter of 1998, SQRIBE derived its license fee revenue
primarily from sales of SQR. Since then, SQRIBE has also derived revenues from
ReportMart, PowerSQRIBE and VisualSQRIBE. SQRIBE had net losses of $2.7 million
in 1996 and $7.7 million in 1997 and net income of $109,000 in 1998. SQRIBE had
an accumulated deficit of $15.2 million as of December 31, 1998. $7.7 million
of SQRIBE's net loss in 1997 was due to a compensation expense relating to the
exchange of approximately one-third of SQRIBE's common stock for Series B
preferred stock on a one-for-one basis. The stockholders subsequently sold the
preferred stock to third-party investors. The compensation expense was based on
the differences between the fair values of the common and preferred shares on
the date of the exchange.
SQRIBE's revenue consists of license fees for software products and fees for
services, including software maintenance and support, training and consulting.
SQRIBE typically licenses its SQR product on a per computer server basis with
the price varying based on the computing power of the server. SQRIBE's other
products are licensed on a per user basis with the price per user varying based
on the selection of products licensed.
SQRIBE's customers include organizations in a diverse set of industry
segments. Sybase Corporation accounted for approximately 12% of SQRIBE's
revenue in 1996. No single customer has accounted for more than 10% of SQRIBE's
total revenue for 1997 or 1998.
SQRIBE generally recognizes revenues from license fees when:
. a non-cancelable license agreement has been executed;
. vendor-specific objective evidence exists to allocate the total fee to
all delivered and undelivered elements of the arrangement;
. the product has been shipped;
. there are no significant vendor obligations;
. the fees are fixed and determinable; and
. collection is considered probable.
If any contingencies or continuing obligations exist, SQRIBE defers revenue
recognition until all contingencies or obligations have been satisfied. SQRIBE
recognizes revenues from training and consulting services when the services are
performed. SQRIBE recognizes revenue from maintenance and support services
ratably over the term of the agreement, which is typically twelve months.
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<PAGE>
To date, SQRIBE has derived revenues from license fees through direct sales
of software products to end users through SQRIBE's direct sales force, as well
as from indirect sales through partners who resell SQRIBE's products or who
include SQRIBE's products in their software or hardware offering. Revenues from
direct sales were 68% of total revenues for 1996, 66% of total revenues for
1997 and 68% of total revenues for 1998. SQRIBE'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 relationships with value added resellers, resellers and
distributors.
SQRIBE has, to date, sold its products internationally through direct sales
offices in the United Kingdom, France, Germany and Australia and indirectly
through established distribution relationships in more than 25 countries. Sales
to customers outside of the United States and Canada, including sales generated
by SQRIBE's foreign subsidiaries, represented 8% of total revenues for 1996,
14% of total revenues for 1997 and 19% of total revenues for 1998.
A substantial portion of SQRIBE's international sales in the past have been
denominated and collected in foreign currencies and SQRIBE believes that a
portion of SQRIBE's cost of revenues and operating expenses will continue to be
incurred in foreign currencies. To date, there have been no material effects of
changes in foreign currency exchange rates on revenues or operating expenses.
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 SQRIBE'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. SQRIBE
has not historically undertaken foreign exchange hedging transactions to cover
its potential foreign currency exposure.
Although SQRIBE has experienced significant revenue growth in 1996, 1997 and
1998, the same rate of revenue growth may not be sustainable in the future.
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<PAGE>
Results of Operations
The following table sets forth certain selected consolidated statements of
operations data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
------------------ ----------------
1996 1997 1998 1998 1999
---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenues:
License fees.............................. 71% 63% 61% 62% 56%
Services.................................. 29 37 39 38 44
--- --- --- ------ ------
Total revenues.......................... 100 100 100 100 100
--- --- --- ------ ------
Cost of revenues:
License fees.............................. 7 4 3 2 2
Services.................................. 7 10 13 10 20
--- --- --- ------ ------
Total cost of revenues.................. 14 14 16 12 22
--- --- --- ------ ------
Gross profit................................ 86 86 84 88 78
--- --- --- ------ ------
Operating expenses:
Research and development.................. 19 18 17 17 19
Sales and marketing....................... 48 50 53 54 61
General and administrative................ 34 19 15 18 14
Stock compensation to principal
stockholders............................. -- 31 -- -- --
--- --- --- ------ ------
Total operating expenses................ 101 118 85 89 94
--- --- --- ------ ------
Loss from operations........................ (15) (32) (1) (1) (16)
Interest and other income (expense), net.... -- 2 4 1 (1)
--- --- --- ------ ------
Net income (loss) before taxes.............. (15) (30) 3 -- (17)
Income taxes................................ -- -- -- -- --
--- --- --- ------ ------
Net income (loss)........................... (15)% (30)% 3% --% (17)%
Increase in redemption value of redeemable
common stock............................... -- -- (2) (4) (17)
--- --- --- ------ ------
Net income (loss) applicable to common
stock...................................... (15)% (30)% 1% (4)% (34)%
=== === === ====== ======
</TABLE>
Three Months Ended March 31, 1998 and 1999
Revenues
SQRIBE derives revenues from license fees and services, which include
software maintenance and support, training and system implementation
consulting. Total revenues increased 39% from $7.7 million for the three months
ended March 31, 1998 to $10.8 million for the three months ended March 31,
1999.
Revenues by geographic location were as follows for the three months ended
March 31, 1997 and 1998:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1999
------------ ------------
(in thousands)
<S> <C> <C>
Revenues by Geography
Domestic.............................................. $6,507 $ 8,277
International......................................... 1,218 2,478
------ -------
Total Revenues....................................... $7,725 $10,755
====== =======
</TABLE>
Revenue from international sources increased 104% from $1.2 million in the
three months ended March 31, 1998 to $2.5 million in the three months ended
March 31, 1999. The increase was due to increased demand for SQRIBE's products
in the United Kingdom, France and Germany as SQRIBE continued to expand direct
and indirect sales
115
<PAGE>
efforts in these areas. See Note 10 of Notes to Consolidated Financial
Statements for additional information about revenues in geographic areas.
License Fees. Revenues from license fees increased by 27% from $4.8 million
for the three months ended March 31, 1998 to $6.0 million for the three months
ended March 31, 1999. Approximately $300,000 of the increase was due to growing
sales to new customers and approximately $900,000 of the increase was due to
increased follow-on sales to existing customers.
Services. Services revenues increased by 59% from $3.0 million for the three
months ended March 31, 1998 to $4.7 million for the three months ended
March 31, 1999. Approximately $770,000 of the increase was due to increases in
maintenance and support revenue and approximately $970,000 of the increase was
due to increased training and consulting services revenues, related to
increases in SQRIBE's installed customer base.
Cost of Revenues
License Fees. Cost of revenues from license fees consists primarily of the
cost to manufacture computer media and documentation and royalties paid to a
distributor who held exclusive rights to distribute SQRIBE's products in
certain territories where SQRIBE was also selling. Cost of revenues from
license fees increased from $173,000 for the three months ended March 31, 1998
to $227,000 for the three months ended March 31, 1999. The increase was due to
royalties paid to an exclusive European distributor.
Services. Cost of services revenues consists primarily of personnel costs,
including allocated overhead, and third-party consulting fees associated with
providing software maintenance and support, consulting, development and
training services. Cost of service revenues increased from $784,000 for the
three months ended March 31, 1998 to $2.2 million for the three months ended
March 31, 1999. Approximately $1.3 million of the increase was due to the
expansion of the consulting organization including additional personnel and
related overhead and approximately $120,000 of the increase was due to
increases in personnel and related costs in SQRIBE's technical support
organization.
Operating Expenses
Research and Development. Research and development expenses consist primarily
of personnel and related costs, including outside contractors, and software and
hardware development tools associated with the development of new products,
enhancements to existing products, documentation, quality assurance and product
management. Research and development expenses increased from $1.3 million for
the three months ended March 31, 1998 to $2.0 million for the three months
ended March 31, 1999. The increases were primarily due to increased personnel
and related costs required to develop new products and enhance existing
products.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and other personnel related costs, commissions, bonuses and sales
incentives, travel, and marketing programs such as trade shows and seminars,
and promotion costs. Sales and marketing expenses increased from $4.1 million
for the three months ended March 31, 1998 to $6.6 million for the three months
ended March 31, 1999. Approximately $2.0 million of the increase was
attributable to the expansion of SQRIBE's sales force worldwide, including the
addition of field and telesales personnel and related costs, and approximately
$500,000 of the increase was attributable to the expansion of the marketing
organization worldwide.
General and Administrative. General and administrative expenses consist
primarily of personnel costs for executive, finance, human resources,
information systems and administrative personnel and
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<PAGE>
other general management expenses. General and administrative expenses
increased from $1.4 million for the three months ended March 31, 1998 to $1.5
million for the three months ended March 31, 1999. The increase was primarily
due to increased personnel and related costs necessary to manage and support
SQRIBE's growth and facilities expansion.
Interest and Other Income (Expense), Net, and Income Taxes
Interest and other income (expense), net, includes interest income, gains or
losses on the sale of fixed assets, gains or losses on investments and foreign
currency transaction gains or losses, net of interest expense. Interest and
other income (expense), net, decreased from a net income of $56,000 for the
three months ended March 31, 1998 to a net expense of $79,000 for the three
months ended March 31, 1999. Approximately $100,000 of the decrease was due to
an increase in foreign currency transaction losses, approximately $24,000 of
the decrease was due to a decrease in interest income and approximately $12,000
of the decrease was due to an increase in interest expense as a result of
increased borrowings on the bank line of credit.
Years Ended December 31, 1996, 1997 and 1998
Revenues
SQRIBE's revenues increased by 40% from $18.0 million in 1996 to $25.1
million in 1997 and by 56% to $39.2 million in 1998.
Revenues by geographic location were as follows for 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Revenues by Geography
Domestic................................................ $16,560 $21,723 $31,671
International........................................... 1,437 3,400 7,491
------- ------- -------
Total Revenues......................................... $17,997 $25,123 $39,162
======= ======= =======
</TABLE>
Revenue from international sources increased 137% from $1.4 million in 1996
to $3.4 million in 1997 and by 120% to $7.5 million in 1998. The increase in
1997 was due to SQRIBE establishing direct sales offices in the United Kingdom
and France and increased demand for SQRIBE's products in Australia. The
increase in 1998 was due to increased demand for SQRIBE's products in the
United Kingdom, France and Germany as SQRIBE continued to expand direct and
indirect sales efforts in these areas. See Note 10 of Notes to Consolidated
Financial Statements for additional information about revenues in geographic
areas.
License Fees. Revenues from license fees increased by 24% from $12.9 million
in 1996 to $15.9 million in 1997 and by 51% to $24.0 million in 1998. The
increases in 1997 and 1998 were due to growing sales to new customers--
approximately $1.2 million of the increase in 1997 and approximately $3.1
million of the increase in 1998--and increased follow-on sales to existing
customers--approximately $1.8 million of the increase in 1997 and approximately
$5.0 million in 1998.
Services. Services revenues increased by 79% from $5.1 million in 1996 to
$9.2 million in 1997 and by 65% to $15.1 million in 1998. The increases were
due to an increase in maintenance and support revenues (approximately $2.3
million of the increase in 1997 and approximately $3.1 million of the increase
in 1998) and an increase in training and consulting revenues-- approximately
$1.8 million of the increase in 1997 and approximately $2.8 million of the
increase in 1998--related to increased sales of SQRIBE's software products.
Cost of Revenues
License Fees. Cost of revenues from license fees decreased by 25% from $1.3
million in 1996 to $946,000 in 1997 and increased by 15% to $1.1 million in
1998. The decrease in 1997 was due primarily to the sale of the Eventus
Software division in 1996 and the corresponding decrease in SQRIBE's royalty
obligations of $364,000. The increase in 1998 was primarily due to royalties
paid to an exclusive European distributor.
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<PAGE>
Services. Cost of services revenues increased by 114% from $1.2 million in
1996 to $2.5 million and increased by 101% to $5.0 million in 1998. The
increases year over year were due primarily to increases in the number of
consulting and client support personnel and related overhead costs necessary to
support increases in the installed customer base.
Operating Expenses
Research and Development Expense. Research and development expenses
increased by 37% from $3.4 million in 1996 to $4.6 million in 1997 and by 42%
to $6.6 million in 1998. The increases were primarily due to an increase in
development personnel and related overhead costs.
Sales and Marketing Expense. Sales and marketing expenses increased by 44%
from $8.6 million in 1996 to $12.4 million in 1997 and by 68% to $20.9 million
in 1998. The increases were primarily due to the expansion of the domestic and
international sales force--approximately $2.9 million of the increase in 1997
and approximately $6.5 million of the increase in 1998--and the marketing
organization--approximately $900,000 of the increase in 1997 and approximately
$1.9 million of the increase in 1998.
General and Administrative Expenses. General and administrative expenses
decreased by 21% from $6.2 million in 1996 to $4.9 million in 1997 and
increased by 17% to $5.7 million in 1998. In 1996, SQRIBE sold its Eventus
software division in return for a note payable of approximately $501,000 and
21% ownership in the new entity. SQRIBE also agreed to fund operating expenses
of the resulting new entity up to $300,000 for an additional note. No gain was
recorded on the sale because the new entity was thinly capitalized at the time
of the transaction and the carrying value of the note and the related
investment were recorded at zero. In 1998, the new entity was acquired by Segue
Software, Inc., public company, in a stock-for-stock transaction. In 1996,
SQRIBE incurred costs of $318,000 when its corporate headquarters were moved
from Long Beach, California to Menlo Park, California. $288,000 was paid as
severance to twenty-seven terminated employees and $30,000 to relocate an
individual from Long Beach to Menlo Park, all of which were paid in 1996. Also
in 1996, SQRIBE incurred approximately $1.2 million of personnel costs and
related overhead expenses, $900,000 of labor charges for approximately sixteen
employees, $150,000 facilities and equipment charges, $150,000 of travel,
entertainment and other expenses, for nine months of 1996, while Eventus was a
division of SQRIBE, prior to its sale of Segue Software, as described in Note 8
to the financial statements. The decrease in General and Administrative
Expenses from 1996 to 1997 was primarily due to the incurrence of these
Eventus-related costs in 1996. The increase from 1997 to 1998 was primarily due
to increased personnel and related costs necessary to support SQRIBE's growth
and expansion.
Stock Compensation to Principal Stockholders. In September 1997, SQRIBE
permitted Ofir J. Kedar and PST Investors who controlled 97% of the then
outstanding shares of common stock, to exchange one-third of their shares of
SQRIBE common stock for shares of SQRIBE Series B preferred stock on a one-for-
one basis. These stockholders subsequently sold these shares to third-party
investors. SQRIBE recognized compensation expense during 1997 of approximately
$7.7 million related to this exchange based on the difference between the fair
values of the common and preferred shares on the date of the exchange.
Interest and Other Income (Expense), Net
Other income (expense), net includes interest income, gains or losses on the
sale of fixed assets, gains or losses on investments and foreign currency
transaction gains or losses, net of interest expense.
SQRIBE's other income (expense) net increased from $23,000 in 1996 to
$416,000 in
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<PAGE>
1997 to $1.6 million in 1998. Approximately $320,000 of the increase from 1996
to 1997 was due to the repayment of the Eventus promissory notes and
approximately $73,000 of the increase was due to an increase in interest
income. Approximately $500,000 of the increase in 1998 was due to the final
repayment of the Eventus promissory notes, and approximately $692,000 of the
increase was due to a gain on the acquisition of Eventus by Segue Software,
Inc., offset by interest expense.
Liquidity and Capital Resources
Since inception, SQRIBE has financed its operations and met its capital
requirements through a combination of working capital lines of credit,
borrowings from an officer and stockholder of SQRIBE, equipment and furniture
lease financing and private sales of preferred and common stock. In December
1998, SQRIBE entered into a $3.5 million Loan and Security Agreement which
included a $2.5 million working capital line of credit which provides for
interest at the bank's prime rate (7.75% at December 31, 1998) plus 0.5% and a
$1.0 million term loan facility which provides for interest at the bank's prime
rate plus 0.75% and converts to a note repayable over 30 months beginning in
December 1999. SQRIBE can borrow up to 80% of eligible accounts receivable
against the working capital line. The agreement requires SQRIBE to comply with
various financial covenants, including a minimum quick ratio of at least
1.25:1.00 and certain defined quarterly operating results. As of December 31,
1998, there were no outstanding borrowings; however, a $500,000 letter of
credit had been issued to support a facilities lease, reducing the availability
of the line of credit. As of March 31, 1999 $2,000,000 was outstanding under
the working capital line of credit and SQRIBE had cash and cash equivalents of
$2.4 million.
Net cash used in operating activities decreased from $2.2 million for the
three months ended March 31, 1998 to $790,000 for the three months ended March
31, 1999. The decrease was due to favorable changes in the balances of
operating assets and liabilities.
Net cash used in investing activities was $286,000 for the three months ended
March 31, 1998 and $482,000 for the three months ended March 31, 1999,
consisting of purchases of property and equipment.
Net cash provided by financing activities was $74,000 for the three months
ended March 31, 1998 and $2.0 million for the three months ended March 31,
1999. The increase was due primarily to advances on the line of credit.
Net cash provided by operating activities was $500,000 in 1996 and $2.7
million in 1997. Net cash used in operating activities was $1.1 million in
1998. The increase from 1996 to 1997 was due primarily to the decrease in
operating losses, net of the compensation expense related to the exchange of
approximately one-third of SQRIBE's common shares for Series B preferred
shares, and favorable changes in the balances of operating assets and
liabilities. The decrease in 1998 was due to the decrease in operating losses,
offset primarily by increases in receivables.
Net cash used in investing activities was $1.1 million in 1996, $1.4 million
in 1997 and $1.6 million in 1998. These amounts consist of purchases of
property and equipment.
Net cash provided by financing activities was $1.7 million in 1996 and
$69,000 in 1997. Net cash used by financing activities was $239,000 in 1998.
These amounts consist primarily of proceeds from the exercise of preferred
stock warrants and common stock options and repayments of the note to
stockholder and capital lease obligations.
Quantative and Qualitative Disclosures about Market Risk
SQRIBE's exposure to market risk for changes in interest rates relates
primarily to SQRIBE's cash and cash equivalents. SQRIBE maintains its cash and
cash equivalents in credit-worthy institutions which ensures the safety and
preservation of its funds by limiting default risk, market risk, and
reinvestment risk. As of March 31, 1999,
119
<PAGE>
SQRIBE had 2.4 million of cash and cash equivalents with a weighted average
variable rate of 2.8%.
SQRIBE has no cash flow exposure due to rate changes for long-term debt
obligations. SQRIBE has entered into borrowing agreements to support general
corporate purposes including capital expenditures and working capital needs
should the need arise. At March 31, 1999, SQRIBE had $2,000,000 outstanding
under a line of credit.
SQRIBE conducts business on a global basis in international currencies. As
such, it is exposed to adverse or beneficial movements in foreign currency
exchange rates. In the future, SQRIBE may enter into foreign currency forward
contracts to minimize the impact of exchange rate fluctuations on certain
foreign currency commitments and balance sheet positions. At March 31, 1999,
there were no outstanding foreign currency exchange contracts.
Year 2000 Readiness
Background. Many computer systems and applications currently use two-digit
fields to designate a year. As the century date change occurs, date-sensitive
systems will recognize the year 2000 as 1900, or not at all. This inability to
recognize or properly treat the year 2000 may cause systems to process
financial and operational information incorrectly, resulting in system failures
and other business problems.
Risk Factor. SQRIBE may experience some interruptions in operations caused by
undetected errors or defects in the technology it uses in its internal systems.
SQRIBE has formulated an approach to prepare for any interruption which may
occur.
Assessment Plan. SQRIBE has completed the first stage of its assessment of
the Year 2000 readiness of information technology systems. SQRIBE plans to
perform a Year 2000 simulation on mission critical systems and software by
August 1999. Based on the results, SQRIBE will take any necessary steps to
ensure year 2000 compliance.
In stage two, all vendors who provide material hardware or software for
SQRIBE's information technology systems must provide SQRIBE with assurances of
their Year 2000 compliance. Such assurances are also required from SQRIBE's
non-information technology providers. SQRIBE plans to complete this process by
August 1999.
In stage three SQRIBE is identifying processes that will require year 2000
readiness testing and is establishing dedicated test environments for year 2000
readiness testing. SQRIBE anticipates that this stage will be complete by
September 1999.
Cost. SQRIBE estimates that the cost to complete its Year 2000 certification
process will be approximately $125,000. This includes the cost of material
upgrades, software modifications and related consulting fees.
Contingency Plans. SQRIBE has not yet finalized any contingency plans as a
result of its program, but will prepare contingency plans upon the conclusion
of its assessment of the results of the year 2000 simulation testing and third-
party vendor and service provider responses.
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<PAGE>
PRINCIPAL STOCKHOLDERS OF SQRIBE
The following table sets forth, as of March 31, 1999, certain information
with respect to the beneficial ownership of the capital stock of SQRIBE by:
. each person known by SQRIBE to own beneficially more than 5% of any
class of SQRIBE's voting securities,
. each director of SQRIBE,
. each executive officer named below, and
. all directors and executive officers as a group. Except as otherwise
noted below, SQRIBE knows of no agreements among its stockholders which
relate to voting or investment power of its capital stock.
Applicable percentage of ownership is based on 8,006,498 shares of common
stock outstanding, together with applicable options for such stockholder,
2,352,940 shares of Series A preferred stock outstanding, and 2,568,836 shares
of Series B preferred stock outstanding, as of March 31, 1999.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting and investment power
with respect to shares. Shares subject to options currently exercisable or
exercisable within 60 days after March 31, 1999 are deemed outstanding for
computing the percentage ownership of the person holding such options, but are
not deemed outstanding for computing the percentage ownership of any other
person.
In connection with preferred stock, the percentage listed refers to the
percentage of shares held of the respective series of preferred stock, rather
than all of the outstanding shares of preferred stock.
Pro forma ownership of Brio is an approximation based upon the number of
fully diluted shares of Brio and SQRIBE capital stock outstanding and the
market price of Brio common stock on June 14, 1999.
An * represents less than 1% ownership.
<TABLE>
<CAPTION>
Amount and
Nature of Pro Forma
Name and Address of Beneficial Percent of Ownership of
Beneficial Owner Ownership Class/Series Brio Common
------------------- ---------- ------------ ------------
<S> <C> <C> <C>
Common
------
Ofir J. Kedar
500 Saginaw Dr.
Redwood City, CA 94063 5,778,186 72.2% 17.5%
General Atlantic Partners, LLC
3 Pickwick Plaza, Suite 200
Greenich, CT 06830 3,833,531 32.4% 11.6%
J. Michael Cline
3 Pickwick Plaza, Suite 200
Greenich, CT 06830 3,833,531 32.4% 11.6%
Steven A. Denning
3 Pickwick Plaza, Suite 200
Greenich, CT 06830 3,833,531 32.4% 11.6%
Geocapital III, LP
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 445,552 5.3% 1.4%
Richard A. Vines
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 445,552 5.3% 1.4%
</TABLE>
121
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of Pro Forma
Name and Address of Beneficial Percent of Ownership of
Beneficial Owner Ownership Class/Series Brio Common
------------------- ---------- ------------ ------------
<S> <C> <C> <C>
Lawrence W. Lepard
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 445,552 5.3% 1.4%
Stephen J. Clearman
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 445,552 5.3% 1.4%
BVA Associates III
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 445,552 5.3% 1.4%
Steven Wong
500 Saginaw Dr.
Redwood City, CA 94063 218,350 2.7% *
Dale Prouty
500 Saginaw Dr.
Redwood City, CA 94063 226,560 2.8% *
All directors, nominees for director,
and executive
officers as a group (6 persons) 6,223,096 77.7% 18.8%
Series A Preferred
------------------
General Atlantic Partners, LLC
3 Pickwick Plaza, Suite 200
Greenich, CT 06830 2,073,532 88.1% 7.8%
J. Michael Cline
3 Pickwick Plaza, Suite 200
Greenich, CT 06830 2,073,532 88.1% 7.8%
Steven A. Denning
3 Pickwick Plaza, Suite 200
Greenich, CT 06830 2,073,532 88.1% 7.8%
Geocapital III, LP
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 249,996 10.6% *
Richard A. Vines
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 249,996 10.6% *
Lawrence W. Lepard
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 249,996 10.6% *
Stephen J. Clearman
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 249,996 10.6% *
BVA Associates III
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 249,996 10.6% *
All directors, nominees for director,
and executive
officers as a group (6 persons) 2,073,532 88.1% 7.8%
</TABLE>
122
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of Pro Forma
Name and Address of Beneficial Percent of Ownership of
Beneficial Owner Ownership Class/Series Brio Common
------------------- ---------- ------------ ------------
<S> <C> <C> <C>
Series B Preferred
------------------
General Atlantic Partners, LLC
3 Pickwick Plaza, Suite 200
Greenwich, CT 06830 1,759,999 68.5% 5.3%
J. Michael Cline
3 Pickwick Plaza, Suite 200
Greenwich, CT 06830 1,759,999 68.5% 5.3%
Steven A. Denning
3 Pickwick Plaza, Suite 200
Greenwich, CT 06830 1,759,999 68.5% 5.3%
Geocapital III, LP
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 195,556 7.6% *
Richard A. Vines
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 195,556 7.6% *
Lawrence W. Lepard
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 195,556 7.6% *
Stephan J. Clearman
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 195,556 7.6% *
BVA Associates
c/o Geocapital Partners
One Bridge Plaza
Fort Lee, NJ 07024 195,556 7.6% *
Haim Kedar
500 Saginaw Dr.
Redwood City, CA 94063 11,111 * *
Dale Prouty
500 Saginaw Dr.
Redwood City, CA 94063 179,947 7% *
All current SQRIBE directors, nominees
for director, and executive
officers as a group (6 persons) 1,951,057 76% 5.9%
</TABLE>
- --------
The entry in the table affiliated with Mr. Kedar consists of 5,178,186 shares
held by Mr. Kedar, 300,000 shares held by Ori Asher Kedar 1996 Trust of which
Mr. Kedar is trustee, and 300,000 shares held by Tom Samuel Kedar 1996 Trust of
which Mr. Kedar is trustee. Mr. Kedar disclaims beneficial ownership of shares
held by Ori Asher Kedar 1996 Trust and Tom Samuel Kedar 1996 Trust.
The entry in the table affiliated with General Atlantic Partners, LLC, J.
Michael Cline and Steven A. Denning under Common consists of 2,073,532 shares
beneficially held as a result of the beneficial ownership of 2,073,532 shares
of Series A preferred stock and 1,759,999 shares beneficially held as a result
of the beneficial ownership of 1,759,999 shares of Series B preferred stock.
The entry in the table affiliated with General Atlantic Partners, LLC, J.
Michael Cline and Steven A. Denning under Series A consists of 205,080 shares
held by GAP Coinvestment
123
<PAGE>
Partners, L.P., and 1,868,452 shares held by General Atlantic Partners 18, L.P.
General Atlantic Partners, LLC is the general partner of General Atlantic
Partners 18, L.P. The managing members of General Atlantic Partners, LLC are
the general partners of GAP Coinvestment Partners, L.P. J. Michael Cline and
Steven A Denning are the managing members of General Atlantic Partners, LLC and
the general partners of GAP Coinvestment Partners, L.P. Mr. Cline and Mr.
Denning disclaim beneficial ownership of such shares except for their pecuniary
interest therein.
The entry in the table affiliated with General Atlantic Partners, LLC, N.
Michael Cline and Steven A. Denning under Series B consists of 299,331 shares
held by GAP Coinvestment Partners, L.P., and 1,460,668 shares held by General
Atlantic Partners 43, L.P. General Atlantic Partners, LLC is the general
partner of General Atlantic Partners 43, L.P. The managing members of General
Atlantic Partners, LLC are the general partners of GAP Coinvestment Partners,
L.P. J. Michael Cline is a managing member of General Atlantic Partners, LLC
and a general partner of GAP Coinvestment Partners, L.P. Mr. Cline disclaims
beneficial ownership of such shares except for his pecuniary interest therein.
The entry in the table affiliated with Dale Prouty under Common consists of
226,560 shares held by PST Investors, a general partnership. Dale Prouty is the
managing partner of PST Investors. Mr. Prouty disclaims beneficial ownership of
such shares except for his proportional interest therein.
The entry in the table affiliated with Dale Prouty under Series B consists of
179,947 shares held by PST Investors. Dale Prouty is a managing partner of PST
Investors. Mr. Prouty disclaims beneficial ownership of such shares except for
his proportional interest therein.
The entry in the table affiliated with Geocapital III, LP, Richard A. Vines,
Lawrence W. Lepard, Steven J. Clearman and BVA Associates III under Common
consists of 249,996 shares beneficially held as a result of the beneficial
ownership of 249,996 shares of Series A preferred stock and 195,556 shares
beneficially held as a result of the beneficial ownership of 195,556 shares of
Series B preferred stock.
The entry in the table affiliated with Geocapital III, LP, Richard A. Vines,
Lawrence W. Lepard, Steven J. Clearman and BVA Associates III under Series A
consists of 249,996 shares held by Geocapital III, LP. The general partners of
Geocapital III, LP are Messrs. Vines, Lepard, and Clearman and BVA Associates
III and each general partner disclaims beneficial ownership of such shares
except for their pecuniary interest therein.
The entry in the table affiliated with Geocapital III, LP, Richard A. Vines,
Lawrence W. Lepard, Steven J. Clearman and BVA Associates III under Series B
consists of 195,556 shares held by Geocapital III, LP. The general partners of
Geocapital III, LP are Messrs. Vines, Lepard, and Clearman and BVA Associates
III and each general partner disclaims beneficial ownership of such shares
except for their pecuniary interest therein.
124
<PAGE>
EXPERTS
The consolidated financial statements and schedule of Brio included in this
proxy statement/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.
The consolidated financial statements of SQRIBE as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998
included in this proxy statement/ prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing in this
proxy statement/prospectus, and have been so included in reliance on the report
of such firm given upon their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Brio common stock issuable pursuant to the merger will be
passed upon for Brio by Venture Law Group, A Professional Corporation, Menlo
Park, California. The information regarding Federal Income Tax Considerations
of the merger, beginning on page 47, has been passed upon for SQRIBE by
Morrison & Foerster LLP, Palo Alto, California. As of the date of this
Prospectus, certain attorneys of Venture Law Group and affiliated partnerships
beneficially own an aggregate of 11,989 shares of Brio common stock and options
to purchase an aggregate of 20,000 shares of Brio common stock.
WHERE YOU CAN FIND MORE INFORMATION
Brio files annual, quarterly and current reports, proxy solicitation
statements and other information with the SEC. You may read and copy any
reports, statements or other information filed by Brio at the SEC's public
reference rooms in Washington, D.C., New York City and Chicago. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Brio's filings are also available to the public from commercial document
retrieval services and at the Internet website maintained by the SEC at
http://www.sec.gov.
Brio filed a registration statement on Form S-4 with the SEC to register the
Brio common stock to be issued to SQRIBE stockholders in the merger. This proxy
statement/prospectus is a part of that registration statement. As allowed by
the SEC's rules, this proxy statement/prospectus does not contain all of the
information you can find in the registration statement or the exhibits to the
registration statement. This proxy statement/prospectus summarizes some of the
documents that are exhibits to the registration statement, and you should refer
to the exhibits for a more complete description of the matters covered by those
documents.
Neither Brio nor SQRIBE has authorized anyone to give any information
regarding the solicitation of consents or the offering of shares of Brio common
stock that is different from what is contained in this proxy
statement/prospectus. This is not an offer to sell or a solicitation of anyone
to whom it would be unlawful to make an offer or solicitation. You should not
assume that the information contained in this proxy statement/prospectus is
accurate as of any time after the date of this proxy statement/prospectus, and
neither the mailing of this proxy statement/prospectus to stockholders nor the
issuance of Brio common stock in the merger should create any implication to
the contrary.
125
<PAGE>
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at Brio's next annual
meeting of Stockholders must be received by Karen J. Willem, Brio Technology,
Inc., 3460 West Bayshore Road, Palo Alto, CA 94303, no later than , 2000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Brio's directors, executive
officers and persons who own more than 10% of Brio's common stock to file with
the SEC initial reports of ownership and changes in ownership of Brio's common
stock. These persons are required by SEC regulations to furnish Brio with
copies of all Section 16(a) reports they file. To Brio's knowledge, based
solely on its review of the copies of such reports received or written
representations from these persons that no other reports were required, Brio
believes that during its fiscal year ended March 31, 1999, all such persons
complied with all applicable filing requirements.
OTHER MATTERS
The board of directors knows of no other business that will be presented at
the annual meeting. If any other business is properly brought before the annual
meeting, proxies in the enclosed form will be voted in respect thereof as the
proxy holders deem advisable.
126
<PAGE>
BRIO TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... 128
Consolidated Balance Sheets................................................. 129
Consolidated Statements of Operations....................................... 130
Consolidated Statements of Stockholders' Equity (Deficit)................... 131
Consolidated Statements of Cash Flows....................................... 132
Notes to Consolidated Financial Statements.................................. 133
</TABLE>
127
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Brio Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Brio
Technology, Inc. (a Delaware corporation) and subsidiaries as of March 31, 1998
and 1999, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the three years in the period
ended March 31, 1999. These financial statements are the responsibility of
Brio'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, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1999, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
San Jose, California
April 19, 1999
128
<PAGE>
BRIO TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31,
-----------------
1998 1999
-------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 2,647 $18,587
Short-term investments.................................... -- 13,862
Accounts receivable, net of allowance of $551 and $682.... 6,508 7,875
Inventories............................................... 361 376
Prepaid expenses and other current assets................. 958 1,287
-------- -------
Total current assets.................................. 10,474 41,987
Property and Equipment, net................................. 3,127 4,130
Other Assets................................................ 485 937
-------- -------
$ 14,086 $47,054
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of notes payable....................... $ 3,248 $ --
Accounts payable.......................................... 2,140 1,778
Accrued liabilities--
Payroll and related benefits............................ 1,422 3,353
Other................................................... 918 2,460
Deferred revenue, current................................. 6,656 9,071
-------- -------
Total current liabilities............................. 14,384 16,662
Notes Payable, net of current maturities.................... 189 --
Noncurrent Deferred Revenue................................. 1,321 1,200
Other Noncurrent Liabilities................................ 46 37
-------- -------
Total liabilities..................................... 15,940 17,899
-------- -------
Commitments and Contingencies (Notes 5 and 8)
Stockholders' Equity (Deficit):
Convertible preferred stock, no par value, aggregate
liquidation preference of $15,850 at March 31, 1998:
Authorized--5,625,000 shares at March 31, 1998, and none
at March 31, 1999
Issued and outstanding--5,466,172 at March 31, 1998...... -- --
Preferred stock, $0.001 par value: -- --
Authorized--2,000,000 at March 31, 1999, none issued and
outstanding.............................................
Common stock, $0.001 par value:
Authorized--60,000,000 shares at March 31, 1999
Issued and outstanding--5,762,725 at March 31, 1998, and
14,600,425 at March 31, 1999............................ 6 15
Additional paid-in capital................................ 16,780 48,348
Notes receivable from stockholders........................ (292) (217)
Deferred compensation..................................... (459) (268)
Accumulated components of comprehensive loss.............. (20) 33
Accumulated deficit....................................... (17,869) (18,756)
-------- -------
Total stockholders' equity (deficit).................. (1,854) 29,155
-------- -------
$ 14,086 $47,054
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
129
<PAGE>
BRIO TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenues:
License fees....................................... $10,328 $19,795 $34,247
Services........................................... 3,058 6,977 12,277
------- ------- -------
Total revenues................................... 13,386 26,772 46,524
------- ------- -------
Cost of revenues:
License fees....................................... 839 1,008 1,517
Services........................................... 817 2,595 5,425
------- ------- -------
Total cost of revenues........................... 1,656 3,603 6,942
------- ------- -------
Gross profit......................................... 11,730 23,169 39,582
------- ------- -------
Operating expenses:
Research and development........................... 2,447 5,218 7,180
Sales and marketing................................ 13,588 22,728 27,598
General and administrative......................... 1,685 2,954 4,825
In-process research and development................ -- -- 1,653
------- ------- -------
Total operating expenses......................... 17,720 30,900 41,256
------- ------- -------
Loss from operations................................. (5,990) (7,731) (1,674)
Interest and other income (expense), net............. 25 (341) 1,084
------- ------- -------
Net loss before income taxes......................... (5,965) (8,072) (590)
Income taxes......................................... -- -- (297)
------- ------- -------
Net loss............................................. $(5,965) $(8,072) $ (887)
======= ======= =======
Basic net loss per share............................. $ (1.14) $ (1.41) $ (0.06)
======= ======= =======
Shares used in computing basic net loss per share.... 5,218 5,724 13,709
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
130
<PAGE>
BRIO TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Notes
Convertible Receivable Accumulated
Compre- Preferred Stock Common Stock Additional From Deferred Components of Accumu-
hensive ------------------ ------------------ Paid-in Stock- Compen- Comprehensive lated
Loss Shares Amount Shares Amount Capital holders sation Loss Deficit
------- ---------- ------ ---------- ------ ---------- ---------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH
31, 1996......... 2,496,756 $-- 5,021,392 $ 5 $ 3,927 $ -- $ -- $-- $ (3,832)
Issuance of
Series B
preferred stock,
net............. 2,117,147 -- -- -- 5,993 -- -- -- --
Exercise of
common stock
options for
cash............ -- -- 112,435 -- 67 -- -- -- --
Exercise of
common stock
options for
notes
receivable...... -- -- 553,500 1 331 (332) -- -- --
Repurchase of
restricted
shares.......... -- -- (30,417) -- (18) 18 -- -- --
Net loss........ $(5,965) -- -- -- -- -- -- -- -- (5,965)
Cumulative
translation
adjustment...... (62) -- -- -- -- -- -- -- (62) --
------- ---------- --- ---------- --- ------- ----- ----- --- --------
$(6,027)
=======
BALANCE, MARCH
31, 1997......... 4,613,903 -- 5,656,910 6 10,300 (314) -- (62) (9,797)
Issuance of
Series C
preferred stock,
net............. 852,269 -- -- -- 5,844 -- -- -- --
Exercise of
common stock
options for
cash............ -- -- 47,594 -- 37 -- -- -- --
Exercise of
common stock
options for
notes
receivable...... -- -- 57,701 -- 35 (35) -- -- --
Exercise of
common stock
warrant for
cash............ -- -- 10,000 -- 6 -- -- -- --
Repurchase of
restricted
shares.......... -- -- (9,480) -- (6) -- -- -- --
Repayment of
notes receivable
from
stockholders.... -- -- -- -- -- 57 -- -- --
Deferred
compensation.... -- -- -- -- 580 -- (580) -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- 105 -- --
Termination of
shares granted
under incentive
stock plans..... -- -- -- -- (16) -- 16 -- --
Net loss........ $(8,072) -- -- -- -- -- -- -- -- (8,072)
Cumulative
translation
adjustment...... 42 -- -- -- -- -- -- -- 42 --
------- ---------- --- ---------- --- ------- ----- ----- --- --------
$(8,030)
=======
BALANCE, MARCH
31, 1998......... 5,466,172 -- 5,762,725 6 16,780 (292) (459) (20) (17,869)
Conversion of
preferred stock
to common stock. (5,466,172) -- 5,466,172 6 (6) -- -- -- --
Exercise of
common stock
options for
cash............ -- -- 201,936 -- 352 -- -- -- --
Issuance of
common stock
pursuant to
Employee Stock
Purchase Plan... -- -- 105,137 -- 737 -- -- -- --
Issuance of
common stock
during initial
public offering,
net............. -- -- 3,085,000 3 30,421 -- -- -- --
Repurchase of
restricted
shares.......... -- -- (20,545) -- (16) 16 -- -- --
Repayment of
notes receivable
from
stockholders.... -- -- -- -- -- 59 -- -- --
Amortization of
deferred
compensation.... -- -- -- -- -- -- 129 -- --
Termination of
shares granted
under incentive
stock plans..... -- -- -- -- (62) -- 62 -- --
Income tax
benefit from
stock options
exercised....... -- -- -- -- 142 -- -- -- --
Net loss........ $ (887) -- -- -- -- -- -- -- -- (887)
Cumulative
translation
adjustment...... 52 -- -- -- -- -- -- -- 52 --
Unrealized gain
on investments.. 1 -- -- -- -- -- -- -- 1 --
------- ---------- --- ---------- --- ------- ----- ----- --- --------
$ (834)
=======
BALANCE, MARCH
31, 1999......... -- $-- 14,600,425 $15 $48,348 $(217) $(268) $33 $(18,756)
========== === ========== === ======= ===== ===== === ========
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
-------------
<S> <C>
BALANCE, MARCH
31, 1996......... $ 100
Issuance of
Series B
preferred stock,
net............. 5,993
Exercise of
common stock
options for
cash............ 67
Exercise of
common stock
options for
notes
receivable...... --
Repurchase of
restricted
shares.......... --
Net loss........ (5,965)
Cumulative
translation
adjustment...... (62)
-------------
BALANCE, MARCH
31, 1997......... 133
Issuance of
Series C
preferred stock,
net............. 5,844
Exercise of
common stock
options for
cash............ 37
Exercise of
common stock
options for
notes
receivable...... --
Exercise of
common stock
warrant for
cash............ 6
Repurchase of
restricted
shares.......... (6)
Repayment of
notes receivable
from
stockholders.... 57
Deferred
compensation.... --
Amortization of
deferred
compensation.... 105
Termination of
shares granted
under incentive
stock plans..... --
Net loss........ (8,072)
Cumulative
translation
adjustment...... 42
-------------
BALANCE, MARCH
31, 1998......... (1,854)
Conversion of
preferred stock
to common stock. --
Exercise of
common stock
options for
cash............ 352
Issuance of
common stock
pursuant to
Employee Stock
Purchase Plan... 737
Issuance of
common stock
during initial
public offering,
net............. 30,424
Repurchase of
restricted
shares.......... --
Repayment of
notes receivable
from
stockholders.... 59
Amortization of
deferred
compensation.... 129
Termination of
shares granted
under incentive
stock plans..... --
Income tax
benefit from
stock options
exercised....... 142
Net loss........ (887)
Cumulative
translation
adjustment...... 52
Unrealized gain
on investments.. 1
-------------
BALANCE, MARCH
31, 1999......... $29,155
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
131
<PAGE>
BRIO TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.......................................... $(5,965) $(8,072) $ (887)
Adjustments to reconcile net loss to cash (used
in) provided by operating activities--
Depreciation and amortization................... 298 673 1,299
In-process research and development............. -- -- 1,653
Loss on disposal of property and equipment...... -- -- 48
Provision for returns and doubtful accounts..... 346 469 390
Deferred compensation amortization.............. -- 105 129
Changes in operating assets and liabilities, net
of acquired business--
Accounts receivable........................... (3,213) (1,833) (1,757)
Inventories................................... 48 (257) (15)
Prepaid expenses and other assets............. (571) (794) (303)
Accounts payable and accrued liabilities...... 2,790 997 3,198
Deferred revenue.............................. 1,533 4,916 2,294
------- ------- --------
Cash (used in) provided by operating
activities................................. (4,734) (3,796) 6,049
------- ------- --------
Cash Flows from Investing Activities:
Purchases of property and equipment............... (1,883) (1,702) (2,232)
Purchases of short-term investments............... -- -- (15,494)
Sales of short-term investments................... -- -- 1,633
Acquisition of business, net of cash acquired..... -- -- (2,203)
Cash payment for DataBasics acquisition........... (95) -- --
------- ------- --------
Cash used in investing activities........... (1,978) (1,702) (18,296)
------- ------- --------
Cash Flows from Financing Activities:
Proceeds from notes payable....................... 2,093 4,950 --
Repayments under notes payable.................... (1,035) (3,675) (3,437)
Proceeds from issuance of preferred stock, net.... 5,993 5,844 --
Proceeds from issuance of common stock, net....... 67 37 31,513
Proceeds from repayment of notes receivable from
stockholders..................................... -- 457 59
Issuance of note to stockholder................... -- (400) --
------- ------- --------
Net cash provided by financing activities... 7,118 7,213 28,135
------- ------- --------
Net increase in cash and cash equivalents......... 406 1,715 15,888
Effect of exchange rate changes on cash........... (62) 42 52
Cash and cash equivalents, beginning of period.... 546 890 2,647
------- ------- --------
Cash and cash equivalents, end of period.......... $ 890 $ 2,647 $ 18,587
======= ======= ========
Supplemental disclosure of cash flow information:
Cash paid for interest.......................... $ 54 $ 144 $ 16
======= ======= ========
Cash paid for income taxes...................... $ -- $ -- $ 297
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
132
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. ORGANIZATION AND OPERATIONS:
Brio Technology, Inc. (Brio), was incorporated in California in 1989 and
reincorporated in Delaware in April 1998 (see Note 7). Brio designs, develops,
markets and supports software products that enable organizations to rapidly
implement enterprise business intelligence solutions. Brio's products and
services are designed to allow organizations to quickly 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.
Brio is subject to a number of risks associated with companies in a similar
stage of development, including rapid technological growth, dependence on key
personnel and the sales force, litigation (see Note 8), 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 Brio and its
wholly-owned 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 Brio's subsidiaries is the local currency.
Accordingly, Brio applies the current rate method to translate the
subsidiaries' financial statements into U.S. dollars. Translation adjustments
are included in accumulated components of comprehensive loss in stockholders'
equity (deficit) in the accompanying consolidated financial statements.
Transaction gains and losses, which have not been material to date, are
included in interest and other income (expense), net, in the accompanying
consolidated statements of operations.
Cash and Cash Equivalents
Brio considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. At March 31, 1998 and 1999, Brio
held its cash in checking and money market accounts.
Short-Term Investments
Management determines the appropriate classifications of investments in debt
and equity securities at the time of purchase. All of Brio's investments are
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses
133
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999
reported in accumulated components of comprehensive loss in stockholders'
equity (deficit) in the accompanying consolidated financial statements. The
fair value of Brio's available-for-sale securities is based on quoted market
prices at the balance sheet dates. Realized gains and losses and declines in
value judged to be other-than-temporary on available-for-sale securities are
included in interest and other income (expense), net, in the accompanying
consolidated statements of operations. The cost of securities sold is based on
the specific identification method. Interest on securities classified as
available-for-sale is included in interest and other income (expense), net, in
the accompanying consolidated statements of operations.
A summary of the fair value of Brio's available-for-sale investment portfolio
follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1999
--------------
<S> <C>
Corporate debt securities and commercial paper............. $14,040
Government debt securities................................. 8,631
-------
Total.................................................... 22,671
Less: Cash equivalents 8,809
-------
Total short-term investments............................. $13,862
=======
</TABLE>
There were no investments in debt and equity securities at March 31, 1998.
Inventories
Brio'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 amortized 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,
----------------
1998 1999
------- -------
<S> <C> <C>
Computer equipment and software......................... $ 2,999 $ 4,287
Furniture and fixtures.................................. 1,156 1,880
Leasehold improvements.................................. 175 240
------- -------
4,330 6,407
Less: Accumulated depreciation and amortization......... (1,203) (2,277)
------- -------
$ 3,127 $ 4,130
======= =======
</TABLE>
134
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999
Revenue Recognition
Effective April 1, 1998, Brio adopted Statement of Position (SOP) 97-2,
"Software Revenue Recognition." SOP 97-2 provides guidance on applying
generally accepted accounting principles in recognizing revenue on software
transactions. The adoption of SOP 97-2 did not have a material impact on Brio's
consolidated financial position or the timing of Brio's revenue recognition, or
cause changes to its revenue recognition policy.
Brio's revenues are derived from two sources, license fees and services.
Services include software maintenance and support, training and system
implementation consulting.
Revenues from license fees are 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. If
vendor-specific objective evidence does not exist to allocate the total fee to
all delivered and undelivered elements of the arrangement, revenue is deferred
until such evidence does exist, or until all elements are delivered, whichever
is earlier. Allowances are established for potential product returns and credit
losses. In instances where payments are subject to extended payment terms, and
the fee is not fixed or determinable, 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, which is typically twelve months. 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.
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.
135
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999
Comprehensive Loss
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130,
"Reporting Comprehensive Income," which was adopted by Brio in the quarter
ended June 30, 1998. SFAS No. 130 requires companies to report a new,
additional measure of income on the statement of operations or to create a new
financial statement that has the new measure of income on it. "Comprehensive
income (loss)" includes foreign currency translation gains and losses and other
unrealized gains and losses that have been previously excluded from net income
(loss) and reflected in equity instead. Brio has reported the components of
comprehensive loss on its consolidated statements of stockholders' equity
(deficit).
Computation of Basic Net Loss Per Share
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding. No diluted net loss per share information
is presented as Brio has incurred net losses in all periods presented.
Potential common shares from conversion of preferred stock, stock options and
warrants and contingently issuable shares have been excluded from the
calculation of diluted net loss per share as they are antidilutive. Potential
common shares of 1,688,919, using the treasury stock method, were not included
in the computation of diluted net loss per share for the year ended March 31,
1999, because Brio incurred a loss in this period and, therefore, the effect
would be antidilutive.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 is effective for Brio'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. Brio is organized and operates
as one operating segment: the design, development, marketing and support of a
suite of business intelligence software solutions. Brio sells its products
domestically and internationally. See Note 4 regarding international sales.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. Management
believes the adoption of SFAS No. 133 will not have a material effect on Brio's
financial statements.
3. ACQUISITIONS:
On February 23, 1999, Brio entered into a definitive merger agreement with
SQRIBE Technologies Corp. Under the terms of the agreement, upon closing of the
transaction, Brio stockholders will hold approximately 55% of the combined
company, with former SQRIBE stockholders holding approximately 45%. The
transaction will be accounted for as a pooling of interests.
In October 1998, Brio acquired all of the outstanding stock of MerlinSoft,
Inc. (MerlinSoft), a California corporation, for cash. The total purchase price
was $2.2 million, and the acquisition was accounted for as a purchase. In
connection with the acquisition, net
136
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999
intangibles of $2.3 million were acquired. The results of operations of
MerlinSoft and the estimated fair value of the assets acquired and liabilities
assumed are included in Brio's financial statements from the date of
acquisition. Intangibles arising from the acquisition are being amortized on a
straight-line basis over three years. While Brio relied upon an third party
appraisal of the acquired intangible assets, management was primarily
responsible for estimating their fair values. Management estimates that $1.7
million of the purchased intangibles represented purchased in-process research
and development that had not yet reached technological feasibility and had no
alternative future use. The excess of the purchase price over identified other
goodwill-type intangible assets was approximately $600,000.
The purchased in-process research and development consisted of two projects.
Both of these projects are aimed at the delivery of timely, in-depth,
sophisticated analytical applications. The first product will provide data
models for analyses in specific industries and functional areas, metric
libraries, a web-based client, and the ability for business users to manage
application components ("Analysis Product"). The second product will include
in-depth modeling features for margin analysis, what-if scenarios to determine
the impact of various decisions and parameters ("Modeling Product"). The
research and development costs incurred by MerlinSoft in the development of the
Analysis Product were approximately $4,000 in 1997 and approximately $298,000
in 1998. The research and development costs incurred by MerlinSoft in the
development of the Modeling Product were approximately $34,000 in 1998. At the
date of acquisition, the research and development costs to complete the
Analysis Product were estimated by MerlinSoft to be approximately $855,000 in
fiscal 1999 and 2000. At the date of acquisition, the research and development
costs to complete the Modeling Product project were estimated by MerlinSoft to
be approximately $933,000 in fiscal 1999 and 2000. Management believes it is on
schedule with the Analysis and Modeling Products and expects successful
completion of the projects.
If these projects are not successfully developed, business, operating
results, and financial condition of Brio may be adversely affected.
Additionally, the value of other intangible assets acquired may become
impaired. Comparative pro forma information has not been presented as the
operations of MerlinSoft were not material to Brio's consolidated financial
statements.
On July 1, 1996, Brio purchased DataBasics, one of Brio'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 Brio. Sales to DataBasics for the year ended March 31, 1996
were $121,000. Comparative pro forma information related to this acquisition
has not been presented as the prior operations of the acquired company were
immaterial.
On April 1, 1996, Brio purchased Brio Technology Ltd. from Management
Decisions (MD), one of Brio's distributors in the United Kingdom. Brio 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
Brio. Sales to MD for the year ended March 31, 1996 were $39,100. Comparative
pro forma information related to this acquisition has not been presented as the
prior operations of the acquired company were immaterial.
137
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999
4. SIGNIFICANT CONCENTRATIONS:
Financial instruments that potentially subject Brio to concentrations of
credit risk consist principally of accounts receivable. Brio performs periodic
credit evaluations of its customers' financial condition and generally does not
require collateral.
Brio markets its products in the United States and Canada and in other
foreign countries through its domestic sales personnel and its foreign
subsidiaries. Revenues by geographic area were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
United States and Canada.................................... 86% 81% 82%
Europe, the Middle East and Africa.......................... 9% 13% 11%
Asia Pacific and the rest of the world...................... 5% 6% 7%
</TABLE>
No one country in either of these areas comprised more than 10% of total
revenues for fiscal 1997 ,1998 and 1999. None of Brio's international
operations have material items of long-lived assets.
5. COMMITMENTS:
Brio leases various facilities under operating leases which expire on various
dates through October 2003. Brio also leases office equipment under various
non-cancelable operating leases with terms which expire through March 2003.
Future minimum lease payments relating to these agreements as of March 31,
1999, are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
2000.............................................................. $1,733
2001.............................................................. 632
2002.............................................................. 548
2003.............................................................. 447
2004.............................................................. 256
------
$3,616
======
</TABLE>
Rent expense for the years ending March 31, 1997, 1998 and 1999 was $798,000,
$1,533,000 and $2,288,000, respectively.
6. NOTES PAYABLE:
At March 31, 1999, Brio had a $10,000,000 accounts receivable-based line of
credit agreement. Interest on borrowings under the accounts receivable line
accrues at the bank's prime rate (7.75% at March 31, 1999). At March 31, 1999,
no amounts were outstanding under these arrangements. Borrowings under the
accounts receivable line of credit were limited to 80% of eligible accounts
receivable, in addition to up to $1.5 million in non-formula availability. The
line of credit is collateralized by substantially all of Brio's assets,
including Brio's intellectual property, accounts receivable and property and
equipment. This line of credit requires Brio to comply with various financial
covenants, including quarterly requirements to maintain a minimum quick ratio,
and minimum tangible net worth. The line expires on December 1, 1999.
138
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999
7. COMMON STOCK:
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 a proposed Initial Public
Offering (IPO). On May 1, 1998, the offering was consummated and all of the
currently outstanding convertible preferred stock converted to 5,466,172 shares
of common stock upon the closing of the IPO.
In April 1998, Brio's board of directors approved a one-for-two reverse stock
split of its preferred and common stock. All preferred stock, common stock and
per share amounts have been adjusted retroactively to give effect to the
reverse stock split.
In April 1998, Brio's board of directors approved the reincorporation of Brio
in Delaware in connection with Brio's IPO which was consummated May 1, 1998.
Upon reincorporation, Brio issued new shares with a par value of $0.001 per
share to all preferred and common stockholders.
As of March 31, 1999, Brio had reserved shares of its common stock for future
issuance as follows:
<TABLE>
<S> <C>
Employee stock purchase plan..................................... 619,441
Exercise of stock options........................................ 4,032,542
---------
Total shares reserved.......................................... 4,651,983
=========
</TABLE>
During fiscal 1997, certain employees funded the purchase of common stock
under the 1992 Stock Option Plan with fully secured notes payable to Brio.
Stock Options
As of March 31, 1999, Brio had 1,158,467 shares of common stock reserved for
issuance under the 1992 Stock Option Plan (the "Plan"). Under the Plan, the
Board of Directors may grant options to purchase Brio's common stock to
employees, directors, or consultants at an exercise price of not less than 100%
of the fair value of Brio's common stock. 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.
Brio's 1998 Stock Option Plan (the "1998 Plan") was adopted by Brio's Board
of Directors in February 1998. As of March 31, 1999, Brio had 2,574,075 shares
of common stock reserved for issuance under the 1998 Plan. The shares reserved
for issuance under the 1998 Plan increase annually on the first day of Brio'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
Brio's common stock to employees, directors or consultants at an exercise price
of not less than 100% of the fair value of Brio'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 Brio'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.
139
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999
Brio's 1998 Directors' Stock Option Plan (the "Directors' Plan") was adopted
by Brio's Board of Directors in February 1998. A total of 300,000 shares of
common stock has been reserved for issuance under the Directors' Plan. Through
March 31, 1999, 35,000 options were granted under the Directors' Stock Option
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 non-employee director of Brio 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 non-employee directors of Brio 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 Brio'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.
Option activity under the Plans is as follows:
<TABLE>
<CAPTION>
Weighted
Shares Average
Available Options Exercise
for Grant Outstanding Price
---------- ----------- --------
<S> <C> <C> <C>
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.............................. (723,847) 723,847 3.08
Options exercised............................ -- (105,295) 0.67
Options canceled............................. 263,317 (263,317) 1.28
---------- --------- ------
Outstanding--March 31, 1998.................... 124,792 1,202,274 2.03
Authorized................................... 2,886,867 -- --
Restricted shares repurchased................ 20,545 -- --
Options granted.............................. (1,504,035) 1,504,035 10.73
Options exercised............................ -- (201,936) 1.77
Options canceled............................. 241,246 (241,246) 5.60
---------- --------- ------
Outstanding--March 31, 1999.................... 1,769,415 2,263,127 $ 7.46
========== ========= ======
</TABLE>
Certain unvested options have been exercised and are subject to repurchase by
Brio until such shares vest. As of March 31, 1999, 60,051 shares were subject
to the right of repurchase at an exercise price of $0.60 per share.
140
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999
A summary of options outstanding and exercisable as of March 31, 1999, is as
follows:
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted Weighted
Range of Average Average Average
Contractual Number Contractual Exercise Number Exercise
Prices Options Life (years) Price Exercisable Price
----------- --------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.60-$ 1.20 602,347 2.79 $ 0.91 305,805 $ 0.87
$ 2.00-$ 6.00 225,420 3.54 3.78 72,950 3.59
$ 7.38-$ 8.00 668,838 4.35 7.99 83,316 8.00
$ 8.06-$12.38 393,100 4.77 9.95 2,401 9.19
$12.56-$24.50 358,422 4.59 16.31 24,706 12.91
$25.56 15,000 4.80 25.56 -- --
- ------------- --------- ---- ------ ------- ------
$ 0.60-$25.56 2,263,127 3.97 $ 7.46 489,178 $ 3.14
========= =======
</TABLE>
Brio's 1998 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
Brio's Board of Directors in February 1998. As of March 31, 1999, Brio had
619,441 shares of common stock reserved for issuance under the Purchase Plan.
The shares reserved for issuance under the Purchase Plan increase annually on
the first day of Brio'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 Brio's
common stock on the first day or the last day of each six-month offering
period.
Brio accounts for its stock option and employee stock purchase plans (the
"Plans") under APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Had compensation expense for these Plans been determined consistent with SFAS
No. 123, "Accounting for Stock Based Compensation," Brio's net loss would have
increased to the following pro forma amounts (in thousands, except per share
information):
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net loss:
As reported..................................... $(5,965) $(8,072) $ (887)
Pro forma....................................... $(5,988) $(8,154) $(2,570)
Basic net loss per share:
As reported..................................... $ (1.14) $ (1.41) $ (0.06)
Pro forma....................................... $ (1.15) $ (1.42) $ (0.19)
</TABLE>
The weighted average grant date fair value of options granted during fiscal
1997, 1998 and 1999, was $0.12, $0.64 and $7.13, 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 1997 and
1998: 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 the grant
date; and expected volatility of 0.01 percent. In 1999, the assumptions were:
risk-free interest rates ranging from 4.33 to 5.73 percent; expected dividend
yield of zero percent; expected lives of 3.24 years from the grant date; and
expected volatility of 100.9%.
141
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999
During fiscal 1999, Brio issued 105,137 shares under the Purchase Plan. The
weighted average grant date fair value of each purchase right issued under the
Purchase Plan during fiscal 1999 was $4.76. The fair value of the purchase
rights granted in fiscal 1999 was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 4.24%; expected dividend yield of zero percent; expected life
of one-half year; and expected volatility of 100.9%.
Deferred Compensation
In connection with the granting of 1,369,368 stock options to employees
during the fiscal year ended March 31, 1998, with a weighted average exercise
price of $1.49 per share and a weighted average deemed fair market value of
$1.91 per share, Brio 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 (deficit) and
amortized ratably over the vesting period of the applicable options.
Approximately $105,000 and $129,000 was expensed during the fiscal year ended
March 31, 1998 and 1999, respectively, and the balance will be expensed ratably
over the next three years as the options vest.
8. CONTINGENCIES:
On January 20, 1997, Business Objects, S.A. filed a complaint (the
"Complaint") against Brio in the U.S. District Court for the Northern District
of California in San Jose, California alleging that certain of Brio's products
infringe U.S. Patent No. 5,555,403. The Complaint seeks injunctive relief and
unspecified monetary damages. In April 1997, Brio 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
Brio 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. Based on the advice of
Brio's patent counsel, Brio 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. A claims construction hearing was
held on April 5, 1999. At the hearing, the court set the trial date for
September 13, 1999. The court also issued its claims construction ruling on
April 6, 1999. Brio and Business Objects, S.A. are currently conducting
discovery. The pending litigation could result in substantial expense to Brio
and significant diversion of effort by Brio's technical and management
personnel. Litigation is subject to inherent uncertainties, especially in cases
such as this where complex technical issues must be decided. Brio'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 Brio's
business, operating results and financial condition. There can be no assurance
that Brio will prevail in the litigation given the complex technical issues and
inherent uncertainties in patent litigation. In the event Brio is unsuccessful
in the litigation, Brio 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 Brio is
unable to obtain such a license, Brio may be required to license a substitute
technology or redesign to avoid infringement, in which case Brio's business,
operating results and financial condition could be materially adversely
affected. Collectively, sales of BrioQuery Navigator, BrioQuery Explorer and
BrioQuery
142
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MARCH 31, 1999
Designer represented a majority of Brio's revenues in fiscal 1997 and fiscal
1998 and a significant portion of Brio's revenues in fiscal 1999. Given the
early stages of discovery in this matter, Brio is unable to estimate the
likelihood that they will prevail in this matter or amount of loss, if any,
which may be incurred as a result of the Complaint.
9. INCOME TAXES:
Brio 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 Brio's
financial statements. Deferred tax assets and liabilities are determined using
the current applicable enacted tax rate and provisions of the enacted tax law.
The provision for income taxes of $297,000 in fiscal 1999 consisted of
Federal and state alternative minimum taxes, as the Company utilized net
operating loss carryforwards to offset current income taxes generated from
domestic operations.
The provision for income taxes differs from the statutory U.S. Federal income
tax rate primarily due to state taxes, the utilization of net operating loss
carryforwards, alternative minimum taxes, net change in the valuation allowance
and foreign losses for which no tax benefit has been provided.
Brio had a net deferred tax asset at March 31, 1998 and 1999 as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Allowance for sales returns and doubtful accounts.......... $ 220 $ 255
Accumulated depreciation................................... (143) (157)
Accrued expenses and other................................. 1,415 3,844
Intangible assets amortized for tax........................ -- 673
Federal and state credits.................................. 307 367
Capitalized research and development....................... 246 277
Net operating losses....................................... 3,211 316
------- -------
5,256 5,575
Valuation allowance........................................ (5,256) (5,470)
------- -------
Net deferred income tax asset.............................. $ -- $ 105
======= =======
</TABLE>
At March 31, 1999, Brio had Federal and state net operating loss
carryforwards of $800,000 and $400,000, respectively, which expire at various
dates through 2018. Brio believes that, based on a number of factors, there is
sufficient uncertainty regarding the realizability of carryforwards and credits
that a full valuation allowance has been recorded against the net deferred tax
asset to the extent the net deferred asset exceeds current and prior year's
regular tax. These factors include a history of operating losses, recent
increases in expense levels to support Brio's growth, the competitive nature of
Brio's market and the lack of predictability of revenue. Management will
continue to assess the realizability of the tax benefits available to Brio
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.
143
<PAGE>
SQRIBE TECHNOLOGIES CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................................ 145
Consolidated Balance Sheets................................................. 146
Consolidated Statements of Operations and Comprehensive Income (Loss)....... 147
Consolidated Statements of Stockholders' Equity (Deficit) .................. 148
Consolidated Statements of Cash Flows....................................... 149
Notes to Consolidated Financial Statements.................................. 150
</TABLE>
144
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
SQRIBE Technologies Corp.:
We have audited the accompanying consolidated balance sheets of SQRIBE
Technologies Corp. and its subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations and comprehensive income
(loss), of stockholders' equity (deficit), and of cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries
as of December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
February 19, 1999
(March 24, 1999 as to Note 11)
145
<PAGE>
SQRIBE TECHNOLOGIES CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
<TABLE>
<CAPTION>
December 31,
---------------- March 31,
1997 1998 1999
------- ------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 4,679 $ 1,605 $ 2,439
Marketable securities available for sale........ -- 779 423
Receivables--net of allowance of $446 in 1997,
$837 in 1998 and $712 in 1999.................. 8,233 13,052 12,799
Prepaid expenses and other assets............... 452 562 376
Deferred income taxes........................... 75 1,759 1,990
------- ------- -------
Total current assets......................... 13,439 17,757 18,027
PROPERTY AND EQUIPMENT, net...................... 1,785 2,258 2,410
OTHER ASSETS..................................... 138 869 869
------- ------- -------
TOTAL............................................ $15,362 $20,884 $21,306
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................ $ 983 $ 1,847 $ 2,473
Accrued liabilities............................. 5,119 6,720 5,805
Line of credit.................................. -- -- 2,000
Deferred revenue................................ 7,873 9,059 9,745
Note payable to stockholder..................... 368 -- --
------- ------- -------
Total current liabilities.................... 14,343 17,626 20,023
------- ------- -------
DEFERRED REVENUES................................ -- 994 994
DEFERRED RENT.................................... 110 85 96
REDEEMABLE COMMON STOCK, 180,000 shares
outstanding..................................... 344 1,260 3,110
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock and additional paid in capital,
$.001 par value, 5,368,920 shares authorized;
4,921,776 shares outstanding (aggregate
liquidation preference of $19,560 at
December 31, 1998)............................. 5 5 5
Common stock, $.001 par value, 25,000,000 shares
authorized; 6,292,729, 7,825,493 and 7,848,686
shares outstanding in 1997, 1998 and 1999,
respectively................................... 6 8 8
Additional paid-in capital...................... 15,675 17,799 17,830
Notes receivable for common stock............... -- (1,603) (1,603)
Deferred compensation........................... -- (188) (188)
Accumulated other comprehensive income (loss)... 175 85 (165)
Accumulated deficit............................. (15,296) (15,187) (18,804)
------- ------- -------
Total stockholders' equity (deficit)......... 565 919 (2,917)
------- ------- -------
TOTAL............................................ $15,362 $20,884 $21,306
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
146
<PAGE>
SQRIBE TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three months
Years ended December ended March
31, 31,
------------------------- ---------------
1996 1997 1998 1998 1999
------- ------- ------- ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
License.......................... $12,862 $15,936 $24,035 $4,757 $ 6,044
Services......................... 5,135 9,187 15,127 2,968 4,711
------- ------- ------- ------ -------
Total revenues................. 17,997 25,123 39,162 7,725 10,755
COST OF REVENUES:
Cost of license.................. 1,258 946 1,090 173 227
Cost of services................. 1,171 2,506 5,043 784 2,165
------- ------- ------- ------ -------
GROSS PROFIT....................... 15,568 21,671 33,029 6,768 8,363
------- ------- ------- ------ -------
OPERATING EXPENSES:
Marketing and sales.............. 8,633 12,434 20,872 4,135 6,565
General and administrative....... 6,192 4,906 5,723 1,370 1,487
Research and development......... 3,371 4,612 6,552 1,313 1,998
Stock compensation to principal
stockholders (Note 6)........... -- 7,707 -- -- --
------- ------- ------- ------ -------
Total operating expenses....... 18,196 29,659 33,147 6,818 10,050
------- ------- ------- ------ -------
LOSS FROM OPERATIONS............... (2,628) (7,988) (118) (50) (1,687)
Other income (expense), net........ 23 416 1,593 56 (79)
------- ------- ------- ------ -------
INCOME (LOSS) BEFORE INCOME TAXES.. (2,605) (7,572) 1,475 6 (1,766)
Provision for income taxes......... 54 104 450 2 1
------- ------- ------- ------ -------
NET INCOME (LOSS).................. (2,659) (7,676) 1,025 4 (1,767)
INCREASE IN REDEMPTION VALUE OF
REDEEMABLE COMMON STOCK........... -- -- (916) (286) (1,850)
------- ------- ------- ------ -------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK...................... $(2,659) $(7,676) $ 109 $ (282) $(3,617)
======= ======= ======= ====== =======
COMPREHENSIVE INCOME (LOSS):
Net income (loss)................ $(2,659) $(7,676) $ 1,025 $ (282) $(1,767)
Foreign currency translation
adjustments..................... -- 175 (177) (200) 106
Unrealized holding gain (loss) on
securities...................... -- -- 87 -- (356)
------- ------- ------- ------ -------
COMPREHENSIVE INCOME (LOSS)........ $(2,659) $(7,501) $ 935 $ (482) $(2,017)
======= ======= ======= ====== =======
Net Income (Loss) per Share:
Basic............................ $ (0.30) $ (0.95) $ 0.02 $(0.04) $ (0.49)
======= ======= ======= ====== =======
Diluted.......................... $ (0.30) $ (0.95) $ 0.01 $(0.04) $ (0.49)
======= ======= ======= ====== =======
Shares used in Computation:
Basic............................ 8,854 8,112 7,126 6,486 7,386
======= ======= ======= ====== =======
Diluted.......................... 8,854 8,112 13,105 6,486 7,386
======= ======= ======= ====== =======
</TABLE>
See notes to consolidated financial statements.
147
<PAGE>
SQRIBE TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(Dollars in thousands)
<TABLE>
<CAPTION>
Note Accumulated
Preferred Stock Common Stock Additional Receivable Other
---------------- ------------------ Paid-in for Common Deferred Comprehensive Accumulated
Shares Amount Shares Amount Capital Stock Compensation Income Deficit Total
--------- ------ ---------- ------ ---------- ---------- ------------ ------------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
January 1,
1996........... 1,735,290 $ 2 8,582,942 $ 8 $ 5,398 $ -- $ -- $ -- $ (4,961) $ 447
Proceeds from
exercise of
options........ -- -- 20,590 -- 21 -- -- -- -- 21
Stock
compensation
arrangement.... -- -- -- -- 110 -- -- -- -- 110
Issuance of
preferred stock
upon exercise
of warrants ... 617,650 -- -- -- 2,100 -- -- -- -- 2,100
Net loss........ -- -- -- -- -- -- -- -- (2,659) (2,659)
--------- --- ---------- --- ------- ------- ----- ----- -------- -------
Balances,
December 31,
1996........... 2,352,940 2 8,603,532 8 7,629 -- -- -- (7,620) 19
Proceeds from
exercise of
options........ -- -- 168,033 -- 168 -- -- -- -- 168
Conversion of
common stock to
Series B
preferred
stock.......... 2,478,836 3 (2,478,836) (2) 7,706 -- -- -- -- 7,707
Conversion of
redeemable
common stock to
Series B
preferred
stock.......... 90,000 -- -- -- 172 -- -- -- -- 172
Other
comprehensive
income......... -- -- -- -- -- -- -- 175 -- 175
Net loss........ -- -- -- -- -- -- -- -- (7,676) (7,676)
--------- --- ---------- --- ------- ------- ----- ----- -------- -------
Balances,
December 31,
1997........... 4,921,776 5 6,292,729 6 15,675 -- -- 175 (15,296) 565
Proceeds from
exercise of
options........ -- -- 1,570,264 2 1,772 (1,641) -- -- -- 133
Stock
compensation
arrangements... -- -- -- -- 390 -- (188) -- -- 202
Repurchase of
common stock... -- -- (37,500) -- (38) 38 -- -- --
Other
comprehensive
loss........... -- -- -- -- -- -- -- (90) -- (90)
Increase in
value of
redeemable
common stock... -- -- -- -- -- -- -- -- (916) (916)
Net income...... -- -- -- -- -- -- -- -- 1,025 1,025
--------- --- ---------- --- ------- ------- ----- ----- -------- -------
Balances,
December 31,
1998........... 4,921,776 5 7,825,493 8 17,799 (1,603) (188) 85 (15,187) 919
Proceeds from
exercise of
options
(unaudited).... -- -- 23,193 -- 31 -- -- -- -- 31
Other
comprehensive
income
(unaudited).... -- -- -- -- -- -- -- (250) -- 19
Increase in
value of
redeemable
common stock... -- -- -- -- -- -- -- -- (1,850) (1,850)
Net loss
(unaudited).... -- -- -- -- -- -- -- -- (1,767) (1,767)
--------- --- ---------- --- ------- ------- ----- ----- -------- -------
Balances, March
31, 1999
(unaudited).... 4,921,776 $ 5 7,848,686 $ 8 $17,830 $(1,603) $(188) $(165) $(18,804) $(2,917)
========= === ========== === ======= ======= ===== ===== ======== =======
</TABLE>
See notes to consolidated financial statements.
148
<PAGE>
SQRIBE TECHNOLOGIES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December Three Months ended
31, March 31,
------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- --------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES: (unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss)............... $(2,659) $(7,676) $ 1,025 $ 4 $ (1,767)
Reconciliation to cash provided
by (used for) operating
activities:
Deferred income taxes.......... -- (75) (1,684) -- --
Stock compensation............. 110 7,707 202 -- --
Depreciation and amortization.. 748 945 1,081 258 319
Gain on Eventus sale (Note 8).. -- -- (692) -- --
Loss on disposal of property
and equipment................. 95 8 4 -- --
Changes in:
Receivables................... (1,748) (3,853) (4,665) (650) 65
Prepaid expenses and other
assets....................... 134 (479) (734) (165) (50)
Accounts payable.............. 41 (140) 746 (347) 657
Accrued liabilities........... 1,965 3,034 1,518 (945) (800)
Deferred revenue.............. 1,814 3,234 2,112 (321) 786
------- ------- ------- -------- ---------
Cash provided by (used for)
operating activities........ 500 2,705 (1,087) (2,166) (790)
------- ------- ------- -------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment...................... (1,070) (1,400) (1,565) (286) (482)
------- ------- ------- -------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from exercise of
options........................ 21 168 133 83 32
Repayments of note payable to
stockholder.................... (384) (91) (368) -- --
Proceeds (repayments) of debt... -- -- -- (9) 2,000
Repayments of capital lease
obligations.................... (32) (8) (4) -- --
Exercise of preferred stock
warrants....................... 2,100 -- -- -- --
------- ------- ------- -------- ---------
Cash provided by (used for)
financing activities........ 1,705 69 (239) 74 2,032
------- ------- ------- -------- ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS.... -- 175 (183) 137 74
------- ------- ------- -------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS............ 1,135 1,549 (3,074) (2,241) 834
CASH AND CASH EQUIVALENTS:
Beginning of period............. 1,995 3,130 4,679 4,679 1,605
------- ------- ------- -------- ---------
End of period................... $ 3,130 $ 4,679 $ 1,605 $ 2,438 $ 2,439
======= ======= ======= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION--
Cash paid during the period for:
Interest........................ $ 56 $ 27 $ 18 $ 6 $ 41
======= ======= ======= ======== =========
Income taxes.................... $ 1 $ 33 $ 2,230 $ 787 $ 48
======= ======= ======= ======== =========
NONCASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of common stock into
preferred stock................ $ 7,879
=======
Stock issued for notes, net of
cancellations.................. $ 1,603 $ 1,641
======= ========
Increase in redemption value of
redeemable common stock........ $ 916 $ 286 $ 1,850
======= ======== =========
</TABLE>
See notes to consolidated financial statements.
149
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
SQRIBE Technologies Corp. (SQRIBE) designs, develops, markets and supports a
family of information retrieval and dissemination software products for
relational databases on a worldwide basis. SQRIBE was founded in 1985 and has
subsidiaries located in Germany, France, United Kingdom and Australia. On
February 12, 1997, SQRIBE changed its name from Management Information
Technology, Incorporated to SQRIBE Technologies Corp.
Principles of Consolidation
The consolidated financial statements include the accounts of SQRIBE and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Estimates and Certain Significant Risks and Uncertainties
The preparation of consolidated 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, the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Such management estimates include the allowance for
doubtful accounts receivable, and warranty reserves. Actual results could
differ from those estimates.
For the years ended December 31, 1997 and 1998 and the three months ended
March 31, 1998 and 1999, no customers accounted for more than 10% of SQRIBE's
total revenues. For the year ended December 31, 1996, one customer accounted
for 12% of SQRIBE's total revenues.
SQRIBE operates in a rapidly changing environment that involves a number of
risks, some of which are beyond SQRIBE's control, that could have a material
adverse effect on SQRIBE's business, operating results, and financial
condition. These risks include variability and uncertainty of revenues and
operating results; product concentration, technological change, and new
products; competition; intellectual property/litigation; management of growth;
dependence on key personnel; limited sources of component supply; licenses from
third parties; geographic concentration; acquisitions and investments;
international operations; regulatory requirements; expansion of distribution
channels; and year 2000 compatibility issues.
Concentration of Credit Risk
SQRIBE's cash and cash equivalents are deposited with a major financial
institution. At times such deposits may be in excess of insured limits.
Management believes that SQRIBE's investments in cash equivalents have minimal
credit risk.
SQRIBE licenses products primarily to Fortune 500 companies in North America
and Europe. SQRIBE maintains reserves for estimated potential credit losses.
150
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
Cash and Cash Equivalents
Cash equivalents are short-term, highly liquid cash investments with an
original maturity of less than 90 days. The carrying amount of SQRIBE's cash
equivalents approximates fair value due to the short-term maturity of those
investments.
Marketable Securities
Marketable equity securities are considered available-for-sale securities,
and, accordingly, are reported at fair market value. Changes in their market
price are considered in computing comprehensive income only.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method based on the estimated useful lives of
the assets (three to five years) or the lease term, if shorter.
Long-Lived Assets
SQRIBE evaluates long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
Software Development Costs
Development costs incurred in the research and development of new software
products are expensed as incurred until technological feasibility of the
product has been established. Software development costs incurred after
technological feasibility has been established are capitalized up to the time
the product is available for general release to customers. At December 31, 1997
and 1998, there were no amounts capitalized as SQRIBE's current development
process is essentially complete concurrent with the establishment of
technological feasibility.
Revenue Recognition
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 a
portion of the total fee to any undelivered elements of the arrangement. Such
undelivered elements in these arrangements typically consist of services. If
vendor-specific objective evidence does not exist to allocate the total fee to
all delivered and undelivered elements of the arrangement, revenue is deferred
until such evidence does exist, or until all elements are delivered, whichever
is earlier. Allowances are established for potential products returns and
credit losses. 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
151
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
related to maintenance are allocated based on vendor specific objective
evidence. In situations where maintenance is to be provided over a period
beyond twelve months from the balance sheet date, the portion of revenue
relating to those services is classified as noncurrent deferred revenue.
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.
In October 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 97-2,
Software Revenue Recognition (SOP 97-2). This statement provides guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions and superseded SOP 91-1, Software Revenue Recognition.
SOP 97-2 was effective for transactions entered into in 1998. The adoption of
this standard did not have a material effect on SQRIBE's financial position or
results of operations for 1998.
General and Administrative Costs
In 1996, the Company incurred costs of $318,000 when the corporate
headquarters were moved from Long Beach, California to Menlo Park, California,
consisting of $288,000 of severance for 27 terminated employees and $30,000 for
relocation costs, all of which was paid in 1996.
Stock-Based Compensation
SQRIBE accounts for stock-based awards to employees using the intrinsic value
method in accordance with Accounting Principles Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees.
Income Taxes
SQRIBE accounts for income taxes under an asset and liability approach.
Deferred tax liabilities are recognized for future taxable amounts and deferred
tax assets are recognized for future deductions net of a valuation allowance to
reduce deferred tax assets to amounts that are more likely than not to be
realized.
Foreign Currency Translation
The functional currency for SQRIBE subsidiaries outside the United States is
the local currency. Assets and liabilities of these subsidiaries are translated
at the rates of exchange at the balance sheet date. Statements of operations
are translated at the average monthly rates of exchange. Transaction gains and
losses are included in other income (expense).
Comprehensive Income
In 1998, SQRIBE adopted Statement of Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income, which requires that an enterprise
report, by major components and as a single total, the change in its net assets
during the period from nonowner sources.
152
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
Net income (Loss) per share
In 1997, SQRIBE adopted SFAS No. 128, Earnings Per Share which requires a
dual presentation of basic and diluted earnings per share ("EPS"). Basic EPS
excludes dilution and is computed by dividing net income (loss) attributable to
common stockholders by the weighted average of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (convertible preferred
stock, warrants to purchase convertible preferred stock and common stock
options and warrants using the treasury stock method) were exercised or
converted into common stock. Potential common shares in the diluted EPS
computation are excluded in net loss periods as their effect would be
antidilutive. EPS for all periods have been computed in accordance with SFAS
No. 128.
Geographic Operating Information
In 1998, SQRIBE adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Restated Information, which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
SQRIBE operates in one reportable segment (Note 10).
Unaudited Interim Financial Information
The interim financial information as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 is unaudited and has been prepared on the
same basis as the audited financial statements. In the opinion of management,
such unaudited information includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the interim
information. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS No. 133 will
be effective for SQRIBE's fiscal year ending December 31, 2000. Management
believes that this statement will not have a significant impact on SQRIBE's
financial position, results of operations or cash flows.
Reclassifications
Certain reclassifications have been made to the prior year amounts to conform
with the 1998 presentation.
153
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
2. BALANCE SHEET DETAILS
Marketable Securities
Marketable securities consists of (in thousands):
<TABLE>
<CAPTION>
Cost Unrealized
Basis Market Gain (Loss)
----- ------ -----------
<S> <C> <C> <C>
December 31, 1998
Equity securities.................................. $692 $779 $87
==== ==== ===
March 31, 1999 (Note 8)
Equity securities.................................. $300 $300 $--
==== ==== ===
</TABLE>
Property and Equipment
Property and equipment consists of (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------- March 31,
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Computers and equipment.......................... $2,837 $4,239 $4,470
Furniture and fixtures........................... 296 471 486
Automobiles...................................... 36 36 36
Leasehold improvements........................... 105 128 263
------- ------- ------
Total............................................ 3,274 4,874 5,255
Accumulated depreciation and amortization........ (1,489) (2,616) (2,845)
------- ------- ------
Property and equipment--net...................... $1,785 $2,258 $2,410
======= ======= ======
</TABLE>
Accrued Liabilities
Accrued liabilities consist of (in thousands):
<TABLE>
<CAPTION>
December 31,
------------- March 31,
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Accrued payroll and benefits......................... $2,609 $3,753 $2,549
Sales and income taxes payable....................... 1,850 2,125 1,917
Other................................................ 660 842 1,339
------ ------ ------
$5,119 $6,720 $5,805
====== ====== ======
</TABLE>
3. BORROWING ARRANGEMENTS
At December 31, 1998, SQRIBE had $2,500,000 available under a bank line of
credit. Borrowings under the line bears interest at the bank's prime rate
(7.75% at December 31, 1998) plus 0.5%, are limited to 80% of eligible
receivables and are secured by substantially all of the assets of SQRIBE.
SQRIBE also has a $1,000,000 equipment purchase line of credit. Amounts
borrowed under this line bear interest at prime plus 0.75% and convert to a
note repayable over 30 months beginning December 1999. The borrowing
arrangement requires SQRIBE to
154
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
maintain a quick ratio (excluding deferred maintenance revenues) of at least
1.25 to 1, and meet certain defined quarterly operating results. At December
31, 1998, SQRIBE was in compliance with these covenants; no amounts had been
borrowed under either line, and a $500,000 letter of credit had been issued to
support a facilities lease, reducing the availability of the revolving line of
credit. At March 31, 1999, SQRIBE was not in compliance with these covenants,
but has received a waiver; $2,000,000 had been borrowed under one line, and a
$500,000 letter of credit had been issued to support a facilities lease.
SQRIBE had an unsecured note payable to an executive officer/stockholder
which had an original principal balance of $1,000,000 which had a balance
outstanding of $368,000 at December 31, 1997. The note was repaid in 1998.
Interest expense under this note was $39,000, $29,000 and $8,000 in 1996, 1997,
and 1998, respectively.
4. LEASES
SQRIBE leases its facilities and certain equipment under operating leases,
which expire at various dates through the year 2003. Rent expense (net of
sublease income of $190,000, $79,000 and $0) was $312,000, $727,000 and
$1,245,000 in fiscal years 1996, 1997 and 1998, respectively and $453,000 in
the three months ended March 31, 1999.
In November 1998, SQRIBE signed a lease for new facilities in Redwood City,
California. SQRIBE began occupying these facilities in February 1999, and
intends to sublease its old facilities.
Future minimum annual lease commitments (net of anticipated sublease income
equal to the current lease payments of $489,000 in 1999 and $366,000 in 2000
for the old facilities) as of December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1999................................................................ $1,811
2000................................................................ 1,696
2001................................................................ 1,644
2002................................................................ 1,461
2003................................................................ 1,298
------
Total................................................................. $7,910
======
</TABLE>
5. REDEEMABLE COMMON STOCK
In June 1995, SQRIBE sold 270,000 shares of common stock for total proceeds
of $516,000. Under the arrangement, the holder has the right to put these
shares to SQRIBE at fair market value beginning in June 1999 if SQRIBE is not a
public entity at that time. (Under certain circumstances, SQRIBE has the right
to effect this redemption through the issuance of an unsecured note bearing
interest at 8% per annum.) In September 1997, one-third of these shares
(90,000) were converted to Series B preferred shares, which do not have such
redemption rights (see Note 6). At December 31, 1997, the estimated fair value
of SQRIBE's
155
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
common stock did not exceed the per share carrying value of these shares. At
December 31, 1998 and March 31, 1999, the estimated redemption value of the
common stock subject to this put right was $1,260,000 and $3,110,000,
respectively.
6. STOCKHOLDERS' EQUITY
Preferred Stock
Preferred stock consists of:
<TABLE>
<CAPTION>
Shares
----------------------
Designated Outstanding
---------- -----------
<S> <C> <C>
Series A.............................................. 2,352,940 2,352,940
Series B.............................................. 3,015,980 2,568,836
--------- ---------
Total................................................. 5,368,920 4,921,776
========= =========
</TABLE>
In September 1997, SQRIBE permitted certain stockholders controlling 97% of
the then outstanding shares of common stock, including an executive officer,
to exchange one-third of their common shares for Series B preferred stock on a
one-for-one basis. This exchange was made to facilitate the sale of stock by
these stockholders to third-party investors, who wished to purchase preferred
stock in the company, and was not done in contemplation of the proposed merger
with Brio (see note 11). SQRIBE recognized compensation expense during 1997 of
approximately $7.7 million related to this exchange based on the difference
between the fair values of the common and preferred shares at that date.
Significant terms of the outstanding preferred stock are as follows:
. Each share of preferred stock is convertible into one share of common stock
at any time at the option of the holder (subject to adjustment for events
of dilution). Conversion is mandatory in the event of the closing of a firm
underwritten public offering under the Securities Act of 1933, at a price
of at least $3.40 and $4.50 per common share for Series A and Series B,
respectively, with an aggregate offering price of at least $10,000,000. In
the event the per share price of the offering (as defined) is less than
$17.00 per share, the Series A stockholders will receive common shares
equal to $3.40 per share in value in addition to their normal conversion
amounts.
. Each share has voting rights equivalent to the number of shares of common
stock into which it is convertible.
. In the event of merger, liquidation, dissolution or winding up of SQRIBE,
preferred stockholders are entitled to receive $3.40 per share for Series A
and $4.50 per share for Series B prior to any distribution to the common
stockholders. Alternatively, the preferred stockholders may choose to
convert and receive their pro rata distribution as common stockholders,
except that, if such amount is less than $17.00 per share, the Series A
shareholders will first receive $3.40 per share and then share pro rata
with the other common stockholders.
156
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
Common Stock
At December 31, 1998, SQRIBE had reserved shares of common stock as follows:
<TABLE>
<S> <C>
Conversion of outstanding preferred stock........................... 4,921,776
Employee stock option plan.......................................... 2,887,613
Other option and warrant arrangements............................... 43,000
---------
7,852,389
=========
</TABLE>
Net Income (Loss) Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted net income (loss) per share computations (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Three Months
Years Ended December Ended
31, March 31,
------------------------ ---------------
1996 1997 1998 1998 1999
------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net income (loss) applicable to
common stock (numerator), basic and
diluted............................ $(2,659) $(7,676) $ 109 $ (282) $(3,617)
------- ------- ------ ------ -------
Shares (denominator):
Weighted average common shares
outstanding...................... 8,854 8,112 7,853 7,415 8,017
Redeemable common stock........... -- -- (180) -- (180)
Weighted average shares
outstanding subject to repurchase. -- -- (547) (929) (451)
------- ------- ------ ------ -------
Shares used in computation, basic. 8,854 8,112 7,126 6,486 7,386
Effect of dilutive securities:
Options........................... -- -- 1,050 -- --
Warrants.......................... -- -- 8 -- --
Convertible preferred stock....... -- -- 4,921 -- --
------- ------- ------ ------ -------
Shares used in computation,
diluted.......................... 8,854 8,112 13,105 6,486 7,386
------- ------- ------ ------ -------
Net income (loss) per share:
Basic............................. $ (0.30) $ (0.95) $ 0.02 $(0.04) $ (0.49)
======= ======= ====== ====== =======
Diluted........................... $ (0.30) $ (0.95) $ 0.01 $(0.04) $ (0.49)
======= ======= ====== ====== =======
</TABLE>
Notes Receivable for Common Stock
In the first quarter of 1998, SQRIBE permitted certain employees to
accelerate the exercisability of their options and purchase 1,444,327 shares
covered by their option agreements in exchange for full recourse promissory
notes totaling $1,641,000. The notes bear interest at 7% and are due in 2003;
repayment accelerates in the event of termination of employment. The shares
purchased under the agreement have been pledged as partial security for the
notes. SQRIBE has the right to repurchase these shares at the original sale
price based on a vesting schedule equal to the vesting schedule of the
original option agreements. During 1998, SQRIBE repurchased 37,500 unvested
shares of stock and canceled the related note from a terminated employee as
permitted under the arrangement. At December 31, 1998 and March 31, 1999,
157
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
683,348 and 558,848 shares of stock were subject to the repurchase right,
respectively, at a weighted average price of $1.25.
Employee Stock Option Plan
Under SQRIBE's 1995 amended and restated stock option plan, 4,500,000 shares
of common stock have been authorized for the grant of incentive or
nonstatutory stock options. Incentive stock options and nonqualified stock
options must be granted at not less than fair market value (85% of fair market
value for nonstatutory options) on the date of grant. Stock options generally
have vesting periods of four years and are exercisable for a period not to
exceed ten years from the date of issuance.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted
Number Average
of Exercise
Shares Price
---------- --------
<S> <C> <C>
Outstanding, December 31, 1995 (9,225 exercisable at a
weighted average price of $1.72)......................... 487,628 $ 1.79
Granted (weighted average fair value of $0.23).......... 3,291,314 1.26
Exercised............................................... (20,590) 1.04
Canceled................................................ (1,818,651) 1.78
----------
Outstanding, December 31, 1996 (249,167 exercisable at a
weighted average price of $1.10)......................... 1,939,701 1.02
Granted (weighted average fair value of $0.44).......... 2,354,660 1.14
Exercised............................................... (168,033) 1.00
Canceled................................................ (1,701,192) 1.09
----------
Outstanding, December 31, 1997 (499,600 exercisable at a
weighted average price of $1.04)......................... 2,425,136 1.10
Granted (weighted average fair value of $1.42).......... 1,793,196 3.41
Exercised............................................... (1,570,264) 1.13
Canceled................................................ (176,218) 1.90
----------
Outstanding, December 31, 1998 (531,947 exercisable at a
weighted average price of $1.05)......................... 2,471,850 2.69
Granted (weighted average fair value of $6.22).......... 72,300 11.51
Exercised............................................... (23,193) 14.22
Canceled................................................ (21,521) 3.84
----------
Outstanding, March 31, 1999 (637,339 exercisable at a
weighted average price of $1.13)......................... 2,499,436 $ 2.96
========== ======
</TABLE>
At December 31, 1998, 415,763 options were available for future grant.
158
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
In September 1996, SQRIBE repriced options to purchase 1,757,167 shares of
common stock with exercise prices of $1.72 to $2.00 to an exercise price of
$1.00, which was the estimated fair value as of that date. These options have
been included in options canceled and granted in the summary of activity above,
however, they retained their original vesting terms.
In the first quarter of 1998, SQRIBE agreed to accelerate the vesting and
permit the exercise of certain options in connection with a negotiated
severance arrangement with an officer and was not done in contemplation of the
proposed merger with Brio described in note 11. Compensation expense of $33,000
was recorded based on the intrinsic value of these options at the time of
acceleration.
In the first quarter of 1998, SQRIBE issued options to certain employees,
which were revocable contingent on meetings 1998 sales targets. At December 31,
1998, the contingency was released for 79,000 shares; all other options have
been canceled. SQRIBE has recorded a compensation charge of $63,000 in 1998 and
will record an additional charge of $188,000 over the remaining vesting period
of the options based on the intrinsic value of the options at the time the
contingency was resolved.
The following table summarizes information as of December 31, 1998 concerning
options outstanding:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Weighted Average
Remaining
Exercise Number Contractual Life Options
Prices Outstanding (years) Exercisable
-------- ----------- ---------------- -----------
<S> <C> <C> <C>
$1.00 769,662 7.96 479,787
1.50 443,500 8.94 52,160
3.50 795,188 9.40 --
5.00 402,500 9.73 --
7.00 61,000 9.92 --
--------- -------
2,471,850 531,947
========= =======
</TABLE>
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
disclosure of pro forma net income (loss) had SQRIBE adopted the fair value
method as of the beginning of fiscal 1996. Under SFAS No. 123, the fair value
of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from SQRIBE's stock option awards.
These models also require subjective assumptions, including expected time to
exercise, which greatly affect the calculated values. SQRIBE's calculations
were made using the minimum value method option pricing model with the
following weighted average assumptions: expected life of 6.28 years for 1996,
6.88 years for 1997 and 6.5 years for 1998; risk-free interest rates of 6.2%
for 1996, 6.2% for 1997 and 5.6% for 1998; and no dividends during the expected
term. SQRIBE's calculations are based on a multiple option valuation approach,
and forfeitures are recognized as they occur. If the computed fair values of
the 1996, 1997 and 1998
159
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
awards had been amortized to expense over the vesting period of the awards,
pro forma net income (loss) would have been $(2,696,000), $(8,135,000) and
$216,000 in fiscal years 1996, 1997 and 1998, respectively.
Other Option and Warrant Arrangements
In connection with certain financing transactions in 1995, SQRIBE issued
warrants to purchase shares of common and Series A preferred stock. Warrants
to purchase 617,650 shares of Series A preferred stock at $3.40 were exercised
in 1996. At December 31, 1998, warrants to purchase 3,000 shares of common
stock at $3.50 per share were still outstanding, which expire in 2001.
In connection with a severance agreement with an officer in 1996, SQRIBE
agreed to sell up to 10,000 shares of common stock at $2.00 per share if the
fair market value of SQRIBE's stock does not exceed certain specified targets
by December 31, 1999. SQRIBE has accrued $110,000, the estimated fair value of
the arrangement, as severance expense in 1996.
In 1998, SQRIBE issued warrants to purchase 30,000 shares of common stock at
$6.00 per share to a consulting firm. These warrants expire in 2008. An
expense of $106,000 was recorded for the fair value of these warrants when
they were issued.
7. INCOME TAXES
The sources of income (losses) before income taxes are (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
U.S................................................. $ (1,624) $ (7,347) $ 1,451
Foreign............................................. (981) (225) 24
-------- -------- -------
$ (2,605) $ (7,572) $ 1,475
======== ======== =======
</TABLE>
The provision for income taxes consist of (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1997 1998
---------------- ---------
<S> <C> <C> <C>
Current income taxes:
Federal........................................... $ -- $ 75 $ 1,684
State............................................. 4 54 350
Foreign........................................... 50 50 100
Deferred federal taxes.............................. -- (75) (1,684)
------ ------- ---------
Income tax expense.................................. $ 54 $ 104 $ 450
====== ======= =========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities used for financial
reporting and the amounts used
160
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
for income tax purposes. The items comprising SQRIBE's deferred tax assets are
as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ ------
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible............................. $ 677 $ 810
Deferred revenue.............................................. 830 2,879
Net operating loss and credit carryforwards................... 679 121
Depreciation differences...................................... 155 130
State taxes................................................... 16 112
Other accruals................................................ 282 618
------ ------
2,639 4,670
------ ------
Deferred tax liabilities:
Gain and Eventus transaction.................................. -- (300)
Change in accounting method for tax purposes.................. (217) --
------ ------
Net deferred tax asset.......................................... 2,422 4,370
Valuation allowance............................................. (2,347) (2,611)
------ ------
Total........................................................... $ 75 $1,759
====== ======
</TABLE>
Due to the uncertainties surrounding the utilization of its net deferred tax
assets, SQRIBE has recorded a valuation allowance to fully provide against its
otherwise recognizable net deferred tax assets at December 31, 1996, 1997 and
1998, except for those amounts which may be used as a carryback against federal
taxes paid in prior periods.
Current federal and California tax laws include substantial restrictions on
the utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. SQRIBE's ability to utilize net operating
loss and tax credit carryforwards was limited in 1997 as a result of such
"ownership change" as defined. The current annual limitation is greater than
the remaining amount of carryforwards at December 31, 1998.
8. OTHER INCOME (EXPENSE)--NET
Other income (expense)--net consists of (in thousands):
<TABLE>
<CAPTION>
Three
Months
Ended
Years Ended December 31, March 31,
------------------------------ -----------
1996 1997 1998 1998 1999
-------- -------- ---------- ---- -----
<S> <C> <C> <C> <C> <C>
Interest income................... $84 $141 $ 282 $ 33 $ 44
Interest expense.................. (42) (14) (18) (6) (41)
Foreign exchange gains (losses)... (47) (96) 114 (12) (113)
Eventus/Segue..................... -- 316 1,193 77 --
Others, net....................... 28 69 22 (36) 31
------- -------- ---------- ---- -----
$23 $416 $1,593 $ 56 $ (79)
======= ======== ========== ==== =====
</TABLE>
In September 1996, SQRIBE sold its Eventus software division to certain
employees in return for a note payable of $500,000 and 21% ownership in the new
entity. SQRIBE also
161
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
agreed to fund expenses of Eventus up to $300,000 in return for an additional
note. Because Eventus was thinly capitalized at the time of the transaction, no
gain was recorded on the sale, and the carrying value of the note and related
investment were recorded at zero. Prior to the sale of Eventus in September
1996, SQRIBE recorded revenues of approximately $1,404,000 and operating losses
of approximately $452,000 relating to the operations of Eventus. In addition,
SQRIBE recognized as an expense in 1996 the $300,000 of expenses which it
funded. Eventus repaid $316,000 and $501,000 of these notes (including
interest) in 1997 and 1998, respectively, which has been recorded in other
income.
In December 1998, Eventus was acquired by Segue Software, Inc. ("Segue"), a
public company, in a stock-for-stock transaction. (At that time, due to stock
sales by Eventus, SQRIBE's ownership had declined to approximately 15%). SQRIBE
recorded a gain of $692,000 on the transaction, based on the fair value of the
38,480 shares of Segue received as of that date. These shares are shown as
marketable equity securities in December 31, 1998 balance sheet. SQRIBE may
ultimately receive up to 4,275 additional shares of Segue stock upon their
release from an escrow arrangement established as part of the transaction.
At March 31, 1999, SQRIBE reported its investment in Segue at fair market
value resulting in an unrealized holding loss of approximately $356,000, which
is included in comprehensive loss for the three month period ended March 31,
1999.
9. EMPLOYEE BENEFIT PLAN
In 1994, SQRIBE established a 401(k) plan which provides for retirement and
certain other benefits to the Company's employees and their beneficiaries.
SQRIBE, under the plan, makes matching contributions up to a limit of 3% of
each participating employee's annual compensation. The 401(k) plan is
administered under a written plan and trust agreement entered into between
SQRIBE and SQRIBE's designated trustee. SQRIBE's contributions were $83,000,
$123,000 and $223,000 for 1996, 1997 and 1998, respectively.
162
<PAGE>
SQRIBE TECHNOLOGIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 (UNAUDITED)
10. GEOGRAPHIC OPERATING INFORMATION
SQRIBE operates in one reportable segment: the design, development, marketing
and sales of software products for regional databases, and follows the
requirements of SFAS 131, Disclosures about Segments of an Enterprise and
Related Information. For the year ended December 31, 1998, SQRIBE recorded
revenue from customers throughout the United States, Canada and Latin America
(collectively referred to as North America); the U.K., France, Germany, South
Africa, Italy, Sweden, Norway, Ireland, Denmark, Spain, The Netherlands,
Finland, Switzerland, Belgium, Luxembourg, Portugal and Scotland (collectively
referred to as Europe); Australia, Singapore, Hong Kong, Philippines, Korea,
India, Malaysia, Indonesia and Thailand (collectively referred to as Asia
Pacific). The following presents total revenues for the years ended
December 31, 1996, 1997 and 1998 and long-lived assets as of December 31, 1996,
1997 and 1998 by geographic territory (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---------------- ---------------- ----------------
Long- Long- Long-
Total Lived Total Lived Total Lived
Revenues* Assets Revenues* Assets Revenues* Assets
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
North America............ $16,560 $1,253 $21,723 $1,638 $31,671 $2,830
Europe................... 1,267 79 2,422 209 6,609 252
Asia Pacific............. 170 90 978 76 882 45
------- ------ ------- ------ ------- ------
$17,997 $1,422 $25,123 $1,923 $39,162 $3,127
======= ====== ======= ====== ======= ====== ===
</TABLE>
- --------
* Net revenues are attributed to countries based on invoicing location of
customer.
11. SUBSEQUENT EVENT
On February 23, 1999, SQRIBE entered into an agreement to merge with Brio
Technology, Inc. ("Brio"). Under the terms of the agreement, as amended on
March 24, 1999 and on July 2, 1999, each share of SQRIBE stock will be
exchanged for Brio shares of common stock based on an exchange ratio to be
determined at the time of closing. The merger is subject to shareholder
approval of both companies.
163
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
dated as of February 23, 1999
among
BRIO TECHNOLOGY, INC.
SOCRATES ACQUISITION CORPORATION
and
SQRIBE TECHNOLOGIES CORP.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I--THE MERGER................................................... 2
Section 1.1 Effective Time of the Merger.......................... 2
Section 1.2 Closing............................................... 2
Section 1.3 Effects of the Merger................................. 2
Section 1.4 Directors and Officers................................ 2
ARTICLE II--CONVERSION OF SECURITIES.................................... 3
Section 2.1 Conversion of Capital Stock........................... 3
Section 2.2 Escrow Agreement...................................... 4
Section 2.3 Dissenting Shares..................................... 4
Section 2.4 Exchange of Certificates.............................. 5
Section 2.5 Distributions with Respect to Unexchanged Shares...... 6
Section 2.6 No Fractional Shares.................................. 6
Section 2.7 Tax and Accounting Consequences....................... 7
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF TARGET................... 7
Section 3.1 Organization of Target................................ 7
Section 3.2 Target Capital Structure.............................. 7
Authority; No Conflict; Required Filings and
Section 3.3 Consents.............................................. 9
Section 3.4 Financial Statements; Absence of Undisclosed
Liabilities........................................... 10
Section 3.5 Tax Matters........................................... 10
Section 3.6 Absence of Certain Changes or Events.................. 12
Section 3.7 Title and Related Matters............................. 13
Section 3.8 Proprietary Rights.................................... 14
Section 3.9 Employee Benefit Plans................................ 16
Section 3.10 Bank Accounts......................................... 17
Section 3.11 Contracts............................................. 17
Section 3.12 Compliance with Laws.................................. 19
Section 3.13 Labor Difficulties; No Discrimination................. 19
Section 3.14 Trade Regulation...................................... 19
Section 3.15 Insider Transactions.................................. 19
Section 3.16 Employees, Independent Contractors and Consultants.... 20
Section 3.17 Insurance............................................. 20
Section 3.18 Litigation............................................ 20
Section 3.19 Governmental Authorizations and Regulations........... 20
Section 3.20 Subsidiaries.......................................... 20
Section 3.21 Compliance with Environmental Requirements............ 21
Section 3.22 Corporate Documents................................... 21
Section 3.23 No Brokers............................................ 21
Section 3.24 Pooling of Interests.................................. 21
Section 3.25 Customers and Suppliers............................... 21
Section 3.26 Target Action......................................... 22
Section 3.27 Offers................................................ 22
Section 3.28 Registration Statement; Proxy Statement/Prospectus.... 22
Section 3.29 Accounts Receivable................................... 22
Section 3.30 Year 2000 Compliance.................................. 23
Section 3.31 Disclosure............................................ 23
ARTICLE IV--REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB.......... 23
Section 4.1 Organization of Acquiror and Sub...................... 23
Section 4.2 Acquiror Capital Structure............................ 23
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 4.3 Authority; No Conflict; Required Filings and
Consents.............................................. 24
Section 4.4 Commission Filings; Financial Statements.............. 25
Section 4.5 Tax Matters........................................... 26
Section 4.6 Absence of Certain Changes or Events.................. 27
Section 4.7 Title and Related Matters............................. 27
Section 4.8 Proprietary Rights.................................... 28
Section 4.9 Contracts............................................. 30
Section 4.10 Compliance with Laws.................................. 31
Section 4.11 Labor Difficulties; No Discrimination................. 31
Section 4.12 Trade Regulation...................................... 31
Section 4.13 Insider Transactions.................................. 32
Section 4.14 Insurance............................................. 32
Section 4.15 Governmental Authorizations and Regulations........... 32
Section 4.16 Subsidiaries.......................................... 32
Section 4.17 Compliance with Environmental Requirements............ 32
Section 4.18 Corporate Documents................................... 33
Section 4.19 Pooling of Interests.................................. 33
Section 4.20 Customers and Suppliers............................... 33
Section 4.21 Acquiror Action....................................... 33
Section 4.22 Offers................................................ 33
Section 4.23 Interim Operations of Sub............................. 34
Section 4.24 Litigation............................................ 34
Section 4.25 Registration Statement; Proxy Statement/Prospectus.... 34
Section 4.26 Year 2000 Compliance.................................. 34
Section 4.27 No Brokers............................................ 34
Section 4.28 Disclosure............................................ 35
Section 4.29 Fairness Option....................................... 35
Section 4.30 Accounts Receivable................................... 35
ARTICLE V--PRECLOSING COVENANTS OF TARGET............................... 35
Section 5.1 Proxy Statement/Prospectus............................ 35
Section 5.2 Stockholder Meetings.................................. 36
Section 5.3 Advice of Changes..................................... 37
Section 5.4 Operation of Business................................. 37
Section 5.5 Access to Information................................. 40
Section 5.6 Satisfaction of Conditions Precedent.................. 40
Section 5.7 Other Negotiations.................................... 40
Section 5.8 Tax Matters........................................... 40
ARTICLE VI--PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB.......... 41
Section 6.1 Advice of Changes..................................... 41
Section 6.2 Reservation of Acquiror Common Stock.................. 41
Section 6.3 Satisfaction of Conditions Precedent.................. 41
Section 6.4 Nasdaq National Market Listing........................ 41
Section 6.5 Stock Options......................................... 41
Section 6.6 Certain Employee Benefit Matters...................... 42
ARTICLE VII--OTHER AGREEMENTS........................................... 42
Section 7.1 Confidentiality....................................... 42
Section 7.2 No Public Announcement................................ 42
Section 7.3 Regulatory Filings; Consents; Reasonable Efforts...... 42
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 7.4 Pooling Accounting................................... 43
Section 7.5 Further Assurances................................... 43
Section 7.6 Escrow Agreement..................................... 43
Section 7.7 FIRPTA............................................... 43
Section 7.8 Blue Sky Laws........................................ 43
Section 7.9 Filings.............................................. 43
ARTICLE VIII--CONDITIONS TO MERGER...................................... 44
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger............................................... 44
Section 8.2 Additional Conditions to Obligations of Acquiror and
Sub.................................................. 45
Section 8.3 Additional Conditions to Obligations of Target....... 46
ARTICLE IX--TERMINATION AND AMENDMENT................................... 46
Section 9.1 Termination.......................................... 46
Section 9.2 Effect of Termination................................ 47
Section 9.3 Fees and Expenses.................................... 47
ARTICLE X--ESCROW AND INDEMNIFICATION................................... 48
Section 10.1 Indemnification...................................... 48
Section 10.2 Escrow Fund.......................................... 49
Section 10.3 Damage Threshold..................................... 49
Section 10.4 Escrow Periods....................................... 49
Section 10.5 Claims Upon Escrow Fund.............................. 50
Section 10.6 Valuation............................................ 50
Section 10.7 Objections to Claims................................. 50
Section 10.8 Resolution of Conflicts.............................. 51
Section 10.9 Stockholders' Agent.................................. 51
Section 10.10 Actions of the Stockholders' Agent................... 52
Section 10.11 Claims............................................... 52
ARTICLE XI--MISCELLANEOUS............................................... 53
Section 11.1 Survival of Representations and Covenants............ 53
Section 11.2 Notices.............................................. 53
Section 11.3 Interpretation....................................... 54
Section 11.4 Counterparts......................................... 54
Section 11.5 Entire Agreement; No Third Party Beneficiaries....... 54
Section 11.6 Governing Law........................................ 54
Section 11.7 Assignment........................................... 54
Section 11.8 Amendment............................................ 55
Section 11.9 Extension; Waiver.................................... 55
Section 11.10 Specific Performance................................. 55
</TABLE>
EXHIBITS
<TABLE>
<C> <C> <S>
EXHIBIT A-1 -- TARGET VOTING AGREEMENT
EXHIBIT A-2 -- ACQUIROR VOTING AGREEMENT
EXHIBIT B -- EMPLOYMENT AGREEMENT
EXHIBIT C -- AFFILIATES AGREEMENT
EXHIBIT D -- ESCROW AGREEMENT
EXHIBIT E -- SUBJECT MATTER OF OPINION OF COUNSEL TO TARGET
EXHIBIT F -- SUBJECT MATTER OF OPINION OF COUNSEL TO ACQUIROR
EXHIBIT G -- AMENDMENT TO RIGHTS AGREEMENT
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of February 23, 1999 (this
"Agreement"), is entered into by and among Brio Technology, Inc., a Delaware
corporation ("Acquiror"), Socrates Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Acquiror ("Sub"), and SQRIBE
Technologies Corp., a Delaware corporation ("Target").
RECITALS
A. The Boards of Directors of Acquiror, Sub and Target deem it advisable and
in the best interests of each corporation and the respective stockholders that
Acquiror and Target combine in order to advance the long-term business
interests of Acquiror and Target;
B. The combination of Acquiror and Target shall be effected by the terms of
this Agreement through a transaction in which Sub will merge with and into
Target, Target will become a wholly-owned subsidiary of Acquiror and the
stockholders of Target will become stockholders of Acquiror (the "Merger");
C. For Federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
D. For accounting purposes, it is intended that the Merger shall be accounted
for as a pooling of interests transaction;
E. As a condition and inducement to Acquiror's willingness to enter into this
Agreement, certain Target stockholders (including Ofir Kedar, General Atlantic
Partners 18, L.P. and General Atlantic Partners 43, L.P.) collectively holding
more than 52% of the issued and outstanding voting stock of the Target have,
concurrently with the execution of this Agreement, executed and delivered
Voting Agreements in the form attached hereto as Exhibit A-1 (the "Target
Voting Agreements"), pursuant to which such stockholders have, among other
things, agreed to vote their shares of Target capital stock in favor of the
Merger;
F. As a condition and inducement to Target's willingness to enter into this
Agreement, certain Acquiror stockholders (including Yorgen Edholm, Katherine
Glassey, the Edholm Family Limited Partnership, trusts affiliated with Yorgen
Edholm, Kleiner Perkins Caufield & Byers VII, KPCB Information Sciences
Zaibatsu Fund II, Integral Capital Partners III, L.P., Integral Capital
Partners IV, L.P., and Integral Capital Partners International III, L.P.)
collectively holding more than 50% of the issued and outstanding voting stock
of Acquiror, have, concurrently with the execution of this Agreement, executed
and delivered Voting Agreements in the form attached hereto as Exhibit A-2 (the
"Acquiror Voting Agreements," and together with the Target Voting Agreements,
the "Voting Agreements"), pursuant to which such stockholders have, among other
things, agreed to vote their shares of Acquiror capital stock in favor of the
Merger;
G. As a further condition and inducement to Acquiror's willingness to enter
into this Agreement, certain employees of Target who are also stockholders of
Target (Ofir Kedar, Scott Chalmers and John Schroeder) have, concurrently with
the execution of this Agreement executed and delivered Employment Agreements in
the form attached hereto as Exhibit B, which agreements shall only become
effective at the Effective Time (as defined in Section 1.1 below).
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H. As a further condition and inducement to Acquiror's and Target's
willingness to enter into this Agreement, certain stockholders of Target and
certain stockholders of Acquiror have executed and delivered an Affiliates
Agreement in the form attached hereto as Exhibit C (the "Affiliates
Agreement").
I. As a further condition and inducement to Target's willingness to enter
into this Agreement, certain stockholders of Target and certain stockholders of
Acquiror have executed and delivered an Amendment to Registration Rights
Agreement in the form attached hereto as Exhibit G (the "Amended Rights
Agreement").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger. Subject to the provisions of this
Agreement, a certificate of merger (the "Certificate of Merger") in such
mutually acceptable form as is required by the relevant provisions of the
Delaware Corporations Code ("Delaware Law") shall be duly executed and
delivered by the parties hereto and thereafter delivered to the Secretary of
State of the State of Delaware for filing on the Closing Date (as defined in
Section 1.2). The Merger shall become effective upon the due and valid filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware or at such time thereafter as is provided in the Certificate of Merger
(the "Effective Time").
Section 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., California time, on a date to be specified by Acquiror and
Target, which shall be no later than the second business day after satisfaction
or waiver of the latest to occur of the conditions set forth in Article VIII
(other than the delivery of the officers' certificates referred to therein)
(the "Closing Date"), at the offices of Venture Law Group, A Professional
Corporation, 2775 Sand Hill Road, Menlo Park, California unless another date,
time or place is agreed to in writing by Acquiror and Target.
Section 1.3 Effects of the Merger.
(a) At the Effective Time (i) the separate existence of Sub shall cease and
Sub shall be merged with and into Target (Sub and Target are sometimes referred
to herein as the "Constituent Corporations" and Target following consummation
of the Merger is sometimes referred to herein as the "Surviving Corporation"),
(ii) the Certificate of Incorporation of Sub shall be the Certificate of
Incorporation of the Surviving Corporation and (iii) the Bylaws of Sub as in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation.
(b) At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of Delaware Law. Without limiting the generality of
the foregoing, at and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public as well
as of a private nature, and be subject to all the restrictions, disabilities
and duties of each of the Constituent Corporations.
Section 1.4 Directors and Officers. The directors of Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation, and
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the officers of Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
Common Stock, $0.001 par value, of Target ("Target Common Stock"), Series A
Preferred Stock, $0.001 par value, of Target ("Target Series A Preferred
Stock"), or Series B Preferred Stock, $0.001 par value, of Target ("Target
Series B Preferred Stock" and together with the Target Series A Preferred
Stock, "Target Preferred Stock") or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the capital
stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, $0.001 par value, of the Surviving
Corporation.
(b) Cancellation of Acquiror-Owned and Target-Owned Stock. Any shares of
Target Common Stock or Target Preferred Stock that are owned by Acquiror, Sub,
Target or any other direct or indirect wholly-owned Subsidiary (as defined
below) of Acquiror or Target shall be canceled and retired and shall cease to
exist and no stock of Acquiror or other consideration shall be delivered in
exchange. As used in this Agreement, the word "Subsidiary" means, with respect
to any other party, any corporation or other organization, whether incorporated
or unincorporated, of which (i) such party or any other Subsidiary of such
party is a general partner (excluding partnerships, the general partnership
interests of which held by such party or any Subsidiary of such party do not
have a majority of the voting interest in such partnership) or (ii) at least a
majority of the securities or other interests having by their terms ordinary
voting power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization or a
majority of the profit interests in such other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
(c) Exchange Ratio.
(i) Subject to Sections 2.2 and 2.4, each issued and outstanding share of
Target Common Stock, each issued and outstanding share of Target Series A
Preferred Stock (after giving effect to any adjustments in respect of
liquidation preference, if applicable) and each issued and outstanding share of
Target Series B Preferred Stock (other than shares to be canceled in accordance
with Section 2.1(b) and any Dissenting Shares as defined in and to the extent
provided in Section 2.3) shall be converted into the right to receive a number
of shares of Acquiror Common Stock ("Acquiror Common Stock") equal to the
quotient obtained by dividing:
(A) the product obtained by multiplying
(1) total number of shares of Acquiror capital stock outstanding
immediately prior to the Effective Time (assuming exercise of all outstanding
options and warrants to purchase shares of capital stock of Acquiror and
conversion of all securities convertible into shares of capital stock of
Acquiror, as the same shall be calculated using the treasury method) by
(2) 0.8181818, by
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(B) the sum obtained by adding (x) the total number of shares of Target
capital stock outstanding immediately prior to the Effective Time (assuming
exercise of all outstanding options and warrants to purchase shares of capital
stock of Target, as the same shall be calculated using the treasury method, and
conversion of all securities convertible into shares of capital stock of
Target), plus (y) 30,000 (the "Exchange Ratio").
All such shares of Target Common Stock, Series A Preferred Stock and Series B
Preferred Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the shares of Acquiror Common
Stock and any cash in lieu of fractional shares of Acquiror Common Stock to be
issued or paid in consideration therefor upon the surrender of such certificate
in accordance with Section 2.4, without interest. The Exchange Ratio shall not
change as a result of fluctuations in the market price of Acquiror Common Stock
between the date of this Agreement and the Effective Time, except as may be
required by the treasury method with respect to outstanding options, warrants
and convertible securities of Acquiror and Target.
(d) Target Stock Options. At the Effective Time, all then outstanding
options, whether vested or unvested, ("Target Options") to purchase Target
Common Stock issued under Target's 1995 Stock Option Plan (the "Target Option
Plan") or otherwise that by their terms survive the Closing will be assumed by
Acquiror in accordance with Section 6.5. All of the Target Options issued and
outstanding as of February 22, 1999 are listed on Schedule 2.1(d) delivered by
Target on or before the date of this Agreement. An updated Schedule 2.1(d) of
Target Options shall be delivered by Target to Acquiror on the Closing Date.
(e) Restricted Shares. Shares of Target Common Stock or Target Preferred
Stock which are subject to repurchase by Target in the event the holder thereof
ceases to be employed by Target ("Target Restricted Shares") shall be converted
into Acquiror Common Stock on the same basis as provided in subsection (c)
above and shall be registered in such holder's name, but shall be held by
Target or Acquiror pursuant to the existing agreements in effect on the date of
this Agreement. Holders of the Target Restricted Shares are identified on
Schedule 2.2(e) delivered by Target on or before the date of this Agreement
together with the vesting schedules associated with such shares.
Section 2.2 Escrow Agreement. At the Effective Time or such later time as
determined in accordance with Section 2.3(b), Acquiror will deposit in escrow
certificates representing nine percent (9%) of the shares of Acquiror Common
Stock issued pursuant to Section 2.1 in respect of Target Common Stock and
Target Preferred Stock (excluding Acquiror Common Stock obtained upon the
exercise of options or warrants after the Effective Time). Such shares shall be
held in escrow on behalf of the persons who are the holders of Target capital
stock in the Merger immediately prior to the Effective Time (the "Former Target
Stockholders"), on a pro rata basis, in accordance with each such Former Target
Stockholder's percentage ownership ("Pro Rata Portion") of Target Common Stock
immediately prior to the Merger (assuming conversion of all Target Preferred
Stock to Target Common Stock). Such shares (the "Escrow Shares") shall be held
as security for the Former Target Stockholders' indemnification obligations
under Article X and pursuant to the provisions of an escrow agreement (the
"Escrow Agreement") to be executed pursuant to Section 7.6.
Section 2.3 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Target Common Stock or Target Preferred Stock held by a holder who
has exercised such holder's dissenter's rights in accordance with Section 262
of Delaware Law or Chapter 13 of
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<PAGE>
the California Corporations Code ("California Law"), and who, as of the
Effective Time, has not effectively withdrawn or lost such dissenter's rights
("Dissenting Shares"), shall not be converted into or represent a right to
receive Acquiror Common Stock pursuant to Section 2.1, but the holder of the
Dissenting Shares shall only be entitled to such rights as are granted by
Chapter 13 of California Law.
(b) Notwithstanding the provisions of Section 2.3(a), if any holder of
shares of Target Common Stock or Target Preferred Stock who demands his
dissenter's rights with respect to such shares under Section 2.1 shall
effectively withdraw or lose (through failure to perfect or otherwise) his
rights to receive payment for the fair market value of such shares under
Delaware Law or California Law, then, as of the later of the Effective Time or
the occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive Acquiror Common Stock
and payment for fractional shares as provided in Section 2.1(c) and 2.6,
without interest, upon surrender of the certificate or certificates
representing such shares; provided that if such holder effectively withdraws or
loses his right to receive payment for the fair market value of such shares
after the Effective Time, then, at such time Acquiror will deposit in escrow
certificates representing nine percent (9%) of the shares of Acquiror Common
Stock which such holder would otherwise be entitled to receive.
(c) Target shall give Acquiror (i) prompt notice of any written demands for
payment with respect to any shares of capital stock of Target pursuant to
Section 262 of Delaware Law or Chapter 13 of California Law, withdrawals of
such demands, and any other instruments served pursuant to California Law and
received by the Target and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for dissenter's rights
under Delaware Law or California Law. Target shall not, except with the prior
written consent of Acquiror, voluntarily make any payment with respect to any
demands for dissenter's rights with respect to Target Common Stock or Target
Preferred Stock or offer to settle or settle any such demands.
Section 2.4 Exchange of Certificates.
(a) From and after the Effective Time, each holder of an outstanding
certificate or certificates ("Certificates") which represented shares of Target
Common Stock or Target Preferred Stock immediately prior to the Effective Time
shall have the right to surrender each Certificate to Acquiror (or at
Acquiror's option, an exchange agent to be appointed by Acquiror), and receive
in exchange for all Certificates held by such holder a certificate representing
the number of whole shares of Acquiror Common Stock (other than the Escrow
Shares) into which the Target Common Stock or Target Preferred Stock evidenced
by the Certificates so surrendered shall have been converted pursuant to the
provisions of Article II of this Agreement. The surrender of Certificates shall
be accompanied by duly completed and executed Letters of Transmittal in such
form as may be reasonably specified by Acquiror. Until surrendered, each
outstanding Certificate which prior to the Effective Time represented shares of
Target Common Stock or Target Preferred Stock shall be deemed for all corporate
purposes to evidence ownership of the number of whole shares of Acquiror Common
Stock into which the shares of Target Common Stock or Target Preferred Stock
have been converted but shall, subject to applicable dissenter's rights under
applicable law and Section 2.3, have no other rights. Subject to dissenter's
rights under applicable law and Section 2.3, from and after the Effective Time,
the holders of shares of Target Common Stock or Target Preferred Stock shall
cease to have any rights in respect of such shares and their rights shall be
solely in respect of the Acquiror Common Stock into which such shares of Target
Common Stock or Target Preferred Stock have been converted. From and after the
Effective Time, there shall be no further registration of transfers on the
records of Target of shares of Target Common Stock or Target Preferred Stock
outstanding immediately prior to the Effective Time.
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<PAGE>
(b) If any shares of Acquiror Common Stock are to be issued in the name of
a person other than the person in whose name the Certificate(s) surrendered in
exchange therefor is registered, it shall be a condition to the issuance of
such shares that (i) the Certificate(s) so surrendered shall be transferable,
and shall be properly assigned, endorsed or accompanied by appropriate stock
powers, (ii) such transfer shall otherwise be proper and (iii) the person
requesting such transfer shall pay Acquiror, or its exchange agent, any
transfer or other taxes payable by reason of the foregoing or establish to the
satisfaction of Acquiror that such taxes have been paid or are not required to
be paid. Notwithstanding the foregoing, neither Acquiror nor Target shall be
liable to a holder of shares of Target Common Stock or Target Preferred Stock
for shares of Acquiror Common Stock issuable to such holder pursuant to the
provisions of Article II of the Agreement that are delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed, Acquiror shall issue in exchange
for such lost, stolen or destroyed Certificate the shares of Acquiror Common
Stock issuable in exchange therefor pursuant to the provisions of Article II of
the Agreement. The Board of Directors of Acquiror may in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificate to provide to Acquiror an indemnity agreement
against any claim that may be made against Acquiror with respect to the
Certificate alleged to have been lost, stolen or destroyed.
Section 2.5 Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Acquiror Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate with respect to the shares of
Acquiror Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.6
below until the holder of record of such Certificate shall surrender such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of Acquiror Common
Stock to which such holder is entitled pursuant to Section 2.6 below and the
amount of dividends or other distributions with a record date after the
Effective Time previously paid with respect to such whole shares of Acquiror
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Acquiror Common Stock.
Section 2.6 No Fractional Shares. No certificate or scrip representing
fractional shares of Acquiror Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of
Acquiror. Notwithstanding any other provision of this Agreement, each holder of
shares of Target Common Stock or Target Preferred Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of Acquiror Common Stock (after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Acquiror
Common Stock multiplied by the closing price of Acquiror's Common Stock on the
Nasdaq Stock Market on the Closing Date (the "Closing Stock Price").
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Section 2.7 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall constitute a
"reorganization" within the meaning of Section 368 of the Code. The parties
hereto adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger shall qualify for
accounting treatment as a pooling of interests.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARGET
Target represents and warrants to Acquiror and Sub that the statements
contained in this Article III are true and correct, except as set forth in the
disclosure schedule delivered by Target to Acquiror on or before the date of
this Agreement (the "Target Disclosure Schedule"). The Target Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article III. Disclosure in any paragraph
of the Target Disclosure Schedule shall constitute disclosure for purposes of
all sections of the Agreement. Whenever the term "to Target's knowledge,"
"Target is not aware" or a similar expression appears in any representation or
warranty in this Article III, it means to the actual knowledge of Target's
directors and executive officers. Whenever the term "Target has received no
notice" or like expression appears in any representation or warranty in this
Article III, it means that none of Target's directors and executive officers
has received actual oral or written notice of the matter to which such term is
applied.
Section 3.1 Organization of Target. Target is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has all requisite corporate power to own, lease and operate its property and to
carry on its business as now being conducted, and is duly qualified or licensed
to do business and is in good standing as a foreign corporation in each
jurisdiction where the failure to be so qualified or licensed would result in a
material adverse effect on the business, as presently conducted, assets
(including intangible assets), liabilities, condition (financial or otherwise),
property or results of operations of a party hereto and its subsidiaries, taken
as a whole, excluding any change that results from general economic, business
or industry conditions or the announcement of the transactions contemplated
hereby (including, without limitation, a decline in sales to common customers
of Acquiror and Target) (a "Material Adverse Effect") of Target. The Target
Disclosure Schedule contains a true and complete listing of the locations of
all sales offices, manufacturing facilities, and any other offices or
facilities of Target and a true and complete list of all states in which Target
maintains any employees. The Target Disclosure Schedule contains a true and
complete list of all states in which Target is duly qualified or licensed to
transact business as a foreign corporation.
Section 3.2 Target Capital Structure.
(a) The authorized capital stock of Target consists of 25,000,000 shares of
Target Common Stock and 5,368,920 shares of Target Preferred Stock, of which
2,352,940 shares are designated as Series A Preferred Stock and 3,015,980 are
designated as Series B Preferred Stock. As of February 22, 1999, there were:
(i) 8,000,914 shares of Target Common Stock issued and outstanding, all of
which are validly issued, fully paid and nonassessable and 596,468 of which are
subject to repurchase rights as of February 22, 1999 under the Target Option
Plan and the agreements thereunder or otherwise; (ii) 2,352,940 shares of
Series A Preferred Stock and 2,568,836 shares of Series B Preferred Stock
issued and outstanding, all of
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which are validly issued, fully paid and nonassessable, and all of which are
convertible into Target Common Stock on a one share for one share basis, except
for a liquidation preference adjustment under the Series A Preferred Stock, if
applicable; (iii) 5,368,920 shares of Target Common Stock reserved for future
issuance upon conversion of the Target Preferred Stock; (iv) 2,398,556 shares
of Target Common Stock reserved for future issuance pursuant to Target Options
granted and outstanding under the Target Option Plan; and (v) 1,497,618 shares
of Target Common Stock reserved for issuance upon exercise of options available
to be granted in the future under the Target Option Plan. The issued and
outstanding shares of Target Common Stock and Target Preferred Stock are held
of record by the stockholders of Target as set forth and identified in the
stockholder list attached as Schedule 3.2(a) to the Target Disclosure Schedule.
The issued and outstanding Target Options are held of record by the option
holders as set forth in Schedule 2.1(d) in the amounts and subject to the
vesting schedules set forth in Schedule 2.1(d). All shares of Target Common
Stock and Target Preferred Stock subject to issuance as specified above, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable. All shares of Target Common Stock issuable upon the exercise
of Target Options, upon issuance on the terms and conditions specified in the
instrument pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. None of the issued and
outstanding shares of Target Common Stock are subject to contractual rights to
repurchase upon the termination of the employment or consulting services of the
holder thereof with Target or its affiliates. All outstanding shares of Target
Common Stock and Target Preferred Stock and outstanding Target Options
(collectively "Target Securities") were issued in compliance with applicable
federal and state securities laws. Except as set forth in the Target Disclosure
Schedule, there are no obligations, contingent or otherwise, of Target to
repurchase, redeem or otherwise acquire any shares of Target Common Stock or
Target Preferred Stock or make any investment (in the form of a loan, capital
contribution or otherwise) in any other entity.
(b) Except as set forth in this Section 3.2, there are no equity securities
of any class or series of Target, or any security exchangeable into or
exercisable for such equity securities, issued, reserved for issuance or
outstanding. Section 3.2 of the Target Disclosure Schedule sets forth a list of
all holders of Target Options and the following information with respect to
such Target Options: the (i) number of option shares subject to such Target
Options, and (ii) grant date for such Target Options. Such list is true and
complete in all material respects. Except as set forth in this Section 3.2,
there are no options, warrants, equity securities, calls, rights, commitments
or agreements of any character to which Target is a party or by which it is
bound obligating Target to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of Target or obligating
Target to grant, extend or enter into any such option, warrant, equity
security, call, right, commitment or agreement. Target is not in discussion,
formal or informal, with any person or entity regarding the issuance of any
form of additional Target equity that has not been issued or committed to prior
to the date of this Agreement, other than option grants in the ordinary course
of business. Except as provided in this Agreement and the other Transaction
Documents (as defined in Section 3.3(a)) or any transaction contemplated hereby
or thereby, there are no voting trusts, proxies or other agreements or
understandings with respect to the voting of the shares of capital stock of
Target.
(c) All Target Options have been issued in accordance with the terms of the
Target Option Plan and pursuant to the standard forms of option agreement
previously provided to Acquiror or its representatives. Except as set forth in
Schedule 3.2(c), neither the consummation of transactions contemplated by this
Agreement or the other Transaction Documents nor any action taken by Target in
connection with such transactions will result in (i) any acceleration of
vesting in favor of any optionee under any Target Option; (ii) any
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additional benefits for any optionee under any Target Option; or (iii) the
inability of Acquiror after the Effective Date to exercise any right or benefit
held by Target prior to the Effective Time with respect to any Target Option
assumed by Acquiror, including, without limitation, the right to repurchase an
optionee's unvested shares on termination of such optionee's employment. The
assumption by Acquiror of Target Options in accordance with Section 6.5
hereunder will not (i) give the optionees additional benefits which they did
not have under their options prior to such assumption (after taking into
account the existing provisions of the options, such as their respective
exercise prices and vesting schedules) and (ii) constitute a breach of the
Target Plan or any agreement entered into pursuant to such plan.
Section 3.3 Authority; No Conflict; Required Filings and Consents.
(a) Target has all requisite corporate power and authority to enter into
this Agreement and all Transaction Documents to which it is or will become a
party and to consummate the transactions contemplated by this Agreement and
such Transaction Documents. The execution and delivery of this Agreement and
such Transaction Documents and the consummation of the transactions
contemplated by this Agreement and such Transaction Documents have been duly
authorized by all necessary corporate action on the part of Target, subject
only to the approval of the Merger by Target's stockholders under the
provisions of Delaware Law and Target's Certificate of Incorporation. This
Agreement has been and such Transaction Documents have been or, to the extent
not executed as of the date hereof, will be duly executed and delivered by
Target. This Agreement and each of the Transaction Documents to which Target is
a party constitutes, and each of the Transaction Documents to which Target will
become a party when executed and delivered by Target will constitute, assuming
the due authorization, execution and delivery by the other parties hereto and
thereto, the valid and binding obligation of Target, enforceable against Target
in accordance with their respective terms, except to the extent that
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights generally, by general principles of equity, regardless of whether such
enforceability is considered in a proceeding at law or in equity, and any
limitations applying to the enforceability of non-compete agreements. For
purposes of this Agreement, "Transaction Documents" means this Agreement and
all schedules or agreements required to be delivered by any party under this
Agreement including the Certificate of Merger, the Escrow Agreement, the
Acquiror Voting Agreements, the Target Voting Agreements, the Affiliates
Agreement, the Employment Agreements and the Amended Rights Agreement.
(b) The execution and delivery by Target of this Agreement and the
Transaction Documents to which it is or will become a party does not and the
consummation of the transactions contemplated by this Agreement and the
Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of Target, (ii) result in any violation
or breach of, or constitute (with or without notice or lapse of time, or both)
a default (or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any material benefit) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease,
contract or other agreement, instrument or obligation to which Target is a
party or by which it or any of its properties or assets may be bound, or (iii)
conflict or violate any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Target
or any of its properties or assets, except in the case of (ii) and (iii) for
any such conflicts, violations, defaults, terminations, cancellations or
accelerations which would not have a Material Adverse Effect on Target.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or
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instrumentality ("Governmental Entity") is required by or with respect to
Target in connection with the execution and delivery of this Agreement or of
any other Transaction Document to which it is or will become a party or the
consummation of the transactions contemplated by this Agreement or such
Transaction Document or the continuation of the business activities of Target
following consummation of the Merger without a Material Adverse Change (as
defined in Section 3.6(a)), except for (i) the filing of the Certificate of
Merger with the Delaware Secretary of State, (ii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and similar laws of
any foreign country and (iii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not be
expected to have a Material Adverse Effect on Target.
Section 3.4 Financial Statements; Absence of Undisclosed Liabilities.
(a) Target has delivered to Acquiror copies of Target's audited balance
sheet as of December 31, 1998 (the "Most Recent Balance Sheet") and statements
of operations, stockholders' equity and cash flow for the period since January
1, 1994 (collectively, with the Most Recent Balance Sheet, the "Target
Financial Statements").
(b) The Target Financial Statements were prepared and in accordance with
the books and records of Target and present fairly in all material respects the
financial position, results of operations and cash flows of Target as of their
historical dates and for the periods indicated. The Target Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and with each
other. The reserves, if any, reflected on the Target Financial Statements are
adequate in light of the contingencies with respect to which they were made.
(c) Target has no debt, liability, or obligation of any nature, whether
accrued, absolute, contingent, or otherwise, and whether due or to become due,
that is not reflected or reserved against in the Most Recent Balance Sheet,
except for those that may have been incurred after the date of the Most Recent
Balance Sheet or that would not reasonably be required, in accordance with
generally accepted accounting principles applied on a basis consistent with
prior periods, to be included in a balance sheet or the notes thereto. All
debts, liabilities, and obligations incurred after the date of the Most Recent
Balance Sheet were incurred in the ordinary course of business, and are usual
and normal in amount and not material both individually and in the aggregate to
Target or its business.
Section 3.5 Tax Matters.
(a) For purposes of this Section 3.5 and other provisions of this Agreement
relating to Taxes, the following definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however denominated, including
any interest, penalties or other additions to tax that may become payable in
respect thereof, (A) imposed by any federal, territorial, state, local or
foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes (including but not limited to, federal
income taxes and state income taxes), payroll and employee withholding taxes,
unemployment insurance, social security taxes, sales and use taxes, ad valorem
taxes, excise taxes, franchise taxes, gross receipts taxes, business license
taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, ozone depleting chemicals taxes, transfer taxes, workers'
compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, which are required to be paid, withheld or collected,
(B) any liability for the
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payment of amounts referred to in (A) as a result of being a member of any
affiliated, consolidated, combined or unitary group, or (C) any liability for
amounts referred to in (A) or (B) as a result of any obligations to indemnify
another person.
(ii) The term "Returns" shall mean all reports, estimates, declarations
of estimated tax, information statements and returns relating to, or required
to be filed in connection with, any Taxes, including information returns or
reports with respect to backup withholding and other payments to third parties.
(b) All Returns required to be filed by or on behalf of Target have been
duly filed on a timely basis and such Returns are true, complete and correct.
All Taxes shown to be payable on such Returns or on subsequent assessments with
respect thereto, and all payments of estimated Taxes required to be made by or
on behalf of Target under Section 6655 of the Code or comparable provisions of
state, local or foreign law, have been paid in full on a timely basis or have
been accrued on the Most Recent Balance Sheet, and no other Taxes are payable
by Target with respect to items or periods covered by such Returns (whether or
not shown on or reportable on such Returns). Target has withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with
amounts paid or owing to any employee, creditor, independent contractor, or
other third party. There are no liens on any of the assets of Target with
respect to Taxes, other than liens for Taxes not yet due and payable or for
Taxes that Target is contesting in good faith through appropriate proceedings
and for which appropriate reserves have been established on the Most Recent
Balance Sheet. Target has not at any time been (i) a member of an affiliated
group of corporations filing consolidated, combined or unitary income or
franchise tax returns, or (ii) a member of any partnership or joint venture for
a period for which the statute of limitations for any Tax potentially
applicable as a result of such membership has not expired.
(c) The amount of Target's liability for unpaid Taxes (whether actual or
contingent) for all periods through the date of the Most Recent Balance Sheet
does not, in the aggregate, exceed the amount of the current liability accruals
for Taxes reflected on the Most Recent Balance Sheet, and the Most Recent
Balance Sheet reflects proper accrual in accordance with generally accepted
accounting principles applied on a basis consistent with prior periods of all
liabilities for Taxes payable after the date of the Most Recent Balance Sheet
attributable to transactions and events occurring prior to such date. No
liability for Taxes has been incurred (or prior to Closing will be incurred)
since such date other than in the ordinary course of business.
(d) Acquiror has been furnished by Target with true and complete copies of
(i) relevant portions of income tax audit reports, statements of deficiencies,
closing or other agreements received by or on behalf of Target relating to
Taxes, and (ii) all federal and state income or franchise tax Returns and state
sales and use tax Returns for or including Target for all taxable periods
ending on or after December 31, 1993. Target does not do business in or derive
income from any state other than states for which Returns have been duly filed
and furnished to Acquiror.
(e) The Returns of or including Target have never been audited by a
government or taxing authority, nor is any such audit in process, pending or,
to Target's knowledge, threatened (either in writing or verbally, formally or
informally). No deficiencies exist or have been asserted (either in writing or
verbally, formally or informally), and Target has not received notice (either
in writing or verbally, formally or informally) that it has not filed a Return
or paid Taxes required to be filed or paid. Target is neither a party to any
action or proceeding for assessment or collection of Taxes, nor has such event
been asserted or
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threatened (either in writing or verbally, formally or informally) against
Target or any of its assets. No waiver or extension of any statute of
limitations is in effect with respect to Taxes or Returns of Target. Target has
disclosed on its federal and state income and franchise tax Returns all
positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Code Section 6662 or comparable provisions of
applicable state tax laws.
(f) Target is not, nor has it ever been, a party to any tax sharing
agreement.
(g) Target is not, nor has it been, a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code, and
Acquiror is not required to withhold tax by reason of Section 1445 of the Code.
Target is not a "consenting corporation" under Section 341(f) of the Code.
Target has not entered into any compensatory agreements with respect to the
performance of services which payment thereunder would result in a
nondeductible expense to Target pursuant to Section 280G of the Code or an
excise tax to the recipient of such payment pursuant to Section 4999 of the
Code. Target has not agreed to, nor is it required to make any adjustment under
Code Section 481(a) by reason of, a change in accounting method. Target is not,
nor has it been, a "reporting corporation" subject to the information reporting
and record maintenance requirements of Section 6038A and the regulations
thereunder. Target is in compliance with the terms and conditions of any
applicable tax exemptions, agreements or orders of any foreign government to
which it may be subject or which it may have claimed, and the transactions
contemplated by this Agreement will not have any adverse effect on such
compliance.
(h) Target has no net operating losses and credit carryovers or other tax
attributes currently subject to limitation under Sections 382, 383, or 384 of
the Code.
Section 3.6 Absence of Certain Changes or Events. Since the Most Recent
Balance Sheet Date, Target has not:
(a) suffered any material adverse change in its business, as presently
conducted, assets (including intangible assets), liabilities, condition
(financial or otherwise), property or results of operations taken as a whole,
excluding any change that results from general economic, business or industry
conditions or the announcement of the transactions contemplated hereby
(including, without limitation, a decline in sales to common customers of
Acquiror and Target) (such change with respect to any party hereto and its
subsidiaries, taken as a whole, a "Material Adverse Change").
(b) suffered any damage, destruction or loss that has resulted, or could be
reasonably expected to result, in a Material Adverse Effect on Target;
(c) granted or agreed to make any increase in the compensation payable or
to become payable by Target to its officers or employees other than increases
consistent with Target's review and compensation policies in force prior to the
date of this Agreement;
(d) declared, set aside or paid any dividend or made any other distribution
on or in respect of the shares of the capital stock of Target or declared any
direct or indirect redemption, retirement, purchase or other acquisition by
Target of such shares, except for repurchases of Target Common Stock from
employees in connection with the termination of employment;
(e) issued any shares of capital stock of Target or any warrants, rights or
options therefor or entered into any commitment relating to the shares of
Target, except for the issuance of shares of Target capital stock pursuant to
the exercise of Target Options listed in
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the Target Disclosure Schedule, the conversion of outstanding Target Preferred
Stock, the exercise of warrants and other stock acquisition rights set forth in
the Target Disclosure Schedule and option grants in the ordinary course of
business;
(f) made any change in the accounting methods or practices it follows,
whether for general financial or tax purposes, or any change in depreciation or
amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of any real property or
any machinery, equipment or other operating property other than the sublease of
the real property on Marsh Road, Menlo Park, and equipment loans entered into
in the ordinary course of business;
(h) sold, assigned, transferred, licensed or otherwise disposed of any
patent, trademark, trade name, brand name, copyright (or pending application
for any patent, trademark or copyright) invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other intangible
asset, other than in the ordinary course of business;
(i) made any capital expenditure or commitment individually in excess of
$250,000 or in the aggregate in excess of $500,000, except for the items set
forth in Schedule 3.6 (i);
(j) paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets to, or entered into any agreement or arrangement with,
any of its Affiliates (as defined in Section 3.15), officers, directors or
stockholders or any affiliate or associate of any of the foregoing;
(k) made any amendment to or terminated any agreement which, if not so
amended or terminated, would be required to be disclosed on the Target
Disclosure Schedule; or
(l) agreed to take any action that would cause a misrepresentation under
this Section 3.6 or outside of its ordinary course of business or which would
constitute a material breach of any of the representations contained in this
Agreement.
Section 3.7 Title and Related Matters. Target has good and marketable title
to all the properties, interests in properties and assets, real and personal,
used in or necessary for the operation of the business of Target, free and
clear of all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except the lien of current taxes not yet due and payable, liens
created by operation of law, liens in respect of indebtedness shown on Target
Financial Statements, and other liens arising in the ordinary course of
business which would not, individually or in the aggregate, have a Material
Adverse Effect on Target. The equipment of Target used in the operation of its
business is, taken as a whole, (i) adequate for the business conducted by
Target and (ii) in good operating condition and repair, ordinary wear and tear
excepted. All real or personal property leases to which Target is a party are
valid, binding, enforceable and effective in accordance with their respective
terms, and to the knowledge of Target, there is not under any of such leases
any existing default or event of default or event which, with notice or lapse
of time or both, would constitute a default except to the extent any default or
unenforceability would not have a Material Adverse Effect on Target. The Target
Disclosure Schedule contains a description of all personal property with an
individual net book value in excess of $100,000 and real property leased or
owned by Target, describing its interest in said property. True and correct
copies of Target's material real property and personal property leases listed
on the Target Disclosure Schedule have been made available to Acquiror or its
representatives.
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Section 3.8 Proprietary Rights.
(a) To the knowledge of Target, Target owns all right, title and interest
in and to, or otherwise possesses legally enforceable rights, or is licensed to
use, all patents and patent rights and applications therefor, copyrights,
technology, software, software tools, know-how, processes, inventions, ideas,
algorithms, trade secrets, trademarks, service marks and trade names and all
applications and registrations therefor, Internet domain names and applications
therefor, schematics, inventory, ideas, algorithms and other proprietary rights
used in or necessary for the conduct of Target's business as conducted to the
date of this Agreement, including, without limitation, the technology,
information, databases, data lists, data compilations, and all proprietary
rights developed or discovered or used in connection with or contained in all
versions and implementations of any product or technology which has been or is
being marketed, distributed, licensed, used or sold by Target (collectively,
the "Target Products"), free and clear of all liens, claims and encumbrances
(including without limitation licensing and distribution rights, except to the
extent granted in the ordinary course of business) (all of which are referred
to as "Target Proprietary Rights"). The Target Disclosure Schedule contains an
accurate and complete (i) description of all patents and patent applications,
registered trademarks and service marks, trade names, Internet domain names and
registered copyrights in or related to the Target Products or otherwise
included in the Target Proprietary Rights and all applications therefor,
including the jurisdictions in which each such Target Proprietary Right has
been issued or registered or in which any such application of such issuance and
registration has been filed, and (ii) list of all licenses and other agreements
with third parties with annual payments in excess of $100,000 and excluding
break-the-seal agreements relating to any patents, patent rights, copyrights,
trade secrets, software, inventions, ideas, designs, information, data,
algorithms, technology, know-how, processes or other proprietary rights that
Target is licensed or otherwise authorized by such third parties to license,
use, market, distribute or incorporate in Target Products (such patents, patent
rights, copyrights, trade secrets, software, inventions, ideas, designs,
information, data, algorithms, technology, know-how, processes or other
proprietary rights are collectively referred to as the "Third Party
Technology") (such licenses and other agreements, the "Third Party Licenses").
To the knowledge of Target, all of Target's patents, patent rights, copyrights,
trademark, trade name or Internet domain name registrations related to or in
the Target Products are valid and in full force and effect; and consummation of
the transactions contemplated by this Agreement will not alter or impair any
such rights. No claims have been asserted or threatened against Target (and to
the knowledge of Target, there are no claims which could be asserted or
threatened against Target or which have been asserted or threatened against
others relating to Target Proprietary Rights or Target Products) by any person
challenging Target's use, possession, manufacture, license, sale or
distribution of Target Products or of Target Proprietary Rights (including,
without limitation, the Third Party Technology) or challenging or questioning
the validity or effectiveness thereof, or of any material license or agreement
relating thereto (including, without limitation, the Third Party Licenses) or
alleging a violation of any person's or entity's privacy, personal or
confidentiality rights. To the knowledge of Target, there is no valid basis for
any claim of the type specified in the immediately preceding sentence which
could in any material way interfere with the continued enhancement,
exploitation, licensing and use by Target of any of the Target Products or
Target Proprietary Rights. To the knowledge of Target, none of the Target
Products nor the license and use or exploitation of any Target Proprietary
Rights in Target's current business infringes on the rights of or constitutes
misappropriation of any proprietary information or intangible property right of
any third person or entity, including without limitation any patent, patent
right, trade secret, copyright, trademark or trade name, and Target has not
been sued or named in any suit, action or proceeding which involves a claim of
such infringement, misappropriation or unfair competition.
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(b) Except as made available to Acquiror or its counsel, as set forth in
the Target Disclosure Schedule or pursuant to Target's standard form
agreements, Target has not granted any third party any right to manufacture,
reproduce, license, use, distribute, market or exploit any of the Target
Products or any adaptations, translations, or derivative works based on the
Target Products or any portion thereof. No Target Product is a "derivative
work" of any original work currently owned by a third party as the term
"derivative work" is defined in the United States Copyright Act, Title 17,
U.S.C. Section 101.
(c) All material designs, drawings, specifications, schematics, designs,
source code, object code, scripts, documentation, flow charts, diagrams, data
lists, databases, compilations and information incorporating, embodying or
reflecting any of the Target Products at any stage of their development (the
"Target Components") were written, developed and created solely and exclusively
by employees of Target without the assistance of any third party or entity or
were created by third parties who assigned ownership of their rights to Target
by means of valid and enforceable consultant confidentiality and invention
assignment agreements, copies of which have been made available to Acquiror.
Target has at all times used commercially reasonable efforts customary in its
industry to treat the Target Proprietary Rights related to Target Products and
Target Components as containing trade secrets and has not disclosed or
otherwise dealt with such items in such a manner as intended or reasonably
likely to cause the loss of such trade secrets by release into the public
domain.
(d) To Target's knowledge, no employee, contractor or consultant of Target
is in violation in any material respect of any term of any written employment
contract, patent disclosure agreement or any other written contract or
agreement relating to the relationship of any such employee, consultant or
contractor with Target or, to Target's knowledge, any other party because of
the nature of the business conducted by Target or proposed to be conducted by
Target.
(e) Each person presently or previously employed by Target (including
independent contractors, if any) with access authorized by Target to
confidential information has executed a confidentiality and non-disclosure
agreement pursuant to the form of agreement previously provided to Acquiror or
its representatives. Such confidentiality and non-disclosure agreements
constitute valid and binding obligations of Target and such person, enforceable
in accordance with their respective terms.
(f) To Target's knowledge, no product liability or material warranty claims
have been asserted in writing to or threatened against Target.
(g) To Target's knowledge, there is no unauthorized use, disclosure,
infringement or misappropriation of any Target Proprietary Rights, or any Third
Party Technology to the extent licensed by or through Target, by any third
party, including any employee or former employee of Target. Except as set forth
in agreements, copies of which have been made available to Acquiror, Target has
not entered into any agreement to indemnify any other person against any charge
of infringement of any third party intellectual property rights.
(h) Target has taken all steps customary and reasonable in the industry to
protect and preserve the confidentiality and proprietary nature of all source
code, schematics, masks, trade secrets and other confidential information
("Confidential Information"). All use, disclosure or appropriation of
Confidential Information owned by Target by or to a third party has been
pursuant to the terms of a written agreement between Target and such third
party. All use, disclosure or appropriation of Confidential Information not
owned by Target has been pursuant to the terms of a written agreement between
Target and the owner of such Confidential Information, or is otherwise lawful.
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Section 3.9 Employee Benefit Plans.
Except for inaccuracies that would not have a Material Adverse Effect on
Target:
(a) The Target Disclosure Schedule lists, with respect to Target and any
trade or business (whether or not incorporated) which is treated as a single
employer with Target (an "ERISA Affiliate") within the meaning of Section
414(b), (c), (m) or (o) of the Code, (i) all material employee benefit plans
(as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), (ii) each loan to a non-officer employee, loans to
officers and directors and any stock option, stock purchase, phantom stock,
stock appreciation right, supplemental retirement, severance, sabbatical,
medical, dental, vision care, disability, employee relocation, cafeteria
benefit (Code Section 125) or dependent care (Code Section 129), life insurance
or accident insurance plans, programs or arrangements, (iii) all bonus,
pension, profit sharing, savings, deferred compensation or incentive plans,
programs or arrangements, (iv) other fringe or employee benefit plans, programs
or arrangements that apply to senior management of Target and that do not
generally apply to all employees, and (v) any current or former employment or
executive compensation or severance agreements, written or otherwise, for the
benefit of, or relating to, any present or former employee, consultant or
director of Target as to which (with respect to any of items (i) through (v)
above) any potential liability is borne by Target (together, the "Target
Employee Plans").
(b) Target has delivered to Acquiror or its representatives a copy or a
summary of each of the Target Employee Plans and related plan documents
(including trust documents, insurance policies or contracts, employee booklets,
summary plan descriptions and other authorizing documents, and, to the extent
still in its possession, any material employee communications relating thereto)
and has, with respect to each Target Employee Plan which is subject to ERISA
reporting requirements, provided copies of any Form 5500 reports filed for the
1997 plan year and the preceding two plan years, if any. Any Target Employee
Plan intended to be qualified under Section 401(a) of the Code has obtained
from the Internal Revenue Service a favorable determination letter as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, to the extent the
deadline for adopting such mandatory plan amendments and the period prescribed
by applicable Treasury Regulations or in official guidance from the Internal
Revenue Service for requesting such determination letter have expired. Target
has also furnished Acquiror with the most recent Internal Revenue Service
determination letter issued with respect to each such Target Employee Plan, and
nothing has occurred since the issuance of each such letter which could
reasonably be expected to cause the loss of the tax-qualified status of any
Target Employee Plan subject to Code Section 401(a).
(c) (i) None of the Target Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person other than such
continuation medical care coverage as may be required under Section 498B of the
Code or similar provisions of any applicable state or local law; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Target Employee Plan,
which could reasonably be expected to have, in the aggregate, a Material
Adverse Affect on Target, (iii) each Target Employee Plan has been administered
in accordance with its terms and in compliance with the requirements prescribed
by any and all statutes, rules and regulations (including ERISA and the Code),
and Target and each subsidiary or ERISA Affiliate have performed all material
obligations required to be performed by them under, are not in any material
respect in default, under or violation of, and have no knowledge of any
material default or violation by any other party to, any of the Target Employee
Plans, in each case except as would not have, in the aggregate, a Material
Adverse Effect on Target; (iv) neither Target nor any subsidiary or ERISA
Affiliate is subject to any material liability or
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penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Target Employee Plans; (v) all material contributions
required to be made by Target or any subsidiary or ERISA Affiliate to any
Target Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Target Employee
Plan for the current plan years; (vi) with respect to each Target Employee
Plan, no "reportable event" within the meaning of Section 4043 of ERISA
(excluding any such event for which the thirty (30) day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 of ERISA has occurred; and (vii) no
Target Employee Plan is covered by, and neither Target nor any subsidiary or
ERISA Affiliate has incurred or expects to incur any material liability under
Title IV of ERISA or Section 412 of the Code. With respect to each Target
Employee Plan subject to ERISA as either an employee pension plan within the
meaning of Section 3(2) of ERISA or an employee welfare benefit plan within
the meaning of Section 3(1) of ERISA, Target has prepared in good faith and
timely filed all requisite governmental reports (which were true and correct
as of the date filed) and has properly and timely filed and distributed or
posted all notices and reports to employees required to be filed, distributed
or posted with respect to each such Target Employee Plan except as would not
give rise, in the aggregate, to a Material Adverse Effect on Target. No suit,
administrative proceeding, action or other litigation has been brought, or to
the knowledge of Target is threatened, against or with respect to any such
Target Employee Plan, including any audit or inquiry by the IRS or United
States Department of Labor. Neither Target nor any ERISA Affiliate is a party
to, or has made any contribution to or otherwise incurred any obligation
under, any "multi-employer plan" as defined in Section 3(37) of ERISA.
(d) With respect to each Target Employee Plan, Target has complied with
(i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
proposed regulations thereunder and (ii) the applicable requirements of the
Family Leave Act of 1993 and the regulations thereunder, except to the extent
that such failure to comply would not, in the aggregate, have a Material
Adverse Effect on Target.
(e) The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or other service provider
of Target or any other ERISA Affiliate to severance benefits or any other
payment (including, without limitation, unemployment compensation, golden
parachute or bonus), except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting of any such benefits, or (iii)
increase or accelerate any benefits or the amount of compensation due any such
employee or service provider.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by Target or other ERISA Affiliate relating to, or
change in participation or coverage under, any Target Employee Plan which
would materially increase the expense of maintaining such Plan above the level
of expense incurred with respect to that Plan for the most recent fiscal year
included in the Target Financial Statements.
Section 3.10 Bank Accounts. The Target Disclosure Schedule sets forth the
names and locations of all banks, trusts, companies, savings and loan
associations, and other financial institutions at which Target maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
Section 3.11 Contracts.
(a) Except as set forth on the Target Disclosure Schedule:
(i) Target has no agreements, contracts or commitments that provide for
the sale, licensing, transfer, assignment, distribution, marketing, promotion
or resale by Target of
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any Target Products or Target Proprietary Rights, except for customer contracts
in the ordinary course of business. Without limiting the foregoing, Target has
not granted to any third party any rights to reproduce, manufacture or
distribute any of the Target Products, nor has Target granted any license of
any Target trademarks or servicemarks, except for in connection with customer
contracts in the ordinary course of business. Target has not granted to any
third party any exclusive rights of any kind. Target has not granted any third
party any right to market any of the Target Products under any private label or
"OEM" arrangements, other than pursuant to agreements, copies of which have
been made available to Acquiror or its counsel.
(ii) Target has no agreements, contracts or commitments that call for
fixed and/or contingent payments or expenditures by or to Target (including,
without limitation, any advertising or revenue sharing arrangement) in excess
of $100,000 per year.
(iii) Target has no outstanding agreements, contracts or commitments with
officers, employees, agent, consultants, advisors, or sales representatives
that are not cancelable by Target "at will" on no more than thirty (30) days'
notice and without liability, penalty or premium including without limitation,
severance or termination pay.
(iv) Target has no currently effective collective bargaining or union
agreements, contracts or commitments.
(v) Target is not restricted by agreement from competing with any person
or from carrying on its business anywhere in the world.
(vi) Target has not guaranteed any obligations of other persons or made
any agreements to acquire or guarantee any obligations of other persons.
(vii) Target has no outstanding loan or advance to any person; nor is it
party to any line of credit, standby financing, revolving credit or other
similar financing arrangement of any sort which would permit the borrowing by
Target of any sum.
(viii) Target has no agreements pursuant to which Target has agreed to
manufacture for any third party any Target Products or Target Components.
(ix) There are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors, Affiliates (defined
below) or any Affiliate thereof.
True and correct copies of each document or instrument listed on the Target
Disclosure Schedule pursuant to this Section 3.11(a) (the "Target Material
Contracts") have been made available to Acquiror or its representatives.
(b) All of the Target Material Contracts listed on the Target Disclosure
Schedule are valid, binding, in full force and effect, and enforceable by
Target in accordance with their respective terms. No Target Material Contract
contains any liquidated damages, penalty or similar provision, and to the
knowledge of Target, no party to any such Target Material Contract intends to
cancel, withdraw, modify or amend such contract, agreement or arrangement,
except to the extent that the invalidity, unenforceability, provision or intent
could not reasonably be expected to have a Material Adverse Effect.
(c) Target is not in material default under or in material breach or
violation of, nor, to Target's knowledge, is there any valid basis for any
claim of material default by Target under, or material breach or violation by
Target of, any Target Material Contract. To Target's knowledge, no other party
is in default under or in breach or violation of, nor is there any valid basis
for any claim of default by any other party under or any breach or violation by
any other party of, any Target Material Contract.
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Section 3.12 Compliance With Law. Target and the operation of its business
are in compliance in all material respects with all applicable laws and
regulations. Neither Target nor, to Target's knowledge, any of its employees
has directly or indirectly paid or delivered any fee, commission or other sum
of money or item of property, however characterized, to any finder, agent,
government official or other party in the United States or any other country,
that was or is in violation of any federal, state, or local statute or law or
of any statute or law of any other country having jurisdiction, nor has Target
participated directly or indirectly in any boycotts or other similar practices
affecting any of its customers, except for noncompliance which could not be
reasonably expected to have a Material Adverse Effect. Target has complied in
all material respects at all times with any and all applicable federal, state
and foreign laws, rules, regulations, proclamations and orders relating to the
importation or exportation of its products, except for noncompliance which
could not be reasonably expected to have a Material Adverse Effect.
Section 3.13 Labor Difficulties; No Discrimination.
(a) Target is not engaged in any unfair labor practice and is not in
material violation of any applicable laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours. There is no
unfair labor practice complaint against Target actually pending or, to the
knowledge of Target, threatened before the National Labor Relations Board.
There is no strike, labor dispute, slowdown, or stoppage actually pending or,
to the knowledge of Target, threatened against Target. To the knowledge of
Target, no union organizing activities are taking place with respect to the
business of Target. No grievance, nor any arbitration proceeding arising out of
or under any collective bargaining agreement is pending and, to the knowledge
of Target, no claims therefor exist. No collective bargaining agreement that is
binding on Target restricts it from relocating or closing any of its
operations. Target has not experienced any material work stoppage or other
material labor difficulty.
(b) There is no claim pending against Target, or to Target's knowledge,
threatened against Target, based on actual or alleged race, age, sex,
disability or other harassment or discrimination, or similar tortious conduct.
(c) There are no pending claims against Target or any of its subsidiaries
under any workers compensation plan or policy or for long term disability.
Neither Target nor any of its subsidiaries has any material obligations under
COBRA with respect to any former employees or qualifying beneficiaries
thereunder. There are no proceedings pending or, to the knowledge of Target,
threatened, between Target and any of their respective employees, which
proceedings have or could reasonably be expected to have a Material Adverse
Effect on Target.
Section 3.14 Trade Regulation. All of the prices charged by Target in
connection with the marketing or sale of any products or services have been in
compliance in all material respects with all applicable laws and regulations.
No claims have been threatened in writing against Target with respect to
wrongful termination of any dealer, distributor or any other marketing entity,
discriminatory pricing, price fixing, unfair competition, false advertising, or
any other violation of any laws or regulations relating to anti-competitive
practices or unfair trade practices of any kind, and to Target's knowledge, no
specific situation, set of facts, or occurrence provides any basis for any such
claim.
Section 3.15 Insider Transactions. To the knowledge of Target, no affiliate
("Affiliate") as defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended (the "Exchange Act") of Target has any interest in any
equipment or other property, real or personal, tangible or intangible, of
Target including, without limitation, any Target Proprietary Rights or any
creditor, supplier, customer, manufacturer, agents, representative, or
distributor
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of Target Products; provided, however, that no such Affiliate or other person
shall be deemed to have such an interest solely by virtue of the ownership of
less than 1% of the outstanding stock or debt securities of any publicly-held
company, the stock or debt securities of which are traded on a recognized stock
exchange or quoted on the Nasdaq Stock Market.
Section 3.16 Employees, Independent Contractors and Consultants. The Target
Disclosure Schedule lists and describes all currently effective written or, to
Target's knowledge, oral consulting, independent contractor and/or employment
agreements and other material agreements concluded with individual employees,
independent contractors or consultants to which Target is a party. True and
correct copies of all such written agreements have been made available to
Acquiror or its representatives. All independent contractors have been properly
classified as independent contractors for the purposes of federal and
applicable state tax laws, laws applicable to employee benefits and other
applicable law. All salaries and wages paid by Target are in compliance in all
material respects with applicable federal, state and local laws. Also shown on
the Target Disclosure Schedule are the names, positions and salaries or rates
of pay, including bonuses, of all persons presently employed by Target.
Section 3.17 Insurance. The Target Disclosure Schedule contains a list of the
principal policies of fire, liability and other forms of insurance currently
held by Target, and all outstanding claims made by Target under such policies.
To the knowledge of Target, Target has not done anything, either by way of
action or inaction, that might invalidate such policies in whole or in part.
There is no claim pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Target is otherwise in compliance with the terms of
such policies and bonds in all material respects. To Target's knowledge, no
termination of, or material premium increase with respect to, any of such
policies has been threatened.
Section 3.18 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Target,
threatened against Target or any of its properties or any of its officers or
directors (in their capacities as such). There is no judgment, decree or order
outstanding against Target, or, to the knowledge of Target, any of its
respective directors or officers (in their capacities as such). To Target's
knowledge, no circumstances exist that could reasonably be expected to result
in a claim against Target as a result of the conduct of Target's business
(including, without limitation, any claim of infringement of any intellectual
property right), except for claims that would not have a Material Adverse
Effect.
Section 3.19 Governmental Authorizations and Regulations. Target has obtained
each federal, state, county, local or foreign governmental consent, license,
permit, grant, or other authorization of a Governmental Entity (i) pursuant to
which Target currently operates or holds any interest in any of its properties
or (ii) that is required for the operation of Target's business or the holding
of any such interest, and all of such authorizations are in full force and
effect, except where the failure to obtain or have any such Target
authorizations could not reasonably be expected to have a Material Adverse
Effect on Target.
Section 3.20 Subsidiaries. Target has no subsidiaries. Target does not own or
control (directly or indirectly) any capital stock, bonds or other securities
of, and does not have any proprietary interest in, any other corporation,
general or limited partnership, firm, association or business organization,
entity or enterprise, and Target does not control (directly or indirectly) the
management or policies of any other corporation, partnership, firm, association
or business organization, entity or enterprise.
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Section 3.21 Compliance with Environmental Requirements. Except for
inaccuracies which would not have a Material Adverse Effect, (a) Target has
obtained all permits, licenses and other authorizations which are required
under federal, state and local laws applicable to Target and relating to
pollution or protection of the environment, including laws or provisions
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials, substances, or
wastes into air, surface water, groundwater, or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials, substances, or wastes or which are intended to assure the safety of
employees, workers or other persons, (b) Target is in compliance in all
material respects with all terms and conditions of all such permits, licenses
and authorizations, and (c) Target has no knowledge of, nor has Target received
written notice of, any conditions, circumstances, activities, practices,
incidents, or actions which may form the basis of any claim, action, suit,
proceeding, hearing, or investigation of, by, against or relating to Target,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any
pollutant, contaminant, or hazardous or toxic substance, material or waste, or
relating to the safety of employees, workers or other persons.
Section 3.22 Corporate Documents. Target has made available to Acquiror or
its representatives: (a) copies of its Certificate of Incorporation and Bylaws,
as amended to date; (b) its minute book containing all records required to be
set forth of all proceedings, consents, actions, and meetings of the
stockholders, the board of directors and any committees thereof; (c) all
material permits, orders, and consents issued by any regulatory agency with
respect to Target, or any securities of Target, and all pending applications
for such permits, orders, and consents; and (d) the stock transfer books of
Target setting forth all transfers of any capital stock. The corporate minute
books, stock certificate books, stock registers and other corporate records of
Target are complete and accurate in all material respects, and the signatures
appearing on all documents contained therein are the true signatures of the
persons purporting to have signed the same. All actions reflected in such books
and records were duly and validly taken in compliance with the laws of the
applicable jurisdiction.
Section 3.23 No Brokers. Except for fees payable to Merrill Lynch, Pierce,
Fenner & Smith Incorporated in connection with the consummation of the
transaction contemplated hereby, the approximate amount of which is set forth
on Section 3.23 of the Target Disclosure Schedule, Target is not obligated for
the payment of fees or expenses of any broker or finder in connection with the
origin, negotiation or execution of this Agreement or the other Transaction
Documents or in connection with any transaction contemplated hereby or thereby.
Section 3.24 Pooling of Interests. To Target's knowledge, neither Target nor
any of its Affiliates has, through the date of this Agreement, taken or agreed
to take any action which would prevent Acquiror from accounting for the
business combination to be effected by the Merger as a pooling of interests.
Section 3.25 Customers and Suppliers. As of the date hereof, no customer
which individually accounted for more than 10% of Target's gross revenues
during the 12-month period preceding the date hereof, and no supplier of
Target, has canceled or otherwise terminated, or made any written threat to
Target to cancel or otherwise terminate its relationship with Target, or has at
any time on or after December 31, 1998 decreased materially its services or
supplies to Target in the case of any such supplier, or its usage of the
services or products of Target in the case of such customer, and to Target's
knowledge, no such supplier or customer intends to cancel or otherwise
terminate its relationship with Target or to decrease materially its services
or supplies to Target or its usage of the services or
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products of Target, as the case may be. From and after the date hereof, no
customer which individually accounted for more than 10% of Target's gross
revenues during the 12-month period preceding the Closing Date, has canceled or
otherwise terminated, or made any written threat to Target to cancel or
otherwise terminate, for any reason, including without limitation the
consummation of the transactions contemplated hereby, its relationship with
Target, and to Target's knowledge, no such customer intends to cancel or
otherwise terminate its relationship with Target or to decrease materially its
usage of the services or products of Target. Target has not knowingly engaged
in any fraudulent conduct with respect to any customer or supplier of Target.
Section 3.26 Target Action. The Board of Directors of Target, by unanimous
written consent or at a meeting duly called and held, has by the unanimous vote
of all directors (i) determined that the Merger is fair and in the best
interests of Target and its stockholders, (ii) approved the Merger and this
Agreement in accordance with the provisions of Delaware Law and California Law,
and (iii) directed that this Agreement and the Merger be submitted to Target
stockholders for their approval and resolved to recommend that Target
stockholders vote in favor of the approval of this Agreement and the Merger.
Section 3.27 Offers. Target has ceased, and has the legal right to cease, all
negotiations and discussions of Acquisition Transactions (as defined in Section
5.7) with parties other than Acquiror.
Section 3.28 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Target for inclusion in the Form S-4 (or any similar
successor form thereto) Registration Statement (the "Registration Statement")
to be filed with the Securities and Exchange Commission (the "Commission") in
accordance with the Securities Act in connection with the Merger, shall not at
the time the Registration Statement is filed with the Commission and at the
time it becomes effective under the Securities Act contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The information
supplied by Target for inclusion in the proxy statement/prospectus to be sent
to the stockholders of Target and Acquiror in connection with the meeting of
Target's stockholders to consider the approval and adoption of this Agreement
and the approval of the Merger (the "Target Stockholders' Meeting") and the
meeting of Acquiror's stockholders to consider the approval and adoption of
this Agreement and the approval of the Merger (the "Acquiror Stockholders'
Meeting") (such proxy statement/prospectus as amended or supplemented is
referred to herein as the "Proxy Statement/Prospectus") shall not, on the date
the Proxy Statement/Prospectus is first mailed to Target's stockholders or at
the time of the Target Stockholders' Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Target
Stockholders' Meeting which has become false or misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act and the rules and
regulations thereunder. If at any time prior to the Effective Time any event
relating to Target or any of its affiliates, officers or directors should be
discovered by Target which is required to be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus,
Target shall promptly inform Acquiror. Notwithstanding the foregoing, Target
makes no representation or warranty with respect to any information supplied by
Acquiror or Sub which is contained in any of the foregoing documents.
Section 3.29 Accounts Receivable. Subject to any reserves set forth in the
Most Recent Balance Sheet, the accounts receivable shown on the Most Recent
Balance Sheet represent
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and will represent bona fide claims against debtors for sales and other
charges, and are not subject to discount except for normal cash and immaterial
trade discounts. The amount carried for doubtful accounts and allowances
disclosed in the Most Recent Balance Sheet is sufficient to provide for any
losses which may be sustained on realization of the receivables.
Section 3.30 Year 2000 Compliance. Except as would not reasonably be expected
to have a Material Adverse Effect on Target, all of Target's Information
Technology (as defined below) effectively addresses the Year 2000 issue and
will not cause an interruption in the ongoing operations of Target's business
on or after January 1, 2000. For purposes of the foregoing, the term
"Information Technology" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services that are owned or used by a party
hereto in the conduct of its business, or purchased by a party hereto from
third party suppliers. In addition, and all of the Target Products and Target
Components will not cause an interruption in the ongoing operations of any
customer of Target or of the combined company on or after January 1, 2000.
Section 3.31 Disclosure. No statements by Target contained in this Agreement,
its exhibits and schedules nor in any of the certificates or documents,
including any of the Transaction Documents, delivered or required to be
delivered by Target to Acquiror or Sub under this Agreement contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB
Acquiror and Sub represent and warrant to Target that, except as disclosed in
a filing with the Commission (as specifically referenced in the Acquiror
Disclosure Schedule) or in the disclosure schedule delivered by Acquiror to
Target on or before the date of this Agreement (the "Acquiror Disclosure
Schedule"), the statements contained in this Article IV are true and correct.
The Acquiror Disclosure Schedule shall be arranged in paragraphs corresponding
to the numbered and lettered paragraphs contained in this Article IV.
Disclosure in any paragraph of the Acquiror Disclosure Schedule shall
constitute disclosure for purposes of all sections of the Agreement. Whenever
the term "to Acquiror's knowledge," "Acquiror is not aware" or a similar
expression appears in any representation or warranty in this Article IV, it
means to the actual knowledge of Acquiror's directors and executive officers.
Whenever the term "Acquiror has received no notice" or like expression appears
in any representation or warranty in this Article IV, it means that none of
Acquiror's directors and executive officers has received actual oral or written
notice of the matter to which such term is applied.
Section 4.1 Organization of Acquiror and Sub. Each of Acquiror and its
subsidiaries, including Sub, is a corporation duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
incorporation and has all requisite corporate power to own, lease and operate
its property and to carry on its business as now being conducted and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
Material Adverse Effect on Acquiror.
Section 4.2 Acquiror Capital Structure. The authorized capital stock of
Acquiror consists of 60,000,000 shares of Common Stock, par value of $0.001 per
share ("Acquiror Common Stock") and 2,000,000 shares of Preferred Stock, par
value $0.001 per share ("Acquiror
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Preferred Stock"), of which there were issued and outstanding as of the close
of business on January 31, 1999, 14,537,137 shares of Acquiror Common Stock and
no shares of Acquiror Preferred Stock. There are no other outstanding shares of
capital stock or voting securities of Acquiror other than shares of Acquiror
Common Stock issued after January 31, 1999 under Acquiror's 1998 Employee Stock
Purchase Plan (the "ESPP") or upon the exercise of options issued under
Acquiror's 1992 Stock Option Plan, 1998 Stock Option Plan or 1998 Director
Stock Option Plan. Options issued pursuant to such plans are referred to as
"Acquiror Options." The authorized capital stock of Sub consists of 1,000
shares of Common Stock, all of which are issued and outstanding and are held by
Acquiror. All outstanding shares of Acquiror and Sub have been duly authorized,
validly issued, fully paid and are nonassessable and free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon
the holders thereof. As of the close of business on January 31, 1999, Acquiror
has reserved an aggregate of 2,230,002 shares of Common Stock for issuance to
employees, directors and independent contractors upon exercise of Acquiror
Options. Other than as contemplated by this Agreement or under the ESPP, and
except as described above in this Section 4.2, there are no other options,
warrants, calls, rights, commitments or agreements to which Acquiror or Sub is
a party or by which either of them is bound obligating Acquiror or Sub to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of Acquiror or
Sub or obligating Acquiror or Sub to grant, extend or enter into any such
option, warrant, call, right, commitment or agreement. Section 4.2 of the
Acquiror Disclosure Schedule sets forth a list of all holders of Acquiror
Options and the following information with respect to such Acquiror Options:
the (i) number of option shares subject to such Acquiror Options, (ii) grant
date for such Acquiror Options and (iii) vesting schedule applicable to such
Acquiror Options. Such list is true and complete in all material respects. The
shares of Acquiror Common Stock to be issued pursuant to the Merger (including
shares of Acquiror Common Stock issued upon exercise of Target Options and
Target Warrants assumed by Acquiror) have been reserved for issuance and, when
issued at the Closing, will be duly authorized, validly issued, fully paid, and
non-assessable and issued in compliance with all applicable federal or state
securities laws. Except as set forth in the Acquiror Disclosure Schedule, there
are no obligations, contingent or otherwise, of Acquiror to repurchase, redeem
or otherwise acquire any shares of Acquiror Common Stock or Acquiror Preferred
Stock or make any investment (in the form of a loan, capital contribution or
otherwise) in any other entity. Acquiror is not in discussion, formal or
informal, with any person or entity regarding the issuance of any form of
additional Acquiror equity that has not been issued or committed to prior to
the date of this Agreement, other than option grants in the ordinary course of
business. Except as provided in this Agreement and the other Transaction
Documents or any transaction contemplated hereby or thereby, there are no
voting trusts, proxies or other agreements or understandings with respect to
the voting of the shares of capital stock of Acquiror.
Section 4.3 Authority; No Conflict; Required Filings and Consents.
(a) Each of Acquiror and Sub has all requisite corporate power and
authority to enter into this Agreement and all Transaction Documents to which
it is or will become a party and to consummate the transactions contemplated by
this Agreement and such Transaction Documents. The execution and delivery of
this Agreement and such Transaction Documents and the consummation of the
transactions contemplated by this Agreement and such Transaction Documents have
been duly authorized by all necessary corporate action on the part of Acquiror
and Sub. This Agreement has been and such Transaction Documents have been or,
to the extent not executed as of the date hereof, will be duly executed and
delivered by Acquiror and Sub. This Agreement and each of the Transaction
Documents to which Acquiror or Sub is a party constitutes, and each of the
Transaction Documents to which Acquiror or Sub will become a party when
executed and delivered by Acquiror or Sub will
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constitute, the valid and binding obligation of Acquiror or Sub, enforceable in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity.
(b) The execution and delivery by Acquiror or Sub of this Agreement and the
Transaction Documents to which it is or will become a party does not, and
consummation of the transactions contemplated by this Agreement or the
Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of Acquiror or Sub, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, contract or other agreement, instrument or obligation to which Acquiror
or Sub is a party or by which either of them or any of their properties or
assets may be bound, or (iii) conflict or violate any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Acquiror or Sub or any of their properties or assets,
except in the case of (ii) and (iii) for any such conflicts, violations,
defaults, terminations, cancellations or accelerations which would not have a
Material Adverse Effect on Acquiror.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Acquiror or Sub in connection with the execution and delivery of
this Agreement or the Transaction Documents to which it is or will become a
party or the consummation of the transactions contemplated hereby or thereby,
or the continuation of the business activities of Acquiror following
consummation of the Merger without a Material Adverse Change, except for (i)
the filing of the Certificate of Merger with the Delaware Secretary of State,
(ii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws and similar laws of any foreign country, and (iii) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not be expected to have a Material Adverse Effect on
Acquiror.
Section 4.4 Commission Filings; Financial Statements.
(a) Acquiror has filed with the Commission and made available to Target or
its representatives all forms, reports and documents required to be filed by
Acquiror with the Commission since April 30, 1998 (collectively, the "Acquiror
Commission Reports"). The Acquiror Commission Reports constitute all of the
documents required to be filed by the Acquiror under Section 13 of the Exchange
Act with the Commission since April 30, 1998. The Acquiror Commission Reports
(i) at the time filed, complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended, (the "Securities Act"),
and the Exchange Act, as the case may be, and (ii) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
Acquiror Commission Reports or necessary in order to make the statements in
such Acquiror Commission Reports, in the light of the circumstances under which
they were made, not misleading.
(b) Each of the financial statements (including, in each case, any related
notes) contained in the Acquiror Commission Reports (the "Acquiror Financial
Statements"), including any Acquiror Commission Reports filed after the date of
this Agreement until the
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Closing, complied or will comply as to form in all material respects with the
applicable published rules and regulations of the Commission with respect
thereto, was prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes to such Acquiror Financial Statements
or, in the case of unaudited statements, as permitted by Form 10-Q of the
Commission) and fairly presented the consolidated financial position of
Acquiror and its subsidiaries as at the respective dates and the consolidated
results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount. The reserves, if any, reflected on the Acquiror Financial
Statements are adequate in light of the contingencies with respect to which
they were made.
Section 4.5 Tax Matters.
(a) All Returns required to be filed by or on behalf of Acquiror have been
duly filed on a timely basis and such Returns are true, complete and correct.
All Taxes shown to be payable on such Returns or on subsequent assessments with
respect thereto, and all payments of estimated Taxes required to be made by or
on behalf of Acquiror under Section 6655 of the Code or comparable provisions
of state, local or foreign law, have been paid in full on a timely basis or
have been accrued on the Most Recent Balance Sheet, and no other Taxes are
payable by Acquiror with respect to items or periods covered by such Returns
(whether or not shown on or reportable on such Returns). Acquiror has withheld
and paid over all Taxes required to have been withheld and paid over, and
complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid or owing to any employee, creditor, independent contractor,
or other third party. There are no liens on any of the assets of Acquiror with
respect to Taxes, other than liens for Taxes not yet due and payable or for
Taxes that Acquiror is contesting in good faith through appropriate proceedings
and for which appropriate reserves have been established in the Acquiror
financial Statements.
(b) The amount of Acquiror's liability for unpaid Taxes (whether actual or
contingent) for all periods through the date of the Acquiror's Report on 10-Q
for the period ended December 31, 1998 (the "Most Recent 10-Q") does not, in
the aggregate, exceed the amount of the current liability accruals for Taxes
reflected in the Most Recent 10-Q, and the Most Recent 10-Q reflects proper
accrual in accordance with generally accepted accounting principles applied on
a basis consistent with prior periods of all liabilities for Taxes payable
after the date of the Most Recent 10-Q attributable to transactions and events
occurring prior to such date. No liability for Taxes has been incurred (or
prior to Closing will be incurred) since such date other than in the ordinary
course of business.
(c) The Returns of or including Acquiror have never been audited by a
government or taxing authority, nor is any such audit in process, pending or,
to Acquiror's knowledge, threatened (either in writing or verbally, formally or
informally). No deficiencies exist or have been asserted (either in writing or
verbally, formally or informally), and Acquiror has not received notice (either
in writing or verbally, formally or informally) that it has not filed a Return
or paid Taxes required to be filed or paid. Acquiror is neither a party to any
action or proceeding for assessment or collection of Taxes, nor has such event
been asserted or threatened (either in writing or verbally, formally or
informally) against Acquiror or any of its assets. No waiver or extension of
any statute of limitations is in effect with respect to Taxes or Returns of
Acquiror. Acquiror has disclosed on its federal and state income and franchise
tax Returns all positions taken therein that could give rise to a substantial
understatement penalty within the meaning of Code Section 6662 or comparable
provisions of applicable state tax laws.
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Section 4.6 Absence of Certain Changes or Events. Since December 31, 1998,
Acquiror and its subsidiaries have conducted their business in the ordinary
course and, since such date, there has not been (i) any Material Adverse Change
with respect to Acquiror (other than any change in the business of Acquiror
occurring as a result of the announcement of this Agreement, and provided that
changes in the trading price of Acquiror Common Stock shall not in and of
itself constitute a Material Adverse Change with respect to Acquiror); or (ii)
any damage, destruction or loss (whether or not covered by insurance) with
respect to Acquiror or any of its subsidiaries having or which could reasonably
be expected to have a Material Adverse Effect on Acquiror. In addition,
Acquiror has not:
(a) granted or agreed to make any increase in the compensation payable or
to become payable by Acquiror to its officers or employees other than increases
consistent with Acquiror's review and compensation policies in force prior to
the date of this Agreement;
(b) declared, set aside or paid any dividend or made any other distribution
on or in respect of the shares of the capital stock of Acquiror or declared any
direct or indirect redemption, retirement, purchase or other acquisition by
Acquiror of such shares, except for repurchases of Acquiror Common Stock from
employees in connection with the termination of employment;
(e) issued any shares of capital stock of Acquiror or any warrants, rights
or options therefor or entered into any commitment relating to the shares of
Acquiror, except for the issuance of shares of Acquiror capital stock pursuant
to the exercise of Acquiror Options and option grants in the ordinary course of
business;
(f) made any change in the accounting methods or practices it follows,
whether for general financial or tax purposes, or any change in depreciation or
amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of any real property or
any machinery, equipment or other operating property other than equipment loans
entered into in the ordinary course of business;
(h) sold, assigned, transferred, licensed or otherwise disposed of any
patent, trademark, trade name, brand name, copyright (or pending application
for any patent, trademark or copyright) invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other intangible
asset, other than in the ordinary course of business;
(i) paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets to, or entered into any agreement or arrangement with,
any of its Affiliates officers, directors or stockholders or any affiliate or
associate of any of the foregoing;
(j) entered into any material contract, nor has there been any amendment,
termination of or default under any material contract to which Acquiror is a
party or by which it is bound; or
(k) agreed to take any action that would cause a misrepresentation under
this Section 4.6 or outside of its ordinary course of business or which would
constitute a material breach of any of the representations contained in this
Agreement.
Section 4.7 Title and Related Matters. Acquiror has good and marketable title
to all the properties, interests in properties and assets, real and personal,
used in or necessary for the operation of the business of Acquiror, free and
clear of all mortgages, liens, pledges, charges
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or encumbrances of any kind or character, except the lien of current taxes not
yet due and payable, liens in respect of indebtedness shown on Acquiror
Financial Statements and liens which arise in connection with nonmaterial
equipment lease transactions. The equipment of Acquiror used in the operation
of its business is, taken as a whole, (i) adequate for the business conducted
by Acquiror and (ii) in good operating condition and repair, ordinary wear and
tear excepted. All real or personal property leases to which Acquiror is a
party are valid, binding, enforceable and effective in accordance with their
respective terms, except to the extent any unenforceability would not have a
Material Adverse Effect on Acquiror. To the knowledge of Acquiror, there is not
under any of such leases any existing default or event of default or event
which, with notice or lapse of time or both, would constitute a default. True
and correct copies of Acquiror's material real property and personal property
leases have been made available to Acquiror or its representatives.
Section 4.8 Proprietary Rights.
(a) To the knowledge of Acquiror, Acquiror owns all right, title and
interest in and to, or otherwise possesses legally enforceable rights, or is
licensed to use, all patents and patent rights and applications therefor,
copyrights, technology, software, software tools, know-how, processes,
inventions, ideas, algorithms, trade secrets, trademarks, service marks and
trade names and all applications and registrations therefor, Internet domain
names and applications therefor, schematics, inventory, ideas, algorithms and
other proprietary rights used in or necessary for the conduct of Acquiror's
business as conducted to the date of this Agreement, including, without
limitation, the technology, information, databases, data lists, data
compilations, and all proprietary rights developed or discovered or used in
connection with or contained in all versions and implementations of any product
or technology which has been or is being marketed, distributed, licensed, used
or sold by Acquiror (collectively, the "Acquiror Products"), free and clear of
all liens, claims and encumbrances (including without limitation licensing and
distribution rights, except to the extent granted in the ordinary course of
business) (all of which are referred to as "Acquiror Proprietary Rights"). To
the knowledge of Acquiror, all of Acquiror's patents, patent rights,
copyrights, trademark, trade name or Internet domain name registrations related
to or in the Acquiror Products are valid and in full force and effect; and
consummation of the transactions contemplated by this Agreement will not alter
or impair any such rights. No claims have been asserted or threatened against
Acquiror (and to the knowledge of Acquiror, there are no claims which could be
asserted or threatened against Acquiror or which have been asserted or
threatened against others relating to Acquiror Proprietary Rights or Acquiror
Products) by any person challenging Acquiror's use, possession, manufacture,
license, sale or distribution of Acquiror Products or of Acquiror Proprietary
Rights (including, without limitation, any Third Party Technology) or
challenging or questioning the validity or effectiveness thereof, or of any
material license or agreement relating thereto (including, without limitation,
any Third Party Licenses) or alleging a violation of any person's or entity's
privacy, personal or confidentiality rights. To the knowledge of Acquiror,
there is no valid basis for any claim of the type specified in the immediately
preceding sentence which could in any material way interfere with the continued
enhancement, exploitation, licensing and use by Acquiror of any of the Acquiror
Products. To the knowledge of Acquiror, none of the Acquiror Products nor the
license and use or exploitation of any Acquiror Proprietary Rights in
Acquiror's current business infringes on the rights of or constitutes
misappropriation of any proprietary information or intangible property right of
any third person or entity, including without limitation any patent, patent
right, trade secret, copyright, trademark or trade name, and Acquiror has not
been sued or named in any suit, action or proceeding which involves a claim of
such infringement, misappropriation or unfair competition. All statements
contained in this Section 4.8 are qualified in their entirety with reference to
the Company's litigation with Business Objects, S.A., more fully described in
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Acquiror's Commission Reports under sections entitled "Legal Proceedings" (the
"Business Objects Litigation"). Notwithstanding any statement to the contrary
contained herein, Acquiror makes no representation or warranty as to the
validity of, basis for or outcome of the Business Objects Litigation.
(b) Except as set forth in the Acquiror Disclosure Schedule or pursuant to
Acquiror's standard form agreements, Acquiror has not granted any third party
any right to manufacture, reproduce, license, use, distribute, market or
exploit any of the Acquiror Products or any adaptations, translations, or
derivative works based on the Acquiror Products or any portion thereof. No
Acquiror Product is a "derivative work" of any original work of a third party
as the term "derivative work" is defined in the United States Copyright Act,
Title 17, U.S.C. Section 101.
(c) All material designs, drawings, specifications, schematics, designs,
source code, object code, scripts, documentation, flow charts, diagrams, data
lists, databases, compilations and information incorporating, embodying or
reflecting any of the Acquiror Products at any stage of their development (the
"Acquiror Components") were written, developed and created solely and
exclusively by employees of Acquiror without the assistance of any third party
or entity or were created by third parties who assigned ownership of their
rights to Acquiror by means of valid and enforceable consultant confidentiality
and invention assignment agreements, copies of which have been delivered to
Acquiror. Acquiror has at all times used commercially reasonable efforts
customary in its industry to treat the Acquiror Proprietary Rights related to
Acquiror Products and Acquiror Components as containing trade secrets and has
not disclosed or otherwise dealt with such items in such a manner as intended
or reasonably likely to cause the loss of such trade secrets by release into
the public domain.
(d) To Acquiror's knowledge, no employee, contractor or consultant of
Acquiror is in violation in any material respect of any term of any written
employment contract, patent disclosure agreement or any other written contract
or agreement relating to the relationship of any such employee, consultant or
contractor with Acquiror or, to Acquiror's knowledge, any other party because
of the nature of the business conducted by Acquiror or proposed to be conducted
by Acquiror.
(e) Each person presently or previously employed by Acquiror (including
independent contractors, if any) with access authorized by Acquiror to
confidential information has executed a confidentiality and non-disclosure
agreement pursuant to the form of agreement previously provided to Acquiror or
its representatives. Such confidentiality and non-disclosure agreements
constitute valid and binding obligations of Acquiror and such person,
enforceable in accordance with their respective terms.
(f) No product liability or material warranty claims have been asserted in
writing to or threatened against Acquiror.
(g) To Acquiror's knowledge, there is no unauthorized use, disclosure,
infringement or misappropriation of any Acquiror Proprietary Rights, or any
Third Party Technology to the extent licensed by or through Acquiror, by any
third party, including any employee or former employee of Acquiror. Except
pursuant to Acquiror's standard form agreements, Acquiror has not entered into
any agreement to indemnify any other person against any charge of infringement
of any third party intellectual property rights.
(h) Acquiror has taken all steps customary and reasonable in the industry
to protect and preserve the confidentiality and proprietary nature of all
Confidential Information. All use, disclosure or appropriation of Confidential
Information owned by Acquiror by or to a third party has been pursuant to the
terms of a written agreement between Acquiror and such third party. All use,
disclosure or appropriation of Confidential Information not owned by Acquiror
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has been pursuant to the terms of a written agreement between Acquiror and the
owner of such Confidential Information, or is otherwise lawful.
Section 4.9 Contracts
(a) Except as set forth on the Acquiror Disclosure Schedule or in
Acquiror's Commission Reports (as specifically referenced in the Acquiror
Disclosure Schedule):
(i) Acquiror has no agreements, contracts or commitments that provide for
the sale, licensing, transfer, assignment, distribution, marketing, promotion
or resale by Acquiror of any Acquiror Products or Acquiror Proprietary Rights,
except for customer contracts in the ordinary course of business and except for
agreements, contracts or commitments that provide for fixed and/or contingent
payments or expenditures by or to Acquiror (including, without limitation, any
advertising or revenue sharing arrangement) in excess of $500,000 per year.
(ii) Acquiror has no outstanding agreements, contracts or commitments
with officers, employees, agent, consultants, advisors, or sales
representatives that are not cancelable by Acquiror "at will" on no more than
thirty (30) days' notice and without liability, penalty or premium including
without limitation, severance or termination pay.
(iii) Acquiror has no currently effective collective bargaining or union
agreements, contracts or commitments.
(iv) Acquiror is not restricted by agreement from competing with any
person or from carrying on its business anywhere in the world.
(v) Acquiror has not guaranteed any obligations of other persons or made
any agreements to acquire or guarantee any obligations of other persons.
(vi) Acquiror has no outstanding loan or advance to any person; nor is it
party to any line of credit, standby financing, revolving credit or other
similar financing arrangement of any sort which would permit the borrowing by
Acquiror of any sum, except as would not be required by the Commission to be
disclosed in any Acquiror Commission Report.
(vii) Acquiror has no agreements pursuant to which Acquiror has agreed to
manufacture for, supply to or distribute to any third party any Acquiror
Products or Acquiror Components, except as would not be required by the
Commission to be disclosed in any Acquiror Commission Report.
(viii) There are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors, Affiliates or any
Affiliate thereof, except as would not be required by the Commission to be
disclosed in any Acquiror Commission Report.
True and correct copies of each document or instrument listed on the
Acquiror Disclosure Schedule pursuant to this Section 3.11(a) (the "Material
Contracts") have been provided to Target or its representatives.
(b) All of the contracts, agreements or understandings required to be filed
by Acquiror in an Acquiror Commission Report or set forth in the Acquiror
Disclosure Schedule (each, an "Acquiror Material Contract") are valid, binding,
in full force and effect, and enforceable by Acquiror in accordance with their
respective terms. No Acquiror Material Contract contains any liquidated
damages, penalty or similar provision, and to the knowledge of Acquiror, no
party to any such Acquiror Material Contract intends to cancel, withdraw,
modify or amend such contract, agreement or arrangement, except to the extent
that the invalidity, unenforceability, provision or intent could not reasonably
be expected to have a Material Adverse Effect.
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(c) Acquiror is not in material default under or in material breach or
violation of, nor, to Acquiror's knowledge, is there any valid basis for any
claim of material default by Acquiror under, or material breach or violation by
Acquiror of, any Acquiror Material Contract. To Acquiror's knowledge, no other
party is in default under or in breach or violation of, nor is there any valid
basis for any claim of default by any other party under or any breach or
violation by any other party of, any Acquiror Material Contract.
Section 4.10 Compliance with Laws. Acquiror and the operation of its business
are in compliance in all material respects with all applicable laws and
regulations. Neither Acquiror nor, to Acquiror's knowledge, any of its
employees has directly or indirectly paid or delivered any fee, commission or
other sum of money or item of property, however characterized, to any finder,
agent, government official or other party in the United States or any other
country, that was or is in violation of any federal, state, or local statute or
law or of any statute or law of any other country having jurisdiction. Acquiror
has not participated directly or indirectly in any boycotts or other similar
practices affecting any of its customers, except for noncompliance which could
not be reasonably expected to have a Material Adverse Effect. Acquiror has
complied in all material respects at all times with any and all applicable
federal, state and foreign laws, rules, regulations, proclamations and orders
relating to the importation or exportation of its products, except for
noncompliance which could not be reasonably expected to have a Material Adverse
Effect.
Section 4.11 Labor Difficulties; No Discrimination.
(a) Acquiror is not engaged in any unfair labor practice and is not in
material violation of any applicable laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours. There is no
unfair labor practice complaint against Acquiror actually pending or, to the
knowledge of Acquiror, threatened before the National Labor Relations Board.
There is no strike, labor dispute, slowdown, or stoppage actually pending or,
to the knowledge of Acquiror, threatened against Acquiror. To the knowledge of
Acquiror, no union organizing activities are taking place with respect to the
business of Acquiror. No grievance, nor any arbitration proceeding arising out
of or under any collective bargaining agreement is pending and, to the
knowledge of Acquiror, no claims therefor exist. No collective bargaining
agreement that is binding on Acquiror restricts it from relocating or closing
any of its operations. Acquiror has not experienced any material work stoppage
or other material labor difficulty.
(b) There is not any pending claim against Acquiror, or to Acquiror's
knowledge, threatened against Acquiror, based on actual or alleged race, age,
sex, disability or other harassment or discrimination, or similar tortious
conduct, nor to the knowledge of Acquiror, is there any basis for any such
claim.
(c) There are no pending claims against Acquiror or any of its subsidiaries
under any workers compensation plan or policy or for long term disability.
Neither Acquiror nor any of its subsidiaries has any material obligations under
COBRA with respect to any former employees or qualifying beneficiaries
thereunder. There are no proceedings pending or, to the knowledge of Acquiror,
threatened, between Acquiror and any of their respective employees, which
proceedings have or could reasonably be expected to have a Material Adverse
Effect on Acquiror.
Section 4.12 Trade Regulation. All of the prices charged by Acquiror in
connection with the marketing or sale of any products or services have been in
compliance with all applicable laws and regulations. No claims have been
communicated or threatened in writing against Acquiror with respect to wrongful
termination of any dealer, distributor or any other marketing
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entity, discriminatory pricing, price fixing, unfair competition, false
advertising, or any other violation of any laws or regulations relating to
anti-competitive practices or unfair trade practices of any kind, and to
Acquiror's knowledge, no specific situation, set of facts, or occurrence
provides any basis for any such claim.
Section 4.13 Insider Transactions. To the knowledge of Acquiror, except as is
set forth in the Acquiror Commission Reports, no Affiliate of Acquiror has any
interest in any equipment or other property, real or personal, tangible or
intangible, including, without limitation, any Acquiror Proprietary Rights or
any creditor, supplier, customer, manufacturer, agents, representative, or
distributor of Acquiror Products; provided, however, that no such Affiliate or
other person shall be deemed to have such an interest solely by virtue of the
ownership of less than 1% of the outstanding stock or debt securities of any
publicly-held company, the stock or debt securities of which are traded on a
recognized stock exchange or quoted on the Nasdaq Stock Market.
Section 4.14 Insurance. The Acquiror Disclosure Schedule contains a list of
the principal policies of fire, liability and other forms of insurance
currently held by Acquiror, and all claims made by Acquiror under such
policies. To the knowledge of Acquiror, Acquiror has not done anything, either
by way of action or inaction, that might invalidate such policies in whole or
in part. There is no claim pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies
and bonds have been paid and Acquiror is otherwise in compliance with the terms
of such policies and bonds in all material respects. To Acquiror's knowledge,
no termination of, or material premium increase with respect to, any of such
policies has been threatened.
Section 4.15 Governmental Authorizations and Regulations. Acquiror has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Acquiror currently operates or holds any interest in any of
its properties or (ii) that is required for the operation of Acquiror's
business or the holding of any such interest, and all of such authorizations
are in full force and effect, except where the failure to obtain or have any
such Acquiror authorizations could not reasonably be expected to have a
Material Adverse Effect on Acquiror.
Section 4.16 Subsidiaries. Acquiror has no subsidiaries, except as described
in the Acquiror Commission Reports. Acquiror does not own or control (directly
or indirectly) any capital stock, bonds or other securities of, and does not
have any proprietary interest in, any other corporation, general or limited
partnership, firm, association or business organization, entity or enterprise,
and Acquiror does not control (directly or indirectly) the management or
policies of any other corporation, partnership, firm, association or business
organization, entity or enterprise.
Section 4.17 Compliance with Environmental Requirements. Except for
inaccuracies which would not have a Material Adverse Effect, (a) Acquiror has
obtained all permits, licenses and other authorizations which are required
under federal, state and local laws applicable to Acquiror and relating to
pollution or protection of the environment, including laws or provisions
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials, substances, or
wastes into air, surface water, groundwater, or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials, substances, or wastes or which are intended to assure the safety of
employees, workers or other persons, (b) Acquiror is in compliance in all
material respects with all terms and conditions of all such permits, licenses
and authorizations and (c) Acquiror
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has no knowledge of, nor has Acquiror received written notice of, any
conditions, circumstances, activities, practices, incidents, or actions which
may form the basis of any claim, action, suit, proceeding, hearing, or
investigation of, by, against or relating to Acquiror, based on or related to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or hazardous or
toxic substance, material or waste, or relating to the safety of employees,
workers or other persons.
Section 4.18 Corporate Documents. Acquiror has furnished to Target or its
representatives: (a) copies of its Certificate of Incorporation and Bylaws, as
amended to date and (b) its minute book containing all records required to be
set forth of all proceedings, consents, actions, and meetings of the
stockholders, the board of directors and any committees thereof. Such corporate
records of Acquiror are complete and accurate, and the signatures appearing on
all documents contained therein are the true signatures of the persons
purporting to have signed the same. All actions reflected in such books and
records were duly and validly taken in compliance with the laws of the
applicable jurisdiction.
Section 4.19 Pooling of Interests. To its knowledge, neither Acquiror nor any
of its affiliates has taken or agreed to take any action which would prevent
Acquiror from accounting for the business combination to be effected by the
Merger as a pooling of interests.
Section 4.20 Customers and Suppliers. As of the date hereof, no customer
which individually accounted for more than 10% of Acquiror's gross revenues
during the 12-month period preceding the date hereof, and no supplier of
Acquiror, has canceled or otherwise terminated, or made any written threat to
Acquiror to cancel or otherwise terminate its relationship with Acquiror, or
has at any time on or after December 31, 1998 decreased materially its services
or supplies to Acquiror in the case of any such supplier, or its usage of the
services or products of Acquiror in the case of such customer, and to
Acquiror's knowledge, no such supplier or customer intends to cancel or
otherwise terminate its relationship with Acquiror or to decrease materially
its services or supplies to Acquiror or its usage of the services or products
of Acquiror, as the case may be. From and after the date hereof, no customer
which individually accounted for more than 10% of Acquiror's gross revenues
during the 12-month period preceding the Closing Date, has canceled or
otherwise terminated, or made any written threat to Acquiror to cancel or
otherwise terminate, for any reason, including without limitation the
consummation of the transactions contemplated hereby, its relationship with
Acquiror, and to Acquiror's knowledge, no such customer intends to cancel or
otherwise terminate its relationship with Acquiror or to decrease materially
its usage of the services or products of Acquiror. Acquiror has not knowingly
breached, so as to provide a benefit to Acquiror that was not intended by the
parties, any agreement with, or engaged in any fraudulent conduct with respect
to, any customer or supplier or Acquiror.
Section 4.21 Acquiror Action. The Board of Directors of Acquiror, by
unanimous written consent or at a meeting duly called and held, has by the
unanimous vote of all directors (i) determined that the Merger is fair and in
the best interests of Acquiror and its stockholders, (ii) approved the Merger
and this Agreement in accordance with the provisions of Delaware Law and
California Law, and (iii) directed that this Agreement and the Merger be
submitted to Acquiror stockholders for their approval and resolved to recommend
that Acquiror stockholders vote in favor of the approval of this Agreement and
the Merger.
Section 4.22 Offers. Acquiror has suspended or terminated, and has the legal
right to terminate or suspend, all negotiations and discussions of Acquisition
Transactions (as defined in Section 5.7) with parties other than Target.
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Section 4.23 Interim Operations of Sub. Sub was formed solely for the purpose
of engaging in the transactions contemplated by this Agreement, has engaged in
no other business activities and has conducted its operations only as
contemplated by this Agreement.
Section 4.24 Litigation. Except for the Business Objects Litigation and as
otherwise disclosed in the Acquiror Commission Reports, (i) there is no private
or governmental action, suit, proceeding, claim, arbitration or investigation
pending before any agency, court or tribunal, foreign or domestic, or, to the
knowledge of Acquiror or any of its subsidiaries, threatened against Acquiror
or any of its properties or any of its officers or directors (in their
capacities as such), and (ii) there is no judgment, decree or order against
Acquiror, or, to the knowledge of Acquiror, any of its respective directors or
officers (in their capacities as such) relating to the business of Acquiror,
the presence of which would have Material Adverse Effect with respect to
Acquiror and its subsidiaries, taken as a whole. To Acquiror's knowledge, no
circumstances exist that could reasonably be expected to result in a claim
against Acquiror as a result of the conduct of Acquiror's business (including,
without limitation, any claim of infringement of any intellectual property
right), except for claims that would not have a Material Adverse Effect,
provided that Acquiror makes no representation or warranty as to the Business
Objects Litigation.
Section 4.25 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Acquiror for inclusion in the Registration Statement
shall not at the time the Registration Statement is filed with the Commission
and at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
information supplied by Acquiror for inclusion in the Proxy
Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus is
first mailed to Acquiror's stockholders or at the time of the Acquiror
Stockholders' Meeting contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Acquiror Stockholders' Meeting which has become
false or misleading. The Proxy Statement/Prospectus will comply as to form in
all material respects with the provisions of the Securities Act, the Exchange
Act and the rules and regulations thereunder. If at any time prior to the
Effective Time, any event relating to Acquiror or any of its affiliates,
officers or directors should be discovered by Acquiror which is required to be
set forth in an amendment to the Registration Statement or a supplement to the
Proxy Statement/Prospectus, Acquiror shall promptly inform Target.
Notwithstanding the foregoing, Acquiror makes no representation or warranty
with respect to any information supplied by Target which is contained in any of
the foregoing documents.
Section 4.26 Year 2000 Compliance. Except as would not reasonably be expected
to have a Material Adverse Effect on Acquiror, all of Acquiror's Information
Technology effectively addresses the Year 2000 issue and will not cause an
interruption in the ongoing operations of Acquiror's business on or after
January 1, 2000. In addition, all of the Acquiror Products and Acquiror
Components will not cause an interruption in the ongoing operations of any
customer of Acquiror or of the combined company on or after January 1, 2000.
Section 4.27 No Brokers. Except for fees payable to BancBoston Robertson
Stephens in connection with the consummation of the transaction contemplated
hereby, the amount of which has been disclosed to Target senior officers
neither Acquiror nor, to Acquiror's knowledge, any Acquiror stockholder is
obligated for the payment of fees or expenses of any
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broker or finder in connection with the origin, negotiation or execution of
this Agreement or the other Transaction Documents or in connection with any
transaction contemplated hereby or thereby.
Section 4.28 Disclosure. No statements by Acquiror or Sub contained in this
Agreement, its exhibits and schedules nor in any of the certificates or
documents, including any of the Transaction Documents, delivered or required to
be delivered by Acquiror or Sub to Target under this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made.
Section 4.29 Fairness Option. Acquiror's Board of Directors has received the
written opinion of BancBoston Robertson Stephens, financial advisor to
Acquiror, dated the date of this Agreement, to the effect that the Exchange
Ratio is fair to the Acquiror from a financial point of view. Acquiror has
furnished an accurate and complete copy of said written opinion to Target.
Section 4.30 Accounts Receivable. Subject to any reserves set forth in the
Acquiror Financial Statements, the accounts receivable shown in the Acquiror
Financial Statements represent and will represent bona fide claims against
debtors for sales and other charges, and are not subject to discount except for
normal cash and immaterial trade discounts. The amount carried for doubtful
accounts and allowances disclosed in the Acquiror Financial Statements is
sufficient to provide for any losses which may be sustained on realization of
the receivables.
ARTICLE V
PRECLOSING COVENANTS OF TARGET AND ACQUIROR
During the period from the date of this Agreement until the Effective Time,
the parties covenant and agree as follows:
Section 5.1 Proxy Statement/Prospectus.
(a) As soon as practicable after the execution of this Agreement, Target
and Acquiror shall mutually cooperate in jointly preparing and filing with the
Commission the Proxy Statement/Prospectus. The Proxy Statement/Prospectus shall
constitute a disclosure document for the offer and issuance of the shares of
Acquiror Common Stock to be received by the holders of the capital stock of
Target in the Merger and for the other transactions contemplated by this
Agreement. As promptly as practicable after comments, if any, are received from
the Commission with respect to such Proxy Statement/Prospectus and after the
furnishing by Target and Acquiror of all information required to be contained
therein, Target and Acquiror shall prepare and file with the Commission the
Registration Statement, in which the Proxy Statement/Prospectus shall be
included, in connection with the registration under the Securities Act of the
shares of Acquiror Common Stock to be issued to the holders of the capital
stock of Target pursuant to the Merger. Acquiror and Target shall use all
reasonable efforts to have or cause the Registration Statement to become
effective as promptly as practicable, and shall take all or any action required
under any applicable federal or state securities laws in connection with the
issuance of Acquiror Common Stock pursuant to the Merger. As promptly as
practicable after the Registration Statement shall have become effective,
Acquiror and Target shall each mail or cause to be mailed the Proxy
Statement/Prospectus to their respective stockholders.
(b) Acquiror and Target shall each use its best efforts to cause the Proxy
Statement/Prospectus to comply with applicable federal and state securities
laws
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requirements. Each of Acquiror and Target agrees to provide promptly to the
other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Proxy Statement/Prospectus,
or in any amendments or supplements thereto, and to cause its counsel and
auditors to cooperate with the other's counsel and auditors in the preparation
of the Proxy Statement/Prospectus. The information supplied by each of Acquiror
and Target for inclusion in the Proxy Statement/Prospectus and Registration
Statement shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Proxy Statement/Prospectus is first mailed to the
holders of capital stock of Target, (iii) the time of the Target Stockholders'
Meeting, (iv) the time of the Acquiror Stockholders' meeting, and (v) the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. Target will promptly advise
Acquiror, and Acquiror will promptly advise Target, in writing if at any time
prior to the Effective Time either Target or Acquiror shall obtain knowledge of
any facts that might make it necessary or appropriate to amend or supplement
the Proxy Statement/Prospectus in order to make the statements contained or
incorporated by reference therein not misleading or to comply with applicable
law.
(c) The Proxy Statement/Prospectus shall contain the unanimous
recommendation of the Board of Directors of Target that the Target stockholders
approve the Merger and this Agreement and the conclusion of the Board of
Directors that the terms and conditions of the Merger are fair and reasonable
to the stockholders of Target. The Proxy Statement/Prospectus shall contain the
unanimous recommendation of the Board of Directors of Acquiror that the
Acquiror stockholders approve the Merger and this Agreement and the conclusion
of the Board of Directors that the terms and conditions of the Merger are fair
and reasonable to the stockholders of Acquiror. Anything to the contrary
contained herein notwithstanding, Target shall not include in the Proxy
Statement/Prospectus any information with respect to Acquiror or its affiliates
or associates, the form and content of which information shall not have been
approved by Acquiror prior to such inclusion. Anything to the contrary
contained herein notwithstanding, Acquiror shall not include in the Proxy
Statement/Prospectus any information with respect to Target or its affiliates
or associates, the form and content of which information shall not have been
approved by Target prior to such inclusion.
Section 5.2 Stockholder Meetings.
(a) Promptly after the date hereof, Target will take all action necessary
in accordance with the Delaware Law and its Certificate of Incorporation and
Bylaws to convene the Target Stockholders' Meeting to be held as promptly as
practicable, and in any event (to the extent permissible under applicable law)
within 45 days after the declaration of effectiveness of the Registration
Statement, for the purpose of voting upon this Agreement and the Merger or the
issuance of shares of Acquiror Common Stock pursuant to the Merger,
respectively. Target will use its commercially reasonable efforts to solicit
from its stockholders proxies in favor of the adoption and approval of this
Agreement and the approval of the Merger and will take all other action
necessary or advisable to secure the vote or consent of its stockholders
required by the rules of the NASD or Delaware Law to obtain such approvals.
Notwithstanding anything to the contrary contained in this Agreement, Target
may adjourn or postpone Target Stockholders' Meeting to the extent necessary to
ensure that any necessary supplement or amendment to the Proxy
Statement/Prospectus is provided to Target's stockholders in advance of a vote
on the Merger and this Agreement or, if as of the time for which Target
Stockholders' Meeting is originally scheduled (as set forth in the Proxy
Statement/Prospectus) there are insufficient shares of Target capital stock
represented (either in person or by proxy) to constitute a quorum necessary to
conduct the business of the Target's Stockholders' Meeting. Target shall ensure
that the Target Stockholders' Meeting is called, noticed,
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convened, held and conducted and that all proxies solicited by the Target in
connection with the Target Stockholders' Meeting are solicited, in compliance
with the Delaware Law, its Certificate of Incorporation and Bylaws, the rules
of the NASD and all other applicable legal requirements. Target's obligation to
call, give notice of, convene and hold the Target Stockholders' Meeting in
accordance with this Section 5.2(a) shall not be limited or otherwise affected
by the commencement, disclosure, announcement or submission to Target of any
Acquisition Proposal, or by any withdrawal, amendment or modification of the
recommendation of the Board of Directors of Target with respect to the Merger.
(b) Promptly after the date hereof, Acquiror will take all action necessary
in accordance with the Delaware Law and its Certificate of Incorporation and
Bylaws to convene the Acquiror Stockholders' Meeting to be held as promptly as
practicable, and in any event (to the extent permissible under applicable law)
within 45 days after the declaration of effectiveness of the Registration
Statement, for the purpose of voting upon this Agreement and the Merger or the
issuance of shares of Acquiror Common Stock pursuant to the Merger,
respectively. Acquiror will use its commercially reasonable efforts to solicit
from its stockholders proxies in favor of the adoption and approval of this
Agreement and the approval of the Merger and will take all other action
necessary or advisable to secure the vote or consent of its stockholders
required by the rules of the NASD or Delaware Law to obtain such approvals.
Notwithstanding anything to the contrary contained in this Agreement, Acquiror
may adjourn or postpone Acquiror Stockholders' Meeting to the extent necessary
to ensure that any necessary supplement or amendment to the Proxy
Statement/Prospectus is provided to Acquiror's stockholders in advance of a
vote on the Merger and this Agreement or, if as of the time for which Acquiror
Stockholders' Meeting is originally scheduled (as set forth in the Proxy
Statement/Prospectus) there are insufficient shares of Acquiror capital stock
represented (either in person or by proxy) to constitute a quorum necessary to
conduct the business of the Acquiror's Stockholders' Meeting. Acquiror shall
ensure that the Acquiror Stockholders' Meeting is called, noticed, convened,
held and conducted that all proxies solicited by the Acquiror in connection
with the Acquiror Stockholders' Meeting are solicited, in compliance with the
Delaware Law, its Certificate of Incorporation and Bylaws, the rules of the
NASD and all other applicable legal requirements. Acquiror's obligation to
call, give notice of, convene and hold the Acquiror Stockholders' Meeting in
accordance with this Section 5.2(b) shall not be limited or otherwise affected
by the commencement, disclosure, announcement or submission to Acquiror of any
Acquisition Proposal, or by any withdrawal, amendment or modification of the
recommendation of the Board of Directors of Acquiror with respect to the
Merger.
Section 5.3 Advice of Changes. Each of Target and Acquiror will promptly
advise the other in writing of any event occurring subsequent to the date of
this Agreement which would render any representation or warranty of Target or
Acquiror, as the case may be, contained in this Agreement, if made on or as of
the date of such event or the Closing Date, untrue or inaccurate in any
material respect.
Section 5.4 Operation of Business. During the period from the date of this
Agreement and continuing until the earlier of the termination of the Agreement
or the Effective Time, each of Acquiror and Target agree (except to the extent
that the other shall otherwise consent in writing), to carry on its business in
the usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due, subject to good
faith disputes over such debts or taxes, to pay or perform other obligations
when due, and, to the extent consistent with such business, use all reasonable
efforts consistent with past practices and policies to preserve intact its
present business organization, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings
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with it, to the end that its goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Both Target and Acquiror shall promptly
notify the other of any event or occurrence not in the ordinary course of
business. Except as expressly contemplated by this Agreement, each of Target
and Acquiror shall not, without the prior written consent of the other:
(a) Accelerate, amend or change the period of exercisability or the vesting
schedule of options or restricted stock granted under any employee stock plan
or agreements or authorize cash payments in exchange for any options granted
under any of such plans except as specifically required by the terms of such
plans or any related agreements or any such agreements in effect as of the date
of this Agreement;
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of such party, or purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock except from former
employees, directors and consultants in accordance with agreements providing
for the repurchase of shares in connection with any termination of service by
such party;
(c) Issue, deliver or sell or authorize or propose the issuance, delivery
or sale of, or purchase or propose the purchase of, any shares of its capital
stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than (i) the issuance of (A) shares of Common
Stock issuable upon exercise of Target Options or Acquiror Options that are
outstanding on the date of this Agreement and disclosed to the Target or
Acquiror, as the case may be, or (B) shares of Target Common Stock issuable
upon conversion of shares of Target Preferred Stock, (ii) the repurchase of
shares of Common Stock from terminated employees pursuant to the terms of
outstanding stock restriction or similar agreements, or (iii) the issuance of
stock options in the ordinary course of business;
(d) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership
or other business organization or division, or otherwise acquire or agree to
acquire any assets;
(e) Sell, lease, license or otherwise dispose of any of its properties or
assets which are material, individually or in the aggregate, to the business of
Target or Acquiror, as the case may be, except in the ordinary course of
business;
(f) (i) Increase or agree to increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages
of non-officer employees in accordance with past practices, (ii) grant any
additional severance or termination pay to, or enter into any employment or
severance agreements with, officers, (iii) grant any severance or termination
pay to, or enter into any employment or severance agreement, with any non-
officer employee, except in accordance with past practices, (iv) enter into any
collective bargaining agreement, or (v) establish, adopt, enter into or amend
in any material respect any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(g) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable, except in accordance
with past practices;
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(h) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others;
(i) Amend or propose to amend its Certificate of Incorporation or Bylaws;
(j) Incur or commit to incur any capital expenditures in excess of $250,000
in the aggregate or in excess of $100,000 as to any individual matter;
(k) Lease, license, sell, transfer or encumber or permit to be encumbered
any asset, Target Proprietary Right or material proprietary right of Acquiror,
or other property associated with the business of Target or Acquiror (including
sales or transfers to Affiliates of Target or Acquiror) other than in the
ordinary course of business;
(l) Enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the ordinary course of business and
except for the sublease of office space on Marsh Road, Menlo Park;
(m) Fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained up to the
date of this Agreement, subject only to ordinary wear and tear;
(n) Change accounting methods;
(o) Amend or terminate any Material Contract except in the ordinary course
of business;
(p) Loan any amount to any person or entity, other than customer credit
extended in the ordinary course of business, or guaranty or act as a surety for
any obligation;
(q) Waive or release any material right or claim;
(r) Except as described in the Target Disclosure Schedule, make or change
any Tax or accounting election, change any annual accounting period, adopt or
change any accounting method, file any amended Return, enter into any closing
agreement, settle any Tax claim or assessment relating to Target, surrender any
right to claim refund of Taxes, consent to any extension or waiver of the
limitation period applicable to any Tax claim or assessment relating to Target,
or take any other action or omit to take any action, if any such action or
omission would have the effect of increasing the Tax liability of Target or
Acquiror, provided that Acquiror shall not unreasonably withhold or delay
consent to any of the foregoing;
(s) Take any action, or fail to take any action, that would cause there to
be a Material Adverse Change with respect to Target or Acquiror, as the case
may be;
(t) Enter into any agreement outside of the ordinary course of business in
which the obligation of Target or Acquiror, as the case may be, exceeds
$250,000 or shall not terminate or be subject to termination for convenience
without penalties within 180 days following execution;
(u) Enter into any agreement not in the ordinary course of business
(including without limitation any OEM agreements or any exclusive agreements of
any kind); or
(v) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (u) above, or any action which is reasonably
likely to make any of Target's or Acquiror's representations or warranties, as
the case may be, contained in this Agreement untrue or incorrect in any
material respect on the date made (to the extent so limited) or as of the
Effective Time.
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Section 5.5 Access to Information. Until the Closing, each of Target and
Acquiror shall allow the other and its agents reasonable free access during
normal business hours upon reasonable notice to its files, books, records, and
offices, including, without limitation, any and all information relating to
taxes, commitments, contracts, leases, licenses, and personal property and
financial condition. Until the Closing, each of Target and Acquiror shall cause
its accountants to cooperate with the other and its agents in making available
all financial information requested, including without limitation the right to
examine all working papers pertaining to all financial statements prepared or
audited by such accountants. No information or knowledge obtained in any
investigation pursuant to this Section shall effect or be deemed to modify any
representation or warranty contained in this Agreement or its exhibits and
schedules. All such access shall be subject to the terms of the Confidentiality
Agreement (as defined in Section 7.1).
Section 5.6 Satisfaction of Conditions Precedent. Each of Target and Acquiror
will use its best efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Sections 8.1, 8.2 and 8.3 and each
of Target and Acquiror will use its best efforts to cause the transactions
contemplated by this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all consents and authorizations of third
parties and to make all filings with, and give all notices to, third parties
which may be necessary or reasonably required on its part in order to effect
the transactions contemplated by this Agreement. Target and Acquiror shall use
commercially reasonable efforts to obtain any and all consents necessary with
respect to those Material Contracts listed on Schedule 5.6 of the Target
Disclosure Schedule in connection with the Merger (the "Material Consents").
Section 5.7 Other Negotiations. Neither Target nor Acquiror will (nor will
they permit any of their respective officers, directors, employees, agents and
Affiliates to) take any action to solicit, initiate, seek, encourage or support
any inquiry, proposal or offer from, furnish any information to, or participate
in any negotiations with, any corporation, partnership, person or other entity
or group (other than Target or Acquiror) regarding any acquisition of Target or
Acquiror, any merger or consolidation with or involving Target or Acquiror, or
any acquisition of any material portion of the stock or assets of Target or
Acquiror or any material license of Target Proprietary Rights or material
proprietary rights of Acquiror (any of the foregoing being referred to in this
Agreement as an "Acquisition Transaction") or enter into an agreement
concerning any Acquisition Transaction with any party other than the other. If
between the date of this Agreement and the termination of this Agreement
pursuant to Section 9.1, either Target or Acquiror, as the case may be,
receives from a third party any offer or indication of interest regarding any
Acquisition Transaction, or any request for information regarding any
Acquisition Transaction, the receiving party shall (i) notify the other
immediately (orally and in writing) of such offer, indication of interest or
request, including the identity of such party and the full terms of any
proposal therein, and (ii) notify such third party of the receiving party's
obligations under this Agreement.
Section 5.8 Tax Matters. Each of Target and Acquiror shall cooperate with
each other in obtaining the opinion of Morrison & Foerster LLP, counsel to
Target, dated as of the Closing Date, to the effect that the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the Code
and Acquiror, Merger Sub and Target will each be a party to a reorganization
within the meaning of Section 368(b) of the Code. In connection therewith, if
counsel shall so request, each of Acquiror, Merger Sub and Target shall deliver
to Morrison & Foerster LLP customary representation letters (such
representation letters collectively referred to as the "Tax Certificates"), to
the extent that they are able to make such customary representations. Each of
Acquiror and Target shall use all reasonable efforts to ensure that the Merger
qualifies as a reorganization under the provisions of Section 368 of the Code.
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ARTICLE VI
PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB
Section 6.1 Advice of Changes. Acquiror and Sub will promptly advise Target
in writing of any event occurring subsequent to the date of this Agreement
which would render any representation or warranty of Acquiror or Sub contained
in this Agreement, if made on or as of the date of such event or the Closing
Date, untrue or inaccurate in any material respect.
Section 6.2 Reservation of Acquiror Common Stock. Acquiror shall reserve for
issuance, out of its authorized but unissued capital stock, the maximum number
of shares of Acquiror Common Stock as may be issuable upon consummation of the
Merger, including shares of Acquiror Common Stock that will be issued upon
exercise of Target Options assumed by Acquiror.
Section 6.3 Satisfaction of Conditions Precedent. Acquiror and Sub will use
their best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Sections 8.1 and 8.3, and Acquiror and Sub
will use their best efforts to cause the transactions contemplated by this
Agreement to be consummated, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties which may be
necessary or reasonably required on its part in order to effect the
transactions contemplated hereby.
Section 6.4 Nasdaq National Market Listing. Acquiror shall cause the shares
of Acquiror Common Stock issuable to the stockholders of Target in the Merger,
including shares of Acquiror Common Stock issuable upon exercise of Acquiror
Options and/or Acquiror Warrants, to be authorized for listing on the Nasdaq
National Market.
Section 6.5 Stock Options.
(a) At the Effective Time, each outstanding Target Option under the Target
Option Plan, whether vested or unvested, shall be assumed by Acquiror and
deemed to constitute an option (a "New Acquiror Option") to acquire, on the
same terms and conditions as were applicable under the Target Option, the same
number of shares of Acquiror Common Stock as the holder of such Target Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the Effective Time (rounded
down to the nearest whole number), at a price per share (the aggregate purchase
price payable upon the exercise of such option from time to time rounded up to
the nearest whole cent) equal to (i) the aggregate exercise price for the
shares of Target Common Stock otherwise purchasable pursuant to such Target
Option divided by (ii) the number of full shares of Acquiror Common Stock
deemed purchasable pursuant to such New Acquiror Option in accordance with the
foregoing; provided, however, that, in the case of any Target Option to which
Section 422 of the Code applies ("Incentive Stock Options"), the option price,
the number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
with Section 424(a) of the Code. The term, exercisability, vesting schedule,
acceleration events, status as an "incentive stock option" under Section 422 of
the Code, if applicable, and all of the other terms of the option shall
otherwise remain unchanged.
(b) As soon as practicable after the Effective Time, Acquiror shall deliver
to the participants in the Target Option Plan appropriate notice setting forth
such participants' rights pursuant thereto and the grants pursuant to the
Target Option Plan shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 6.5 after
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giving effect to the Merger). Acquiror shall comply with the terms of the
Target Option Plan and use best efforts to ensure, to the extent required by,
and subject to the provisions of, such Target Option Plan and Sections 422 and
424(a) of the Code, that Target Options which qualified as incentive stock
options prior the Effective Time continue to qualify as incentive stock options
after the Effective Time.
(c) Acquiror shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Acquiror Common Stock for delivery
upon exercise of Target Options assumed in accordance with this Section 6.5. As
soon as practicable after the Effective Time and in any event no later than 10
business days after the Closing Date, Acquiror shall file a registration
statement on Form S-8 (or any successor or other appropriate forms) under the
Securities Act or another appropriate form with respect to the shares of
Acquiror Common Stock subject to such options and shall use its best efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding.
Section 6.6 Certain Employee Benefit Matters. From and after the Effective
Time, each employee of Target at the Effective Time will be provided with
employee benefits by the Surviving Corporation or Acquiror which in the
aggregate are no less favorable to such employee than those provided from time
to time by Acquiror to similarly situated employees. If any employee of Target
becomes a participant in any employee benefit plan, program, policy or
arrangement of Acquiror, such employee shall be given credit for all service
prior to the Effective Time with Target to the extent permissible under such
plan, program, policy or arrangement. All Target Options assumed by Acquiror at
the Effective Time pursuant to the terms of Section 6.5(a) shall remain
outstanding following the Effective Time on the same terms and conditions as
prior to the Effective Time, subject to the adjustments contemplated by such
Section 6.5. Employees of Target as of the Effective Time shall be permitted to
participate in the ESPP commencing on the first enrollment date following the
Effective Time, subject to compliance with the eligibility and other provisions
of such plan.
ARTICLE VII
OTHER AGREEMENTS
Section 7.1 Confidentiality. Each party acknowledges Acquiror and Target have
previously executed a mutual non-disclosure agreement dated November 25, 1998
(the "Confidentiality Agreement"), which agreement shall continue in full force
and effect in accordance with its terms.
Section 7.2 No Public Announcement. The parties have agreed upon the form and
substance of a joint press release and stockholder presentation (the
"Announcements") announcing entry into this Agreement and the consummation of
the Merger, which shall be issued at a time and in a manner mutually agreed
upon. Other than the Announcements and the Registration Statement, the parties
shall make no public announcement concerning this Agreement, their discussions
or any other memoranda, letters or agreements between the parties relating to
the Merger; provided, however, that either of the parties, but only after
reasonable consultation with the other, may make disclosure if required under
applicable law.
Section 7.3 Regulatory Filings; Consents; Reasonable Efforts. Subject to the
terms and conditions of this Agreement, Target and Acquiror shall use their
respective best efforts to (i) make all necessary filings with respect to the
Merger and this Agreement under the Exchange Act and applicable blue sky or
similar securities laws and obtain required approvals and clearances with
respect thereto and supply all additional information requested in
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connection therewith; (ii) make merger notification or other appropriate
filings with federal, state or local governmental bodies or applicable foreign
governmental agencies and obtain required approvals and clearances with respect
thereto and supply all additional information requested in connection
therewith; (iii) obtain all consents, waivers, approvals, authorizations and
orders required in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Merger; and (iv) take, or cause to
be taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement as promptly as practicable.
Section 7.4 Pooling Accounting. Target and Acquiror shall each use its best
efforts to cause the business combination to be effected by the Merger to be
accounted for as a pooling of interests. Neither Target nor Acquiror shall take
any action that would adversely affect the ability of Acquiror to account for
the business combination to be effected by the Merger as a pooling of
interests.
Section 7.5 Further Assurances. Prior to and following the Closing, each
party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better
evidence and reflect the transactions described herein and contemplated hereby
and to carry into effect the intents and purposes of this Agreement.
Section 7.6 Escrow Agreement. On or before the Effective Date, Acquiror
shall, and the parties hereto shall exercise their best efforts to cause the
Escrow Agent (as defined in Section 10.2) and the Stockholders' Agent (as
defined in Section 10.9) to enter into an Escrow Agreement in the form attached
hereto as Exhibit D.
Section 7.7 FIRPTA. Target shall, prior to the Closing Date, provide Acquiror
with a properly executed Foreign Investment in Real Property Tax Act of 1980
("FIRPTA") FIRPTA Notification Letter which states that shares of capital stock
of Target do not constitute "United States real property interests" under
Section 897(c) of the Code, for purposes of satisfying Acquiror's obligations
under Treasury Regulation Section 1.1445-2(c)(3). In addition, simultaneously
with delivery of such FIRPTA Notification Letter, Target shall provide to
Acquiror, as agent for Target, a form of notice to the Internal Revenue Service
in accordance with the requirements of Treasury Regulation Section 1.897-
2(h)(2), along with written authorization for Acquiror to deliver such notice
form to the Internal Revenue Service on behalf of Target upon the Closing of
the Merger.
Section 7.8 Blue Sky Laws. Acquiror shall take such steps as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Acquiror Common Stock in connection with the
Merger. Target shall use its best efforts to assist Acquiror as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Acquiror Common Stock
in connection with the Merger.
Section 7.9 Filings. As promptly as practicable after the date of this
Agreement, Target and Acquiror will prepare and file any other filings required
under the Exchange Act, the Securities Act or any other Federal, foreign or
state securities or blue sky laws relating to the Merger and the transactions
contemplated by this Agreement (the "Other Filings"). The Other Filings will
comply in all material respects with all applicable requirements of law and the
rules and regulations promulgated thereunder. Whenever any event occurs which
is required to be set forth in an amendment or supplement to any Other Filing,
Target or Acquiror, as the case may be, will promptly inform the other of such
occurrence and cooperate in making any appropriate amendment or supplement,
and/or mailing to stockholders of Target, such amendment or supplement.
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ARTICLE VIII
CONDITIONS TO MERGER
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The stockholders of Target entitled to vote on or
consent to this Agreement and the Merger in accordance with the Delaware Law
and Target's Certificate of Incorporation shall have approved this Agreement
and the Merger. The stockholders of Acquiror entitled to vote on or consent to
this Agreement and the Merger in accordance with the Delaware Law and
Acquiror's Certificate of Incorporation shall have approved this Agreement and
the issuance of the shares Acquiror Common Stock in connection with the Merger.
(b) Approvals. Other than the filing provided for by Section 1.1, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity
shall have been filed, occurred or been obtained.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger or limiting or restricting conduct or
operation of the business of Acquiror after the Merger shall have been issued
and remain outstanding, nor shall any proceeding brought by a domestic
administrative agency or the Commission or other domestic Governmental Entity
or other third party, seeking any of the foregoing be pending; nor shall there
be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger which makes the
consummation of the Merger illegal.
(d) Blue Sky Laws. Acquiror shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to issue shares of
Acquiror Common Stock pursuant to the Merger.
(e) Nasdaq. The shares of Acquiror Common Stock to be issued in the Merger
shall have been approved for quotation on the Nasdaq Stock Market.
(f) Effectiveness of Registration Statement. The Registration Statement
shall have become effective in accordance with the provisions of the Securities
Act, and no stop order shall have been issued by the Commission with respect to
the Registration Statement.
(g) Board Matters. Target shall have received written letters of
resignation from each of the current members of the Target Board of Directors
and from each officer of Target, in each case effective at the Effective Time.
The Board of Directors of Acquiror shall consist, effective upon the Closing
Date, of the following individuals: Ofir Kedar, as Chairman of the Board,
Yorgen Edholm, Katherine Glassey, Bernard Lacroute, E. Floyd Kvamme, Michael
Cline and Charles Federman.
(h) Pooling Letter. Acquiror shall have received a letter from Arthur
Andersen, LLP dated as of the Closing Date and addressed to Acquiror and Target
shall have received a letter from Deloitte & Touche dated as of the Closing
Date and addressed to Target, regarding such respective firm's unqualified
concurrence with Acquiror's management's and Target's management's conclusion
that the business combination to be effected by the Merger will qualify as a
pooling of interests transaction under generally accepted accounting principles
if consummated in accordance with this Agreement.
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(i) Escrow Agreement. The Escrow Agent and Stockholders' Agent shall have
executed and delivered to Acquiror the Escrow Agreement and such agreement
shall remain in full force and effect.
(j) Closing Certificates. Acquiror and Target shall have received from the
other and from Acquiror's transfer agent appropriate closing certificates in
respect of the basis for the determination of the Exchange Ratio.
(k) HSR Act. The waiting period applicable to the consummation of the
Merger under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended, shall have expired or been terminated.
Section 8.2 Additional Conditions to Obligations of Acquiror and Sub. The
obligations of Acquiror and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Acquiror and Sub:
(a) Representations and Warranties. The representations and warranties of
Target set forth in this Agreement shall be true and correct as of the date of
this Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as though made on and as of
the Closing Date, except for changes contemplated by this Agreement and except
for inaccuracies which would not have a Material Adverse Effect on Target; and
Acquiror shall have received a certificate signed on behalf of Target by the
chief executive officer and the chief financial officer of Target to such
effect.
(b) Performance of Obligations of Target. Target shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date; and Acquiror shall have received a
certificate signed on behalf of Target by the chief executive officer and the
chief financial officer of Target to such effect.
(c) Conversion of Preferred Stock; Dissenting Stockholders. All outstanding
shares of Target Preferred Stock shall have been converted into shares of
Target Common Stock and holders of not more than two and one-half percent
(2.5%) of Target's issued and outstanding capital stock as of the Closing shall
have elected to exercise dissenters' or appraisal rights under Delaware Law or
California Law as to such shares.
(d) Ancillary Agreements. The Affiliates Agreement (with respect to the
stockholders of Target), the Target Voting Agreements and the Employment
Agreements executed and delivered concurrently with the execution of this
Agreement shall remain in full force and effect.
(e) Opinion of Target's Counsel. Acquiror shall have received an opinion
dated the Closing Date of Morrison & Foerster, counsel to Target, as to the
matters in the form attached hereto as Exhibit E.
(f) Approvals.
(i) All Material Consents shall have been obtained.
(ii) All authorizations, consents, or approvals of, or notifications to
any third party (excluding Material Consents), required by Target's contracts,
agreements or other obligations in connection with the consummation of the
Merger shall have occurred or been obtained, except for such authorizations,
consents, approvals or notifications, the absence of which would not have a
Material Adverse Effect on Target.
(g) No Material Adverse Change. Target shall not have suffered any Material
Adverse Change since the date of this Agreement.
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Section 8.3 Additional Conditions to Obligations of Target. The obligation of
Target to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived, in writing, exclusively by
Target:
(a) Representations and Warranties. The representations and warranties of
Acquiror and Sub set forth in this Agreement shall be true and correct as of
the date of this Agreement and (except to the extent such representations speak
as of an earlier date) as of the Closing Date as though made on and as of the
Closing Date, except for inaccuracies which would not have a Material Adverse
Effect on Acquiror and Target shall have received a certificate signed on
behalf of Acquiror by the chief executive officer and the chief financial
officer of Acquiror to such effect.
(b) Performance of Obligations of Acquiror and Sub. Acquiror and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date; and
Target shall have received a certificate signed on behalf of Acquiror by the
chief executive officer and the chief financial officer of Acquiror to such
effect.
(c) Opinion of Acquiror's Counsel. Target shall have received an opinion
dated the Closing Date of Venture Law Group, a Professional Corporation,
counsel to Acquiror, as to the matters in the form attached hereto as Exhibit
F.
(d) Tax Opinion. Target shall have received an opinion dated as of the
Closing Date from Morrison & Foerster LLP, counsel to Target, to the effect
that the merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and Acquiror, Merger Sub and Target will each be a
party to a reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, Morrison & Foerster LLP may require delivery of and
rely upon the Tax Certificates.
(e) Ancillary Agreements. The Affiliates Agreement, the Acquiror Voting
Agreements, the Employment Agreements and the Amended Rights Agreement executed
and delivered concurrently with the execution of this Agreement shall remain in
full force and effect.
(f) Approvals. All authorizations, consents, or approvals of, or
notifications to any third party, required by Acquiror's contracts, agreements
or other obligations in connection with the consummation of the Merger shall
have occurred or been obtained, except for such authorizations, consents,
approvals or notifications, the absence of which would not have a Material
Adverse Effect on Acquiror.
(g) No Material Adverse Change. Acquiror shall not have suffered any
Material Adverse Change, excluding a change in the trading price of its Common
Stock, which in and of itself shall not be a Material Adverse Change, since the
date of this Agreement.
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time:
(a) by mutual written consent of Acquiror and Target;
(b) by either Acquiror or Target, by giving written notice to the other
party, if a court of competent jurisdiction or other Governmental Entity shall
have issued a nonappealable final
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order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, except, if such party relying on such order, decree or ruling or other
action shall not have complied with its respective obligations under Sections
5.6 or 6.3 of this Agreement, as the case may be;
(c) by Acquiror or Target, by giving written notice to the other party, if
the other party is in material breach of any representation, warranty, or
covenant of such other party contained in this Agreement, which breach shall
not have been cured, if subject to cure, within 10 business days following
receipt by the breaching party of written notice of such breach by the other
party and, in the case of breach by Target, if the value of the loss from such
breach could reasonably be expected to exceed the value of the Escrow Fund (as
defined below);
(d) by Acquiror, by giving written notice to Target, if the Closing shall
not have occurred on or before June 23, 1999 by reason of the failure of any
condition precedent under Section 8.1 or 8.2 (unless the failure results
primarily from a breach by Acquiror of any representation, warranty, or
covenant of Acquiror contained in this Agreement or Acquiror's failure to
fulfill a condition precedent to closing or other default);
(e) by Target, by giving written notice to Acquiror, if the Closing shall
not have occurred on or before June 23, 1999 by reason of the failure of any
condition precedent under Section 8.1 or 8.3 (unless the failure results
primarily from a breach by Target of any representation, warranty, or covenant
of Target contained in this Agreement or Target's failure to fulfill a
condition precedent to closing or other default);
(f) by Acquiror, by giving written notice to Target, if the required
approvals of the stockholders of Target contemplated by this Agreement shall
not have been obtained by reason of the failure to obtain the required consents
or votes upon a vote taken by written consent or at a meeting of stockholders,
duly convened therefor or at any adjournment thereof; or
(g) by Target, by giving written notice to Acquiror, if the required
approvals of the stockholders of Acquiror contemplated by this Agreement shall
not have been obtained by reason of the failure to obtain the required consents
or votes upon a vote taken by written consent or at a meeting of stockholders,
duly convened therefor or at any adjournment thereof.
Section 9.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 9.1, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Acquiror,
Target, Sub or their respective officers, directors, stockholders or
Affiliates, except as set forth in Section 9.3 and further except to the extent
that such termination results from the breach by any such party of any of its
representations, warranties or covenants set forth in this Agreement.
Section 9.3 Fees and Expenses.
(a) Except as set forth in this Section 9.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses, whether or not the Merger
is consummated. Target has submitted a budget to Acquiror for completion of the
Merger. Target shall use its best efforts to consummate the Merger within such
budget and shall not enter into any agreement inconsistent with such budget.
(b) If the Merger is consummated, all investment banking fees and expenses
incurred by Target or its stockholders in connection with the Merger shall not
exceed $2,500,000. Any such fees and expenses in excess of $2,500,000 incurred
by Target shall be
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recoverable from the Escrow Fund (as defined in Section 10.2) as Damages (as
defined in Section 10.1) without regard to the damage threshold as contemplated
by Section 10.3.
ARTICLE X
ESCROW AND INDEMNIFICATION
Section 10.1 Indemnification.
(a) By Target. From and after the Effective Time and subject to the
limitations contained in Section 10.2, the Former Target Stockholders will,
severally and pro rata, in accordance with their Pro Rata Portion, indemnify
and hold Acquiror harmless against any loss, expense, liability or other
damage, including reasonable attorneys' fees, to the extent of the amount of
such loss, expense, liability or other damage (collectively "Damages") that
Acquiror has incurred by reason of the breach or alleged breach by Target of
any representation, warranty, covenant or agreement of Target contained in this
Agreement that occurs or becomes known to Acquiror during the Escrow Period (as
defined in Section 10.4 below). Such indemnification shall be Acquiror's sole
and exclusive remedy for any such breach by Target, provided, however, that, in
addition to the Former Target Stockholders' Pro Rata Portion of the Escrow
Fund, each Former Target Stockholder shall be fully liable to the Acquiror for
any Damages relating to such Former Target Stockholder's willful misconduct or
fraud in connection with the representations and warranties set forth herein
and the transactions contemplated under this Agreement and in connection with
the Merger without limitation. Acquiror acknowledges that, with respect to the
evaluation of the Target Financial Statements for purposes of making any claim
under this Section 10.1 for a breach of the representations set forth in
Section 3.4(b), Acquiror and its independent public accountants, Arthur
Andersen, LLP, have had the opportunity to review Target's accounting policies
and methods and underlying assumptions inherent in the Target Financial
Statements and, accordingly, Acquiror shall be required to consistently apply
the accounting policies, methods and assumptions in the audited Target
Financial Statements.
(b) By Acquiror. From and after the Effective Time and subject to the
limitations contained in Section 10.2, Acquiror will indemnify and hold the
Former Target Stockholders harmless against any Damage that the Former Target
Stockholders have incurred by reason of the breach or alleged breach by
Acquiror or sub of any representation, warranty, covenant or agreement of
Acquiror or Sub contained in this Agreement that occurs or becomes known to the
Former Target Stockholders during the Escrow Period. A release of Escrow Shares
in the amount of such Damages (and corresponding offset any Damages otherwise
assertable by Acquiror against Escrow Shares) shall be the Former Target
Stockholders' sole and exclusive remedy for any such breach by Acquiror or Sub,
provided, however, that, in addition to any right to receive shares from the
Escrow Fund, Acquiror shall be fully liable to the Former Target Stockholders
for any Damages relating to Acquiror's willful misconduct or fraud in
connection with the representations and warranties set forth herein and the
transactions contemplated under this Agreement and in connection with the
Merger without limitation. The Former Target Stockholders acknowledge that,
with respect to the evaluation of the Acquiror Financial Statements for
purposes of making any claim under this Section 10.1 for a breach of the
representations set forth in Section 4.4(b), Acquiror and its independent
public accountants, Deloitte & Touche, have had the opportunity to review
Acquiror's accounting policies and methods and underlying assumptions inherent
in the Acquiror Financial Statements and, accordingly, Former Target
Stockholders shall be required to consistently apply the accounting policies,
methods and assumptions in the audited Acquiror Financial Statements.
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Section 10.2 Escrow Fund. As security for the indemnities in Section 10.1, as
soon as practicable after the Effective Date, but in any event within ten (10)
days of the Closing the Escrow Shares shall be deposited with an institution
selected by Acquiror, with the reasonable consent of Target, as escrow agent
(the "Escrow Agent"), such deposit to constitute the Escrow Fund (the "Escrow
Fund") and to be governed by the terms set forth in this Article X and in the
Escrow Agreement. Notwithstanding the foregoing, the indemnification
obligations of each of Acquiror, Sub and the Former Target Stockholders
pursuant to this Article X shall be limited to the amount and assets deposited
and present in the Escrow Fund and none of Acquiror, Sub or the Former Target
Stockholders shall be entitled to pursue any claims for indemnification under
this Article X against any Former Target Stockholder directly or personally and
the sole recourse of any of them shall be to make claims against the Escrow
Fund in accordance with the terms of the Escrow Agreement or to make claims for
the reduction of the Escrow Fund, as the case may be (except for cases
involving willful misconduct or fraud as set forth above).
Section 10.3 Damage Threshold.
(a) Acquiror's Damages. Notwithstanding the foregoing, the Former Target
Stockholders shall have no liability under Section 10.1 and Acquiror may not
receive any shares from the Escrow Fund unless and until an Officer's
Certificate or Certificates (as defined in Section 10.5 below) for an aggregate
amount of Damages in excess of $500,000 has been delivered to the Stockholders'
Agent and to the Escrow Agent; provided, however, that after an Officer's
Certificate or Certificates for an aggregate of $500,000 in Damages has been
delivered, Acquiror shall be entitled to receive Escrow Shares equal in value
to the full amount of Damages identified in such Officer's Certificate or
Certificates.
(b) Former Target Stockholders' Damages. Notwithstanding the foregoing,
Acquiror shall have no liability under Section 10.1 and the Escrow Fund shall
not be reduced unless and until a Stockholders' Agent Certificate or
Certificates (as defined in Section 10.5 below) for an aggregate amount of
Damages in excess of $500,000 has been delivered to the Acquiror and to the
Escrow Agent; provided, however, that after a Stockholders' Agent Certificate
or Certificates for an aggregate of $500,000 in Damages has been delivered, the
Escrow Fund shall be reduced in the full amount of Damages identified in such
Stockholders' Agent Certificate or Certificates.
Section 10.4 Escrow Periods. The Escrow Fund shall commence on the Closing
Date and terminate (a) as to items reasonably expected to be encountered in the
audit process, on the earlier to occur of (i) the first anniversary of the date
of the Closing and (ii) the date of issuance of the first independent audit
report on Acquiror's financial statements after the Closing, which financial
statements include the financial results of Target, or (b) as to all other
items, on the first anniversary of the Closing (the period from the Closing to
such date referred to as the "Escrow Period"), provided, however, that the
number of Escrow Shares, which, in the reasonable judgment of Acquiror, subject
to the objection of the Stockholders' Agent and the subsequent resolution of
the matter in the manner provided in Section 10.8, are necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate theretofore delivered
to the Escrow Agent and the Stockholders' Agent (as defined in Section 10.9)
prior to termination of the Escrow Period with respect to Damages incurred or
litigation pending prior to expiration of the Escrow Period, shall remain in
the Escrow Fund until such claims have been finally resolved, or, if earlier,
until released in accordance with Section 10.1 above and 10.5(b) below.
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Section 10.5 Claims Upon Escrow Fund.
(a) Claims by Acquiror. Upon receipt by the Escrow Agent on or before the
last day of the Escrow Period of a certificate signed by any appropriately
authorized officer of Acquiror (an "Officer's Certificate"):
(i) Stating the aggregate amount of Acquiror's Damages or an estimate
thereof, in each case to the extent known or determinable at such time, and
(ii) Specifying in reasonable detail the individual items of such Damages
included in the amount so stated, the date each such item was paid or properly
accrued or arose, and the nature of the misrepresentation, breach or claim to
which such item is related, the Escrow Agent shall, subject to the provisions
of Sections 10.3, 10.7 and 10.8 hereof, deliver to Acquiror out of the Escrow
Fund, as promptly as practicable, Escrow Shares having a value equal to such
Damages all in accordance with the Escrow Agreement and Section 10.6 below.
Amounts paid or distributed from the Escrow Fund shall be paid or distributed
pro rata among the Holders (as defined in the Escrow Agreement) based upon
their respective percentage interests therein at the time. Notwithstanding
anything herein to the contrary, no Escrow Shares shall be distributed to
Acquiror until the first anniversary of the Closing and after giving effect to
any offsets due pursuant to Section 10.1(b).
(b) Claims by Former Target Stockholders. Upon receipt by the Escrow Agent
on or before the last day of the Escrow Period of a certificate signed by the
Stockholders' Agent (a "Stockholders' Agent Certificate"):
(i) Stating the aggregate amount of the Former Target Stockholders'
Damages or an estimate thereof, in each case to the extent known or
determinable at such time, and
(ii) Specifying in reasonable detail the individual items of such Damages
included in the amount so stated, the date each such item was paid or properly
accrued or arose, and the nature of the misrepresentation, breach or claim to
which such item is related, the amount available in the Escrow Fund (defined
below) shall be reduced by the amount of such Damages, and the Escrow Agent
shall release from the Escrow Fund to the Former Target Stockholders all or a
portion of the Escrow Shares which have a value equal to the amount of such
Damages. The amount by which the Escrow Fund is reduced shall be distributed
pro rata among the Holders (as defined in the Escrow Agreement) based upon
their respective percentage interests therein at the time.
Section 10.6 Valuation. For the purpose of compensating Acquiror or the
Former Target Stockholders for their respective Damages pursuant to this
Agreement, the value per share of the Escrow Shares shall be the Closing Stock
Price. In determining the amount of any indemnity, there shall be taken into
account any tax benefit, insurance proceeds or other similar recovery or offset
realized, directly or indirectly.
Section 10.7 Objections to Claims. (a) At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such Officer's
Certificate shall be delivered to the Stockholders' Agent (as defined in
Section 10.9 below) and for a period of thirty (30) days after such delivery,
the Escrow Agent shall make no delivery of Escrow Shares pursuant to Section
10.5 unless the Escrow Agent shall have received written authorization from the
Stockholders' Agent to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of the Escrow Shares in
the Escrow Fund in accordance with Section 10.5, provided that no such delivery
may be made if the Stockholders' Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to Acquiror prior to the expiration of such
thirty (30) day period.
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(b) At the time of delivery of any Stockholders' Agent Certificate to the
Escrow Agent, a duplicate copy of such Stockholders' Agent Certificate shall be
delivered to the Acquiror and for a period of thirty (30) days after such
delivery, the Escrow Agent shall not deliver any Escrow Shares to Acquiror for
any Damages incurred by Acquiror to the extent of the claim set forth in such
Stockholders' Agent Certificate and shall not release any Escrow Shares to the
Former Target Stockholders, unless the Escrow Agent shall have received written
authorization from Acquiror to deliver or release the Escrow Shares to the
Former Target Stockholders. After the expiration of such thirty (30) day
period, the Escrow Agent shall deliver such Escrow Shares to Acquiror or Former
Target Stockholders, as applicable, provided that no delivery or release may be
made if Acquiror shall object in a written statement to the claim made in the
Stockholders' Agent Certificate, and such statement shall have been delivered
to the Escrow Agent and to the Stockholders' Agent prior to the expiration of
such thirty (30) day period.
Section 10.8 Resolution of Conflicts.
(a) In case the Stockholders' Agent or Acquiror, as applicable shall so
object in writing to any claim or claims made in any Acquiror's Officer's
Certificate or Stockholders' Agent Certificate, the non-objecting party shall
have thirty (30) days to respond in a written statement to the objection. If
after such thirty (30) day period there remains a dispute as to any claims, the
Stockholders' Agent and Acquiror shall attempt in good faith for thirty (30)
days to agree upon the rights of the respective parties with respect to each of
such claims. If the Stockholders' Agent and Acquiror should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be
entitled to rely on any such memorandum and shall distribute the Escrow Shares
from the Escrow Fund in accordance with the terms of the memorandum.
(b) If no such agreement can be reached after good faith negotiation,
either Acquiror or the Stockholders' Agent may, by written notice to the other,
demand arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration
shall not be commenced until such amount is ascertained or both parties agree
to arbitration; and in either such event the matter shall be settled by
arbitration conducted by three (3) arbitrators. Within fifteen (15) days after
such written notice is sent, Acquiror (on the one hand) and the Stockholders'
Agent (on the other hand) shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The decision of the
arbitrators as to the validity and amount of any claim in such Officer's
Certificate or Stockholders' Agent Certificate shall be binding and conclusive
upon the parties to this Agreement, and notwithstanding anything in Sections
10.1 through 10.5, the Escrow Agent shall be entitled to act in accordance with
such decision and make or withhold payments out of the Escrow Fund in
accordance with such decision.
(c) Judgment upon any award rendered by the arbitrators may be entered in
any court having jurisdiction. Any such arbitration shall be held in Santa
Clara, California under the commercial rules then in effect of the American
Arbitration Association. The non-prevailing party to an arbitration shall pay
its own expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the expenses, including, without
limitation, the reasonable attorneys' fees and costs, incurred by the
prevailing party to the arbitration.
Section 10.9 Stockholders' Agent.
(a) Charles Federman shall be constituted and appointed as agent (the
"Stockholders' Agent") for and on behalf of the Former Target Stockholders to
give and
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receive notices and communications, to authorize delivery to Acquiror of the
Escrow Shares or other property from the Escrow Fund in satisfaction of claims
by Acquiror, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders
of courts and awards of arbitrators with respect to such claims, and to take
all actions necessary or appropriate in the judgment of the Stockholders' Agent
for the accomplishment of the foregoing. Such agency may be changed by the
holders of a majority in interest of the Escrow Shares from time to time upon
not less than ten (10) days' prior written notice to Acquiror. No bond shall be
required of the Stockholders' Agent, and the Stockholders' Agent shall receive
no compensation for services. Notices or communications to or from the
Stockholders' Agent shall constitute notice to or from each of the Former
Target Stockholders.
(b) The Stockholders' Agent shall not be liable for any act done or omitted
hereunder as Stockholders' Agent while acting in good faith and in the exercise
of reasonable judgment, and any act done or omitted pursuant to the advice of
counsel shall be conclusive evidence of such good faith. The Former Target
Stockholders shall severally and pro rata, in accordance with their Pro Rata
Portion, indemnify the Stockholders' Agent and hold him harmless against any
loss, liability or expense incurred without gross negligence or bad faith on
the part of the Stockholders' Agent and arising out of or in connection with
the acceptance or administration of his duties under this Agreement or the
Escrow Agreement, provided, that the Stockholders' Agent shall be reimbursed
for counsel fees and other out-of-pocket expenses incurred by such Stockholder
Agent in connection with the administration of his duties under this Agreement
or the Escrow Agreement or the Escrow Agreement from the proceeds of the sale
of Escrow Shares by the Stockholder Agent. For such purpose, the Stockholder
Agent shall be authorized to direct the Escrow Agent to deliver or cause to be
delivered to the Stockholder Agent such number of Escrow Shares the sale of
which by the Stockholder Agent in ordinary open-market brokers transactions is
sufficient to cover such out-of-pocket costs.
(c) The Stockholders' Agent shall have reasonable access to information
about Target and Acquiror and the reasonable assistance of Target's and
Acquiror's officers and employees for purposes of performing its duties and
exercising its rights under this Article X, provided that the Stockholders'
Agent shall treat confidentially and not disclose any nonpublic information
from or about Target or Acquiror to anyone (except on a need to know basis to
individuals who agree to treat such information confidentially).
Section 10.10 Actions of the Stockholders' Agent. A decision, act, consent or
instruction of the Stockholders' Agent shall constitute a decision of all of
the Former Target Stockholders for whom shares of Acquiror Common Stock
otherwise issuable to them are deposited in the Escrow Fund and shall be final,
binding and conclusive upon each such Former Target Stockholder, and the Escrow
Agent and Acquiror may rely upon any decision, act, consent or instruction of
the Stockholders' Agent as being the decision, act, consent or instruction of
each and every such Former Target Stockholder. The Escrow Agent and Acquiror
are hereby relieved from any liability to any person for any acts done by them
in accordance with such decision, act, consent or instruction of the
Stockholders' Agent.
Section 10.11 Claims. In the event Acquiror becomes aware of a third-party
claim which Acquiror believes may result in a demand against the Escrow Fund,
Acquiror shall notify the Stockholders' Agent of such claim, and the
Stockholders' Agent and the Former Target Stockholders for whom shares of
Acquiror Common Stock otherwise issuable to them are deposited in the Escrow
Fund shall be entitled, at their expense, to participate in any defense of such
claim. Acquiror shall have the right in its sole discretion to settle any such
claim; provided, however, that Acquiror may not effect the settlement of any
such claim without the
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<PAGE>
consent of the Stockholders' Agent, which consent shall not be unreasonably
withheld. In the event that the Stockholders' Agent has consented to any such
settlement, the Stockholders' Agent shall have no power or authority to object
to the amount of any claim by Acquiror against the Escrow Fund for indemnity
with respect to such settlement, unless such claim is in an amount in excess of
any amount consented to by the Stockholders' Agent.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Survival of Representations and Covenants. All representations,
warranties, covenants and agreements of Target contained in this Agreement
shall survive the Closing and any investigation at any time made by or on
behalf of Acquiror until the end of the Escrow Period. All representations,
warranties, covenants and agreements of Acquiror contained in this Agreement
shall survive the Closing and any investigation at any time made by or on
behalf of Target until the end of the Escrow Period. If Escrow Shares or other
assets are retained in the Escrow Fund beyond expiration of the period
specified in the Escrow Agreement, then because and to the extent of a timely
claim being asserted against the Escrow Fund (notwithstanding the expiration of
such time period) the representation, warranty, covenant or agreement
applicable to such claim shall survive until, but only for purposes of, the
resolution of the claim to which such retained Escrow Shares or other assets
relate.
Section 11.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (which
is confirmed) or two business days after being mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
with a copy to:
(a) if to Acquiror or Sub:
Brio Technology, Inc.
3420 West Bayshore Road
Palo Alto, CA 94303
Attention: Chief Executive Officer
Fax No. (650) 856-0794
Telephone No: (650) 845-8000
with a copy at the same address to the attention of the General Counsel
and Secretary and with a copy to:
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, California 94025
Attention: Mark B. Weeks
Fax No: (650) 233-8386
Telephone No: (650) 854-4488
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<PAGE>
(b) if to Target, to:
SQRIBE Technologies Corp.
1080 Marsh Road
Menlo Park, CA 94025
Attention: Chief Executive Officer
Fax No. (650) 326-5100
Telephone No: (650) 326-5000
with a copy at the same address to the attention of the Chief Financial
Officer and with a copy to:
Morrison & Foerster, LLP
755 Page Mill Road
Palo Alto, CA 94304
Attention: Michael C. Phillips
Fax No: (650) 494-0792
Telephone No: (650) 815-5600
Section 11.3 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available
if requested by the party to whom such information is to be made available.
Section 11.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 11.5 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein), the
Confidentiality Agreement, and the Transaction Documents (a) constitute the
entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) are not intended to confer upon any person other than the parties
hereto and the Former Target Stockholders (excluding in any case any Target
employees in such capacity) any rights or remedies hereunder.
Section 11.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
Section 11.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
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<PAGE>
Section 11.8 Amendment. This Agreement may be amended by the parties hereto,
at any time before or after approval of matters presented in connection with
the Merger by the stockholders of Target, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 11.9 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or the other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations or warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party.
Section 11.10 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to
injunctive relief to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
[Signature Page Follows]
A-55
<PAGE>
IN WITNESS WHEREOF, Acquiror, Sub and Target have caused this Agreement and
Plan of Merger to be signed by their respective officers thereunto duly
authorized as of the date first written above.
BRIO TECHNOLOGY, INC.
/s/ Yorgen H. Edholm
By:__________________________________
Title:_______________________________
SOCRATES ACQUISITION CORPORATION
/s/ Yorgen H. Edholm
By:__________________________________
Title:_______________________________
SQRIBE TECHNOLOGIES CORP.
/s/ Ofir J. Kedar
By:__________________________________
Title:_______________________________
A-56
<PAGE>
AMENDMENT NO. 1
TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER dated as of March 24,
1999 (this "Agreement"), is entered into by and among Brio Technology, Inc., a
Delaware corporation ("Acquiror"), Socrates Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Acquiror ("Sub"), and SQRIBE
Technologies Corporation, a Delaware corporation ("Target").
RECITALS
A. Acquiror, Sub and Target have entered into an Agreement and Plan of Merger
dated February 23, 1999 (the "Merger Agreement");
B. Acquiror, Sub and Target each desire to amend the Merger Agreement as
provided herein;
C. Section 11.8 of the Merger Agreement provides that the Merger Agreement
may be amended by written consent of the parties thereto;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
Merger Agreement is amended as follows:
1. Amendment.
(a) Section 9.1(d) of the Merger Agreement is hereby amended to read in its
entirety as follows:
"(d) by Acquiror, by giving written notice to Target, if the Closing
shall not have occurred on or before June 30, 1999 by reason of the failure of
any condition precedent under Section 8.1 or 8.2 (unless the failure results
primarily from a breach by Acquiror of any representation, warranty, or
covenant of Acquiror contained in this Agreement or Acquiror's failure to
fulfill a condition precedent to closing or other default, or unless such date
is extended pursuant to Section 9.4);"
(b) Section 9.1(e) of the Merger Agreement is hereby amended to read in its
entirety as follows:
"(e) by Target, by giving written notice to Acquiror, if the Closing
shall not have occurred on or before June 30, 1999 by reason of the failure of
any condition precedent under Section 8.1 or 8.3 (unless the failure results
primarily from a breach by Target of any representation, warranty, or covenant
of Target contained in this Agreement or Target's failure to fulfill a
condition precedent to closing or other default or unless such date is extended
pursuant to Section 9.4);"
(c) The Merger Agreement is hereby amended to add a new Section 9.4 as
follows:
"9.4 Termination Date Extension.
(a) Notwithstanding anything to the contrary contained in this
Agreement, and provided Acquiror has used its good faith best efforts to
expeditiously obtain effectiveness of the Registration Statement with the
SEC, the dates set forth in Sections 9.1(d) and 9.1(e) (the "Term Dates")
shall be extended if and to the extent necessary to postpone the Closing
because of the time required to obtain such effectiveness; provided,
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<PAGE>
however, that in no event shall the Term Dates be extended beyond August
31, 1999; and provided further that, notwithstanding any extension of the
Term Dates, in no event shall the Escrow Period extend beyond July 15,
2000.
(b) The parties shall use their best efforts to seek to obtain an SEC
effectiveness order with respect to the Proxy Statement/Prospectus as
promptly as is practicable. In the event that, notwithstanding such
efforts, the Term Dates are extended pursuant to Section 9.4(a), the
parties shall mutually and in good faith undertake to amend this Agreement
as may be necessary to account for such extension.
2. Definitions. All capitalized terms used herein without definition shall
have the meanings ascribed to them in the Merger Agreement.
3. Effect of Amendment. Except as amended as set forth above, the Merger
Agreement shall continue in full force and effect.
4. Counterparts. This Amendment may executed in counterparts.
IN WITNESS WHEREOF, Acquiror, Sub and Target have caused this Amendment No.
1 to Agreement and Plan of Merger to be signed by their respective officers
thereunto duly authorized as of the date first written above.
BRIO TECHNOLOGY, INC.
/s/ Yorgen Edholm
By:____________________________________
President
Title:_________________________________
SOCRATES ACQUISITION CORPORATION
/s/ Yorgen Edholm
By:____________________________________
President
Title:_________________________________
SQRIBE TECHNOLOGIES CORP.
/s/ Ofir J. Kedar
By:____________________________________
President
Title:_________________________________
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<PAGE>
AMENDMENT NO. 2
---------------
TO AGREEMENT AND PLAN OF MERGER
-------------------------------
THIS AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER dated as of July 2, 1999
(this "Agreement"), is entered into by and among Brio Technology, Inc., a
Delaware corporation ("Acquiror"), Socrates Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Acquiror ("Sub"), and SQRIBE
Technologies Corp., a Delaware corporation ("Target").
RECITALS
--------
A. Acquiror, Sub and Target have entered into an Agreement and Plan of
Merger dated February 23, 1999, as amended March 24, 1999 (the "Merger
Agreement");
B. Acquiror, Sub and Target each desire to amend the Merger Agreement as
provided herein;
C. Section 11.8 of the Merger Agreement provides that the Merger
Agreement may be amended by written consent of the parties thereto;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
Merger Agreement is amended as follows:
1. Amendment. Section 2.1(c) of the Merger Agreement is hereby amended
---------
to read in its entirety as follows:
"(a) Exchange Ratio.
--------------
(i) Subject to Sections 2.2 and 2.4, each issued and
outstanding share of Target Common Stock, each issued and outstanding share of
Target Series A Preferred Stock (after giving effect to any adjustments in
respect of liquidation preference, if applicable) and each issued and
outstanding share of Target Series B Preferred Stock (other than shares to be
canceled in accordance with Section 2.1(b) and any Dissenting Shares as
defined in and to the extent provided in Section 2.3) shall be converted into
the right to receive a number of shares of Acquiror Common Stock ("Acquiror
Common Stock") equal to the quotient obtained by dividing:
(A) the product obtained by multiplying
(1) total number of shares of Acquiror capital
stock outstanding immediately prior to the Effective Time (which, for the
purposes of this calculation shall be deemed to equal the sum of (i) the
number of shares of capital stock of Acquiror outstanding at the Effective
Time, assuming exercise of all outstanding options and warrants to purchase
shares of capital stock of Acquiror and conversion of all securities
convertible into shares of capital stock of Acquiror, as the same shall be
calculated using the Treasury Method (defined below), but excluding options
issued following February 23, 1999 (and any shares of capital stock of
Acquiror issued on exercise of such options) plus (ii) fifty-five percent
(55%) of the aggregate number of shares of capital stock issuable pursuant to
options to purchase shares of capital stock granted by Acquiror and Target
during the period from February 24, 1999 through the
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<PAGE>
Effective Time (without giving effect to any exercise of such options), as the
same shall be calculated using the Treasury Method) by
(2) 0.8181818, by
(B) the sum obtained by adding (x) the total number of
shares of Target capital stock outstanding immediately prior to the Effective
Time (which, for the purposes of this calculation shall be deemed to equal the
sum of (i) the number of shares of capital stock of Target outstanding at the
Effective Time, assuming exercise of all outstanding options and warrants to
purchase shares of capital stock of Target and conversion of all securities
convertible into shares of capital stock of Target, as the same shall be
calculated using the Treasury Method, but excluding options issued following
February 23, 1999 (and any shares of capital stock of Target issued on
exercise of such options), plus (ii) forty-five percent (45%) of the aggregate
number of shares of capital stock issuable pursuant to options to purchase
shares of capital stock granted by Acquiror and Target during the period from
February 24, 1999 through the Effective Time (without giving effect to any
exercise of such options), as the same shall be calculated using the Treasury
Method), plus (y) 30,000 (the "Exchange Ratio").
"Treasury Method" means an operation pursuant to which a number of
shares issuable upon exercise of options and warrants is determined by
subtracting from the total number of shares issuable upon exercise of options
and warrants issued by a party a number of shares obtained by dividing (1) the
aggregate consideration to be received by a party upon exercise of the total
number of shares issuable upon exercise of options and warrants and other
convertible securities issued by such party by (2) the Closing Stock Price.
All such shares of Target Common Stock, Series A Preferred Stock and
Series B Preferred Stock, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of Acquiror
Common Stock and any cash in lieu of fractional shares of Acquiror Common Stock
to be issued or paid in consideration therefor upon the surrender of such
certificate in accordance with Section 2.4, without interest. The Exchange
Ratio shall not change as a result of fluctuations in the market price of
Acquiror Common Stock between the date of this Agreement and the Effective Time,
except as may be required by the Treasury Method.
2. Definitions. All capitalized terms used herein without definition
-----------
shall have the meanings ascribed to them in the Merger Agreement.
3. Effect of Amendment. Except as amended as set forth above, the Merger
-------------------
Agreement shall continue in full force and effect.
4. Counterparts. This Amendment may be executed in counterparts.
------------
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<PAGE>
IN WITNESS WHEREOF, Acquiror, Sub and Target have caused this Amendment No.
2 to Agreement and Plan of Merger to be signed by their respective officers
thereunto duly authorized as of the date first written above.
BRIO TECHNOLOGY, INC.
By: /s/ Karen J. Willem
-------------------------------
Title: Chief Financial Officer
----------------------------
SOCRATES ACQUISITION CORPORATION
By: /s/ Karen J. Willem
-------------------------------
Title: Chief Financial Officer
----------------------------
SQRIBE TECHNOLOGIES CORP.
By: /s/ Ofir J. Kedar
-------------------------------
Title: President
----------------------------
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<PAGE>
EXHIBIT A-1
TARGET VOTING AGREEMENT
A-1-1
<PAGE>
EXHIBIT A-1
VOTING AGREEMENT
THIS VOTING AGREEMENT ("Agreement") is made and entered into as of February
23, 1999 between Brio Technology, Inc. ("Acquiror"), a Delaware corporation,
and each of the undersigned Stockholders (each, a "Stockholder" and
collectively, the "Stockholders") of SQRIBE Technologies Corp., a Delaware
corporation ("Target").
RECITALS
A. Concurrently with the execution of this Agreement, Acquiror, Target and
Socrates Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Acquiror ("Sub"), have entered into an Agreement and Plan of
Merger, dated as of February 23, 1999 (the "Merger Agreement"), which provides
for the merger (the "Merger") of Sub with and into Target and the conversion of
each outstanding share of Target's capital stock into shares of Acquiror Common
Stock.
B. Each Stockholder is the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
number of shares of the outstanding capital stock, $0.001 par value per share,
of Target as is indicated on the signature page of this Agreement next to such
Stockholder's name (the "Shares"); and
C. As a condition to its willingness to enter into the Merger Agreement,
Acquiror has requested that each Stockholder agree to certain matters regarding
the voting of the Shares in connection with the Merger.
The parties agree as follows:
1. Transfers of Shares.
1.1 Transferees to Be Bound. Each Stockholder agrees not to transfer, sell,
exchange, pledge or otherwise dispose of or encumber any Shares or New Shares,
as defined in Section 1.2 below, or to make any offer or agreement relating
thereto, at any time prior to the Expiration Date unless the transferee of such
Shares or New Shares agrees to be bound by the terms of this Voting Agreement.
As used herein, the term "Expiration Date" shall mean the earlier to occur of
(i) such date and time as the Merger shall become effective in accordance with
the terms and provisions of the Merger Agreement and (ii) the date on which the
Merger Agreement shall be terminated in accordance with Section 9.1 thereof.
1.2 Additional Purchases. Each Stockholder agrees that any shares of
capital stock of Target that such Stockholder shall purchase or with respect to
which such Stockholder shall otherwise acquire beneficial ownership after the
execution of this Agreement and prior to the Expiration Date ("New Shares")
shall be subject to the terms and conditions of this Agreement to the same
extent as if they constituted Shares.
2. Agreement to Vote Shares and Grant Proxy. At every meeting of the
stockholders of Target called with respect to any of the following, and on
every action or approval by written consent of the stockholders of Target with
respect to any of the following, each Stockholder agrees to vote the Shares and
any New Shares in favor of approval of the Merger Agreement and the Merger and
any matter that could reasonably be expected to facilitate the Merger,
including the manner in which the escrow under the Merger Agreement is to be
established as
A-1-2
<PAGE>
contemplated by Section 2.2 and Article X of the Merger Agreement. In the event
Target's board of directors does not call a meeting to approve the Merger, each
Stockholder agrees to take all reasonable action necessary to call a meeting to
approve the Merger or to approve the Merger by written consent. In order to
effectuate the foregoing, each Stockholder does hereby constitute and appoint
Acquiror, or any nominee of Acquiror, with full power of substitution, from the
date hereof to the Expiration Date, as its true and lawful proxy, for and in
its name, place and stead, including the right to sign its name (as
Stockholder) to any consent, certificate or other document relating to Target
that the law of the State of Delaware may permit or require, to cause the
Shares and any New Shares to be voted in the manner contemplated by this
Section 2. The parties acknowledge that the proxy provided for here is
irrevocable and coupled with an interest.
3. Representations, Warranties and Covenants of the Stockholders. Each
Stockholder represents, warrants and covenants to Acquiror as follows:
3.1 Ownership of Shares. The Stockholder is the beneficial owner and holder
of the Shares, which at the date hereof and at all times up until the
Expiration Date, will be free and clear of any liens, claims, options, charges,
security interests, equities, options, warrants, rights to purchase (including,
without limitation, restrictions on rights of disposition other than those
imposed by applicable securities laws), third party rights of any nature or
other encumbrances; and does not beneficially own any shares of capital stock
of Target other than the Shares.
3.2 Authority; Due Execution. The Stockholder has full power and authority
to make, enter into and carry out the terms of this Agreement. The Stockholder
has duly executed and delivered this Agreement and (assuming the due
authorization, execution and delivery of this Agreement by Acquiror) this
Agreement constitutes a valid and binding obligation of the Stockholder.
3.3 Additional Documents. Each Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Acquiror, to carry out the purpose and intent of this
Agreement.
3.4 Consent and Waiver. Each Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreement to which such Stockholder is a party or pursuant to
any rights Stockholder may have.
4. Representations, Warranties and Covenants of Acquiror. Acquiror
represents, warrants and covenants to the Stockholder as follows:
4.1 Due Authorization. This Agreement has been authorized by all necessary
corporate action on the part of Acquiror and has been duly executed by a duly
authorized officer of Acquiror.
4.2 Validity; No Conflict. This Agreement constitutes the legal, valid and
binding obligation of Acquiror. Neither the execution of this Agreement by
Acquiror nor the consummation of the transactions contemplated hereby will
result in a breach or violation of the terms of any agreement by which Acquiror
is bound or by any decree, judgment, order, law or regulation now in effect of
any court or other governmental body applicable to Acquiror.
A-1-3
<PAGE>
5. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
6. Miscellaneous.
6.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
6.2 Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of the
parties without prior written consent of the other; except that Acquiror may
assign its rights hereunder to any of its wholly-owned subsidiaries.
6.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
6.4 Specific Performance; Injunctive Relief. The parties hereto acknowledge
that Acquiror will be irreparably harmed and that there will be no adequate
remedy at law for a violation of any of the covenants or agreements of the
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Acquiror upon any such violation,
Acquiror shall have the right to enforce such covenants and agreements by
specific performance, injunctive relief or by any other means available to
Acquiror at law or in equity.
6.5 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with, the internal laws of the State of Delaware as such
laws are applied to contracts entered into and to be performed entirely within
Delaware.
6.6 Entire Agreement. This Agreement contains the entire understanding of
the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such
subject matter.
6.7 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
6.8 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
6.9 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following addresses (or at such other address for a party as shall be
specified in like notice):
(a) if to Acquiror:
Brio Technology, Inc.
3420 West Bayshore Road
Palo Alto, CA 94303
Attention: Chief Executive Officer
Fax No. (650) 856-0794
Telephone No: (650) 845-8000
A-1-4
<PAGE>
with a copy at the same address to the attention of the General Counsel and
Secretary and with a copy to:
Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, California 94025
Attention: Mark B. Weeks
Fax No: (650) 233-8386
Telephone No: (650) 854-4488
(b) if to a Stockholder, to the address set forth below such Stockholder's
name.
6.10 Obligations. The obligations of the Stockholders hereunder are several
and not joint.
[Signature Page Follows.]
A-1-5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
BRIO TECHNOLOGY, INC.
By:
_______________________________
Name:
____________________________
Title:
______________________________
STOCKHOLDERS:
By:
_______________________________
Name:
____________________________
Address:
__________________________
Number of shares beneficially owned by Stockholder:
Common Stock
__________
__________
__________
A-1-6
<PAGE>
EXHIBIT A-2
VOTING AGREEMENT
THIS VOTING AGREEMENT ("Agreement") is made and entered into as of February
23, 1999 between SQRIBE Technologies Corp. ("Target"), a Delaware corporation,
and each of the undersigned Stockholders (each, a "Stockholder" and
collectively, the "Stockholders") of Brio Technology, Inc., a Delaware
corporation ("Acquiror").
RECITALS
A. Concurrently with the execution of this Agreement, Acquiror, Target and
Socrates Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Acquiror ("Sub"), have entered into an Agreement and Plan of
Merger, dated as of February , 1999 (the "Merger Agreement"), which provides
for the merger (the "Merger") of Sub with and into Target and the conversion of
each outstanding share of Target's capital stock into shares of Acquiror Common
Stock.
B. Each Stockholder is the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
number of shares of the outstanding capital stock, $0.001 par value per share,
of Acquiror as is indicated on the signature page of this Agreement next to
such Stockholder's name (the "Shares"); and
C. As a condition to its willingness to enter into the Merger Agreement,
Target has requested that each Stockholder agree to certain matters regarding
the voting of the Shares in connection with the Merger.
The parties agree as follows:
1. Transfers of Shares.
1.1 Transferees to Be Bound. Each Stockholder agrees not to transfer, sell,
exchange, pledge or otherwise dispose of or encumber any Shares or New Shares,
as defined in Section 1.2 below, or to make any offer or agreement relating
thereto, at any time prior to the Expiration Date unless the transferee of such
Shares or New Shares agrees to be bound by the terms of this Voting Agreement.
As used herein, the term "Expiration Date" shall mean the earlier to occur of
(i) such date and time as the Merger shall become effective in accordance with
the terms and provisions of the Merger Agreement and (ii) the date on which the
Merger Agreement shall be terminated in accordance with Section 9.1 thereof.
1.2 Additional Purchases. Each Stockholder agrees that any shares of
capital stock of Acquiror that such Stockholder shall purchase or with respect
to which such Stockholder shall otherwise acquire beneficial ownership after
the execution of this Agreement and prior to the Expiration Date ("New Shares")
shall be subject to the terms and conditions of this Agreement to the same
extent as if they constituted Shares.
2. Agreement to Vote Shares and Grant Proxy. At every meeting of the
stockholders of Acquiror called with respect to any of the following, and on
every action or approval by written consent of the stockholders of Acquiror
with respect to any of the following, each Stockholder agrees to vote the
Shares and any New Shares in favor of approval of the Merger Agreement and the
Merger and any matter that could reasonably be expected to facilitate the
Merger, including the manner in which the escrow under the Merger Agreement is
to be established as contemplated by Section 2.2 and Article X of the Merger
Agreement. In the
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event Acquiror's board of directors does not call a meeting to approve the
Merger, each Stockholder agrees to take all reasonable action necessary to call
a meeting to approve the Merger or to approve the Merger by written consent. In
order to effectuate the foregoing, each Stockholder does hereby constitute and
appoint Target, or any nominee of Target, with full power of substitution, from
the date hereof to the Expiration Date, as its true and lawful proxy, for and
in its name, place and stead, including the right to sign its name (as
Stockholder) to any consent, certificate or other document relating to Acquiror
that the law of the State of Delaware may permit or require, to cause the
Shares and any New Shares to be voted in the manner contemplated by this
Section 2. The parties acknowledge that the proxy provided for here is
irrevocable and coupled with an interest.
3. Representations, Warranties and Covenants of the Stockholders. Each
Stockholder represents, warrants and covenants to Target as follows:
3.1 Ownership of Shares. The Stockholder is the beneficial owner and holder
of the Shares, which at the date hereof and at all times up until the
Expiration Date, will be free and clear of any liens, claims, options, charges,
security interests, equities, options, warrants, rights to purchase (including,
without limitation, restrictions on rights of disposition other than those
imposed by applicable securities laws), third party rights of any nature or
other encumbrances; and does not beneficially own any shares of capital stock
of Acquiror other than the Shares.
3.2 Authority; Due Execution. The Stockholder has full power and authority
to make, enter into and carry out the terms of this Agreement. The Stockholder
has duly executed and delivered this Agreement and (assuming the due
authorization, execution and delivery of this Agreement by Target) this
Agreement constitutes a valid and binding obligation of the Stockholder.
3.3 Additional Documents. Each Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Target, to carry out the purpose and intent of this
Agreement.
3.4 Consent and Waiver. Each Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreement to which such Stockholder is a party or pursuant to
any rights Stockholder may have.
4. Representations, Warranties and Covenants of Acquiror. Target represents,
warrants and covenants to the Stockholder as follows:
4.1 Due Authorization. This Agreement has been authorized by all necessary
corporate action on the part of Target and has been duly executed by a duly
authorized officer of Target.
4.2 Validity; No Conflict. This Agreement constitutes the legal, valid and
binding obligation of Target. Neither the execution of this Agreement by Target
nor the consummation of the transactions contemplated hereby will result in a
breach or violation of the terms of any agreement by which Target is bound or
by any decree, judgment, order, law or regulation now in effect of any court or
other governmental body applicable to Target.
5. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
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6. Miscellaneous.
6.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
6.2 Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of the
parties without prior written consent of the other; except that Target may
assign its rights hereunder to any of its wholly-owned subsidiaries.
6.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
6.4 Specific Performance; Injunctive Relief. The parties hereto acknowledge
that Target will be irreparably harmed and that there will be no adequate
remedy at law for a violation of any of the covenants or agreements of the
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Target upon any such violation, Target
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Target at law
or in equity.
6.5 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with, the internal laws of the State of Delaware as such
laws are applied to contracts entered into and to be performed entirely within
Delaware.
6.6 Entire Agreement. This Agreement contains the entire understanding of
the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such
subject matter.
6.7 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
6.8 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
6.9 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following addresses (or at such other address for a party as shall be
specified in like notice):
(a) if to Target:
SQRIBE Technologies Corp.
1080 Marsh Road
Menlo Park, CA 94025
Attention: Chief Executive Officer
Fax No. (650) 326-5100
Telephone No: (650) 326-5000
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with a copy at the same address to the attention of the General Counsel
and Secretary and with a copy to:
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304
Attention: Michael C. Phillips
Fax No: (650) 494-0792
Telephone No: (650) 813-5600
(b) if to a Stockholder, to the address set forth below such
Stockholder's name.
6.10 Obligations. The obligations of the stockholders hereunder are several
and not joint.
[Signature Page Follows.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
SQRIBE TECHNOLOGIES CORP.
By: _________________________________
Name:
Title:
STOCKHOLDERS:
By: _________________________________
Title:
Address:
Number of shares beneficially owned by Stockholder:
<TABLE>
<S> <C>
Common Stock
Series A Preferred
Series B Preferred
---
</TABLE>
[SIGNATURE PAGE TO VOTING AGREEMENT]
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EXHIBIT C
AFFILIATES AGREEMENT
THIS AFFILIATES AGREEMENT (this "Agreement") is entered into as of
February , 1999 among Brio Technology, Inc., a Delaware corporation
("Acquiror"), and each of the undersigned affiliates (each, an "Affiliate") of
either SQRIBE Technologies Corp., a Delaware corporation ("Target") or
Acquiror.
RECITALS
A. Acquiror, Target and Socrates Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Acquiror ("Sub"), have entered
into an Agreement and Plan of Merger dated as of February , 1999 (the
"Merger Agreement") pursuant to which Target and Acquiror intend to enter into
a business combination transaction in which Sub would be merged with and into
Target (the "Merger") (capitalized terms used and not otherwise defined herein
shall have the respective meanings ascribed to them in the Merger Agreement).
B. In the Merger, outstanding shares of Target capital stock, including any
such shares owned by Affiliate, will be converted into the right to receive
shares of Acquiror Common Stock (the "Shares") subject to the terms of, and as
set forth in, the Merger Agreement.
C. It is a condition to consummation of the Merger that counsel for Target
shall have delivered their written opinion that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
D. It is also a condition to the consummation of the Merger that the
accountants for Acquiror shall have delivered a written opinion that the
business combination shall qualify as a pooling of interest transaction under
generally accepted accounting principles.
E. In order to induce Acquiror and Target to enter into the Merger
Agreement, Affiliate is willing to agree to be bound by certain procedural
requirements with respect to sales of the Shares pursuant to the Registration
Statement and to execute and deliver this Agreement.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. Acknowledgments by Affiliate. Affiliate acknowledges and understands that
the representations, warranties and covenants by Affiliate set forth herein
shall be relied upon by Acquiror, Target, and their respective affiliates,
counsel and accounting firms, and that substantial losses and damages may be
incurred by such persons if Affiliate's representations, warranties or
covenants are breached. Affiliate has carefully read this Agreement and the
Merger Agreement (including the form of Escrow Agreement attached thereto as
Exhibit D) and has discussed the requirements of this Agreement with
Affiliate's professional advisors to the extent Affiliate has deemed
necessary.
2. Representations, Warranties and Covenants Related to Tax Effects of the
Merger.
(a) Affiliate is the beneficial owner of the number of shares of Target
Common Stock (including shares issuable upon exercise of stock options) and/or
Target Preferred Stock set forth on the last page of this Agreement and did
not acquire any of such shares in contemplation of the Merger;
(b) Affiliate has not engaged in a Sale (as defined below) of any shares
of Target Common Stock or Preferred Stock in contemplation of the Merger;
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(c) Affiliate has no present plan or intention to engage in a sale,
exchange, transfer, distribution (other than a distribution by a partnership to
its partners, as to which Section 4(d) shall apply), redemption or reduction in
any way of Affiliate's risk of ownership (by short sale or otherwise), or other
disposition, directly or indirectly (such actions being collectively referred
to herein as a "Sale") of any of the shares of Acquiror Common Stock to be
received by Affiliate in the Merger. (For purposes of the preceding sentence,
shares of Target capital stock (or the portion thereof) (i) with respect to
which Affiliate will receive consideration in the Merger other than shares of
Acquiror Common Stock (including cash to be received in lieu of fractional
shares of Acquiror Common Stock) and/or (ii) with respect to which a Sale (A)
occurred in contemplation of the Merger or (B) will occur prior to the Merger,
shall be considered shares of Target capital stock exchanged for shares of
Acquiror Common Stock in the Merger and then disposed of pursuant to a plan.)
(d) (Applicable only if Affiliate is a partnership.) Except to the extent
disclosed on the signature page hereof, Affiliate is not aware of any present
plan or intention on the part of its partners to engage in a Sale or Sales of
any of the shares of Acquiror Common Stock, if any, to be distributed by
Affiliate. If all of the shares of Acquiror Common Stock to be received by
Affiliate in the Merger, if any, were distributed to its partners in accordance
with their partnership interests, no such partner would receive shares of
Acquiror Common Stock having a value greater than five percent (5%) of the fair
market value of the shares of Target's capital stock outstanding immediately
prior to the Merger.
(e) Affiliate has no plan or intention to exercise dissenters' rights in
connection with the Merger.
(f) Affiliate is not aware of, or participating in, any plan or intention
on the part of Affiliates of Target (including partners who receive shares of
Acquiror Common Stock in a distribution from an Affiliate of Target that is a
partnership pursuant to a plan for the distribution of such shares in existence
at the Effective Time (as such term is defined in the Merger Agreement) to
engage in a Sale or Sales of shares of Acquiror Common Stock to be received in
the Merger such that the aggregate fair market value, as of the Effective Time
of the Merger, of the shares subject to such Sales would exceed fifty percent
(50%) of the aggregate fair market value of all shares of outstanding capital
stock of Target immediately prior to the Merger. (For purposes of the preceding
sentence, shares of Target capital stock (or the portion thereof) (i) with
respect to which an Affiliate of Target receives consideration in the Merger
other than shares of Acquiror Common Stock (including, without limitation, cash
received pursuant to the exercise of dissenters' rights or in lieu of a
fractional share of Acquiror Common Stock) or (ii) with respect to which a Sale
occurs prior to and in contemplation of the Merger, shall be considered shares
of outstanding Target capital stock exchanged for shares of Acquiror Common
Stock in the Merger and then disposed of pursuant to a plan.)
(g) Except to the extent written notification to the contrary is received
by Acquiror and Target from Affiliate prior to the consummation of the Merger,
the representations, warranties and certifications contained herein shall be
accurate at all times from the date hereof through the Effective Time of the
Merger.
3. Additional Restrictions on Transfer. Affiliate will not sell, exchange,
transfer, pledge, dispose of or otherwise reduce Affiliate's risk relative to
the Shares or any part thereof until such time after the Effective Time of the
Merger as financial results covering at least thirty (30) days of the combined
operations of Acquiror and Target after the Effective Time of the Merger have
been filed by Acquiror with the Commission or published by Acquiror in an
Annual Report on Form 10-K, a Quarterly Report on Form 10-Q, a Current Report
on Form 8-K, a quarterly earnings report, a press release or other public
issuance that includes combined
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<PAGE>
sales and income of Acquiror and Target. The undersigned will not, during the
thirty (30) day period prior to the Effective Time of the Merger, sell,
exchange, transfer, pledge, dispose of or otherwise reduce Affiliate's risk
relative to the Shares or any part thereof. Affiliate further agrees that
Affiliate will not knowingly take any other action which could reasonably be
expected to jeopardize the accounting treatment of the Merger as a pooling of
interests.
4. Restrictions on and Procedure for Sales.
(a) Legend. Affiliate understands that all certificates representing Shares
deliverable to Affiliate pursuant to the Merger shall, until the occurrence of
one of the events referred to below, bear a legend substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD,
PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE
REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE OTHER
CONDITIONS SPECIFIED IN THE AFFILIATES AGREEMENT DATED AS OF FEBRUARY
, 1999 BETWEEN THE HOLDER OF THIS CERTIFICATE AND BRIO TECHNOLOGY, INC.
AND SQRIBE TECHNOLOGIES CORP., A COPY OF WHICH AGREEMENT WILL BE FURNISHED
BY SQRIBE TECHNOLOGIES CORP. TO THE HOLDER OF THIS CERTIFICATE UPON WRITTEN
REQUEST AND WITHOUT CHARGE."
Acquiror, in its discretion, may cause stop transfer orders to be placed with
its transfer agent with respect to the certificates for the Shares which are
required to bear such legend. Such foregoing legend shall be removed in
connection with the sale of any stock at a time that the Registration Statement
is effective.
5. Information for Use in Registration Statement. Affiliate represents,
warrants and covenants to Acquiror to provide such information as shall be
requested by Acquiror to enable Acquiror to prepare any Registration Statement
to be filed and that the information so provided is and will be true, accurate
and complete. The Affiliate understands that such information is being provided
to Acquiror specifically for use in, or in connection with, the Registration
Statement and the prospectus contained therein, and has executed this Agreement
with such knowledge.
6. Access to Information. Affiliate acknowledges that Acquiror is a publicly
held company that files reports and other information under the Exchange Act
with the Commission and with the National Association of Securities Dealers,
Inc. Affiliate further acknowledges the availability of current information
about Acquiror through such reports and other information.
7. Additional Provisions Regarding Indemnification, Escrow and Termination of
Investors Agreements. Affiliate approves and agrees to be bound by all
provisions of Section 2.2 and Article X of the Merger Agreement and the Escrow
Agreement a form of which is attached as Exhibit D to the Merger Agreement.
Without limiting the generality of the foregoing, Affiliate consents and agrees
to the appointment of Stockholder's Agent pursuant to Article X of the Merger
Agreement and to the indemnification obligations provided for in Section 10.9
of the Merger Agreement.
8. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the parties
pertaining to the subject matter hereof. No waiver of any of the provisions of
this Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall
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<PAGE>
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
(b) For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same document.
(c) This Agreement shall be enforceable by, and shall inure to the benefit
of and be binding upon, the parties hereto and their respective successors and
assigns. As used herein, the term "successors and assigns" shall mean, where
the context so permits, heirs, executors, administrators, trustees and
successor trustees, and personal and other representatives.
(d) This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the internal laws of the State of Delaware (without
regard to the principles of conflict of laws thereof).
(e) If a court of competent jurisdiction determines that any provision of
this Agreement is not enforceable or enforceable only if limited in time and/or
scope, this Agreement shall continue in full force and effect with such
provision stricken or so limited.
(f) The representations, warranties and covenants of the Affiliates are
several and not joint.
[Signature Page Follows.]
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<PAGE>
Executed as of the date shown on the first page of this Agreement.
BRIO TECHNOLOGY, INC.
By: _____________________________
Name: _________________________
Title: ________________________
SQRIBE TECHNOLOGIES CORP.
By: _____________________________
Name: _________________________
Title: ________________________
AFFILIATE
By: _____________________________
Name of Affiliate: ______________
Name of Signatory (if different
from name of Affiliate): _________
Title of Signatory
(if applicable):_________________
Number of shares beneficially owned by Affiliate:
Common Stock
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<PAGE>
EXHIBIT D
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is entered into as of , 1999 by
and among Brio Technology, Inc., a Delaware corporation ("Acquiror"), SQRIBE
Technologies Corp., a Delaware corporation ("Target"), State Street Bank and
Trust Company of California, N.A., as Escrow Agent ("Escrow Agent") and Charles
Federman, as Stockholders' Agent ("Stockholders' Agent") with respect to the
shares of Acquiror capital stock to be issued to the stockholders
(collectively, the "Holders") of Target in the Merger (as defined below).
RECITALS
A. Acquiror, Target and Socrates Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Acquiror ("Sub"), have entered
into an Agreement and Plan of Merger dated as of February 23, 1999 (the "Merger
Agreement") pursuant to which Sub will merge with and into Target (the
"Merger"), with Target surviving the Merger as the surviving corporation.
Capitalized terms used in this Agreement and not otherwise defined in this
Agreement shall have the meanings given them in the Merger Agreement.
B. Section 2.2 of the Merger Agreement provides that at the Effective Time,
or such later time as determined in accordance with Section 2.3(b) of the
Merger Agreement with respect to Dissenting Shares for which dissenters' rights
shall have been withdrawn or lost, Acquiror will deposit in escrow (such
deposit constituting the "Escrow Fund") certificates representing in the
aggregate nine percent (9%) of the shares of Acquiror Common Stock issuable to
the Holders pursuant to the Merger, on a pro rata basis, in accordance with
each Holder's percentage ownership of Acquiror Common Stock issuable pursuant
to the Merger. Such shares (the "Escrow Shares") shall be held as security for
the indemnification obligations under Article X of the Merger Agreement and
shall represent Acquiror's, Target's and the Former Target Stockholders' (as
defined in the Merger Agreement) sole and exclusive remedy with respect to such
indemnification obligations, in accordance with Section 10.1 of the Merger
Agreement.
C. The parties to this Agreement desire to establish the terms and conditions
pursuant to which the Escrow Shares will be deposited, held in, and disbursed
from the Escrow Fund.
AGREEMENT
NOW, THEREFORE, the parties to this Agreement agree as follows:
1. Escrow Fund. The Escrow Agent agrees to: (a) accept delivery of the Escrow
Shares; and (b) hold such Escrow Shares in escrow as part of the Escrow Fund,
all subject to the terms and conditions of this Agreement and Article X of the
Merger Agreement (which Article X is attached to this Agreement as Appendix I
and incorporated by reference into this Agreement) (collectively, the "Escrow
Provisions"). The Escrow Shares will include "Additional Escrow Shares" as that
term is defined in Section 2(c) of this Agreement.
2. Deposit of Escrow Shares: Release from Escrow.
(a) Delivery of Escrow Shares. As soon as practicable after the Effective
Time, but in any event within ten (10) days after the Closing, the Escrow
Shares will be delivered by Acquiror on behalf of the Holders to the Escrow
Agent. In the event Acquiror issues any Additional Escrow Shares, such Escrow
Shares will be delivered to the Escrow Agent in the same manner as the Escrow
Shares.
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(b) Holders' Accounts. The Escrow Agent will maintain for each Holder an
accounting record (each Holder's "Account") specifying the Escrow Shares held
for the record of each Holder pursuant to the Escrow Provisions. All Escrow
Shares received under Section 2(a) will be allocated to each Holder's Account
in accordance with such Holder's percentage interest in the Escrow Fund as set
forth on Appendix II.
(c) Dividends, Voting and Rights of Ownership. Except for tax-free
dividends paid in stock declared with respect to the Escrow Shares ("Additional
Escrow Shares") pursuant to Section 305(a) of the Internal Revenue Code of
1986, as amended (the "Code"), there will be distributed promptly to the
Holders any cash dividends or dividends payable in securities or other
distributions of any kind made in respect of the Escrow Shares. Each Holder
will have voting rights with respect to the Escrow Shares deposited in the
Escrow Fund with respect to such Holder so long as such Escrow Shares are held
in escrow, and Acquiror will take all reasonable steps necessary to allow the
exercise of such rights. While the Escrow Shares remain in the Escrow Agent's
possession pursuant to this Agreement and the Merger Agreement, the Holders
will retain and will be able to exercise all other incidents of ownership of
said Escrow Shares which are not inconsistent with the terms and conditions of
this Agreement and the Merger Agreement.
(d) Release. The Escrow Shares will be held by the Escrow Agent until
required to be released to the Holders pursuant to Section 10.4 of the Merger
Agreement, unless previously delivered to Acquiror pursuant to Section 10.5 of
the Merger Agreement. When the applicable release condition is met, Acquiror
and the Stockholders' Agent shall immediately notify the Escrow Agent in
writing that the available Escrow Shares should be released to the Holders.
Within two business days after the applicable release condition is met, the
Escrow Agent will deliver to each Holder the Escrow Shares to be released on
such date as identified by Acquiror and the Stockholders' Agent to the Escrow
Agent in writing. Escrow Shares will be in the form of stock certificate(s)
issued in the name of such Holder. Acquiror and Stockholders' Agent will
undertake to deliver a notice to the Escrow Agent identifying the number of
Escrow Shares to be released with respect to each Holder within such two-day
period. Escrow Shares will be released to the respective Holders in accordance
with their respective Accounts. Acquiror will take such action as may be
necessary to cause such certificates to be issued in the names of the
appropriate Holders. Cash will be paid in lieu of fractions of Escrow Shares in
an amount equal to the product determined by multiplying such fraction by
$ [equal to Closing Stock Price] (the "Per Share Value"). Within two
business days after written request from the Stockholders' Agent, Acquiror will
deposit with the Escrow Agent sufficient funds to pay such cash amounts for
fractional shares.
(e) No Encumbrance. Except as provided in this Agreement, no Escrow Shares
or any beneficial interest in the Escrow Shares may be pledged, sold, assigned
or transferred, including by operation of law, by a Holder or be taken or
reached by any legal or equitable process in satisfaction of any debt or other
liability of a Holder, prior to the delivery to such Holder of the Escrow
Shares by the Escrow Agent.
(f) Power to Transfer Escrow Shares. The Escrow Agent is granted the power
to effect any transfer of Escrow Shares contemplated by the Escrow Provisions.
Acquiror will cooperate with the Escrow Agent in promptly issuing stock
certificates to effect such transfers.
(g) Reporting. Each Holder will provide the Escrow Agent with his/her/its
Taxpayer Identification Number at or prior to Closing. On or before January 31
of each year under this Agreement, the Escrow Agent will prepare and mail to
each Holder, other than Holders who demonstrate their status as non-resident
aliens in accordance with the United States Treasury Regulations, a Form 1099-B
reporting any cash payments, in accordance with such Treasury
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Regulations. The Escrow Agent will also prepare and file copies of such Forms
1099-B by magnetic tape with the IRS, in accordance with Treasury Regulations.
If the Escrow Agent has not received notice from a Holder of such Holder's
certified Taxpayer Identification Number, the Escrow Agent shall deduct and
withhold backup withholding tax from any cash payment made pursuant to the
Internal Revenue Code of 1986 and applicable regulations thereunder. Should any
issue arise regarding federal income tax reporting or withholding, the Escrow
Agent shall act in accordance with the written instructions of the
Stockholders' Agent and Acquiror.
3. Limitation of the Escrow Agent's Liability.
(a) The Escrow Agent will incur no liability with respect to any action
taken or suffered by it in reliance upon any notice, direction, instruction,
consent, statement or other document reasonably believed by it to be genuine
and duly authorized, nor for any other action or inaction, except its own
willful misconduct, bad faith or gross negligence. The Escrow Agent will not be
responsible for the validity or sufficiency of the Escrow Provisions. In all
questions arising under the Escrow Provisions, the Escrow Agent may rely on the
advice of counsel, and for anything done, omitted or suffered in good faith by
the Escrow Agent based on such advice, the Escrow Agent will not be liable to
anyone. The Escrow Agent will not be required to take any action under the
Escrow Provisions involving any expense unless the payment of such expense is
made or provided for in a manner satisfactory to it.
(b) In the event conflicting demands are made or notices are served upon
the Escrow Agent with respect to the Escrow Fund, the Escrow Agent will have
the absolute right, at the Escrow Agent's election, to do either or both of the
following: resign so a successor can be appointed pursuant to Section 5 or file
a suit in interpleader and obtain an order from a court of competent
jurisdiction requiring the parties to interplead and litigate in such court
their several claims and rights among themselves. In the event such
interpleader suit is brought, the Escrow Agent will thereby be fully released
and discharged from all further obligations imposed upon it under the Escrow
Provisions, and Acquiror will pay the Escrow Agent (subject to reimbursement
from the Holders pursuant to Section 4) all costs, expenses and reasonable
attorney's fees expended or incurred by the Escrow Agent pursuant to the
exercise of the Escrow Agent's rights under this Section 3 (such costs, fees
and expenses will be treated as extraordinary fees and expenses for the
purposes of Section 4).
4. Expenses.
(a) Escrow Agent. All fees and expenses of the Escrow Agent incurred in the
ordinary course of performing its responsibilities hereunder, and in accordance
with the Fee Schedule attached hereto as Appendix III, will be paid by Acquiror
upon receipt of a written invoice by the Escrow Agent. Any extraordinary fees
and expenses, including without limitation any fees or expenses incurred by the
Escrow Agent in connection with a dispute over the distribution of Escrow
Shares or the validity of a claim or claims by Acquiror made in an Officer's
Certificate, will be paid by Acquiror. The Holders' liability for the
extraordinary fees and expenses of the Escrow Agent may be paid by Acquiror and
recovered as a claim hereunder out of the Escrow Fund (to the extent that such
fees and expenses, together with Acquiror's Damages, exceed the "basket" amount
set forth in Section 10.3(a) of the Merger Agreement).
(b) Stockholders' Agent. The Stockholders' Agent will not be entitled to
receive any compensation from Acquiror or the Holders in connection with this
Agreement. Any fees and expenses incurred by the Stockholders' Agent in
connection with actions taken pursuant to the terms of the Escrow Provisions
will be paid out of the Escrow Fund to the Stockholders' Agent, with the Escrow
Shares being valued at the Per Share Value.
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5. Successor Escrow Agent. In the event the Escrow Agent becomes unavailable
or unwilling to continue in its capacity as such, the Escrow Agent may resign
and be discharged from its duties or obligations hereunder by giving
resignation to the parties to this Agreement, specifying not less than thirty
(30) days' prior written notice of such a date when such resignation will take
effect. Acquiror will designate a successor Escrow Agent prior to the
expiration of such 30-day period by giving written notice to the Escrow Agent
and the Stockholders' Agent. Acquiror may appoint a successor Escrow Agent with
the consent of the Stockholders' Agent, which will not be unreasonably
withheld. The Escrow Agent will promptly transfer the Escrow Shares to such
designated successor. In the event no successor Escrow Agent is appointed as
described in this Section 5, the Escrow Agent may apply to a court of competent
jurisdiction for the appointment of a successor Escrow Agent.
6. Limitation of Responsibility: Notices. The Escrow Agent's duties are
limited to those set forth in the Escrow Provisions, and the Escrow Agent may
rely upon the written notices delivered to the Escrow Agent under the Escrow
Provisions.
7. Incorporation by Reference of Article X. The parties agree that the terms
of Article X of the Merger Agreement shall be deemed to be incorporated by
reference in this Agreement as if such Article had been set forth in its
entirety herein. The parties acknowledge that the administration of the Escrow
Fund by the Escrow Agent will require reference to both the terms of this
Agreement as well as the terms of such Article X.
8. Notices. Any notice provided for or permitted under the Escrow Provisions
will be treated as having been given when (i) delivered personally, (ii) sent
by confirmed telex or facsimile, (iii) sent by commercial overnight courier
with written verification of receipt, or (iv) five (5) business days after
being mailed postage prepaid by certified or registered mail, return receipt
requested, to the party to be notified, at the address set forth below, or at
such other place of which the other party has been notified in accordance with
the provisions of this Section 8.
Escrow Agent:
_____________________________________
_____________________________________
_____________________________________
Attention: __________________________
Facsimile No.: ( ) __________________
Telephone No.: ( ) __________________
<TABLE>
<C> <S>
Stockholders' Agent: Charles Federman
BRM Group
Parker Plaza
400 Kelby Street, Suite 1500
Fortlee, New Jersey 07024
Fax No.: (201) 541-8464
Telephone No.: (201) 585-5100
With copy to: Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, CA 94304
Attention: Michael C. Phillips
Fax No.: (650) 494-0792
Telephone No.: (650) 813-5600
</TABLE>
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<TABLE>
<C> <S>
Acquiror: Brio Technology, Inc.
3420 West Bayshore Road
Palo Alto, CA 94303
Attention: Chief Executive Officer
Fax No. (650) 856-0794
Telephone No: (650) 845-8000
With copy to: Venture Law Group
A Professional Corporation
2800 Sand Hill Road
Menlo Park, California 94025
Attention: Mark B. Weeks
Fax No.: (650) 854-1121
Telephone No.: (650) 854-4488
</TABLE>
Such notice will be treated as having been received upon actual receipt.
9. General.
(a) Governing Laws. It is the intention of the parties hereto that the
internal laws of the State of Delaware (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of
its terms, and the interpretation and enforcement of the rights and duties of
the parties to this Agreement.
(b) Binding upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained in this Agreement shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties to this Agreement. Any entity into
which the Escrow Agent may be merged or with which it may be consolidated, or
any entity to whom the Escrow Agent may transfer a substantial part of its
global escrow business, shall be the successor to the Escrow Agent without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
(c) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears on such counterpart and all of which together shall
constitute one and the same instrument. This Agreement shall become binding
when one or more counterparts of this Agreement, individually or taken
together, shall bear the signatures of all of the parties reflected in this
Agreement as signatories.
(d) Entire Agreement. Except as set forth in the Merger Agreement, this
Agreement, the documents referenced in this Agreement and the exhibits to such
documents, constitute the entire understanding and agreement of the parties to
this Agreement with respect to the subject matter of this Agreement and of such
documents and exhibits and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect to this Agreement. The express terms of
this Agreement control and supersede any course of performance or usage of the
trade inconsistent with any of the terms of this Agreement.
(e) Waivers. No waiver by any party to this Agreement of any condition or
of any breach of any provision of this Agreement will be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, will be deemed to be a further or
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continuing waiver of any such condition or breach or a waiver of any other
condition or breach of any other provision contained in this Agreement.
(f) Amendment. This Agreement may be amended with the written consent of
Acquiror, the Escrow Agent and the Stockholders' Agent, provided that if the
Escrow Agent does not agree to an amendment agreed upon by Acquiror and the
Stockholders' Agent, Acquiror will appoint a successor Escrow Agent in
accordance with Section 5.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written and will be effective as to all the Holders
when executed by Acquiror, the Escrow Agent and the Stockholders' Agent.
BRIO TECHNOLOGY, INC.
By: _________________________________
Name: _____________________________
Its: ______________________________
SQRIBE TECHNOLOGIES CORP.
By: _________________________________
Name: _____________________________
Its: ______________________________
ESCROW AGENT:
By: _________________________________
Name: _____________________________
Its: ______________________________
STOCKHOLDERS' AGENT:
__________________________________
Charles Federman
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EXHIBIT E
SUBJECT MATTER OF OPINION OF COUNSEL TO TARGET
All capitalized terms used herein and not otherwise defined have the meanings
given them in the Agreement and Plan of Merger dated as of February , 1999
(the "Merger Agreement"), by and among Brio Technology, Inc., a Delaware
corporation ("Acquiror"), Socrates Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Acquiror ("Sub"), and SQRIBE
Technologies Corp., a Delaware corporation ("Target").
(1) Target is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, has all requisite corporate
power to own, lease and operate its property and to carry on its business as
now being conducted and is duly qualified or licensed to do business and is in
good standing as a foreign corporation in the states identified on Exhibit A
hereto.
(2) The authorized capital stock of Target consists of 25,000,000 shares of
Target Common Stock and 5,368,920 shares of Target Preferred Stock, of which
2,352,940 shares are designated as Series A Preferred Stock and 3,015,980 are
designated as Series B Preferred Stock. As of the date of this Agreement, there
are: (i) [7,996,743] shares of Target Common Stock issued and outstanding, all
of which are validly issued, fully paid and nonassessable and of
which are subject to repurchase rights under the Target Option Plan and the
agreements thereunder or otherwise; (ii) 2,252,940 shares of Series A Preferred
Stock and 2,568,863 shares of Series B Preferred Stock issued and outstanding,
all of which are validly issued, fully paid and nonassessable, and all of which
are convertible into Target Common Stock in accordance with Target's Amended
and Restated Certificate of Incorporation; (iii) 5,368,920 shares of Target
Common Stock reserved for future issuance upon conversion of the Target
Preferred Stock; (iv) shares of Target Common Stock reserved for
future issuance pursuant to Target Options granted and outstanding under the
Target Option Plan or otherwise; or reserved for issuance upon exercise of
options available to be granted in the future under the Target Option Plan or
otherwise. All outstanding shares of Target Common Stock, Target Preferred
Stock and outstanding Target Options (collectively "Target Securities") were
issued in compliance with applicable federal and state securities laws. To our
knowledge, except as set forth above and in the Target Disclosure Schedule, (i)
there are no equity securities of any class or series of Target, or any
security exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding, and (ii) there are no options, warrants,
equity securities, calls, rights, commitments or agreements of any character to
which Target is a party or by which it is bound obligating Target to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of Target or obligating Target to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement. To our knowledge, and except as set forth on
the Target Disclosure Schedule, (i) there are no voting trusts, proxies or
other agreements or understandings with respect to the voting of the shares of
capital stock of Target that will not terminate at the Effective Time, and (ii)
Target does not own or control (directly or indirectly) any capital stock,
bonds or other securities of, and does not have any proprietary interest in,
any other corporation, general or limited partnership, firm, association or
business organization, entity or enterprise.
(3) Target has all requisite corporate power and authority to enter into the
Merger Agreement, the Agreement of Merger and the Escrow Agreement and to
consummate the transactions contemplated thereby. The Merger Agreement, the
Agreement of Merger and the Escrow Agreement are collectively referred to
herein as the "Opinion Documents." The execution and delivery of the Opinion
Documents and the consummation of the transactions contemplated thereby have
been duly authorized by all necessary corporate action on the part
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of Target, including the approval of the Merger and the related transactions by
Target's stockholders under the provisions of the Delaware General Corporation
Law and Target's Certificate of Incorporation and Bylaws. The Opinion Documents
have been duly and validly executed and delivered by Target and, assuming due
execution and delivery by the other parties thereto, constitute the valid and
binding obligations of Target, enforceable against Target in accordance with
their respective terms.
(4) The execution and delivery by Target of the Opinion Documents and the
consummation of the transactions contemplated thereby will not, (i) result in
any violation or breach of any provision of the Certificate of Incorporation or
Bylaws of Target, (ii) result in any material violation or material breach of,
or constitute (with or without notice or lapse of time, or both) a material
default (or give rise to a right of termination, cancellation or acceleration
of any obligation) under any of the terms, conditions or provisions of any
Material Contract or any other written contract or agreement listed in the
Target Disclosure Schedules as being an obligation of Target, or (iii) to our
knowledge, violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Target or any
of its properties or assets.
(5) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required on the part of
Target in connection with the execution and delivery of the Opinion Documents
or the consummation of the transactions contemplated thereby, except for (i)
the filing of the Agreement of Merger with the Secretary of State of the State
of Delaware, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign country, and
(iii) such other consents, authorizations, filings, approvals and registrations
which, if not obtained or made, could not be expected to have a Material
Adverse Effect on Target.
(6) To our knowledge, there is no action, proceeding or investigation pending
or threatened in writing against Target before any court or administrative
agency that questions the validity of the Merger Agreement or that, either in
any case or in the aggregate, might result in any materially adverse change in
the business or financial condition of Target or any of its properties or
assets, or in any material impairment of the right or ability of Target to
carry on its business as now conducted, or in any material liability on the
part of Target.
E-2
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EXHIBIT F
SUBJECT MATTER OF OPINION OF COUNSEL TO ACQUIROR
All capitalized terms used herein and not otherwise defined have the meanings
given them in the Agreement and Plan of Merger dated as of February , 1999
(the "Merger Agreement"), by and among Brio Technology, Inc., a Delaware
corporation ("Acquiror"), Socrates Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Acquiror ("Sub"), and SQRIBE
Technologies Corp., a Delaware corporation ("Target").
(1) Acquiror is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Acquiror has the requisite corporate power to own, lease and
operate its property and assets (in each case, as known to us) and to carry on
its business as, to our knowledge, it is now being conducted.
(2) The shares of Acquiror Common Stock issuable pursuant to the Merger to
Target stockholders and issuable upon exercise of the Target Options assumed in
the Merger are duly and validly authorized and reserved for issuance and, when
issued in accordance with the terms of the Merger Agreement and such assumed
Target Options, will be validly issued, fully paid and nonassessable.
(3) Each of Acquiror and Sub has all requisite corporate power and authority
to enter into the Merger Agreement, the Agreement of Merger and the Escrow
Agreement (to the extent each is a party), and to consummate the transactions
contemplated thereby. The Merger Agreement, the Agreement of Merger and the
Escrow Agreement are collectively referred to herein as the "Opinion
Documents." The execution and delivery of the Opinion Documents (to the extent
each is a party), and the consummation of the transactions contemplated
thereby, have been duly authorized by all necessary corporate action on the
part of Acquiror and Sub. The Opinion Documents (to the extent each is a party)
have been duly and validly executed and delivered by Acquiror and Sub and,
assuming due execution and delivery by the other parties thereto, constitute
valid and binding obligations of Acquiror and Sub, enforceable against Acquiror
and Sub in accordance with their respective terms.
(4) The execution, delivery and performance by Acquiror and Sub of the
Opinion Documents and the consummation by Acquiror and Sub of the transactions
contemplated thereby will not (i) violate any provision of the Certificate of
Incorporation or Bylaws of Acquiror or Sub, (ii) result in any material
violation or material breach of, or constitute (with or without notice or lapse
of time, or both) a material default (or give rise to a right of termination,
cancellation or acceleration of any obligation) under any of the terms,
conditions or provisions of any Acquiror Material Contract or any other written
contract or agreement listed in the Acquiror Disclosure Schedules as being an
obligation of Acquiror, or (iii) to our knowledge, violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquiror or any of its properties
or assets.
(5) No consent, approval, order, permit or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Acquiror or Sub in connection with the execution and delivery of the
Opinion Documents or the consummation by Acquiror or Sub of the transactions
contemplated thereby, except for (i) the filing of the Agreement of Merger with
the Secretary of State of the State of Delaware, (ii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and the laws of any
foreign country, and (iii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, could not be
expected to have a Material Adverse Effect on Acquiror or Sub.
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(6) To counsel's knowledge, except as set forth in the Acquiror Disclosure
Schedule or in the Acquiror Commission Reports, there is no action, proceeding
or investigation pending or threatened in writing against Acquiror or Sub
before any court or administrative agency that questions the validity of the
Merger Agreement or that, either in any case or in the aggregate, might result
in any materially adverse change in the business or financial condition of
Acquiror or any of its properties or assets, or in any material impairment of
the right or ability of Acquiror to carry on its business as now conducted, or
in any material liability on the part of Acquiror or Sub.
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EXHIBIT G
BRIO TECHNOLOGY, INC.
AMENDMENT TO RIGHTS AGREEMENT
This Amendment to Rights Agreement (this "Amendment") is entered into as of
this 24th day of February, 1999, by and among Brio Technology, Inc. (the
"Company"), a Delaware corporation, and the individuals and entities signing
this Amendment (collectively referred to herein as "Rightsholders"), for the
purpose of (i) adding certain parties (the "New Parties") as "Shareholders"
under the terms of that certain Amended and Restated Rights Agreement dated
June 27, 1997, as amended February 28, 1998 (the "Rights Agreement") by and
among the Company and the Shareholders set forth on Exhibit A attached thereto
and (ii) adding the shares of Common Stock, $0.001 par value of Brio
Technology, Inc. received by the New Parties pursuant to the terms of that
certain Agreement and Plan of Merger dated February 23, 1999 between the
Company, SQRIBE Technology, Inc. and Socrates Acquisition Corporation (the
"Merger Agreement") as "Registrable Securities" under the terms of the Rights
Agreement.
WHEREAS, pursuant to Section 6.7 of the Rights Agreement, the Rights
Agreement may be amended by the written consent of the Company and the holders
of a majority of the Registrable Securities (as defined in the Rights
Agreement) then outstanding.
NOW, THEREFORE, in consideration of the mutual conditions hereinafter set
forth, the parties hereto mutually agree as follows:
1. Addition of the New Parties. Effective (and contingent) upon the Closing
(as defined in the Merger Agreement), the persons and entities set forth on
Exhibit A hereto are hereby added as "Shareholders" under the Rights Agreement,
their names shall be added to Exhibit A to the Rights Agreement, and they shall
have all of the rights and obligations attendant to such status.
2. Amendment of Section 3.1(b)(i) of the Rights Agreement. By signing this
Waiver, the Preferred Shareholder agrees that, effective (and contingent) upon
the Closing (as defined in the Merger Agreement), Section 3.1(b)(i) of the
Rights Agreement be amended and restated in its entirety to read as follows:
"(i) the shares of Common Stock issuable or issued upon conversion of
the Series A Shares, Series B Shares or Series C Shares issued pursuant
to the Series A Agreement, the Series B Agreement or Series C
Agreement, that number of shares of Common Stock held by Yorgen Edholm,
and that number of shares of Common Stock held by Katherine Glassey as
shall be determined by such individuals and the Company's underwriters
will be included in the Registration Statement covering the initial
public offering of the Company's Common Stock, and the shares issued to
the persons set forth on Exhibit A hereto pursuant to the terms of that
certain Agreement and Plan of Merger dated February 23, 1999 between
the Company, SQRIBE Technologies, Inc. and Socrates Acquisition
Corporation (such shares of Common Stock are collectively referred to
hereafter as the "Stock"), and"
3. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
day and year first above written.
BRIO TECHNOLOGY, INC. a California corporation
RIGHTSHOLDERS:
By:____________________________
By: ___________________________
Title:_________________________
Title:_________________________
NEW PARTIES:
By:____________________________
Title:_________________________
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EXHIBIT A
Ofir Kedar
ORI ASHER KEDAR 1996 TRUST
TOM SAMUEL KEDAR 1996 TRUST
General Atlantic Partners 18, L.P.
General Atlantic Partners 43, L.P.
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APPENDIX B
[BancBoston Robertson Stephens logo]
February 19, 1999
PRIVILEGED AND CONFIDENTIAL
Board of Directors
Brio Technology, Inc.
3430 West Bayshore Rd.
Palo Alto, CA 94303
Members of the Board:
You have asked our opinion as to the fairness to Brio Technology, Inc.
("Acquiror"), from a financial point of view and as of the date hereof, of the
Exchange Ratio (as defined below) in connection with the proposed merger (the
"Merger") of a wholly owned subsidiary ("Sub") of Acquiror with and into SQRIBE
Technologies, Inc. ("Target") pursuant to the draft Agreement and Plan of
Merger, dated February 4, 1999 (the "Agreement"), among Acquiror, Sub and
Target. As more specifically set forth in the Agreement, at the effective time
of the Merger, Target will become a wholly owned subsidiary of Acquiror and
each issued and outstanding share of Target's (i) common stock, par value
$0.001 per share (the "Target Common Stock"), (ii) series A preferred stock,
par value $0.001 per share (the "Target Series A Preferred Stock"), and (iii)
series B preferred stock, par value $0.001 per share (the "Target Series B
Preferred Stock") (other than shares owned by acquiror, Sub, Target or any
other direct or indirect wholly owned Subsidiary of Acquiror or Target held in
treasury or held by Acquiror or any affiliate of the Acquiror and other than
any Dissenting Shares (as defined in the Agreement)) will be converted into the
right to receive a fraction of a share of Acquiror's common stock, no par value
per share (the "Acquiror Common Stock"), equal to the Exchange Ratio (as
defined in, and calculated pursuant to, the Agreement). As set forth in the
Agreement, the Exchange Ratio is calculated by dividing (a) the product of (i)
the total number of shares of Acquiror capital stock outstanding immediately
prior to the Effective Time (as defined in the Agreement) and (ii) 0.8181818 by
(b) the total number of shares of Target capital stock outstanding immediately
prior to the Effective Time. The terms and conditions of the Merger are set out
more fully in the Agreement.
For purposes of the opinion we have, among other things: (i) reviewed certain
financial information relating to Acquiror and Target furnished to us by the
respective companies, including certain internal financial analyses, forecasts
and projections for Acquiror and Target prepared by the respective managements
of Acquiror and Target; (ii) reviewed certain publicly available information
relating to Acquiror; (iii) held discussions with the respective managements of
Acquiror and Target concerning the businesses, past and current operations,
financial condition and future prospects of both Acquiror and Target,
independently and combined, including discussions with the managements of
Acquiror and Target concerning cost savings and synergies that are expected to
result from the Merger as well as their views regarding the strategic rationale
for the Merger; (iv) reviewed the financial terms and conditions set forth in
the Agreement, and certain related documents; (v) reviewed the stock price and
trading history of Acquiror; (vi) reviewed the contribution by each company to
pro forma combined revenue, earnings before income tax and net income; (vii)
reviewed the
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valuations of publicly traded companies which we deemed comparable to Target
and Acquiror; (viii) compares the financial terms of the Merger with the
financial terms, to the extent publicly available, of other transactions which
we deemed relevant; (ix) analyzed the pro forma earnings per share of the
combined company; (x) prepared a discounted cash flow analysis of Target; and
(xi) made such other studies and inquiries, and reviewed such other data, as we
deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by management of Acquiror and Target) or publicly
available and have neither attempted to verify, nor assumed responsibility for
verifying, any of such information. We have relied upon the assurances of
management of Acquiror and Target that they are not aware of any facts that
would make such information inaccurate or misleading. Furthermore, we did not
obtain or make, or assume any responsibility for assuming or making, an
independent evaluation or appraisal of the properties, assets or liabilities
(contingent or otherwise) of Acquiror or Target, nor were we furnished with any
such evaluation or appraisal. With respect to the financial forecasts and
projections (and the assumptions and bases therefor) for each of Acquiror and
Target that we have reviewed, upon the advice of the managements of Acquiror
and Target, we have assumed that such forecasts and projections have been
reasonably prepared in good faith on the basis of reasonable assumptions and
reflect the best available estimates and judgments of the managements of
Acquiror and Target as to the future financial condition and performance of
Acquiror and Target, respectively, and we have further assumed that such
projections and forecasts will be realized in the amounts an in the time
periods currently estimated by the respective managements of Acquiror and
Target. In this regard, we note that each of Acquiror and Target face exposure
to the year 2000 problem and are currently undergoing Year 200 projects. We
have not undertaken any independent analysis to evaluate the reliability or
accuracy of the assumptions made by the managements of Acquiror and Target with
respect to the potential effect that the year 2000 problem might have on their
respective forecasts. In addition, we have assumed that the merger will be
consummated in accordance with the terms set forth in the Agreement, including,
among other things, that the Merger will be accounted for as a "pooling-of-
interests" business combination in accordance with generally accepted
accounting principles as used in the United States ("GAAP") and the Merger will
be treated as a tax-free reorganization pursuant to the Internal Revenue Code
of 1986, as amended. We have assumed that the historical financial statements
of each of Acquiror and Target reviewed by us have been prepared and fairly
presented in accordance with GAAP consistently applied. We have relied as to
all legal matters relevant to rendering our opinion on the advice of counsel.
This opinion is necessarily based upon financial, market, economic and other
conditions as in effect on, and information made available to us as of, the
date hereof. It should be understood that subsequent developments may affect
the conclusion expressed in this opinion and that we disclaim any undertaking
or obligation to advise any person of any change in any matter affecting this
opinion which may come or be brought to our attention after the date of this
opinion. Our opinion is limited to the fairness, from a financial point of view
and as to the date hereof, to Acquiror of the Exchange Ratio. We do not express
any opinion as to (i) the value of any employee agreement or other arrangement
entered into in connection with the Merger, (ii) any tax or other consequences
that might result form the Merger or (iii) what the value of the Acquiror
Common Stock will be when issued to Target's stockholders pursuant to the
Merger or the price at which the shares of Acquiror Common Stock that are
issued pursuant to the Merger may be traded in the future. Our opinion does not
address the relative merits of the Merger and the other business strategies
that the Board of Directors of Acquiror
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has considered or may be considering, nor does it address the decision of the
Board of Directors of Acquiror to proceed with the Merger.
We have acted as financial advisor to the Board of Directors of Acquiror in
connection with this transaction and will receive a fee for our services,
including a transaction fee which is contingent upon consummation of the Merger
and a fairness opinion fee for rendering this fairness opinion. In the past,
BancBoston Robertson Stephens Inc. and its affiliates have provided financial
advisory and financing services for Acquiror, including acting as co-managing
underwriter in connection with the Acquiror's initial public offering on May 1,
1998, and have received customary fees for the rendering of such services. We
also maintain a market in the shares of Acquiror Common Stock. In the ordinary
course of our business, we and our affiliates may actively trade the debt and
equity securities of Acquiror for their own accounts and for the accounts of
customer and, accordingly, may at any time hold a long or short position in
such securities.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Acquiror only in connection with its
evaluation of the Merger. Our opinion is not intended to be and does not
constitute a recommendation to any stockholder of Acquiror as to how such
stockholder should vote, or take any other action, with respect to the Merger.
This opinion may not be summarized, described or referred to or furnished to
any party except with our express prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion
that, as of the date hereof, the Exchange Ratio is fair to Acquiror from a
financial point of view.
Very truly yours,
BancBoston Robertson Stephens Inc.
/s/ BancBoston Robertson Stephens
Inc.
B-3
<PAGE>
Appendix C
February 23, 1999
Board of Directors
Sqribe Technologies
1080 Marsh Road
Menlo Park, CA 94025
Ladies and Gentlemen:
Brio Technology, Inc. (the "Issuer"), Sqribe Acquisition Corporation, a
wholly owned subsidiary of the Issuer ("Merger Sub"), and Sqribe Technologies
(the "Company") propose to enter into an Agreement and Plan of Merger (the
"Agreement") pursuant to which Merger Sub will be merged with and into the
Company in a transaction (the "Merger") in which the shares of common stock of
the Company and preferred stock of the Company will be converted into the
right to receive in the aggregate that number of shares of the common stock of
the Issuer (the "Issuer Common Stock") equal to the product of (1) the total
number of shares of the capital stock of the Issuer outstanding immediately
prior to the effective time of the Merger calculated based on the treasury
method, (2) 0.8181818 and (3) the total number of shares of the capital stock
of the Company outstanding immediately prior to the effective time of the
Merger divided by (4) the sum of the total number of shares of the capital
stock of the Company outstanding immediately prior to the effective time
calculated on the treasury method and 30,000 (the "Merger Share Number"). In
connection with the Issuer and the Company entering into the Agreement,
stockholders holding a majority of the voting securities of each of the Issuer
and the Company are entering into voting agreement (the "Voting Agreements")
pursuant to which such stockholders are, among other things, agreeing to vote
their shares in favor of the Merger.
You have asked us whether, in our opinion, as of the date hereof, the Merger
Share Number is fair to the stockholders of the Company, taken as a whole,
from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed certain publicly available business and financial information
relating to the Issuer that we deemed relevant;
2. Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
the Company and the Issuer, furnished to us by the Company and the
Issuer;
3. Conducted discussions with members of senior management of the Company
and the Issuer concerning the matters described in clauses (1) and (2)
as well as their respective business and prospects, before and after
giving effect to the Merger;
4. Reviewed the market prices and valuation multiples for the Issuer Common
Stock and compared them with those of certain publicly traded companies
that we deemed relevant;
5. Compared the results of operations of the Company and the Issuer with
that of certain companies that we deemed relevant;
6. Compared the proposed financial terms of the transaction contemplated by
the Agreement with the financial terms of certain other mergers and
acquisitions that we deemed relevant;
1
<PAGE>
7. Reviewed the potential pro forma impact of the Merger;
8. Reviewed the drafts of the Agreement and the Voting Agreements dated
February 22, 1999;
9. Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us, discussed with us
or reviewed by us or for us, or publicly available, and we have not assumed any
responsibility for independently verifying such information or undertaken an
independent appraisal of the assets or liabilities of the Company or the Issuer
nor have we been furnished with any such appraisals. In addition, we have not
assumed any obligation to conduct, nor have we conducted, any physical
inspection of the properties or facilities of the Company or the Issuer. With
respect to the financial forecasts furnished to us or discussed with us by the
Company and the Issuer, we have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the
Company's or the Issuer's management as to the expected future financial
performance of the Company or the Issuer, as the case may be. We have further
assumed that the Merger will qualify as a tax-free reorganization for United
States federal income tax purposes and will be accounted for as a purchase
under generally accepted accounting principals. Finally, we have assumed that
neither the conduct nor the resolution or decision of the litigation involving
Business Objects and the Issuer will have a material adverse effect on the
business, earnings, cash flow, assets, liabilities or prospects of the Issuer.
Our opinion is necessarily based upon market, economic and other
considerations as they exist and can be evaluated on, and on the information
made available to us as of, the date hereof.
We will receive fees for our services in connection with delivering this
opinion. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. We have, in the past, provided
financial advisory and financing services to the Issuer and may continue to do
so and have received, and may receive, fees for the rendering of such services.
In the ordinary course of our securities business, we may actively trade debt
or equity securities of the Issuer for our own account and the accounts of our
customers, and we therefore may from time to time hold a long or short position
in such securities.
This opinion is solely for the confidential use of the Board of Directors of
the Company and will not be reproduced, summarized, described or referred to or
given to any other person with Merrill Lynch's prior written consent. Our
opinion does not address the merits of the underlying decision by the Company
to engage in the Merger.
We are not expressing any opinion as to the price at which the Issuer Common
Stock will trade following the announcement or consummation of the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Merger Share Number is fair from a financial point of
view to the stockholders of the Company, taken as a whole.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
2
<PAGE>
APPENDIX D
FORM OF PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BRIO TECHNOLOGY,
INC. FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD _________, 1999
The undersigned stockholder of Brio Technology, Inc., a Delaware corporation,
(the "Company") hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated ________, 1999, and hereby appoints
Karen Willem and Tamara MacDuff or either of them, proxies and attorneys-in-
fact, with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the Annual Meeting of Stockholders
of Brio Technology, Inc. to be held at the Crowne Plaza Cabana, Palo Alto,
located at 4290 El Camino Real in Palo Alto, California on __________,
_________, 1999, at _________, and at any adjournment or postponement thereof,
and to vote all shares of Common Stock which the undersigned would be entitled
to vote if then and there personally present, on the matters set forth on the
reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
[X] Please mark
votes as in
this example.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) TO APPROVE THE MERGER AGREEMENT AND THE MERGER;
(2) FOR THE ELECTION OF DIRECTORS; (3) TO APPROVE THE AMENDMENTS TO THE
COMPANY'S 1998 EMPLOYEE STOCK PURCHASE PLAN; (4) TO APPROVE THE AMENDMENT TO
THE COMPANY'S 1998 STOCK OPTION PLAN; (5) TO APPROVE AN AMENDMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION; (6) FOR THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS THE INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE
FISCAL YEAR ENDING MARCH 31, 2000; AND AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY COME BEFORE THE MEETING.
1. Proposal to approve the Merger Agreement and the Merger:
___ FOR ___ AGAINST ___ ABSTAIN
2. Election of Directors.
Nominees: Michael Cline, Charles Federman, Katherine Glassey, Ofir J.
Kedar, E. Floyd Kvamme
___ FOR all nominees
___ WITHHOLD from all nominees
___________________________________________
For all nominees except as noted above
3. Proposal to approve the amendments to the Company's 1998 Employee Stock
Purchase Plan.
___ FOR ___ AGAINST ___ ABSTAIN
4. Proposal to approve the amendment to the Company's 1998 Stock Option Plan.
___ FOR ___ AGAINST ___ ABSTAIN
5. Proposal to approve the amendment to the Company's Certificate of
Incorporation.
___ FOR ___ AGAINST ___ ABSTAIN
6. Proposal to ratify the appointment of Arthur Andersen LLP as the Independent
Public Accountants of the Company for the fiscal year ending March 31, 2000.
___ FOR ___ AGAINST ___ ABSTAIN
MARK HERE IF YOU PLAN TO ATTEND THE MEETING ___
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT ___
<PAGE>
and, in their discretion, upon such other matters that may properly come before
the meeting and any postponement(s) or adjournment(s) thereof.
(This Proxy should be marked, dated, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
Signature: __________________________ Date: __________________________
Signature: __________________________ Date: __________________________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
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.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1+ Agreement and Plan of Merger dated February 23, 1999 among the
Company, Socrates Acquisition Corporation and SQRIBE Technology Corp.
(included as Appendix A to the Proxy Statement/Prospectus contained in
this Registration Statement and incorporated herein by reference).
2.2+ Amendment No. 1 to Agreement and Plan of Merger dated March 24, 1999
among the Company, Socrates Acquisition Corporation and SQRIBE
Technologies Corp. (included in Exhibit 2.1).
2.3 Amendment No. 2 to Agreement and Plan of Merger dated July 2, 1999
among the Company, Socrates Acquisition Corporation and SQRIBE
Technologies Corp.
3.1 Amended and Restated Certificate of Incorporation of the Company.*
3.2 Form of Amended and Restated Certificate of Incorporation of the
Company.*
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.*
4.3 Amendment to Rights Agreement dated February 24, 1999 (included as
Appendix G to the Proxy Statement/Prospectus contained in this
Registration Statement and incorporated herein by reference).
5.1 Opinion of Venture Law Group regarding the legality of the Common
Stock being registered.
8.1 Tax Opinion of Morrison & Foerster, LLP.
8.2 Tax Opinion of Venture Law Group, A Professional Corporation.
9.1 Form of Target Voting Agreement (included as Exhibit A-1 of Appendix A
to the Proxy Statement/Prospectus included in this Registration
Statement and incorporated herein by reference).
9.2 Form of Acquiror Voting Agreement (included as Exhibit A-2 of Appendix
A to the Proxy Statement/Prospectus contained in this Registration
Statement and incorporated herein by reference).
10.1 Form of Indemnification Agreement between the Company and each of its
Officers and Directors.*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
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.*
10.12 Form of Affiliate Agreement (included as Exhibit C of Appendix A to
the Proxy Statement/Prospectus contained in this Registration
Statement and incorporated herein by reference).
10.13 Employment Agreement between the Company and Ofir Kedar.
10.14 Employment Agreement between the Company and Scott Chalmers.
10.15 Form of Employment Agreement between the Company and John Schroeder.
21.1 List of Subsidiaries.*
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
23.4 Consent of Venture Law Group (included in Exhibits 5.1 and 8.2)
23.5 Consent of Morrison & Foerster, LLP (included in Exhibit 8.1)
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.**
99.1 Form of Escrow Agreement (included as Exhibit D of Appendix A to the
Proxy Statement/Prospectus contained in this Registration Statement
and incorporated herein by reference).
99.2 Form of Proxy Card (included as Appendix D to the Proxy
Statement/Prospectus contained in this Registration Statement and
incorporated herein by reference)
</TABLE>
- --------
* Incorporated by reference to identically numbered exhibits filed with the
Company's Registration Statement on Form S-1 (No. 333-47263) and amendments
thereto, which became effective April 30, 1998.
** Incorporated by reference to identically numbered exhibit filed with the
Company's Annual Report on Form 10-K filed on June 29, 1999.
+ Previously filed.
(b) Financial Statement Schedules
Report of Independent Public Accountants on Schedule S-1
Schedule II-Valuation and Qualifying AccountsS-2
Item 22. Undertakings
A. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of
II-2
<PAGE>
the Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
B. The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
C. The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (B) immediately proceeding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, as amended, each such post-effective
amendment 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.
D. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, 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.
E. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
F. The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palo Alto, State of
California, on July 6, 1999.
Brio Technology, Inc.
/s/ Yorgen H. Edholm
By___________________________________
Yorgen H. Edholm President and
Chief Executive Officer
BRIO TECHNOLOGY, INC.
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Yorgen H. Edholm and Karen J. Willem each of
them, his or her true and lawful attorneys-in-fact and agents with full power
of substitution andresubstitution, for him and in his name, place and stead, in
any and allcapacities, to sign any and all amendments (including post-effective
amendments) to this registration statement and to file the same with all
exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Yorgen H. Edholm President and Chief July 6, 1999
____________________________________ Executive Officer and
Yorgen H. Edholm Chairman of the Board of
Directors (Principal
Executive Officer)
/s/ Karen J. Willem Chief Financial Officer July 6, 1999
____________________________________ (Principal Financial and
Karen J. Willem Accounting Officer)
/s/ Katherine Glassey Director July 6, 1999
____________________________________
Katherine Glassey
/s/ E. Floyd Kvamme Director July 6, 1999
____________________________________
E. Floyd Kvamme
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bernard J. Lacroute Director July 6, 1999
____________________________________
Bernard J. Lacroute
/s/ Director
____________________________________
Norman Vincent
/s/ Mark B. Weeks Director July 6, 1999
____________________________________
Mark B. Weeks
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Stockholders 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 April 19, 1999. 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
April 19, 1999
S-1
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
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, 1997:
Allowance for returns and doubtful
accounts........................... $249,000 $346,000 $224,000 $371,000
Year ended March 31, 1998:
Allowance for returns and doubtful
accounts........................... $371,000 $469,000 $289,000 $551,000
Year ended March 31, 1999:
Allowance for returns and doubtful
accounts........................... $551,000 $390,000 $259,000 $682,000
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1+ Agreement and Plan of Merger dated February 23, 1999 among the
Company, Socrates Acquisition Corporation and SQRIBE Technology Corp.
(included as Appendix A to the Proxy Statement/Prospectus contained in
this Registration Statement and incorporated herein by reference).
2.2+ Amendment No. 1 to Agreement and Plan of Merger dated March 24, 1999
among the Company, Socrates Acquisition Corporation and SQRIBE
Technologies Corp. (included in Exhibit 2.1).
2.3 Amendment No. 2 to Agreement and Plan of Merger dated July 2, 1999
among the Company, Socrates Acquisition Corporation and SQRIBE
Technologies Corp.
3.1 Amended and Restated Certificate of Incorporation of the Company.*
3.2 Form of Amended and Restated Certificate of Incorporation of the
Company.*
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.*
4.3 Amendment to Rights Agreement dated February 24, 1999 (included as
Appendix G to the Proxy Statement/Prospectus contained in this
Registration Statement and incorporated herein by reference).
5.1 Opinion of Venture Law Group regarding the legality of the Common
Stock being registered.
8.1 Tax Opinion of Morrison & Foerster, LLP.
8.2 Tax Opinion of Venture Law Group, A Professional Corporation.
9.1 Form of Target Voting Agreement (included as Exhibit A-1 of Appendix A
to the Proxy Statement/Prospectus included in this Registration
Statement and incorporated herein by reference).
9.2 Form of Acquiror Voting Agreement (included as Exhibit A-2 of Appendix
A to the Proxy Statement/Prospectus contained in this Registration
Statement and incorporated herein by reference).
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.*
10.12 Form of Affiliate Agreement (included as Exhibit C of Appendix A to
the Proxy Statement/Prospectus contained in this Registration
Statement and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.13 Employment Agreement between the Company and Ofir Kedar.
10.14 Employment Agreement between the Company and Scott Chalmers.
10.15 Form of Employment Agreement between the Company and John Schroeder.
21.1 List of Subsidiaries.*
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
23.4 Consent of Venture Law Group (included in Exhibits 5.1 and 8.2)
23.5 Consent of Morrison & Foerster, LLP (included in Exhibit 8.1)
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.**
99.1 Form of Escrow Agreement (included as Exhibit D of Appendix A to the
Proxy Statement/Prospectus contained in this Registration Statement
and incorporated herein by reference).
99.2 Form of Proxy Card (included as Appendix D to the Proxy
Statement/Prospectus contained in this Registration Statement and
incorporated herein by reference)
</TABLE>
- --------
* Incorporated by reference to identically numbered exhibits filed with the
Company's Registration Statement on Form S-1 (No. 333-47263) and amendments
thereto, which became effective April 30, 1998.
** Incorporated by reference to identically numbered exhibit filed with the
Company's Annual Report on Form 10-K filed on June 29, 1999.
+ Previously filed.
<PAGE>
EXHIBIT 2.3
AMENDMENT NO. 2
---------------
TO AGREEMENT AND PLAN OF MERGER
-------------------------------
THIS AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER dated as of July 2, 1999
(this "Agreement"), is entered into by and among Brio Technology, Inc., a
Delaware corporation ("Acquiror"), Socrates Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Acquiror ("Sub"), and SQRIBE
Technologies Corp., a Delaware corporation ("Target").
RECITALS
--------
A. Acquiror, Sub and Target have entered into an Agreement and Plan of
Merger dated February 23, 1999, as amended March 24, 1999 (the "Merger
Agreement");
B. Acquiror, Sub and Target each desire to amend the Merger Agreement as
provided herein;
C. Section 11.8 of the Merger Agreement provides that the Merger
Agreement may be amended by written consent of the parties thereto;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
Merger Agreement is amended as follows:
1. Amendment. Section 2.1(c) of the Merger Agreement is hereby amended
---------
to read in its entirety as follows:
"(a) Exchange Ratio.
--------------
(i) Subject to Sections 2.2 and 2.4, each issued and
outstanding share of Target Common Stock, each issued and outstanding share of
Target Series A Preferred Stock (after giving effect to any adjustments in
respect of liquidation preference, if applicable) and each issued and
outstanding share of Target Series B Preferred Stock (other than shares to be
canceled in accordance with Section 2.1(b) and any Dissenting Shares as
defined in and to the extent provided in Section 2.3) shall be converted into
the right to receive a number of shares of Acquiror Common Stock ("Acquiror
Common Stock") equal to the quotient obtained by dividing:
(A) the product obtained by multiplying
(1) total number of shares of Acquiror capital
stock outstanding immediately prior to the Effective Time (which, for the
purposes of this calculation shall be deemed to equal the sum of (i) the
number of shares of capital stock of Acquiror outstanding at the Effective
Time, assuming exercise of all outstanding options and warrants to purchase
shares of capital stock of Acquiror and conversion of all securities
convertible into shares of capital stock of Acquiror, as the same shall be
calculated using the Treasury Method (defined below), but excluding options
issued following February 23, 1999 (and any shares of capital stock of
Acquiror issued on exercise of such options) plus (ii) fifty-five percent
(55%) of the aggregate number of shares of capital stock issuable pursuant to
options to purchase shares of capital stock granted by Acquiror and Target
during the period from February 24, 1999 through the
-1-
<PAGE>
Effective Time (without giving effect to any exercise of such options), as the
same shall be calculated using the Treasury Method) by
(2) 0.8181818, by
(B) the sum obtained by adding (x) the total number of
shares of Target capital stock outstanding immediately prior to the Effective
Time (which, for the purposes of this calculation shall be deemed to equal the
sum of (i) the number of shares of capital stock of Target outstanding at the
Effective Time, assuming exercise of all outstanding options and warrants to
purchase shares of capital stock of Target and conversion of all securities
convertible into shares of capital stock of Target, as the same shall be
calculated using the Treasury Method, but excluding options issued following
February 23, 1999 (and any shares of capital stock of Target issued on
exercise of such options), plus (ii) forty-five percent (45%) of the aggregate
number of shares of capital stock issuable pursuant to options to purchase
shares of capital stock granted by Acquiror and Target during the period from
February 24, 1999 through the Effective Time (without giving effect to any
exercise of such options), as the same shall be calculated using the Treasury
Method), plus (y) 30,000 (the "Exchange Ratio").
"Treasury Method" means an operation pursuant to which a number of
shares issuable upon exercise of options and warrants is determined by
subtracting from the total number of shares issuable upon exercise of options
and warrants issued by a party a number of shares obtained by dividing (1) the
aggregate consideration to be received by a party upon exercise of the total
number of shares issuable upon exercise of options and warrants and other
convertible securities issued by such party by (2) the Closing Stock Price.
All such shares of Target Common Stock, Series A Preferred Stock and
Series B Preferred Stock, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of Acquiror
Common Stock and any cash in lieu of fractional shares of Acquiror Common Stock
to be issued or paid in consideration therefor upon the surrender of such
certificate in accordance with Section 2.4, without interest. The Exchange
Ratio shall not change as a result of fluctuations in the market price of
Acquiror Common Stock between the date of this Agreement and the Effective Time,
except as may be required by the Treasury Method.
2. Definitions. All capitalized terms used herein without definition
-----------
shall have the meanings ascribed to them in the Merger Agreement.
3. Effect of Amendment. Except as amended as set forth above, the Merger
-------------------
Agreement shall continue in full force and effect.
4. Counterparts. This Amendment may be executed in counterparts.
------------
-2-
<PAGE>
IN WITNESS WHEREOF, Acquiror, Sub and Target have caused this Amendment No.
2 to Agreement and Plan of Merger to be signed by their respective officers
thereunto duly authorized as of the date first written above.
BRIO TECHNOLOGY, INC.
By: /s/ Karen J. Willem
-------------------------------
Title: Chief Financial Officer
----------------------------
SOCRATES ACQUISITION CORPORATION
By: /s/ Karen J. Willem
-------------------------------
Title: Chief Financial Officer
----------------------------
SQRIBE TECHNOLOGIES CORP.
By: /s/ Ofir J. Kedar
-------------------------------
Title: President
----------------------------
-3-
<PAGE>
Exhibit 5.1
[VENTURE LAW GROUP LETTERHEAD]
July 6,1999
Brio Technology, Inc.
3460 West Bayshore Road
Palo Alto, CA 94303
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 filed by you with the
Securities and Exchange Commission (the "Commission") on July , 1999 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of that certain number of shares of your
Common Stock (the "Shares") to be issued as a result of the transaction
contemplated by that certain Agreement and Plan of Merger dated as of February
23, 1999 among you, Socrates Acquisition Corporation and SQRIBE Technologies
Corp. 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 issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares when issued in the manner
described in the Registration Statement will be legally and validly issued,
fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to said Registration
Statement, and further consent to the use of our name wherever appearing in
said Registration Statement, including the prospectus/proxy statement
constituting a part thereof, and in any amendment thereto.
Very truly yours,
/s/ Venture Law Group
---------------------
Venture Law Group
<PAGE>
Exhibit 8.1
[MORRISON & FOERSTER LLP letterhead]
July 2, 1999
SQRIBE Technologies Corp.
500 Saginaw Drive
Redwood City, CA 94063
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 8.3(d) of
the Agreement and Plan of Reorganization (the "Agreement") dated as of February
23, 1999, by and among SQRIBE Technologies, Inc., a Delaware corporation (the
"Company"), Brio Technologies, Inc., a Delaware corporation ("Parent") and
Socrates Acquisition Corp., a Delaware corporation and wholly-owned subsidiary
of Brio ("Merger Sub"). Pursuant to the Agreement, Merger Sub will merge with
and into the Company (the "Merger") and the Company will be the Surviving
Company in the Merger. As a result of the Merger, each issued and outstanding
share of common stock of the Company will be converted into common stock of
Parent, and the Company will become a wholly-owned subsidiary of Parent.
The Agreement is described in the Registration Statement filed by
Parent with the Securities and Exchange Commission (the "Registration
Statement"), dated as of July 6, 1999. Unless otherwise indicated, any
capitalized terms used herein and not otherwise defined have the meaning
ascribed to them in the Agreement.
We have acted as legal counsel to the Company in connection with the
Merger. As such, and for purposes of rendering this opinion, we have examined
(or will examine on or prior to the Effective Date) and are familiar with the
Agreement, the Proxy Statement-Prospectus and such other presently existing
documents, records and matters of law as we have deemed necessary or appropriate
in connection with rendering this opinion.
1
<PAGE>
Sqribe Technologies, Inc.
July 2, 1999
Page 2
In addition, we have assumed (i) that the Merger will be consummated
in accordance with the provisions of the Agreement and as contemplated by the
Registration Statement, (ii) the truth and accuracy, on the date of the
Agreement and on the date hereof, of the representations and warranties made by
the Company and Parent in the Agreement, (iii) the truth and accuracy of the
representations made to us by the Company and Parent in their respective letters
to us dated July 2, 1999, and delivered to us for purposes of this opinion and
(iv) that any representation made "to the knowledge" or similarly qualified is
correct without such qualification.
The conclusion expressed herein represents our judgment of the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, rulings and other pronouncements of the Internal
Revenue Service (the "IRS") currently in effect, and judicial decisions, all of
which are subject to change, prospectively or retroactively. No assurance can
be given that such changes will not take place, or that such changes would not
affect the conclusion expressed herein. Furthermore, our opinion represents
only our best judgment of how a court would conclude if presented with the
issues addressed herein and is not binding upon either the IRS or any court.
Thus, no assurance can be given that a position taken in reliance on our opinion
will not be challenged by the IRS or rejected by a court.
Our opinion relates solely to the tax consequences of the Merger under
the federal income tax laws of the United States, and we express no opinion (and
no opinion should be inferred) regarding the tax consequences of the Merger
under the laws of any other jurisdiction. This opinion addresses only the
specific issue set forth below, and does not address any other tax consequences
that may result from the Merger or any other transaction (including any
transaction undertaken in connection with the Merger).
No opinion is expressed as to any transaction other than the Merger as
described in the Agreement or as to any transaction whatsoever, including the
Merger, if all of the transactions described in the Agreement are not
consummated in accordance with the terms of the Agreement and without waiver or
breach of any material provision thereof, or if all the representation,
warranties, statements and assumptions upon which we rely are not true and
accurate at all relevant times. In the event any one of the statements,
representations, warranties or assumptions upon which we rely to issue this
opinion is incorrect, our opinion might be adversely affected and may not be
relied upon.
Based upon and subject to the foregoing, we are of the opinion that
the Merger will constitute a reorganization within the meaning of Section 368(a)
of the
2
<PAGE>
Sqribe Technologies, Inc.
July 2, 1999
Page 3
Code, and each of Parent, Merger Sub and the Company will be a party to the
reorganization within the meaning of Section 368(b) of the Code.
This opinion is intended solely for your benefit and for the benefit
of your shareholders; it may not be relied upon for any other purpose or by any
other person or entity, and may not be made available to any other person or
entity without our prior written consent.
We hereby consent to the use of our name under the caption "THE
MERGERFederal Income Tax Considerations" in the Registration Statement and to
the filing of this opinion as an Exhibit to the Registration Statement. In
giving this consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Morrison & Foerster LLP
3
<PAGE>
EXHIBIT 8.2
July 2, 1999
Brio Technology, Inc.
3460 W. Bayshore Road
Palo Alto, CA 94303
Ladies and Gentlemen:
We have acted as counsel for Brio Technology, Inc., a Delaware corporation
("Parent"), in connection with the preparation and execution of the Agreement
and Plan of Merger dated as of February 23, 1999, by and among Parent, Socrates
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), and Sqribe Technologies, Inc., a Delaware corporation
(the "Company"). Pursuant to the Agreement, Merger Sub will merge with and into
the Company (the "Merger"), and the Company will become a wholly owned
subsidiary of Parent. Unless otherwise defined, capitalized terms referred to
herein have the meanings set forth in the Agreement. All section references,
unless otherwise indicated, are to the Internal Revenue Code of 1986, as
amended (the "Code").
You have requested our opinion regarding certain United States federal income
tax consequences of the Merger. In delivering this opinion, we have reviewed
and relied upon (without any independent investigation) the facts, statements,
descriptions and representations set forth in the Agreement (including
Exhibits), the registration statement on Form S-4 filed with the Securities and
Exchange Commission (which includes a proxy statement-prospectus relating to
the Merger) (the "Registration Statement"), and such other documents pertaining
to the Merger as we have deemed necessary or appropriate. We have also relied
upon (without any independent investigation) certificates of officers of Parent
and the Company, respectively (the "Officers' Certificates") in forms attached
hereto.
In connection with rendering this opinion, we have assumed (without any
independent investigation) that:
1. At all relevant times prior to and including the Effective Date, (i)
no outstanding indebtedness of the Company, Parent, or Merger Sub has or
will represent equity for tax purposes; (ii) no outstanding equity of the
Company, Parent, or Merger Sub has represented or will represent
indebtedness for tax purposes; (iii) no outstanding security, instrument,
agreement or arrangement that provides for, contains, or represents either
a right to acquire the Company's capital stock (or to share in the
appreciation thereof) constitutes or will constitute "stock" for purposes
of Section 368(c) of the Code.
2. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has
been (or will be by the Effective Time) due execution and delivery of all
documents where due execution and delivery are prerequisites to
effectiveness thereof.
3. Any representation or statement referred to above made "to the
knowledge of," "to the best of the knowledge" or otherwise similarly
qualified is correct without such qualification. As to all matters in which
a person or entity making a representation referred to above has
represented that such person or entity either is not a party to, does not
have, or is not aware of, any plan, intention, understanding or agreement,
there is in fact no such plan, intention, understanding or agreement.
4. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us are true and
correct in all material respects and will continue to be true and correct
in all material respects as of the Effective Time and all other relevant
times, and no actions have been (or will be) taken which are inconsistent
with such representations.
<PAGE>
Brio Technology, Inc.
July 2, 1999
Page 2
5. The Merger will be reported by Parent and the Company on their
respective federal income tax returns in a manner consistent with the
opinion set forth below.
6. The Merger will be consummated in accordance with the Agreement (and
without any waiver, breach or amendment of any of the provisions thereof)
and will be effective under the applicable state laws.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein and in
the Registration Statement, we are of the opinion that if the Merger is
consummated in accordance with the provisions of the Agreement (and without any
waiver, breach or amendment of any of the provisions thereof) and the
statements set forth in the Officers' Certificates are true and correct as of
the Effective Time, none of Parent, Merger Sub or Parent's Stockholders will
recognize any gain or loss for US federal income tax purposes solely as a
result of the Merger.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of
the conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion concerning certain of the U.S. federal tax consequences of the
Merger is limited to the specific U.S. federal tax consequences presented
above, and does not address any other federal, state, local or foreign tax
consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger).
No opinion is expressed as to any transaction other than the Merger as
described in the Agreement or to any transaction whatsoever, including the
Merger, if all the transactions described in the Agreement are not consummated
in accordance with the terms of such Agreement and without waiver or breach of
any material provision thereof or if all of the representations, warranties,
statements and assumptions upon which we relied are not true and accurate at
all relevant times. In the event any one of the statements, representations,
warranties or assumptions upon which we have relied to issue this opinion is
incorrect, our opinion might be adversely affected and may not be relied upon.
We consent to the use of this opinion as an exhibit to the Registration
Statement, to references to this opinion in the Registration Statement and to
the use of our name in the Registration Statement under the heading "Material
Federal Income Tax Consequences" therein. In giving this consent, we do not
admit that we are within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules or
regulations promulgated thereunder. The filing of this opinion as an exhibit to
the S-4 Registration Statement and the references to the opinion and our firm
therein are not intended to create liability under applicable state law to any
person other than Parent and Merger Sub, our clients.
Very truly yours,
/s/ Venture Law Group
-----------------------
VENTURE LAW GROUP
A Professional Corporation
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is dated as of February 23,
---------
1999, by and between Ofir Kedar ("Employee") and Brio Technology, Inc., a
--------
Delaware corporation (the "Company").
-------
RECITALS
--------
This Agreement is entered into in connection with and is ancillary to an
Agreement and Plan of Merger (the "Merger Agreement") dated as of February __,
----------------
1999 among the Company, SQRIBE Technologies Corp., a Delaware corporation
("Target") and Socrates Acquisition Corporation, a Delaware corporation and a
------
wholly owned subsidiary of Acquiror ("Sub"), pursuant to which Sub will merge
---
with and into the Company (the "Merger"). The date on which the Merger becomes
------
effective will be the effective date of this Agreement (the "Effective Date").
--------------
Employee is an officer, director and principal stockholder of Target. The
Company intends to continue the business of Target after the Merger and
integrate such business into the Company's ongoing business. To preserve and
protect the assets of Target, including Target's goodwill, customers and trade
secrets of which Employee has and will have knowledge in Employee's role as an
employee of the Company and to preserve and protect the Company's goodwill and
business interests going forward, and in consideration for the Company's
entering into and performing under the Merger Agreement, Employee has agreed to
enter into this Agreement.
In addition, as required by Section 8 below, Employee is concurrently
herewith entering into a Confidentiality Agreement in favor of the Company
designed to protect the Company's proprietary rights.
AGREEMENT
---------
In consideration of the mutual promises, agreements, warranties and
provisions contained in this Agreement, the parties agree as follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
-----------------
and, except for covenants, which by their terms have a longer period of
effectiveness, shall have a term of one (1) year (the "Original Term"). This
-------------
Agreement may be terminated by either party, with or without cause, as provided
in Section 5. This Agreement may be extended for an additional one (1) year
after the end of the Original Term if the parties mutually agree in writing to
such extension.
2. Duties.
------
(a) Position. Employee will serve as Chairman of the Board of
--------
Directors, shall be employed as Executive Vice President, Business Development,
will have responsibility for corporate and business development and will report
to the Company's Chief Executive Officer.
(b) Obligations to the Company. Employee agrees to the best of his
--------------------------
ability and experience that he will at all times loyally and conscientiously
perform all of the duties and obligations required of and from Employee pursuant
to the express and implicit terms hereof, and to the reasonable satisfaction of
the Company. During the term of Employee's employment with the Company, Employee
will not engage in any other employment, occupation, or business activity
directly related to the business of the Company and will not compete with the
Company or assist others in competing with the Company in any way. Employee
will not serve as a director, officer, employee, or consultant of any person or
<PAGE>
entity providing products and/or services that would substitute for or replace
those of the Company and agrees not to purchase or own any shares or interest in
any business providing products and/or services that would substitute for or
replace those of the Company, except Employee may own fewer than one percent
(1%) of the outstanding voting shares in a publicly traded corporation. Nothing
in this Agreement will prevent Employee from accepting speaking or presentation
engagements in exchange for honoraria, from serving on boards of charitable
organizations or companies which do not compete directly or indirectly with the
Company, or making investments in companies which do not compete directly or
indirectly with the Company. Employee will comply with and be bound by the
Company's operating policies, procedures and practices from time to time in
effect during the term of Employee's employment.
3. At-Will Employment. The Company and Employee acknowledge that
------------------
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, damages, award or compensation other than as expressly
provided in this Agreement. The rights and duties created by this Section 3 may
not be modified in any way except by a written agreement executed by the Chief
Executive Officer of the Company.
4. Compensation. For the duties and services to be performed by Employee
------------
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, bonus and other benefits described below in this Section 4.
(a) Salary. Employee shall receive a monthly salary of $16,666.66,
------
which is equivalent to $200,000 on an annualized basis. Employee's monthly
salary will be payable pursuant to the Company's normal payroll practices.
Employee's salary shall be reviewed on at least an annual basis, and any
increase will be effective as of the date determined appropriate by the Board,
its Compensation Committee or the Chief Executive Officer; provided that at no
time will Employee's salary and bonus, in the aggregate, be less than 90% of the
salary and bonus payable to the Company's Chief Executive Officer.
(b) Bonus. Employee shall be entitled to receive an annual bonus of
-----
$70,000 (the "Bonus"), which will be earned upon the achievement of performance
-----
objectives to be determined by mutual agreement between Employee and the
Company.
(c) Additional Benefits. Employee will be eligible to participate in
-------------------
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law. Employee will be eligible for vacation and sick
leave in accordance with the policies in effect during the term of this
Agreement and will receive such other benefits as the Company generally provides
to its other employees of comparable position and experience.
(d) Reimbursement of Expenses. Employee shall be authorized to incur
-------------------------
on behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are approved and substantiated
in accordance with Company policies.
-2-
<PAGE>
5. Termination of Employment and Severance Benefits.
------------------------------------------------
(a) Termination of Employment. This Agreement may be terminated
-------------------------
during its Original Term (or any extension thereof) upon the occurrence of any
of the following events and following notice to the non-terminating party:
(i) The Company's determination in good faith that it is
terminating Employee for Cause (as defined in Section 6 below) ("Termination
-----------
for Cause");
- ---------
(ii) The Company's determination that it is terminating Employee
without Cause, which determination may be made by the Company at any time at the
Company's sole discretion, for any or no reason ("Termination Without Cause");
-------------------------
(iii) The effective date of a written notice sent to the Company
from Employee stating that Employee is electing to terminate his or her
employment with the Company ("Voluntary Termination");
---------------------
(iv) A change in Employee's status such that a Constructive
Termination (as defined in Section 5(b)(iv) below) has occurred; or
(v) Following Employee's death or Disability (as defined in
Section 7 below).
(b) Severance Benefits. Employee shall be entitled to receive
------------------
severance benefits upon termination of employment only as set forth in this
Section 5(b):
(i) Voluntary Termination. If Employee's employment
---------------------
terminates by Voluntary Termination, then Employee shall not be entitled to
receive payment of any bonus or severance benefits. Employee will receive
payment(s) for all salary, pro-rated commissions and unpaid vacation accrued
as of the date of Employee's termination of employment and Employee's benefits
will be continued under the Company's then existing benefit plans and policies
in accordance with such plans and policies in effect on the date of
termination and in accordance with applicable law.
(ii) Involuntary Termination. If Employee's employment is
-----------------------
terminated under Section 5(a)(ii) or 5(a)(iv) above (such termination, an
"Involuntary Termination"), Employee will be entitled to receive on the
-----------------------
effective date of such termination a cash payment equal to six (6) months
salary, less applicable withholding. In partial consideration for such
payment, at the Company's request Employee shall continue to provide services
for a period of up to six (6) weeks following the effective date of such
termination. Employee will receive payment(s) for all salary, pro-rated bonus
and unpaid vacation accrued as of the date of Employee's termination of
employment and Employee's benefits will be continued under the Company's then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of termination and in accordance with applicable law.
(iii) Termination for Cause. If Employee's employment is
---------------------
terminated for Cause, then Employee shall not be entitled to receive any
further payment of any bonus or any severance benefits. Employee will receive
payment(s) for all salary, pro-rated bonus and unpaid vacation accrued as of
the date of Employee's termination of employment and Employee's benefits will
be continued under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination
and in accordance with applicable law.
-3-
<PAGE>
(iv) Constructive Termination. "Constructive Termination"
------------------------ ------------------------
shall be deemed to occur if (A)(1) there is a material adverse change in
Employee's position causing such position to be of materially reduced stature
or responsibility; (2) a reduction of more than 20% of Employee's base
compensation unless in connection with similar decreases of other similarly
situated employees of the Company, or (3) Employee's refusal to relocate to a
facility or location that is more than fifty (50) miles from Palo Alto,
California, and (B) within the 30-day period immediately following such
material change or reduction Employee elects to terminate his or her
employment voluntarily.
(v) Termination by Reason of Death or Disability. In the
--------------------------------------------
event that Employee's employment with the Company terminates as a result of
Employee's death or Disability (as defined in Section 7 below), Employee or
Employee's estate or representative will receive at the time of such
termination all salary, pro-rated commissions and unpaid vacation accrued as
of the date of Employee's death or Disability, and any other benefits payable
under the Company's then existing benefit plans and policies in accordance
with such plans and policies in effect on the date of death or Disability and
in accordance with applicable law.
6. Definition of Cause. For purposes of this Agreement, "Cause" for
------------------- -----
Employee's termination will exist at any time after the happening of one or more
of the following events:
(a) Employee's willful misconduct or gross negligence in performance
of his or her duties hereunder, including Employee's refusal to comply in any
material respect with the legal directives of Employees' direct supervisor, the
Company's Chief Executive Officer or the Board of Directors so long as such
directives are not inconsistent with the Employee's position and duties, and
such refusal to comply is not remedied within 10 working days after written
notice from the Company, which written notice shall state that failure to remedy
such conduct may result in Termination for Cause;
(b) Fraudulent conduct, a deliberate attempt to do an injury to the
Company, or conduct that materially discredits the Company or is materially
detrimental to the reputation of the Company, including conviction of a felony;
or
(c) Employee's material breach of any element of the Company's
Confidential Information and Invention Assignment Agreement, including without
limitation, Employee's theft or other misappropriation of the Company's
proprietary information.
7. Definition of Disability. For purposes of this Agreement, "Disability"
------------------------ ----------
shall mean that Employee has been unable to perform his or her duties hereunder
as the result of his or her incapacity due to physical or mental illness, and
such inability, which continues for at least 120 consecutive calendar days or
150 calendar days during any consecutive twelve-month period, if shorter, after
its commencement, is determined to be total and permanent by a physician
selected by the Company and its insurers and acceptable to Employee or to
Employee's legal representative (with such agreement on acceptability not to be
unreasonably withheld).
8. Confidentiality Agreement. Employee shall sign, or has signed, a
-------------------------
Confidential Information and Invention Assignment Agreement (the
"Confidentiality Agreement") substantially in the form attached hereto as
-------------------------
Exhibit A. Employee hereby represents and warrants to the Company that he or
- ---------
she has complied with all obligations under the Confidentiality Agreement and
agrees to continue to abide by the terms of the Confidentiality Agreement and
further agrees that the provisions of the Confidentiality Agreement shall
survive any termination of this Agreement or of Employee's employment
relationship with the Company.
-4-
<PAGE>
9. Noncompetition Covenant. Until the earlier of (i) three (3) years from
-----------------------
the date of this Agreement and (ii) one year following termination of his
employment for any reason (the "Non-Compete Period"), Employee hereby agrees
------------------
that he shall not do any of the following without the prior written consent of
the Company's Chief Executive Officer or Board of Directors:
(a) Compete. Carry on any sales, marketing or development business or
-------
activity (whether directly or indirectly, as a partner, stockholder, principal,
agent, director, affiliate, employee or consultant) which is competitive with
the Company's then primary products, nor engage in any other activities that
conflict with Employee's obligations to the Company; provided that nothing in
this Agreement will prevent Employee from from serving on boards of charitable
organizations or of companies which do not compete directly or indirectly with
the Company, or making investments in companies which do not compete directly or
indirectly with the Company.
(b) Solicit Business. Solicit or influence or attempt to influence
----------------
any client, customer or other person either directly or indirectly, to direct
his or its purchase of the Company's products and/or services to any person,
firm, corporation, institution or other entity in competition with the Company's
products.
(c) Solicit Personnel. During the Non-Compete Period, solicit or
-----------------
influence or attempt to influence any person employed by the Company to
terminate or otherwise cease his employment with the Company or become an
employee of any competitor of the Company.
10. Conflicts. Employee represents that his performance of all the terms
---------
of this Agreement will not breach any other agreement to which Employee is a
party. Employee has not, and will not during the term of this Agreement, enter
into any oral or written agreement in conflict with any of the provisions of
this Agreement.
11. Successors. Any successor to the Company (whether direct or indirect
----------
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agrees expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
12. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. Employee shall not be required to mitigate
-------------------
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor, except as otherwise provided in this
Agreement, shall any such payment be reduced by any earnings that Employee may
receive from any other source.
(b) Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of the parties.
(c) Sole Agreement. This Agreement, including any Exhibits hereto,
--------------
and the Merger Agreement, including any Exhibits thereto, constitutes the sole
agreements of the parties and supersedes all oral negotiations and prior
writings with respect to the subject matter hereof and thereof.
-5-
<PAGE>
(d) Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon receipt, when
delivered personally or by a nationally-recognized delivery service (such as
Federal Express or UPS), or 48 hours after being deposited in the U.S. mail as
certified or registered mail with postage prepaid, if such notice is addressed
to the party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(e) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(f) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(g) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
(h) Arbitration. Any dispute or claim arising out of or in
-----------
connection with this Agreement will be finally settled by binding arbitration
in San Mateo, California in accordance with the rules of the American
Arbitration Association by one arbitrator appointed in accordance with said
rules. The arbitrator shall apply California law, without reference to rules
of conflicts of law or rules of statutory arbitration, to the resolution of
any dispute. Judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. Notwithstanding the foregoing, the
parties may apply to any court of competent jurisdiction for preliminary or
interim equitable relief, or to compel arbitration in accordance with this
paragraph, without breach of this arbitration provision. This Section 12(h)
shall not apply to the Confidentiality Agreement.
(i) Advice of Counsel. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES
-----------------
THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK
THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE
TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED
AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
[Signature Page Follows]
-6-
<PAGE>
The parties have executed this Agreement the date first written above.
BRIO TECHNOLOGY, INC.
By:____________________________
Title:_________________________
Address: 3460 West Bayshore
Palo Alto, CA 94303
OFIR KEDAR
Signature:_____________________
Address:_______________________
_______________________
-7-
<PAGE>
EXHIBIT A
---------
CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
-8-
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is dated as of July 1, 1999,
---------
by and between Scott Chalmers ("Employee") and Brio Technology, Inc., a Delaware
--------
corporation (the "Company").
-------
RECITALS
--------
This Agreement is entered into in connection with and is ancillary to an
Agreement and Plan of Merger (the "Merger Agreement") dated as of February 23,
----------------
1999 among the Company, SQRIBE Technologies Corp., a Delaware corporation
("Target") and Socrates Acquisition Corporation, a Delaware corporation and a
- --------
wholly owned subsidiary of Acquiror ("Sub"), pursuant to which Sub will merge
---
with and into the Company (the "Merger"). The date on which the Merger becomes
------
effective will be the effective date of this Agreement (the "Effective Date").
--------------
Employee is the Vice President, Sales of Target. The Company intends to
continue the business of Target after the Merger and integrate such business
into the Company's ongoing business. To preserve and protect the assets of
Target, including Target's goodwill, customers and trade secrets of which
Employee has and will have knowledge in Employee's role as an employee of the
Company and to preserve and protect the Company's goodwill and business
interests going forward, and in consideration for the Company's entering into
and performing under the Merger Agreement, Employee has agreed to enter into
this Agreement.
In addition, as required by Section 8 below, Employee is concurrently
herewith entering into a Confidentiality Agreement in favor of the Company
designed to protect the Company's proprietary rights.
AGREEMENT
---------
In consideration of the mutual promises, agreements, warranties and
provisions contained in this Agreement, the parties agree as follows:
1. Term of Agreement. This Agreement shall commence on the date hereof
-----------------
and, except for covenants which by their terms have a longer period of
effectiveness, shall have a term of two (2) years (the "Original Term"). This
-------------
Agreement may be terminated by either party, with or without cause, as provided
in Section 5. This Agreement may be extended for an additional one (1) year
after the end of the Original Term if the parties mutually agree in writing to
such extension.
2. Duties.
------
(a) Position. Employee shall be employed as Executive Vice President,
--------
Worldwide Sales, and as such will have responsibility for worldwide sales and
will report to the Company's Chief Executive Officer.
(b) Obligations to the Company. Employee agrees to the best of his
--------------------------
ability and experience that he will at all times loyally and conscientiously
perform all of the duties and obligations required of and from Employee pursuant
to the express and implicit terms hereof, and to the reasonable satisfaction of
the Company. During the term of Employee's employment with the Company, Employee
will not engage in any other employment, occupation, or business activity
directly related to the business of the Company and will not compete with the
Company or assist others in competing with the Company in any way. Employee
will not serve as a director, officer, employee, or consultant of any person or
-1-
<PAGE>
entity providing products and/or services that would substitute for or replace
those of the Company and agrees not to purchase or own any shares or interest in
any business providing products and/or services that would substitute for or
replace those of the Company, except Employee may own fewer than one percent
(1%) of the outstanding voting shares in a publicly traded corporation. Nothing
in this Agreement will prevent Employee from accepting speaking or presentation
engagements in exchange for honoraria or from serving on boards of charitable
organizations. Employee will comply with and be bound by the Company's
operating policies, procedures and practices from time to time in effect during
the term of Employee's employment.
3. At-Will Employment. The Company and Employee acknowledge that
------------------
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, damages, award or compensation other than as expressly
provided in this Agreement. The rights and duties created by this Section 3 may
not be modified in any way except by a written agreement executed by the Chief
Executive Officer of the Company.
4. Compensation. For the duties and services to be performed by Employee
------------
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, bonus and other benefits described below in this Section 4.
(a) Salary. Employee shall receive a monthly base salary of
------
$16,666.66, which is equivalent to $200,000 on an annualized basis. Employee's
monthly salary will be payable pursuant to the Company's normal payroll
practices. Employee's salary shall be reviewed on at least an annual basis, and
any increase will be effective as of the date determined appropriate by the
Board, its Compensation Committee or the Chief Executive Officer.
(b) Commissions. Employee shall be entitled to receive commissions
-----------
tied to the Company's quarterly sales performance in accordance with a sales
plan to be determined by mutual agreement between Employee and the Company. If
the targets set forth in such plan are achieved, Employee will be entitled to
receive quarterly commissions of $37,500, which amount shall be adjusted up or
down in accordance with mutually agreed parameters in the event that actual
performance fails to achieve or exceeds the plan targets. In addition, Employee
will be eligible for a special bonus based upon fiscal year 1999 to fiscal year
2000 bookings growth of the Company, the parameters of which bonus will be
determined by mutual agreement between Employee and the Company.
(c) Additional Benefits. Employee will be eligible to participate in
-------------------
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law. Employee will be eligible for vacation and sick
leave in accordance with the policies in effect during the term of this
Agreement and will receive such other benefits as the Company generally provides
to its other employees of comparable position and experience. In addition, the
Company shall reimburse Employee for (1) coach air fare expenses incurred by
employee in connection with Employee's travel to and from Denver during the one
year period following the date of this Agreement, and (2) up to $24,000 in
housing expenses incurred by Employee during the one year period following the
date of this Agreement.
-2-
<PAGE>
(d) Reimbursement of Expenses. Employee shall be authorized to incur
-------------------------
on behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are approved and substantiated
in accordance with Company policies.
5. Termination of Employment and Severance Benefits.
------------------------------------------------
(a) Termination of Employment. This Agreement may be terminated
-------------------------
during its Original Term (or any extension thereof) upon the occurrence of any
of the following events and following notice to the non-terminating party:
(i) The Company's determination in good faith that it is
terminating Employee for Cause (as defined in Section 6 below) ("Termination
-----------
for Cause");
- ---------
(ii) The Company's determination that it is terminating Employee
without Cause, which determination may be made by the Company at any time at the
Company's sole discretion, for any or no reason ("Termination Without Cause");
-------------------------
(iii) The effective date of a written notice sent to the Company
from Employee stating that Employee is electing to terminate his or her
employment with the Company ("Voluntary Termination");
---------------------
(iv) A change in Employee's status such that a Constructive
Termination (as defined in Section 5(b)(iv) below) has occurred; or
(v) Following Employee's death or Disability (as defined in
Section 7 below).
(b) Severance Benefits. Employee shall be entitled to receive
------------------
severance benefits upon termination of employment only as set forth in this
Section 5(b):
(i) Voluntary Termination. If Employee's employment terminates by
---------------------
Voluntary Termination, then Employee shall not be entitled to receive payment of
any bonus or severance benefits. Employee will receive payment(s) for all
salary, pro-rated commissions and unpaid vacation accrued as of the date of
Employee's termination of employment and Employee's benefits will be continued
under the Company's then existing benefit plans and policies in accordance with
such plans and policies in effect on the date of termination and in accordance
with applicable law.
(ii) Involuntary Termination.
-----------------------
If Employee's employment is terminated under Section
5(a)(ii) or 5(a)(iv) above (such termination, an "Involuntary Termination"),
-----------------------
and such termination does not occur within twelve (12) months following a
Change in Control (defined below), Employee will be entitled to receive
following the effective date of such termination (A) base salary continuation
equal to twelve (12) months base salary (less applicable withholding), and (B)
continuation of stock option vesting in an amount equal to the six (6) months
worth of vesting on all stock options then held by Employee. If the Employee
is the subject of an Involuntary Termination which occurs within the twelve
(12) months following a merger or acquisition involving a transfer of voting
control of the Company (a "Change in Control"), Employee will be entitled to
-----------------
receive following the effective date of such termination (x) base salary
continuation equal to six (6) months base salary (less applicable
withholding), and (y) acceleration
-3-
<PAGE>
of vesting as to 100% of the stock options previously granted by Target only
(and not stock options granted by the Company following the date hereof).
(iii) Termination for Cause. If Employee's employment is
---------------------
terminated for Cause, then Employee shall not be entitled to receive any
further payment of any bonus or any severance benefits. Employee will receive
payment(s) for all salary, pro-rated commissions and unpaid vacation accrued
as of the date of Employee's termination of employment and Employee's benefits
will be continued under the Company's then existing benefit plans and policies
in accordance with such plans and policies in effect on the date of
termination and in accordance with applicable law.
(iv) Constructive Termination. "Constructive Termination"
------------------------ ------------------------
shall be deemed to occur if (A)(1) Employee is not offered a similar position
with a successor entity following a Change in Control; (2) a reduction of more
than 20% of Employee's base compensation unless in connection with similar
decreases of other similarly situated employees of the Company, or (3)
Employee's refusal to relocate to a facility or location that is more than
fifty (50) miles from Palo Alto, California, and (B) within the 30-day period
immediately following such material change or reduction Employee elects to
terminate his or her employment voluntarily.
(v) Termination by Reason of Death or Disability. In the event
--------------------------------------------
that Employee's employment with the Company terminates as a result of
Employee's death or Disability (as defined in Section 7 below), Employee or
Employee's estate or representative will receive at the time of such
termination all salary, pro-rated commissions and unpaid vacation accrued as
of the date of Employee's death or Disability, and any other benefits payable
under the Company's then existing benefit plans and policies in accordance
with such plans and policies in effect on the date of death or Disability and
in accordance with applicable law.
6. Definition of Cause. For purposes of this Agreement, "Cause" for
------------------- -----
Employee's termination will exist at any time after the happening of one or more
of the following events:
(a) Employee's willful misconduct or gross negligence in performance
of his or her duties hereunder, including Employee's refusal to comply in any
material respect with the legal directives of Employees' direct supervisor, the
Company's Chief Executive Officer or the Board of Directors so long as such
directives are not inconsistent with the Employee's position and duties, and
such refusal to comply is not remedied within 10 working days after written
notice from the Company, which written notice shall state that failure to remedy
such conduct may result in Termination for Cause;
(b) Fraudulent conduct, a deliberate attempt to do an injury to the
Company, or conduct that materially discredits the Company or is materially
detrimental to the reputation of the Company, including conviction of a felony;
or
(c) Employee's material breach of any element of the Company's
Confidential Information and Invention Assignment Agreement, including without
limitation, Employee's theft or other misappropriation of the Company's
proprietary information.
7. Definition of Disability. For purposes of this Agreement, "Disability"
------------------------ ----------
shall mean that Employee has been unable to perform his or her duties hereunder
as the result of his or her incapacity due to physical or mental illness, and
such inability, which continues for at least 120 consecutive calendar days or
150 calendar days during any consecutive twelve-month period, if shorter, after
its commencement, is determined to be total and permanent by a physician
selected by the Company and its
-4-
<PAGE>
insurers and acceptable to Employee or to Employee's legal representative
(with such agreement on acceptability not to be unreasonably withheld).
8. Confidentiality Agreement. Employee shall sign, or has signed, a
-------------------------
Confidential Information and Invention Assignment Agreement (the
"Confidentiality Agreement") substantially in the form attached hereto as
- --------------------------
Exhibit A. Employee hereby represents and warrants to the Company that he or
- ---------
she has complied with all obligations under the Confidentiality Agreement and
agrees to continue to abide by the terms of the Confidentiality Agreement and
further agrees that the provisions of the Confidentiality Agreement shall
survive any termination of this Agreement or of Employee's employment
relationship with the Company.
9. Conflicts. Employee represents that his or her performance of all the
---------
terms of this Agreement will not breach any other agreement to which Employee is
a party. Employee has not, and will not during the term of this Agreement,
enter into any oral or written agreement in conflict with any of the provisions
of this Agreement.
10. Successors. Any successor to the Company (whether direct or indirect
----------
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agrees expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
11. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. Employee shall not be required to mitigate
-------------------
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor, except as otherwise provided in this
Agreement, shall any such payment be reduced by any earnings that Employee may
receive from any other source.
(b) Amendments and Waivers. Any term of this Agreement may be amended
----------------------
or waived only with the written consent of the parties.
(c) Sole Agreement. This Agreement, including any Exhibits hereto,
--------------
constitutes the sole agreements of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof and
thereof.
(d) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), or 48 hours after being deposited in the U.S. mail as certified
or registered mail with postage prepaid, if such notice is addressed to the
party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(e) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
-5-
<PAGE>
(f) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(g) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
(h) Arbitration. Any dispute or claim arising out of or in connection
-----------
with this Agreement will be finally settled by binding arbitration in San Mateo,
California in accordance with the rules of the American Arbitration Association
by one arbitrator appointed in accordance with said rules. The arbitrator shall
apply California law, without reference to rules of conflicts of law or rules of
statutory arbitration, to the resolution of any dispute. Judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Notwithstanding the foregoing, the parties may apply to any court of
competent jurisdiction for preliminary or interim equitable relief, or to compel
arbitration in accordance with this paragraph, without breach of this
arbitration provision. This Section 12(h) shall not apply to the
Confidentiality Agreement.
(i) Advice of Counsel. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES
-----------------
THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK
THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE
TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED
AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
[Signature Page Follows]
-6-
<PAGE>
The parties have executed this Agreement the date first written above.
BRIO TECHNOLOGY, INC.
By: /s/ Tamara MacDuff
----------------------------
Title: Vice President - Finance
-------------------------
Address: 3460 West Bayshore
Palo Alto, CA 94303
SCOTT CHALMERS
Signature: /s/ Scott Chalmers
---------------------
Address: 6 Sterling Ave.
-----------------------
Englewood, CO 80110
-----------------------
-7-
<PAGE>
EXHIBIT A
---------
CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
-8-
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is dated as of July 6, 1999,
---------
by and between John Schroeder ("Employee") and Brio Technology, Inc., a Delaware
--------
corporation (the "Company").
-------
RECITALS
--------
This Agreement is entered into in connection with and is ancillary to an
Agreement and Plan of Merger (the "Merger Agreement") dated as of February 23,
----------------
1999 among the Company, SQRIBE Technologies Corp., a Delaware corporation
("Target") and Socrates Acquisition Corporation, a Delaware corporation and a
- --------
wholly owned subsidiary of Acquiror ("Sub"), pursuant to which Sub will merge
---
with and into the Company (the "Merger"). The date on which the Merger becomes
------
effective will be the effective date of this Agreement (the "Effective Date").
--------------
Employee is the Senior Vice President, Products of Target. The Company
intends to continue the business of Target after the Merger and integrate such
business into the Company's ongoing business. To preserve and protect the
assets of Target, including Target's goodwill, customers and trade secrets of
which Employee has and will have knowledge in Employee's role as an employee of
the Company and to preserve and protect the Company's goodwill and business
interests going forward, and in consideration for the Company's entering into
and performing under the Merger Agreement, Employee has agreed to enter into
this Agreement.
In addition, as required by Section 8 below, Employee is concurrently
herewith entering into a Confidentiality Agreement in favor of the Company
designed to protect the Company's proprietary rights.
AGREEMENT
---------
In consideration of the mutual promises, agreements, warranties and
provisions contained in this Agreement, the parties agree as follows:
1. Term of Agreement. This Agreement shall commence on the date hereof.
-----------------
2. Duties.
------
(a) Position. Employee shall be employed as Executive Vice President
--------
in charge of BI Products and Services and will report to the Company's Chief
Executive Officer.
(b) Obligations to the Company. Employee agrees to the best of his
--------------------------
ability and experience that he will at all times loyally and conscientiously
perform all of the duties and obligations required of and from Employee pursuant
to the express and implicit terms hereof, and to the reasonable satisfaction of
the Company. During the term of Employee's employment with the Company, Employee
will not engage in any other employment, occupation, or business activity
directly related to the business of the Company and will not compete with the
Company or assist others in competing with the Company in any way. Employee
will not serve as a director, officer, employee, or consultant of any person or
entity providing products and/or services that would substitute for or replace
those of the Company and agrees not to purchase or own any shares or interest in
any business providing products and/or services that would substitute for or
replace those of the Company, except Employee may own fewer than one percent
(1%) of the outstanding voting shares in a publicly traded corporation. Nothing
in this Agreement will prevent Employee from accepting speaking or presentation
engagements in exchange for
-1-
<PAGE>
honoraria or from serving on boards of charitable organizations. Employee will
comply with and be bound by the Company's operating policies, procedures and
practices from time to time in effect during the term of Employee's employment.
3. At-Will Employment. The Company and Employee acknowledge that
------------------
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, damages, award or compensation other than as expressly
provided in this Agreement. The rights and duties created by this Section 3 may
not be modified in any way except by a written agreement executed by the Chief
Executive Officer of the Company.
4. Compensation. For the duties and services to be performed by Employee
------------
hereunder, the Company shall pay Employee, and Employee agrees to accept, the
salary, stock options, bonus and other benefits described below in this Section
4.
(a) Salary. Employee shall receive a monthly base salary of $20,000,
------
which is equivalent to $240,000 on an annualized basis. Employee's monthly
salary will be payable pursuant to the Company's normal payroll practices.
Employee's salary shall be reviewed on at least an annual basis, and any
increase will be effective as of the date determined appropriate by the Board,
its Compensation Committee or the Chief Executive Officer.
(b) Stock Options and Other Incentive Programs. In connection with
------------------------------------------
the commencement of Employee's employment, the Board of Directors shall grant to
Employee an option to purchase 40,000 shares of the Company's Common Stock (the
"Shares") with an exercise price equal to the fair market value on the date of
------
the grant. These option shares will vest as follows: 1/2 of the Shares will
vest on the date which is one (1) year following the date of grant, and
thereafter 1/12 of the remaining unvested Shares will vest on the monthly
anniversary of the date of grant, so that all of the Shares will be vested and
exercisable two (2) years after the date of grant. Vesting will depend on
Employee's continued employment with the Company. The option will be an
incentive stock option to the maximum extent allowed by the Internal Revenue
Code of 1986, as amended, and will be subject to the terms of the Company's 1998
Stock Option Plan and the Stock Option Agreement between Employee and the
Company. Subject to the discretion of the Company's Board of Directors,
Employee may be eligible to receive additional grants of stock options or
purchase rights from time to time in the future, on such terms and subject to
such conditions as the Board of Directors shall determine as of the date of any
such grant.
(c) Bonus. Employee shall be entitled to receive an annual bonus of
-----
$48,000 (the "Bonus"), which will be paid quarterly and which will be earned
-----
upon the achievement of quarterly performance objectives to be determined by
mutual agreement between Employee and the Company; provided, however, that the
first four quarterly payments of such Bonus to be paid following the date of
this Agreement are guaranteed. In addition, employee shall be entitled to
receive a special bonus of $30,000, not subject to the achievement of
performance objectives for fiscal year 2000, payable at the end of the fiscal
year.
(d) Additional Benefits. Employee will be eligible to participate in
-------------------
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law. Employee will be eligible for vacation and sick
leave in
-2-
<PAGE>
accordance with the policies in effect during the term of this Agreement and
will receive such other benefits as the Company generally provides to its other
employees of comparable position and experience.
(e) Reimbursement of Expenses. Employee shall be authorized to incur
-------------------------
on behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are approved and substantiated
in accordance with Company policies.
5. Termination of Employment and Severance Benefits.
------------------------------------------------
(a) Termination of Employment. This Agreement may be terminated
-------------------------
during its Original Term (or any extension thereof) upon the occurrence of any
of the following events and following notice to the non-terminating party:
(i) The Company's determination in good faith that it is
terminating Employee for Cause (as defined in Section 6 below)
("Termination for Cause");
---------------------
(ii) The Company's determination that it is terminating Employee
without Cause, which determination may be made by the Company at any time at the
Company's sole discretion, for any or no reason ("Termination Without Cause");
-------------------------
(iii) The effective date of a written notice sent to the Company
from Employee stating that Employee is electing to terminate his or her
employment with the Company ("Voluntary Termination");
---------------------
(iv) A change in Employee's status such that a Constructive
Termination (as defined in Section 5(b)(iv) below) has occurred; or
(v) Following Employee's death or Disability (as defined in
Section 8 below).
(b) Severance Benefits. Employee shall be entitled to receive
------------------
severance benefits upon termination of employment only as set forth in this
Section 5(b):
(i) Voluntary Termination. If Employee's employment
---------------------
terminates by Voluntary Termination, then Employee shall not be entitled to
receive payment of any bonus or severance benefits. Employee will receive
payment(s) for all salary, pro-rated commissions and unpaid vacation accrued as
of the date of Employee's termination of employment and Employee's benefits will
be continued under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination and
in accordance with applicable law.
(ii) Involuntary Termination. If Employee's employment is
-----------------------
terminated under Section 5(a)(ii) or 5(a)(iv) above (such termination, an
"Involuntary Termination"), Employee will be entitled to receive following the
-----------------------
effective date of such termination base salary continuation for six (6) months
(less applicable withholding). In addition, if Employee is the subject of an
Involuntary Termination within twelve (12) months following a merger or
acquisition involving a transfer of voting control of the Company (a "Change in
---------
Control"), with respect to stock options previously granted by Target only (and
- -------
not stock options granted by the Company following the date hereof, including
without limitation the stock option described in Section 4(b)), 100% of such
options shall immediately vest and become exercisable.
-3-
<PAGE>
(iii) Termination for Cause. If Employee's employment is
---------------------
terminated for Cause, then Employee shall not be entitled to receive any further
payment of any bonus or any severance benefits. Employee will receive payment(s)
for all salary, pro-rated commissions and unpaid vacation accrued as of the date
of Employee's termination of employment and Employee's benefits will be
continued under the Company's then existing benefit plans and policies in
accordance with such plans and policies in effect on the date of termination and
in accordance with applicable law.
(iv) Constructive Termination. "Constructive Termination"
------------------------ ------------------------
shall be deemed to occur if (A)(1) Employee is not offered a reasonably similar
position with a successor entity following a Change in Control; (2) in the
absence of a Change in Control, a reduction of Employee's base compensation
unless in connection with similar decreases of other similarly situated
employees of the Company, (3) in the event of a Change in Control, a reduction
of Employee's base compensation, or (4) Employee's refusal to relocate to a
facility or location that is more than fifty (50) miles from Palo Alto,
California, and (B) within the 30-day period immediately following such material
change or reduction Employee elects to terminate his or her employment
voluntarily.
(v) Termination by Reason of Death or Disability. In the
--------------------------------------------
event that Employee's employment with the Company terminates as a result of
Employee's death or Disability (as defined in Section 7 below), Employee or
Employee's estate or representative will receive at the time of such termination
all salary, pro-rated commissions and unpaid vacation accrued as of the date of
Employee's death or Disability, and any other benefits payable under the
Company's then existing benefit plans and policies in accordance with such plans
and policies in effect on the date of death or Disability and in accordance with
applicable law.
6. Definition of Cause. For purposes of this Agreement, "Cause" for
------------------- -----
Employee's termination will exist at any time after the happening of one or more
of the following events:
(a) Employee's willful misconduct or gross negligence in performance
of his or her duties hereunder, including Employee's refusal to comply in any
material respect with the legal directives of Employees' direct supervisor, the
Company's Chief Executive Officer or the Board of Directors so long as such
directives are not inconsistent with the Employee's position and duties, and
such refusal to comply is not remedied within 10 working days after written
notice from the Company, which written notice shall state that failure to remedy
such conduct may result in Termination for Cause;
(b) Fraudulent conduct, a deliberate attempt to do an injury to the
Company, or conduct that materially discredits the Company or is materially
detrimental to the reputation of the Company, including conviction of a felony;
or
(c) Employee's material breach of any element of the Company's
Confidential Information and Invention Assignment Agreement, including without
limitation, Employee's theft or other misappropriation of the Company's
proprietary information.
7. Definition of Disability. For purposes of this Agreement,
------------------------
"Disability" shall mean that Employee has been unable to perform his or her
----------
duties hereunder as the result of his or her incapacity due to physical or
mental illness, and such inability, which continues for at least 120 consecutive
calendar days or 150 calendar days during any consecutive twelve-month period,
if shorter, after its commencement, is determined to be total and permanent by a
physician selected by the Company and its insurers and acceptable to Employee or
to Employee's legal representative (with such agreement on acceptability not to
be unreasonably withheld).
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<PAGE>
8. Confidentiality Agreement. Employee shall sign, or has signed, a
-------------------------
Confidential Information and Invention Assignment Agreement (the
"Confidentiality Agreement") substantially in the form attached hereto as
- --------------------------
Exhibit A. Employee hereby represents and warrants to the Company that he or
- ---------
she has complied with all obligations under the Confidentiality Agreement and
agrees to continue to abide by the terms of the Confidentiality Agreement and
further agrees that the provisions of the Confidentiality Agreement shall
survive any termination of this Agreement or of Employee's employment
relationship with the Company.
9. Conflicts. Employee represents that his or her performance of all the
---------
terms of this Agreement will not breach any other agreement to which Employee is
a party. Employee has not, and will not during the term of this Agreement,
enter into any oral or written agreement in conflict with any of the provisions
of this Agreement.
10. Successors. Any successor to the Company (whether direct or indirect
----------
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agrees expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee's rights hereunder
shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
11. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. Employee shall not be required to mitigate
-------------------
the amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor, except as otherwise provided in this
Agreement, shall any such payment be reduced by any earnings that Employee may
receive from any other source.
(b) Amendments and Waivers. Any term of this Agreement may be amended
----------------------
or waived only with the written consent of the parties.
(c) Sole Agreement. This Agreement, including any Exhibits hereto,
--------------
constitutes the sole agreements of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof and
thereof.
(d) Notices. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), or 48 hours after being deposited in the U.S. mail as certified
or registered mail with postage prepaid, if such notice is addressed to the
party to be notified at such party's address as set forth below or as
subsequently modified by written notice.
(e) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(f) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision,
-5-
<PAGE>
then (i) such provision shall be excluded from this Agreement, (ii) the balance
of the Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
(g) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
(h) Arbitration. Any dispute or claim arising out of or in connection
-----------
with this Agreement will be finally settled by binding arbitration in San Mateo,
California in accordance with the rules of the American Arbitration Association
by one arbitrator appointed in accordance with said rules. The arbitrator shall
apply California law, without reference to rules of conflicts of law or rules of
statutory arbitration, to the resolution of any dispute. Judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Notwithstanding the foregoing, the parties may apply to any court of
competent jurisdiction for preliminary or interim equitable relief, or to compel
arbitration in accordance with this paragraph, without breach of this
arbitration provision. This Section 12(h) shall not apply to the
Confidentiality Agreement.
(i) Advice of Counsel. EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES
-----------------
THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK
THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE
TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED
AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
(j) Promissory Note. Notwithstanding anything to the contrary
---------------
contained in this Agreement, for the purposes of Employee's outstanding
Promissory Note with SQRIBE pursuant to which Employee purchased certain shares
of SQRIBE common stock, Employee's employment with the Company shall be deemed
to be continuing employment with SQRIBE, and no termination of Employee's
employment by SQRIBE shall be deemed to have occurred for so long as Employee
shall remain employed by the Company.
[Signature Page Follows]
-6-
<PAGE>
The parties have executed this Agreement the date first written above.
BRIO TECHNOLOGY, INC.
By: /s/ Tamara MacDuff
-------------------------------------
Title: Vice President - Finance
----------------------------------
Address: 3460 West Bayshore
Palo Alto, CA 94303
JOHN SCHROEDER
Signature: /s/ John Schroeder
------------------------------
Address: 13810 Camino Road
--------------------------------
Saratoga, CA 95070
--------------------------------
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<PAGE>
EXHIBIT A
---------
CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
-8-
<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
July 2, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement of Brio Technology, Inc. on
Form S-4 of our report dated February 19, 1999 (March 24, 1999 as to Note 11)
relating to the financial statements of SQRIBE Technologies Corp. as of December
31, 1998 and for the three years in the period ended December 31, 1998. We also
consent to the reference to us under the heading "Experts" in the proxy
statement/prospectus which is a part of such registration statement.
San Jose, California
July 2, 1999
