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Filed Pursuant to Rule 424(b)(4)
File No. 333-71369
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PROSPECTUS
APRIL 14, 1999 LOGO
5,000,000 SHARES OF COMMON STOCK
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SAGENT TECHNOLOGY, INC.:
- - We develop and sell software designed to address organizations' rapidly
growing, Web-based information access, analysis and delivery needs.
- - Sagent Technology, Inc.
800 W. El Camino Real
Suite 300
Mountain View, CA 94040
(650) 815-3100
TRADING SYMBOL & MARKET:
- - SGNT/NASDAQ
THE OFFERING:
- - We are offering 5,000,000 shares of our common stock.
- - The underwriters have an option to purchase an additional 750,000 shares from
us to cover over-allotments.
- - This is our initial public offering, and no public market currently exists for
our shares.
- - We plan to use the proceeds from this offering for working capital, potential
acquisitions, repayment of long-term indebtedness and other general corporate
purposes.
- - Closing: April 19, 1999.
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Per Share Total
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Public offering price: $9.00 $45,000,000
Underwriting fees: 0.63 3,150,000
Proceeds to Sagent: 8.37 41,850,000
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THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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Neither the Securities and Exchange Commission nor any state securities
commission
has approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
The undersigned is facilitating Internet distribution.
DLJDIRECT INC.
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TABLE OF CONTENTS
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Page
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Prospectus Summary............... 3
Risk Factors..................... 6
Use of Proceeds.................. 16
Dividend Policy.................. 16
Corporate Information............ 16
Capitalization................... 17
Dilution......................... 18
Selected Consolidated
Financial Data................. 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...... 20
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Page
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Business......................... 30
Management....................... 44
Certain Transactions............. 53
Principal Stockholders........... 57
Description of Capital Stock..... 60
Shares Eligible for Future
Sale........................... 63
Underwriting..................... 65
Legal Matters.................... 67
Experts.......................... 67
Available Information............ 68
Index to Financial Statements.... F-1
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PROSPECTUS SUMMARY
This summary highlights only selected information contained elsewhere in
this prospectus. The other information is important, so please read this entire
prospectus carefully. Unless stated otherwise, the information contained in this
prospectus assumes that the underwriters' over-allotment option to purchase an
additional 750,000 shares of common stock from us is not exercised.
SAGENT TECHNOLOGY, INC.
We develop, market and support software products that gather, analyze, and
deliver information throughout an organization. Our products provide a way for
an organization's employees, customers and partners to access and examine
important corporate information using the World Wide Web. We refer to our
products as "Enterprise Intelligence" software because they enable organizations
to use software to help them make more informed, intelligent decisions and to
spread that ability across the enterprise.
Today, information about an organization's customers, products and
operations is one of its most important strategic assets. In particular, as
organizations have begun to pursue more complex operational strategies, their
need for timely information has increased. In addition, as businesses continue
to streamline their organizational structures to improve time to market and
responsiveness to rapidly changing market conditions, decision making authority
is expected to become more distributed, thus heightening the need for broader
dissemination of information throughout the enterprise. Most recently, the rapid
adoption of the Internet and the Web has given organizations the ability to
share information internally and externally on a cost-effective basis and has
dramatically increased the number of people who can receive and access
information.
Our main product, the Sagent Data Mart Solution, or DMS product suite,
gathers data from a variety of sources, such as relational databases, mainframe
databases, and the Internet, and organizes that data into a common structure or
repository known as a data mart. A data mart is used to more efficiently manage
a subset of corporate data focused on the needs of a specific group of users.
Once data is organized into our data mart, the Sagent DMS product suite allows
organizations to more efficiently analyze the data and provides access to the
information through personal computers, reports, and, importantly, through Web
browsers over the Internet. We also provide design, systems engineering and
education services to facilitate successful customer implementations.
Customers purchase the Sagent DMS product suite for three primary reasons.
First, it combines in one integrated product key functions that a customer
requires, such as extracting information from multiple data sources. This saves
time and money otherwise spent combining many different products from many
different vendors. Second, the Sagent DMS product suite can handle a very large
number of users and a very large amount of data. This allows our Sagent DMS
product suite to scale to the increasing numbers of employees or customers who
need access to information from inside organizations or through the Internet.
Third, the Sagent DMS product suite is designed for the Internet. Sagent has
invested significant resources in technology to rapidly distribute information
over the Web.
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We intend to be a leading provider of Enterprise Intelligence software
solutions. Key elements of our strategy include:
- Focusing on the demand for Web-based Enterprise Intelligence solutions
- Extending our product functionality and technology leadership
- Offering pre-built Enterprise Intelligence applications for specific
industries
- Providing high quality services to our customers through our Professional
Services Group
- Continuing development of products that leverage Microsoft's Windows NT
computer technology
We currently have more than 200 customers worldwide in a variety of
industries, including financial services, telecommunications, technology, health
care, retail and others. Our customers include Barnesandnoble.com, Bell
Communications Research, Inc., BellSouth Cellular Corp., J.P. Morgan & Co.,
Incorporated, Jiffy Lube International, Inc., MCI WorldCom, Inc., and Nordstrom,
Inc. We market our software and services through our direct sales force, and
through resellers and international distributors. We also sell our software
through strategic partnerships with Automatic Data Processing, Inc., Advent
Software Inc. and Siebel Systems, Inc., each of which has integrated our product
suite into its software applications.
THE OFFERING
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Common stock offered by us............ 5,000,000 shares
Common stock to be outstanding after
the offering........................ 23,669,377 shares
Use of proceeds....................... Working capital, potential
acquisitions, repayment of long term
indebtedness and other general
corporate purposes.
Nasdaq National Market symbol......... SGNT
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This table is based on shares outstanding as of December 31, 1998. This
table excludes:
- 5,134,835 shares of our common stock that have been set aside under our
stock option plans, director option plan and employee stock purchase plan
- 235,623 shares of our common stock that have been set aside in connection
with warrants to purchase common stock
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
You should read the following summary consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and Notes thereto included
elsewhere in this prospectus.
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THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31,
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1996 1997 1998 1997 1998
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STATEMENT OF OPERATIONS DATA:
Revenues, net:
Licenses................................ $ 240 $ 5,728 $ 10,459 $ 1,842 $ 3,618
Services................................ 39 1,350 6,584 583 2,128
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Total revenues, net................... 279 7,078 17,043 2,425 5,746
Gross profit............................... 32 6,205 11,977 1,957 4,385
Loss from operations....................... (7,231) (6,908) (13,684) (2,235) (1,943)
Net loss................................... $(7,039) $(6,900) $(13,701) $(2,214) $(1,988)
Historical basic net loss per share........ $ (2.67) $ (2.41) $ (3.47)
======= ======= ========
Historical diluted net loss per share...... $ (2.67) $ (2.41) $ (3.68)
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Number of shares used in calculation at
historical basic net loss per share..... 2,637 2,860 3,951
Number of shares used in calculation of
historical diluted net loss per share... 2,637 2,860 3,722
Pro forma net loss per share, basic........ $ (0.74)
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Pro forma net loss per share, diluted...... $ (0.75)
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Shares used in calculation of pro forma net
loss per share, basic................... 18,495
Shares used in calculation of net loss per
share, diluted.......................... 18,266
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AS OF DECEMBER 31, 1998
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PRO FORMA
ACTUAL AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 3,093 $ 42,493
Working capital........................................... 1,122 40,522
Total assets.............................................. 13,196 52,596
Long-term obligations, net of current portion............. 3,346 1,596
Total stockholders' equity................................ 1,671 42,821
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See Note 2 of Notes to Consolidated Financial Statements for information
concerning the calculation of shares used in computing pro forma net loss per
share.
Pro forma as adjusted reflects the conversion of our outstanding preferred
stock to common stock, which will occur upon the closing of the offering, the
sale of 5,000,000 shares of common stock in the offering and the application of
the net proceeds from the offering, after deducting underwriting discounts and
commissions and estimated offering expenses. See "Use of Proceeds" and
"Capitalization."
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RISK FACTORS
Before you invest in our common stock, you should become aware of various
risks, including those described below. You should carefully consider these risk
factors, together with all of the other information included in this prospectus,
before you decide whether to purchase shares of our common stock. The risks set
out below may not be exhaustive.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE OUR OPERATING HISTORY IS LIMITED
It is difficult to evaluate our business and our prospects because our
revenue and income potential is unproven. We commenced operations in June 1995
but we did not begin selling our first products until the fourth quarter of
1996, and a number of new products and new versions of existing products were
introduced in 1997. As a result, we have experienced the risks and difficulties
frequently encountered by early stage companies, particularly companies in new
and rapidly evolving markets.
WE HAVE INCURRED LOSSES SINCE INCEPTION AND WE MAY NOT BE ABLE TO ACHIEVE
PROFITABILITY
We incurred net losses and losses from operations for the period ended
December 31, 1995 and each of the years ended December 31, 1996, 1997 and 1998,
and we may not be able to achieve profitability in the future. As of December
31, 1998, we had an accumulated deficit of approximately $28.6 million. Since
inception, we have funded our business primarily by borrowing funds and from the
sale of our stock, not from cash generated by our business. Although revenues
grew significantly in recent periods, you should not rely on past performance as
any indication of future growth rates or operating results. We expect to
continue to incur significant sales and marketing, research and development and
general and administrative expenses. As a result, we may experience losses and
negative cash flows. If we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis in the future.
OUR FUTURE OPERATING RESULTS MAY NOT FOLLOW PAST TRENDS DUE TO MANY FACTORS AND
ANY OF THESE COULD CAUSE OUR STOCK PRICE TO FALL
We believe that quarter-to-quarter comparisons of our operating results are
not a good indication of future performance. Although our operating results have
generally improved from quarter to quarter in the past, our future operating
results may not follow any past trends. It is likely that in some future quarter
our operating results may be below the expectation of public market analysts and
investors due to factors beyond our control, and as a result, the price of our
common stock may fall.
Factors which may cause our future operating results to be below
expectations and cause our stock price to fall include:
- The demand for and acceptance of our products, product enhancements and
services
- The maintenance and development of our strategic relationships with
enterprise application vendors, resellers and distributors
- The introduction, timing and competitive pricing of our products and
services and those of our competitors
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- The expansion and rate of success of our direct sales force and indirect
distribution channels both domestically and internationally
- The attraction and retention of key personnel, particularly in our sales,
services and support groups
- The commercialization of our products incorporating advanced technologies
- The growth of the market for Enterprise Intelligence solutions
- The timing and successful integration of and costs related to
technologies and businesses we may acquire in the future
We plan to significantly increase our operating expenses to expand our
administration, consulting and training, maintenance and technical support,
research and development and sales and marketing groups. Our operating expenses
are based on our expectations of future revenues and are relatively fixed in the
short term. If revenues fall below our expectations in any quarter and we are
not able to quickly reduce our spending in response, our operating results would
be lower than expected and our stock price may fall.
WE MAY LOSE EXISTING CUSTOMERS OR BE UNABLE TO ATTRACT NEW CUSTOMERS IF WE DO
NOT DEVELOP NEW PRODUCTS
If we are not able to maintain and improve our product line and develop new
products that keep pace with competitive product introductions and technological
developments, satisfy diverse and evolving customer requirements and achieve
market acceptance, we may lose existing customers or be unable to attract new
customers. For example, we are developing the next version of the Sagent DMS
product suite, which is scheduled for release in the first half of 1999. We may
not be successful in developing and marketing this new version, other product
enhancements or new products that respond to technological advances by others on
a timely or cost-effective basis, or that these products, if developed, will
achieve market acceptance.
We have experienced delays in releasing new products and product
enhancements and may experience similar delays in the future. These delays or
problems in the installation or implementation of our new releases may cause
customers to forego purchases of our products to purchase those of our
competitors.
CHANGES IN INTERNET TECHNOLOGY AND OPERATING SYSTEM STANDARDS MAY IMPEDE MARKET
ACCEPTANCE FOR OUR PRODUCTS
Rapidly changing Internet technology and operating system standards may
impede market acceptance for our products. We have a software application known
as WebLink that allows users to query, analyze and report business information
from a Web browser. This product has been designed based upon prevailing
Internet technology. If new Web technologies emerge that are incompatible with
deployment of our WebLink applications, our WebLink product may become obsolete
and existing and potential new customers may seek alternatives to our products.
We may not be able to quickly adapt our products to any new Internet technology.
Additionally, our products allow connectivity to databases on a variety of
operating systems, including mainframes, AS/400, UNIX and Windows NT. However,
our application server component currently runs only on the Windows NT operating
system. Therefore, our ability to increase sales of our products will depend on
the continued acceptance of the Windows NT operating system. To the extent that
potential customers use UNIX operating systems as their application server, we
would need to
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develop a UNIX product. The development of a UNIX product would require us to
commit a substantial investment of resources, and we may not successfully
introduce such a product on a timely or cost-effective basis, or at all, which
could lead potential customers to choose alternatives to our products.
THE GROWTH OF OUR BUSINESS DEPENDS ON THE GROWTH OF THE MARKET FOR ENTERPRISE
INTELLIGENCE SOFTWARE
Since all of our revenues are attributable to the sale of Enterprise
Intelligence software and related maintenance, consulting and training services,
if the market for Enterprise Intelligence software does not grow, our business
will not grow. We expect Enterprise Intelligence software and services to
account for substantially all of our revenues for the foreseeable future.
Although demand for Enterprise Intelligence software has grown in recent years,
the market may not continue to grow or, even if the market does grow, businesses
may not adopt our products.
We are focusing our selling efforts on large, enterprise-wide
implementations of our products, and we expect such sales to constitute an
increasing portion of any future revenue growth. While we have devoted
significant resources to promoting market awareness of our products and the
problems such products address, we do not know whether these efforts will be
sufficient to support significant growth in the market for Enterprise
Intelligence products.
IF OUR RELATIONSHIPS WITH CHANNEL PARTNERS ARE NOT SUCCESSFUL AND IF WE CANNOT
RECRUIT ADDITIONAL CHANNEL PARTNERS WE MAY NOT BE ABLE TO EXPAND OUR SALES
In addition to our direct sales force, we rely on successful relationships
with a variety of channel partners, such as enterprise application vendors,
resellers and distributors, for licensing and support of our products in the
United States and internationally. If we cannot maintain successful
relationships with these partners and cannot recruit additional strategic
partners, we believe that we will have difficulty expanding the sales of our
products. Our enterprise application vendor partners resell our products
incorporated in their own software application. In addition, our channel
partners offer products of several different companies, including, in some
cases, products that compete with our products. These strategic partners may not
develop or customize our applications to their needs or devote adequate
resources to selling our products.
We intend to expand our relationships with strategic partners and to
increase the proportion of our customers licensed through these indirect
channels. We may not be able to maintain strategic partnerships and attract
additional strategic partners that will market our products effectively and will
be qualified to provide timely and cost-effective customer support and service.
Further, our relationships with our strategic partners may not generate enough
royalty revenue to offset the significant resources used to develop these
channels. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Sales and Marketing."
WE NEED TO EXPAND OUR MANAGEMENT SYSTEMS AND CONTROLS TO SUPPORT OUR ANTICIPATED
GROWTH
Our growth has placed, and our anticipated future growth will continue to
place, a significant strain on our management systems and controls. If we cannot
effectively
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establish and improve our processes we may not be able to manage our growth
successfully or sustain and manage the growth rates we have experienced in the
past.
We have grown rapidly and will need to continue to grow in all areas of
operation in order to execute our business strategy. Our total number of
employees grew from 87 on December 31, 1997 to 152 on December 31, 1998, and we
anticipate further significant increases in the number of employees. Sustaining
our growth has placed significant demands on management as well as on our
administrative, operational and financial resources and controls. In particular,
we need to substantially upgrade our enterprise resource planning functions,
including accounting, order entry and customer entry, which will become
insufficient as we grow. We also will need to institute new systems such as
human resource management and time and billing. See "Business -- Sales and
Marketing."
WE INTEND TO EXPAND INTERNATIONAL OPERATIONS BUT WE MAY ENCOUNTER A NUMBER OF
PROBLEMS IN DOING SO WHICH COULD LIMIT OUR FUTURE GROWTH
We may not be able to successfully market, sell, deliver and support our
products and services internationally. Our failure to manage our international
operations effectively could limit the future growth of our business.
International sales represented approximately 8.4% of our total revenue for the
year ended December 31, 1998. We conduct our international sales through local
subsidiaries in Japan and Canada and through distributor relationships in
France, Germany, Japan, South Africa and the United Kingdom. The expansion of
our existing international operations and entry into additional international
markets will require significant management attention and financial resources to
open additional international offices and hire international sales personnel.
Localizing our products is difficult and may take longer than we anticipate due
to difficulties in translation and delays we may experience in recruiting and
training international staff. In addition, we currently have limited experience
in developing local versions of our products, as well as marketing, selling and
supporting our products and services as overseas. See "Business -- Sales and
Marketing."
OUR MARKETS ARE HIGHLY COMPETITIVE AND COMPETITION COULD HARM OUR ABILITY TO
SELL PRODUCTS AND SERVICES AND REDUCE OUR MARKET SHARE
Competition could seriously harm our ability to sell additional software
and maintenance and support renewals on prices and terms favorable to us.
Additionally, if we cannot compete effectively, we may lose market share. The
markets for our products are intensely competitive and subject to rapidly
changing technology. We compete against providers of decision support software,
data warehousing software and enterprise application software. We also compete
with providers of e-Business software, which allows for the electronic delivery
of products and services that enable commerce among businesses and end users.
Companies in each of these areas may expand their technologies or acquire
companies to support greater Enterprise Intelligence functionality and
capability, particularly in the areas of query response time and the ability to
support large numbers of users. We may also face competition from vendors of
products and turn-key solutions for e-Business applications that include
Internet based information functionality.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our
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competitors may be able to respond more quickly than we can to new or emerging
technologies and changes in customer requirements. See
"Business -- Competition."
OUR OPERATING RESULTS MAY VARY SIGNIFICANTLY DUE TO OUR LENGTHY SALES AND
IMPLEMENTATION CYCLES FOR OUR PRODUCTS WHICH COULD CAUSE OUR STOCK PRICE TO FALL
Because our products and services have lengthy sales and implementation
cycles, it is difficult for us to forecast the timing and recognition of
revenues from sales of our products and services. Since we are unable to control
many of the factors that will influence our customers' buying decisions, the
lengthy sales cycle could cause our operating results to be below the
expectations of analysts and investors, which could cause our stock price to
fall.
A key element of our strategy is to market our products and services to
large organizations with significant data management and access needs. These
customers take an extended time evaluating our products before purchasing them.
The period of time between initial customer contact and a purchase order may
span six months or more. Our products have had, and we expect them to continue
to have, an even longer sales cycle in international markets than in the United
States and Canada. During the evaluation period, a variety of factors may lead
customers to not purchase or scale down orders of our products including:
- Reductions in demand for Enterprise Intelligence solutions
- Introduction of new products by competitors or pricing pressures
- Changes in our customers' budgets and purchasing priorities
- Diversion of resources and management's attention to other information
technology issues, such as year 2000 issues
In addition, we often must provide a significant level of education to our
prospective customers regarding the use and benefit of our products, which may
cause additional delays during the evaluation and acceptance process. See
"Business -- Sales and Marketing."
OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS AND THESE
OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE
Our future success depends upon the continued service of our executive
officers and other key employees as well as our ability to hire a significant
number of new employees. We are particularly dependent on the continued services
of employees in our professional services and sales groups. Competition for
these individuals is intense, and we may not be able to attract, assimilate or
retain additional highly qualified personnel in the future.
In particular, it would be difficult for us to replace the services of
Kenneth C. Gardner, our co-founder, President and Chief Executive Officer, John
E. Zicker, our co-founder, Executive Vice President, Technology, and Chief
Technology Officer, Thomas M. Lounibos, our Executive Vice President, Sales and
Marketing, and W. Virginia Walker, our Executive Vice President, Finance and
Administration and Chief Financial Officer. We do not maintain "key-person" life
insurance policies covering any of our employees.
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OUR ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS AND
DILUTE STOCKHOLDER VALUE
We intend to make investments in or acquire complementary companies,
products and technologies. We have limited organizational experience in these
matters and will need to develop the relevant skills if we are to be successful
in any such endeavor. Any development of these skills could consume management's
time and other resources. If we buy a company, we could have difficulty in
assimilating that company's operations. In addition, we may be unsuccessful in
retaining the key personnel of the acquired company. Moreover, we currently do
not know and cannot predict the accounting treatment of any such acquisition, in
part because we cannot be certain what accounting regulations, conventions or
interpretations may prevail in the future. If we acquire complementary
technologies or products, we could experience difficulties assimilating the
acquired technology or products into our operations. These difficulties could
disrupt our ongoing business, distract our management and employees and increase
our expenses. Furthermore, we may have to incur debt or issue equity securities
to pay for any future acquisitions, the issuance of which could be dilutive to
our existing stockholders, and adversely affect the price of our common stock.
FAILURE OF COMMERCIAL USERS TO ACCEPT INTERNET SOLUTIONS COULD LIMIT OUR FUTURE
GROWTH
A key element of our strategy is to offer users the ability to access,
analyze and report information from a data server through a Web browser. Our
growth would be limited if businesses do not accept Internet solutions or
perceive them to be cost-effective. Continued viability of the Internet depends
on several factors, including:
- Third parties' abilities to develop new enabling technologies in a timely
manner
- The Internet's ability to handle increased activity
- The Internet's ability to operate as a fast, reliable and secure network
- Potential changes in government regulation
Moreover, critical issues concerning the commercial use of the Internet,
including data corruption, cost, ease of use, accessibility and quality of
service, remain unresolved and may negatively affect commerce and communication
on the Internet. These issues will need to be addressed in order for the market
for our products and services to grow.
OUR PROPRIETARY TECHNOLOGY MAY BE SUBJECTED TO INFRINGEMENT CLAIMS OR MAY BE
INFRINGED UPON AND TIMELINE, INC. HAS FILED AN INFRINGEMENT SUIT AGAINST US
Our intellectual property is important to our business. We expect that we
could be subject to intellectual property infringement claims as the number of
our competitors grows and the functionality of our applications overlaps with
competitive offerings. These claims, even if not meritorious, could be expensive
and divert our attention from operating our company. If we become liable to
third parties for infringing their intellectual property rights, we would be
required to pay a substantial damage award and to develop noninfringing
technology, obtain a license or cease selling the applications that contain the
infringing intellectual property. We may be unable to develop noninfringing
technology or obtain a license on commercially reasonable terms, or at all. In
addition, we may not be able to protect against misappropriation of our
intellectual property. Third parties may
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infringe upon our intellectual property rights, we may not detect this
unauthorized use and we may be unable to enforce our rights. See
"Business -- Intellectual Property."
On March 19, 1999, we received written notice from Timeline, Inc. alleging
that the Sagent DMS product suite infringes one or more of the claims of a
Timeline patent. On March 22, 1999, Timeline filed suit against us in the United
States District Court for the Western District of Washington alleging patent
infringement. Other than the filed complaint, we have not received information
or documentation regarding this claim and therefore cannot fully evaluate it.
Pursuing potential litigation with Timeline could be costly and could divert
management and our technical staff from operating our company, regardless of the
outcome. See "Business -- Legal Proceedings."
IF WE LOSE KEY LICENSES WE MAY BE REQUIRED TO DEVELOP OR LICENSE ALTERNATIVES
WHICH MAY CAUSE DELAYS OR REDUCTIONS IN SALES
We rely on software that we have licensed from Opalis S.A. to perform key
functions of our Sagent Automation product which automates common tasks in
managing data. We also rely on software we have licensed from Microsoft
Corporation to allow users to be able to customize the user interface provided
by our Sagent Design Studio product. These licenses may not continue to be
available to us on commercially reasonable terms. The loss of either of these
licenses could result in delays or reductions of shipments of our product suite
until equivalent software could be developed, identified, licensed and
integrated. If customers require the automation and/or the user interface
customization features when licenses for either of those is not available, they
may delay or decline to purchase our product suite.
IF WE DISCOVER SOFTWARE DEFECTS WE MAY HAVE PRODUCT-RELATED LIABILITIES WHICH
MAY LEAD TO LOSS OF REVENUE OR DELAY IN MARKET ACCEPTANCE FOR OUR PRODUCTS
Our software products are internally complex and may contain errors,
defects or failures, especially when first introduced or when new versions are
released. We test our products extensively prior to releasing them; however, in
the past we have discovered software errors in some of our products after their
introduction. Despite extensive testing, we may not be able to detect and
correct errors in products or releases before commencing commercial shipments,
which may result in loss of revenue or delays in market acceptance.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. All
domestic and international jurisdictions may not enforce these limitations.
Although we have not experienced any product liability claims to date, we may
encounter such claims in the future. Product liability claims, whether or not
successful, brought against us could divert the attention of management and key
personnel and could be expensive to defend.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR PRODUCTS OR INTERNAL SYSTEMS MAY INVOLVE
SIGNIFICANT TIME AND EXPENSE AND MAY REDUCE OUR FUTURE SALES
Many currently installed computer systems and software products store dates
using only the last two digits of the calendar year. As a result, such systems
may not be able to distinguish whether "00" means 1900 or 2000, which may cause
system failures or erroneous results. Year 2000 problems could subject us to
liability claims and disrupt our customers' purchasing patterns, either of which
could harm our business.
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Our products operate in complex network environments and directly or
indirectly interact with a number of other hardware and software systems that we
cannot adequately evaluate for year 2000 compliance. We may face claims based on
year 2000 problems in other companies' products, or issues arising from the
integration of multiple products within an overall system. Although we have not
been a party to any litigation or arbitration proceeding involving our products
or services related to year 2000 compliance issues, we may in the future be
required to defend our products or services in such proceedings, or to negotiate
resolutions of claims based on year 2000 issues. Defending and resolving year
2000-related disputes, regardless of the merits of such disputes, and any
liability we have for year 2000-related damages, including consequential
damages, could be expensive to us. In addition, we believe that customers and
potential customers limit purchases of new systems due to year 2000 issues as
companies expend significant resources to correct or upgrade their current
software systems for year 2000 compliance. These expenditures may result in
reduced funds available to purchase our products. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES WILL HAVE SIGNIFICANT CONTROL
OVER US AND MAY APPROVE OR REJECT MATTERS CONTRARY TO YOUR VOTE
Our executive officers and directors, together with their affiliates, will
beneficially own an aggregate of approximately 48.5% of our outstanding common
stock following the completion of the offering. These stockholders, if acting
together, will be able to significantly influence all matters requiring approval
by our stockholders, including the election of directors and the approval of
mergers or similar transactions even if other stockholders disagree. See
"Principal Stockholders."
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR
COMPANY
Provisions of our certificate of incorporation, bylaws, other agreements
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. See "Description of
Capital Stock."
OUR UNDESIGNATED PREFERRED STOCK MAY INHIBIT POTENTIAL ACQUISITION BIDS FOR US,
CAUSE THE MARKET PRICE FOR SAGENT COMMON STOCK TO FALL AND DIMINISH THE VOTING
RIGHTS OF THE HOLDERS OF OUR COMMON STOCK
If our board of directors issues preferred stock potential acquirers may
not make acquisition bids for us, our stock price may fall and the voting rights
of existing stockholders may diminish as a result. Sagent's board of directors
has the authority to issue up to 5,000,000 shares of preferred stock in one or
more series. The board of directors can fix the price, rights, preferences,
privileges and restrictions of the preferred stock without any further vote or
action by our stockholders. Sagent has no current plans to issue any shares of
preferred stock. See "Description of Capital Stock -- Preferred Stock."
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE RETURN
We intend to use the proceeds from the offering for general corporate
purposes, including working capital, capital expenditures and repayment of long
term indebtedness,
13
<PAGE> 14
and may use a portion of proceeds to acquire other businesses, products or
technologies. Our management may spend the proceeds from the offering in ways
with which the stockholders may not agree. Pending any such uses, we plan to
invest the net proceeds of the offering in investment-grade, interest-bearing
securities. We cannot predict that such investments will yield a favorable
return. See "Use of Proceeds."
OUR SECURITIES HAVE NO PRIOR MARKET AND WE CANNOT ASSURE YOU THAT OUR STOCK
PRICE WILL NOT DECLINE AFTER THE OFFERING
Our common stock has never been sold in a public market. An active trading
market for our common stock may not develop or be sustained after completion of
the offering. The initial public offering price may not be indicative of the
prices that will prevail in the public market after the offering, and the market
price of the common stock could fall below the initial public offering price. In
addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the market prices of many
computer software companies and which have often been unrelated to the operating
performance of such companies. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE AFTER THE OFFERING COULD CAUSE OUR STOCK PRICE
TO FALL
If our stockholders sell substantial amounts of our common stock in the
public market following the offering, the market price of our common stock could
fall. Such sales also might make it more difficult for Sagent to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate.
Based upon the number of our shares outstanding as of December 31, 1998,
upon completion of the offering, we will have outstanding 23,669,377 shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options or warrants after December 31, 1998. Of
these shares, the 5,000,000 shares sold in the offering will be freely tradable.
18,404,766 shares of common stock will be available for sale in the public 180
days after the date of this prospectus or afterwards.
After the offering, the holders of approximately 14.5 million shares of
common stock and warrants to purchase common stock, which represent 61.4% of our
outstanding stock after completion of the offering, will be entitled to certain
rights to have the resale of their shares registered under the Securities Act of
1933. If these holders, by exercising their registration rights, cause a large
number of securities to be registered and sold in the public market, such sales
could materially and adversely affect the market price for our common stock. In
addition, if we were to include in a registration statement shares held by these
holders pursuant to the exercise of their registration rights, such sales may
impede our ability to raise needed capital. See "Shares Eligible for Future
Sale" and "Underwriting."
WE DO NOT INTEND TO PAY DIVIDENDS AND YOU MAY NOT EXPERIENCE A RETURN ON
INVESTMENT WITHOUT SELLING SHARES
We have never declared or paid any cash dividends on our capital stock.
Therefore, you will not experience a return on your investment in our common
stock without selling your shares since we currently intend on retaining future
earnings to fund our growth and do not expect to pay dividends in the
foreseeable future. See "Dividend Policy."
14
<PAGE> 15
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION
If you purchase shares of our common stock, you will incur immediate and
substantial dilution in pro forma net tangible book value. Investors
participating in the offering of our common stock will pay a price per share
which substantially exceeds the value of our assets after subtracting our
liabilities. These investors will contribute 59.4% of the total amount paid to
fund us but will own only 21.1% of our outstanding shares. If the holders of
outstanding options or warrants exercise those options or warrants, you will
suffer further dilution. See "Dilution."
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN
You should not rely on forward-looking statements in this prospectus. This
prospectus also contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify such
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described below and elsewhere in this prospectus.
15
<PAGE> 16
USE OF PROCEEDS
The net proceeds to Sagent from the sale of 5,000,000 shares of common
stock in the offering at an initial public offering price of $9.00 per share,
after deducting estimated expenses of $700,000 and underwriting discounts and
commissions of $3,150,000, are approximately $41,150,000 and approximately
$47,427,500 if the underwriters' over-allotment option is exercised in full.
Sagent expects to use the net proceeds from this offering for general corporate
purposes, including working capital, capital expenditures and repayment of
$1,750,000 of outstanding long-term indebtedness. The outstanding long-term
indebtedness is under an accounts receivable credit facility with Venture
Banking Group, which matures on January 15, 2000. Interest under the credit
facility is payable at the prime rate on the average daily balance under the
credit facility. A portion of the proceeds may also be used to acquire, license
or invest in complementary businesses or products, although there are no current
plans, negotiations or discussions relating to any such transactions. Pending
use of the net proceeds for the above purposes, Sagent intends to invest such
funds in short-term, interest-bearing, investment grade obligations.
DIVIDEND POLICY
Sagent has never declared or paid any cash dividends on its common stock or
other securities. Sagent currently anticipates that it will retain all of its
future earnings for use in the expansion and operation of its business and does
not anticipate paying any cash dividends in the foreseeable future.
CORPORATE INFORMATION
Sagent was incorporated in California in April 1995 under the name Savant
Software, Inc. In June 1995, Sagent changed its name to Sagent Technology, Inc.
Sagent was reincorporated in Delaware in September 1998. References in this
prospectus to "Sagent," "we," "our" and "us" refer to Sagent Technology, Inc.
and its subsidiaries, unless the context otherwise requires. Sagent's principal
executive office is located at 800 W. El Camino Real, Suite 300, Mountain View,
California 94040, and Sagent's telephone number at that office is (650)
815-3100. Sagent's World Wide Web address is www.sagent.com. Information
contained in Sagent's Web site does not constitute part of this prospectus.
SAGENT and INFORMATION STUDIO are registered trademarks of Sagent. Sagent
is in the process of registering SAGENT DESIGN STUDIO as a trademark. Any
trademark, trade name or service mark of another company appearing in this
prospectus belongs to its holder.
16
<PAGE> 17
CAPITALIZATION
The table below sets forth the actual capitalization of Sagent as of
December 31, 1998. The pro forma column gives effect to the conversion of all
outstanding shares of preferred stock into shares of common stock. The pro forma
as adjusted column gives effect to the sale in this offering of 5,000,000 shares
of common stock at an initial public offering price of $9.00 per share less
underwriting discounts and commissions and estimated offering expenses payable
by Sagent.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................... $ 3,093 $ 3,093 $ 42,493
======== ======== ========
Current portion of capital lease
obligations............................... $ 1,181 $ 1,181 $ 1,181
======== ======== ========
Long-term portion of capital lease
obligations............................... $ 3,346 $ 3,346 $ 1,596
Stockholders' equity:
Preferred stock, $0.001 par value,
15,555,555 authorized, 14,544,258
issued and outstanding, actual;
5,000,000 shares authorized, no shares
outstanding, pro forma and as
adjusted............................... 15 -- --
Common stock, $0.001 par value, 25,000,000
shares authorized; 4,125,119 shares
outstanding, actual; 18,669,377 shares
outstanding, pro forma; 23,669,377
shares outstanding, as adjusted........ 4 19 24
Additional paid-in capital................ 30,699 30,699 71,844
Notes receivable from stockholder......... (522) (522) (522)
Cumulative translation adjustment......... 101 101 101
Accumulated deficit....................... (28,626) (28,626) (28,626)
-------- -------- --------
Total stockholders' equity............. 1,671 1,671 42,821
-------- -------- --------
Total capitalization................. $ 5,017 $ 5,017 $ 44,417
======== ======== ========
</TABLE>
This table excludes the following shares:
- 5,134,835 shares of common stock that have been set aside under Sagent's
stock option plans, director option plan and employee stock purchase plan
- 235,623 shares of common stock set aside in connection with warrants to
purchase common stock
See "Management -- Employee Benefit Plans."
17
<PAGE> 18
DILUTION
The pro forma net tangible book value of Sagent as of December 31, 1998 was
$1.4 million or $0.08 per share of common stock, after giving effect to the
conversion of Sagent's outstanding preferred stock. Pro forma net tangible book
value per share represents total tangible assets less total liabilities, divided
by the number of outstanding shares of common stock.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of Sagent's common
stock in this offering and the net tangible book value per share of Sagent's
common stock immediately afterwards. After giving effect to our sale of the
5,000,000 shares of common stock offered by this prospectus and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by Sagent, Sagent's net tangible book value at December 31, 1998 would
have been $42,553,000 or $1.80 per share. This represents an immediate increase
in net tangible book value to existing stockholders of $1.72 per share to
existing stockholders and an immediate dilution to new public investors of $7.20
per share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share.................... $9.00
Pro forma net tangible book value per share as of
December 31, 1998..................................... $0.08
Increase per share attributable to new public
investors............................................. 1.72
-----
Pro forma net tangible book value per share after
offering................................................. 1.80
-----
Dilution per share to new public investors................. $7.20
=====
</TABLE>
The following table sets forth on a pro forma basis as of December 31, 1998
the difference between the number of shares of common stock purchased from
Sagent, the total price paid, and the average price per share paid by existing
stockholders and new public investors before deducting estimated underwriting
discounts and commissions and offering expenses payable by Sagent, using an
initial public offering price of $9.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing 18,669,377 78.9% $30,769,753 40.7% $1.65
stockholders.......
New public 5,000,000 21.1 45,000,000 59.4 9.00
investors..........
---------- ----- ----------- -----
Total...... 23,669,377 100.0% $75,769,753 100.0%
========== ===== =========== =====
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to 5,750,000, or 23.5%, of the
total shares of common stock outstanding after the offering.
18
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are qualified by
reference to, and should be read in conjunction with, Sagent's Consolidated
Financial Statements and related notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this prospectus. The selected consolidated balance sheet data as of December 31,
1997 and 1998 and selected consolidated statement of operations data for the
years ended December 31, 1996, 1997 and 1998 have been derived from the audited
consolidated financial statements of Sagent and the notes included elsewhere in
this prospectus. The consolidated balance sheet data as of December 31, 1995 and
1996 and selected consolidated statements of operations data for the period from
April 12, 1995 (inception) through December 31, 1995 have been derived from the
audited consolidated financial statements of Sagent not included.
<TABLE>
<CAPTION>
PERIOD FROM APRIL 12, 1995 YEARS ENDED DECEMBER 31,
(INCEPTION) THROUGH ------------------------------
DECEMBER 31, 1995 1996 1997 1998
-------------------------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues, net:
Licenses............................ $ -- $ 240 $ 5,728 $ 10,459
Services............................ -- 39 1,350 6,584
------- ------- ------- --------
Total revenues, net............... -- 279 7,078 17,043
Cost of revenues:
Licenses............................ -- 120 194 143
Services............................ -- 127 679 4,923
------- ------- ------- --------
Total cost of revenues............ -- 247 873 5,066
------- ------- ------- --------
Gross profit........................... -- 32 6,205 11,977
Operating expenses:
Sales and marketing................. 198 2,727 5,929 12,037
Research and development............ 469 3,425 4,969 6,013
General and administrative.......... 363 1,111 2,215 5,186
Acquired in-process technology...... -- -- -- 2,425
------- ------- ------- --------
Total operating expenses.......... 1,030 7,263 13,113 25,661
------- ------- ------- --------
Loss from operations................... (1,030) (7,231) (6,908) (13,684)
Other income (expense), net............ 44 192 8 (17)
------- ------- ------- --------
Net loss............................... $ (986) $(7,039) $(6,900) $(13,701)
======= ======= ======= ========
Historical basic net loss per share.... $ (2.67) $ (2.41) $ (3.47)
======= ======= ========
Historical diluted net loss per
share............................... $ (2.67) $ (2.41) $ (3.68)
======= ======= ========
Number of shares used in calculation of
historical basic net loss per
share............................... 2,637 2,860 3,951
Number of shares used in calculation of
historical diluted net loss per
share............................... 2,637 2,860 3,722
Pro forma net loss per share, basic.... $ (0.74)
========
Pro forma net loss per share,
diluted............................. $ (0.75)
========
Shares used in calculation of pro forma
net loss per share, basic........... 18,495
Shares used in calculation of pro forma
net loss per share, diluted......... 18,266
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------
1995 1996 1997 1998
------ ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $5,026 $4,575 $3,813 $ 3,093
Working capital...................................... 4,927 3,715 2,201 1,122
Total assets......................................... 5,453 6,326 7,185 13,196
Long-term obligations, net of current portion........ 114 544 627 3,346
Total stockholders' equity........................... 5,160 4,649 3,123 1,671
</TABLE>
See Note 2 of Notes to Consolidated Financial Statements for information
concerning the calculation of shares used in computing pro forma net loss per
share.
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All statements, trend analysis and other information contained in the
following discussion relative to markets for Sagent's products and trends in
revenues, gross margins and anticipated expense levels, as well as other
statements including words such as "anticipate," "believe," "plan," "estimate,"
"expect," "intend" and other similar expressions constitute forward-looking
statements. These forward-looking statements are subject to business and
economic risks and uncertainties, and Sagent's actual results of operations may
differ materially from those contained in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors" as well as other risks and
uncertainties referenced in this prospectus.
OVERVIEW
Sagent develops, markets and supports Enterprise Intelligence software
designed to address organizations' rapidly growing information access, analysis
and delivery needs. Sagent also provides design, systems engineering and
education services to facilitate the successful implementation of its Sagent DMS
product suite. Sagent was incorporated in April 1995, commenced operations in
June 1995 and began selling the first products of the Sagent DMS product suite
during the fourth quarter of 1996. Sagent's revenues increased from $279,000 in
1996, to $7.1 million in 1997, the first full year of product shipments, and to
$17.0 million in 1998. Sagent had net losses of $7.0 million, $6.9 million and
$13.7 million in 1996, 1997 and 1998, respectively, and had an accumulated
deficit of approximately $28.6 million as of December 31, 1998. Although
Sagent's revenues have grown significantly during these periods, there can be no
assurance that such growth will continue, nor that Sagent can achieve or sustain
profitability in the future.
Sagent's revenues are derived from two sources, product license revenues
and service revenues. License revenues are derived from product sales to end
users, resellers, distributors and enterprise application vendors as well as
royalties from enterprise application vendors. License revenues are based upon
the number and capacity of servers on which a product is installed, as well as
on a per user basis. Service revenues are derived from providing consulting and
training, maintenance and support services to end users.
Sagent recognizes revenues in accordance with the American Institute of
Certified Public Accountants Statement of Position No. 97-2. License revenues
from sales to end users are recognized upon shipment of the product, if a signed
contract exists, the fee is fixed and determinable and collection is deemed
probable. If an acceptance period is provided, revenue is recognized upon the
earlier of customer acceptance or the expiration of that period. Sagent
recognizes royalties as revenues based on an enterprise application vendor's
sell-through of Sagent's products. Fees for services are charged separately from
licenses. Service revenues from consulting and training are recognized upon
completion of the work to be performed. Revenues from maintenance and support
agreements which includes product updates are deferred and recognized on a
straight-line basis as service revenues over the term of the related agreement,
which is typically one year.
Sagent sells its products outside of the United States through distributors
located in France, Germany, Japan, South Africa and the United Kingdom. In
December 1997, Sagent established a subsidiary, Sagent Technology Japan KK, to
address the Asia Pacific market. Revenues from licenses and services to
customers outside the United States were insignificant prior to 1998 and
represented approximately $1.4 million in 1998. Historically,
20
<PAGE> 21
as a result of the relatively small amount of international sales, fluctuations
in foreign currency exchange rates have not had a material effect on Sagent's
business, financial condition and operating results. Sagent has agreements with
its United Kingdom distributor and the parent company of its French and German
distributors, under each of which the Sagent has an option to acquire such
distributors. In the event of a change of control of Sagent, Sagent could be
required to acquire the German distributor. Any such acquisition may have the
effect of diluting existing stockholders, reducing Sagent's available cash for
working capital and other purposes, requiring substantial management attention,
increasing annual amortization expense or imposing costs on Sagent associated
with integrating the acquired entity.
On February 28, 1998, Sagent acquired Talus, Incorporated, a privately held
company that has significant experience in the design and implementation of
Enterprise Intelligence applications. The total purchase price was $3.5 million,
and the acquisition was recorded under the purchase method of accounting. In
connection with the acquisition, Sagent expensed $2.4 million of in-process
technology in the quarter ended March 31, 1998. In addition, Sagent recorded
other intangible assets of $587,000 which are being amortized on a straight-line
basis over the six months to three years following the acquisition. See
"-- Acquired In-Process Technology" and Note 7 of Notes to Consolidated
Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1997 1998
-------- ----- -----
<S> <C> <C> <C>
Revenues, net:
Licenses.......................................... 86.0% 80.9% 61.4%
Services.......................................... 14.0 19.1 38.6
-------- ----- -----
Total revenues, net............................ 100.0 100.0 100.0
-------- ----- -----
Cost of revenues:
Licenses.......................................... 43.0 2.7 0.8
Services.......................................... 45.5 9.6 28.9
-------- ----- -----
Total cost of revenues......................... 88.5 12.3 29.7
-------- ----- -----
Gross profit........................................ 11.5 87.7 70.3
Operating expenses:
Sales and marketing............................... 977.4 83.8 70.6
Research and development.......................... 1,227.6 70.2 35.3
General and administrative........................ 398.2 31.3 30.4
Acquired in-process technology.................... -- -- 14.2
-------- ----- -----
Total operating expenses....................... 2,603.2 185.3 150.6
-------- ----- -----
Loss from operations................................ (2,591.8) (97.6) (80.3)
Other income (expense), net......................... 68.8 0.1 (0.1)
-------- ----- -----
Net loss............................................ (2,522.9)% (97.5)% (80.4)%
======== ===== =====
</TABLE>
21
<PAGE> 22
FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUES
Total revenues. Sagent's revenues were $279,000, $7.1 million and $17.0
million in 1996, 1997 and 1998, respectively, representing increases of $6.8
million from 1996 to 1997 and $9.9 million, or 141%, from 1997 to 1998. This
increase of $9.9 million was due to a $4.7 million increase in product revenue
and a $5.2 million increase in services revenues as a result of the acquisition
of Talus, Incorporated. Two of Sagent's customers each represented 10.0% of
Sagent's revenues in 1997. Sagent had no customer that accounted for more than
10.0% of its revenues in 1996 or 1998.
License revenues. Sagent's license revenues were $240,000, $5.7 million and
$10.5 million in 1996, 1997 and 1998 respectively, representing increases of
$5.5 million from 1996 to 1997 and $4.7 million, or 83.0%, from 1997 to 1998.
The increase from 1996 to 1997 was due to the recognition of a full year of
revenues from license sales in 1997, compared to the recognition of revenues
from license sales during the fourth quarter in 1996. The increase from 1997 to
1998 was primarily due to an increase in license sales of the Sagent DMS product
suite resulting from additions to Sagent's direct sales and marketing staff.
Sagent anticipates that license revenues, which have represented a significant
portion of Sagent's total revenues in 1998, will continue to represent the
substantial majority of its revenues for the foreseeable future.
Service revenues. Service revenues were $39,000, $1.4 million and $6.6
million in 1996, 1997 and 1998, respectively, representing increases of $1.4
million from 1996 to 1997 and $5.2 million, or 388%, from 1997 to 1998. The
increase from 1996 to 1997 was primarily due to the addition of training and
consulting services. Such services generated $778,000 in revenue during 1997. In
1996, no training and consulting work was performed, and service revenues
represented only maintenance and support fees. The increase in service revenues
from 1997 to 1998 was primarily due to additional growth in training and
consulting services as a result of the Talus, Incorporated acquisition. Such
services generated $4.8 million, or a 517% increase, in service revenues in
1998.
COST OF REVENUES
Cost of licenses. Cost of revenues from license sales consists primarily of
royalties, product packaging, shipping, media and documentation. Cost of
revenues from license sales was $120,000, $194,000 and $143,000 in 1996, 1997
and 1998, respectively, representing 50.0%, 3.0% and 1.0% of license revenue in
the respective periods. The dollar increase from 1996 to 1997 was primarily due
to increased costs for documentation and royalties related to the increased
volume of licenses sold. The dollar decrease from 1997 to 1998 was due to
reductions achieved in per unit packaging costs. The percentage decreases
resulted from spreading these relatively fixed costs over an increased volume of
product licenses sold.
Cost of services. Cost of services consists primarily of personnel costs
and third-party consulting fees associated with providing software maintenance
and support and training and consulting services. Cost of services revenues was
$127,000, $679,000 and $4.9 million, in 1996, 1997 and 1998, respectively,
representing 326%, 50.0% and 75.0% of services revenue in the respective
periods. The dollar increases were primarily due to the increase in the number
of technical support staff, the increase in the number of consultants in 1997
required to support introduction of training and consulting services and the
increase in the number of consultants in 1998 providing consulting services as a
result of the Talus,
22
<PAGE> 23
Incorporated acquisition. The percentage decrease from 1996 to 1997 was
primarily due to the introduction of higher margin consulting services. The
percentage increase from 1997 to 1998 was due to the increased infrastructure
costs associated with supporting the Talus, Incorporated consultant staff.
OPERATING EXPENSES
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, benefits, commissions, bonuses and travel expenses for sales and
marketing personnel as well as marketing programs and other promotion costs.
Sales and marketing expenses were $2.7 million, $5.9 million and $12.0 million
in 1996, 1997 and 1998, respectively, representing 976%, 84.0% and 71.0% of
total revenue in the respective periods. The dollar increases resulted primarily
from a $1.7 million increase in 1997 and a $3.5 million increase in 1998 in
employee-related expenses, principally due to the hiring of additional sales
personnel and to higher commissions paid as a result of Sagent's revenue growth.
In addition, during 1998 expenses related to marketing programs increased $1.7
million as a result of Sagent conducting its first user conference, expanding
its advertising campaigns and beginning its Enterprise Intelligence seminar
series. The percentage decreases were attributable to Sagent's increased
revenues. Sagent believes that as it continues to expand its direct sales and
presales support organization, 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, although such expenses
may vary as a percentage of total revenues.
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 were $3.4 million, $5.0
million and $6.0 million in 1996, 1997 and 1998, respectively, representing
1,226%, 70.0% and 34.0% of total revenues in the respective periods. The dollar
increases were primarily due to a $1.2 million increase in compensation costs in
1997 resulting from the hiring of additional developers and an $800,000 increase
in contractor costs in 1998 for the localization of Sagent's software for use in
Japan. The percentage decreases were attributable to Sagent's increased
revenues. Sagent anticipates that research and development expenditures will
continue to increase in absolute dollars, although such expenses may vary as a
percentage of total revenues.
General and administrative. General and administrative expenses consist
primarily of personnel costs for Sagent's finance, human resources, information
systems and other management departments. General and administrative expenses
were $1.1 million, $2.2 million and $5.2 million for 1996, 1997 and 1998,
respectively, representing 398%, 31.0% and 30.0% of total revenues in the
respective periods. The dollar increases were primarily due to employee-related
expenses associated with the addition of staff in senior managerial positions
and professional fees necessary to manage and support Sagent's growth. The
percentage decreases were attributable to Sagent's increased revenues. In
addition, during 1998, Sagent recorded significant legal fees associated with
two litigation matters which have both been settled. See "Risk Factors--Our
Proprietary Technology May Be Subjected to Infringement Claims or May Be
Infringed Upon" and "Business--Legal Proceedings."
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<PAGE> 24
Income Tax. As of December 31, 1998, Sagent had available net operating
loss carryforwards for federal and state income tax purposes of approximately
$20.8 and $17.8 million, respectively, which expire from 2003 to 2018. See Note
14 of Notes to the Financial Statements. The Tax Reform Act of 1986 imposes
limitations on the use of net operating loss carryforwards if certain stock
ownership changes have occurred or could occur in the future.
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<PAGE> 25
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited consolidated statements of
operations data for the eight quarters ended December 31, 1998, as well as the
percentage of Sagent's revenues represented by each item. These data have been
derived from unaudited interim consolidated financial statements prepared on the
same basis as the audited consolidated financial statements and, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments, considered necessary for a full presentation of such information
when read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues, net:
Licenses.......................... $ 776 $ 1,326 $ 1,784 $ 1,842 $ 1,798 $ 2,111 $ 2,932 $ 3,618
Services.......................... 224 159 384 583 1,199 1,568 1,689 2,128
------- ------- ------- ------- ------- ------- ------- -------
Total revenues, net............. 1,000 1,485 2,168 2,425 2,997 3,679 4,621 5,746
Cost of revenues:
Licenses.......................... 30 22 26 116 36 25 61 21
Services.......................... 133 89 105 352 729 1,386 1,468 1,340
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.......... 163 111 131 468 765 1,411 1,529 1,361
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........................ 837 1,374 2,037 1,957 2,232 2,268 3,092 4,385
Operating expenses:
Sales and marketing............... 1,343 1,184 1,494 1,908 2,203 3,007 3,188 3,639
Research and development.......... 1,191 1,122 1,217 1,439 1,516 1,401 1,649 1,447
General and administrative........ 403 540 427 845 1,199 1,321 1,424 1,242
Acquired in-process technology.... -- -- -- -- 2,425 -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses........ 2,937 2,846 3,138 4,192 7,343 5,729 6,261 6,328
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations................ (2,100) (1,472) (1,101) (2,235) (5,111) (3,461) (3,169) (1,943)
Other income(expense), net.......... 1 (24) 10 21 22 32 (26) (45)
------- ------- ------- ------- ------- ------- ------- -------
Net loss............................ $(2,099) $(1,496) $(1,091) $(2,214) $(5,089) $(3,429) $(3,195) $(1,988)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues, net:
Licenses.......................... 77.6% 89.3% 82.3% 76.0% 60.0% 57.4% 63.4% 63.0%
Services.......................... 22.4 10.7 17.7 24.0 40.0 42.6 36.6 37.0
------- ------- ------- ------- ------- ------- ------- -------
Total revenues, net............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Licenses.......................... 3.0 1.5 1.2 4.8 1.2 0.7 1.3 0.4
Services.......................... 13.3 6.0 4.8 14.5 24.3 37.7 31.8 23.3
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues.......... 16.3 7.5 6.0 19.3 25.5 38.4 33.1 23.7
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........................ 83.7 92.5 94.0 80.7 74.5 61.6 66.9 76.3
Operating expenses:
Sales and marketing............... 134.3 79.7 68.9 78.7 73.5 81.7 69.0 63.3
Research and development.......... 119.1 75.6 56.1 59.3 50.6 38.1 35.7 25.2
General and administrative........ 40.3 36.4 19.7 34.9 40.0 35.9 30.8 21.6
Acquired in-process technology.... -- -- -- -- 80.9 -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses........ 293.7 191.7 144.7 172.9 245.0 155.7 135.5 110.1
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations................ (210.0) (99.2) (50.8) (92.2) (170.5) (94.1) (68.6) (33.8)
Other income(expense), net.......... 0.1 (1.6) 0.5 0.9 0.7 0.9 (0.6) (0.8)
------- ------- ------- ------- ------- ------- ------- -------
Net loss............................ (209.9)% (100.8)% (50.3)% (91.3)% (169.8)% (93.2)% (69.2)% (34.6)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 26
Sagent's operating expenses for the three months ended March 31, 1998
exceeded levels that Sagent has historically experienced due primarily to
acquired in-process technology expense recorded in connection with the
acquisition of Talus, Incorporated. In addition, operating expenses for the
three months ended June 30, 1998 exceeded levels that Sagent has historically
experienced due to the addition of several sales personnel and increased
advertising expenses. Sagent's quarterly operating results may vary
significantly from quarter to quarter. The timing of Sagent's revenues are
unpredictable due to several factors, including the effect of delays in customer
orders, the lack of software order backlog, the potential effect of seasonality
as international operations expand and the degree to which customers engage
Sagent's professional services. Additionally Sagent cannot predict expenses with
significant certainty given planned expansion of its business. Due to
uncertainty surrounding revenues and expenses, Sagent believes that quarter to
quarter comparison of its operating results are not a good indication of future
performance.
ACQUIRED IN-PROCESS TECHNOLOGY
On February 28, 1998, Sagent acquired Talus, Incorporated, a privately held
company with experience in the design and implementation of Enterprise
Intelligence applications. At the time of the acquisition, Talus' revenue was
associated with implementation services of outside vendor solutions. The total
purchase price was $3.5 million, consisting of approximately $1.2 million in
cash, 259,000 shares of preferred stock valued at $1.4 million and the
assumption of liabilities of $0.9 million. The acquisition was recorded under
the purchase method of accounting.
Prior to the acquisition, Talus was in the process of developing analytical
software applications to complement its design and implementation business. The
four projects under development consisted of analytical software applications
for manufacturing, food, service and hospitality, and high technology
industries. These projects are unique and complex because they integrate the
industry knowledge of Talus' consultants with advanced data mart and business
intelligence software to develop analytical software applications for specific
industries. These analytical software applications allow organizations to model
decision processes unique to their industry, such as decisions on products,
sales and distribution channels, and customers. Sagent anticipates that these
analytical software applications can be sold on a stand alone basis with
implementation assistance.
In connection with the acquisition of Talus, Sagent identified two key
intangible assets, the analytical software applications under development and an
existing assembled workforce. The method used to estimate the fair value of the
analytical software applications was a discounted cash flow model, similar to
the traditional income approach, adjusted for cost to complete and stage of
completion. Sagent first estimated revenue, cost of goods sold, and operating
expense for the analytical software applications. Since it is uncertain whether
the estimates may be achieved, the estimated earnings associated with the
analytical software applications under development were discounted at a rate of
35%. In addition, using a cost of completion method, Sagent estimated that
development was on average 55% complete at the date of acquisition. Development
is expected to be completed during 1999 through 2000, with initial revenue
expected in 1999. At the time of the acquisition Talus had incurred
approximately $2.0 million of research and development expense on development of
the analytical software applications. Sagent has incurred approximately $1.0
million of research and development expense since the date of acquisition
through December 31, 1998 and estimates that $0.8 million will be required to
complete the remaining development projects. Based on these methods, estimates,
and calculations and since the analytical software applications have not
achieved technological
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<PAGE> 27
feasibility and since there was no alternative future use for this technology,
Sagent expensed $2.4 million of in-process technology in the quarter ended March
31, 1998. The classification of acquired in-process technology was made in
accordance with the guidance of SFAS 2, "Accounting for Research and Development
Costs," SFAS 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed," and FIN 4, "Applicability of FASB Statement No.
2 to Business Combinations Accounted for by the Purchase Method, an
Interpretation of FASB Statement No. 2."
Sagent recorded other intangible assets of $587,000, which included the
value assigned to the Talus assembled workforce. These assets are being
amortized on a straight-line basis over periods which vary from six months to
three years following the acquisition. The method used to estimate the fair
value of the workforce was based on the estimated cost to recreate the
workforce.
The efforts required to develop the acquired in-process technology into
commercially viable products principally relate to the completion of all
planning, designing, and testing activities that are necessary to establish that
the products can meet their design requirements, including function, features,
and technical performance requirements. Sagent currently expects that the
acquired in-process technology will be successfully developed. However, these
products may not achieve commercial viability. Furthermore, future developments
in the industry, changes in technology, changes in other product offerings or
other developments may cause Sagent to alter or abandon these plans. Failure to
complete the development of these projects in their entirety, or in a timely
manner, could have an adverse impact on Sagent's business.
Sagent based its determination of the acquired in-process technology
allocation on recently issued guidance by the Securities and Exchange Commission
and considered such factors as degree of completion, technological
uncertainties, costs incurred, and projected costs to complete.
Acquired in-process technology projects continue to progress, in all
material respects, consistent with management's original assumptions used to
value the acquired in-process technology. See Note 7 to Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, Sagent had cash and cash equivalents totaling $3.1
million, a decrease of $720,000 from December 31, 1997. Since inception, Sagent
has funded its operations primarily through private sales of equity securities,
the use of equipment leases and a bank line of credit, not from cash generated
by the business. As of December 31, 1998, Sagent had raised approximately $28.6
million, net of offering costs, from the issuance of preferred stock and the
exercise of stock options, had financed equipment purchases totaling
approximately $3.3 million, and had borrowed $1.7 million under its line of
credit with a bank. Approximately $300,000 of available borrowings remain under
the line of credit at December 31, 1998.
Net cash used in operating activities was $6.3 million, $5.4 million and
$11.0 million in 1996, 1997 and 1998, respectively. For such periods, net cash
used in operating activities was primarily a result of funding ongoing
operations.
Sagent's investing activities have primarily consisted of annual purchases
of property and equipment. Capital expenditures, including those under capital
leases, totaled $1.1 million, $1.1 million and $1.2 million in 1996, 1997 and
1998, respectively. Capital leases have been used to finance the acquisition of
property and equipment, primarily
27
<PAGE> 28
computer hardware and software, and leasehold improvements and furniture
associated with Sagent's recent move into a larger facility to accommodate its
increasing employee base. In 1998, investing activities included $2.7 million
associated with the acquisition of Talus. Sagent anticipates that it will
experience an increase in its capital expenditures and lease commitments
consistent with its anticipated growth in operations, infrastructure and
personnel.
Sagent's financing activities have primarily included sales of preferred
stock and use of its equipment lease lines. Proceeds from the issuance of
preferred stock totaled $6.5 million, $5.2 million and $10.4 million in 1996,
1997 and 1998 respectively. The proceeds from equipment financing, net of
principal payments, totaled $600,000, $294,000 and $3.4 million in 1996, 1997
and 1998 respectively.
At December 31, 1998, Sagent had a revolving line of credit with a bank for
$2.0 million, which bears interest at the lending bank's prime rate. Borrowings
are limited to the lesser of 80.0% of eligible accounts receivable or $2.0
million and are secured by substantially all of Sagent's non-leased assets. The
line of credit contains certain financial restrictions and covenants. At
December 31, 1998, total borrowings available under this line were approximately
$300,000. This credit facility expires in January 2000, and Sagent expects to
extend the credit facility, although there can be no assurance that it will be
able to do so on terms acceptable to Sagent or at all. The credit line was
subsequently increased to $4.0 million effective from January 1999. Sagent was
not in compliance with certain financial covenants under its line of credit as
of December 31, 1998, and received a waiver from its lender for non-compliance
prior to December 31, 1998. Sagent is currently in compliance with its financial
covenants under such line of credit.
Sagent believes that the net proceeds from the offering, together with
existing sources of liquidity, will be sufficient to meet its working capital
and anticipated capital expenditure requirements for at least the next 12
months. Thereafter, Sagent may require additional funds to support its working
capital requirements or for other purposes, and may seek, even before such time,
to raise additional funds through public or private equity financing or from
other sources. There can be no assurance that additional financing will be
available at all, or that if available, such financing will be obtainable on
terms acceptable to Sagent or that are not dilutive to its stockholders.
RECENT ACCOUNTING PRONOUNCEMENTS
The American Institute of Certified Public Accountants issued Statement of
Position No. 98-1, "Software for Internal Use," which provides guidance on
accounting for the cost of computer software developed or obtained for internal
use. Statement of Position No. 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. Sagent does not expect that the
adoption of Statement of Position No. 98-1 will have a material effect on its
business, financial condition and operating results.
YEAR 2000 ISSUES
Sagent has completed its initial assessment of the potential overall impact
of the impending century change on Sagent's business, financial condition and
operating results. Based on Sagent's current assessment, Sagent believes the
current versions of its products are year 2000 compliant -- that is, they are
capable of adequately distinguishing 21st century dates from 20th century dates.
However, Sagent's products operate in complex network environments and directly
or indirectly interact with a number of other hardware and software systems that
Sagent cannot adequately evaluate for year 2000 compliance.
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<PAGE> 29
Sagent may face claims based on year 2000 problems in other companies' products,
or issues arising from the integration of multiple products within an overall
system. Sagent has not been a party to any litigation or arbitration proceeding
involving Sagent's products or services related to year 2000 compliance issues.
Sagent may in the future be required to defend its products or services in such
proceedings, or to negotiate resolutions of claims based on year 2000 issues.
The costs of defending and resolving year 2000-related disputes, regardless of
the merits of such disputes, and any liability Sagent has for year 2000-related
damages, including consequential damages, could harm Sagent's business. In
addition, Sagent believes that the purchasing patterns of customers and
potential customers may be affected by year 2000 issues as companies expend
significant resources to correct or upgrade their current software systems for
year 2000 compliance. These expenditures may result in reduced funds available
to purchase products like those Sagent offers. To the extent year 2000 issues
cause a significant delay in, or cancellation of, decisions to purchase Sagent's
products or services, Sagent's business would suffer.
Sagent has reviewed its internal management information and other critical
business systems to identify any year 2000 problems. Sagent also has
communicated with the external vendors that supply it with material software and
information systems and with significant suppliers to determine their year 2000
readiness. Based on Sagent's vendors' representations, Sagent believes that the
third-party hardware and software Sagent uses is year 2000 compliant except for
an application Sagent uses to track technical support requests. The application
vendor is currently undertaking modification of this application for Sagent, and
Sagent estimates that the modification will be complete in the second quarter of
1999 and will cost approximately $20,000. Although Sagent does not believe that
the cost of such modifications will materially affect its operating results, if
Sagent is not able to modify the technical support application in a timely and
successful manner Sagent may not be able to process technical support reports
effectively, which may adversely affect Sagent's business. Sagent currently
anticipates conducting additional year 2000 testing in mid-1999 when it replaces
servers in its internal network.
To date, Sagent has not incurred any material costs directly associated
with year 2000 compliance efforts, except for compensation expense associated
with salaried employees who have devoted some of their time to year 2000
assessment and remediation efforts. As discussed above, Sagent does not expect
the total cost of year 2000 problems to be material to its business, financial
condition and operating results. However, during the months prior to the century
change, Sagent will continue to evaluate new versions of its products, new
software and information systems provided by third parties and any new
infrastructure systems that Sagent acquires, to determine whether they are year
2000 compliant. Despite Sagent's current assessment, Sagent may not identify and
correct all significant year 2000 problems on a timely basis. Year 2000
compliance efforts may involve significant time and expense and unremediated
problems could harm Sagent's business, financial condition and operating
results. Sagent currently has no contingency plans to address the risks
associated with unremediated year 2000 problems.
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BUSINESS
The following description of Sagent's business should be read in
conjunction with the information included elsewhere in this prospectus. This
description contains certain forward-looking statements that are based largely
on Sagent's current expectations and are subject to a number of risks and
uncertainties. Actual results and events could differ significantly from those
discussed in the forward-looking statements as a result of certain of the
factors set forth below and elsewhere in this prospectus.
OVERVIEW
Sagent develops, markets and supports Enterprise Intelligence software
designed to address organizations' rapidly growing information access, analysis
and delivery needs. The Sagent DMS product suite gathers data from a variety of
sources, such as relational databases, mainframe databases, and the Internet,
and organizes that data into a common structure or repository known as a data
mart. A data mart is implemented to more efficiently manage a subset of
corporate data focused on the needs of a specific group of users. Once data is
organized into a Sagent data mart, the Sagent DMS product suite allows
organizations to more efficiently analyze the data and provides access to the
information through personal computers, reports, and importantly, through Web
browsers over the Internet. Sagent also provides design, systems engineering and
education services to facilitate successful customer implementations. Sagent's
products and services have been adopted in a variety of industries, including
financial services, telecommunications, technology, health care, retail, and
others. Sagent currently has more than 200 customers worldwide. Sagent markets
its software and services through its direct sales, resellers and international
distributors. Sagent also sells its software through strategic partnerships with
other software companies, each of which has integrated its product suite into
their software applications.
INDUSTRY BACKGROUND
Today, information about an organization's customers, products and
operations is one of its most important strategic assets. An organization's
ability to maximize revenues and efficiently manage operations increasingly
depends upon its ability to rapidly collect, organize, analyze and distribute
information. In particular, as organizations have begun to pursue more complex
operational strategies, their need for timely information has increased. For
example, businesses engaged in total customer management must synthesize
information regarding past purchases, service history, payment status and sales
contacts. Similarly, businesses engaged in supply chain management must manage
the information exchanged among multiple plants, sales locations, suppliers and
distribution facilities. Furthermore, as businesses continue to streamline their
organizational structures to improve time to market and responsiveness to
rapidly changing market conditions, decision making authority is expected to
become more distributed, thus heightening the need for broader dissemination of
information throughout the enterprise. Most recently, the rapid adoption of the
Internet and the World Wide Web has given organizations the ability to share
information internally and externally on a cost-effective basis and has
dramatically increased the number of people who can receive and access
information.
To meet these challenges, many organizations have purchased and implemented
data warehousing systems and decision support software. These systems were
designed to assist organizations in answering fundamental business questions
such as "Who are our best customers?" or "What are our most profitable
products?" Early data warehousing systems
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<PAGE> 31
aggregated an organization's enterprise data into a single location and
reorganized it into contextual, business-related terms. The single location has
enabled the use of query tools or other decision support software to explore and
analyze the data. The need for data warehousing and decision support software
has also been driven by the proliferation of online transaction processing
systems. These systems include packaged applications or custom and semi-custom
systems, which automate business processes such as manufacturing planning,
customer support, billing, accounting, human resources and financial services
transactions. While these multiple online transaction processing systems have
provided greater business efficiency, they have also created massive amounts of
new data, typically maintained in the form of proprietary, complex and
incompatible data models.
The demand for more useful information and the proliferation of new data
sources and data types has led to an active market for data warehousing and
decision support software. International Data Corporation estimates that the
size of the data warehouse market will grow from approximately $2.9 billion in
1997 to approximately $6.6 billion in 2001. Forrester Research projects that the
decision support segment of the data warehouse market will grow from $1.1
billion in 1997 to $3.6 billion by 2001.
As corporate data warehouses have grown in size and complexity, Sagent
believes that several challenges have prevented organizations from realizing the
promise of data warehousing systems and decision support solutions. The first
challenge has been integration. Traditional solutions have utilized discrete
data warehousing and decision support software purchased from many different
vendors, including separate data extraction tools, data cleansing tools, data
sorting packages, relational database management systems, report writers,
analysis tools and distribution packages. Integrating these point products is
difficult and often limits the capability of the overall solution. The second
challenge has been user scalability. Traditional solutions were designed to
handle a small number of users and were not designed to meet the needs of a
large number of simultaneous users with diverse, individual requirements. The
third challenge has been performance. Discrete data warehousing and decision
support software applications often have difficulty aggregating complex
enterprise data into a single business view of information, which is critical
for processing information requests efficiently. The fourth challenge has been
cost and complexity. Many large data warehousing projects cost several million
dollars and take a year or more to implement.
Most importantly, the emergence of the Internet has challenged the
continued viability of traditional data warehousing and decision support
software as the best approach to enterprise-wide information access, analysis
and delivery. The Internet provides organizations with a low-cost infrastructure
to connect their customers, suppliers, partners and employees directly with the
information they need. Organizations are using the Internet to streamline their
marketing, sales and support processes and offer enhanced customer service
capabilities. Examples of these initiatives include enabling customers to use
the Internet to research product features, order products, check order status
and obtain on-line service and support. Organizations are also using the
Internet to track key business information regarding sales, customers,
suppliers, distributors, assets and resources, and to make that information
widely available to employees when and where they need it. As the number of
Internet users continues to grow, Sagent believes that the demand for Web-based
information access, analysis and delivery will increase significantly.
International Data Corporation forecasts that total commerce on the Internet
will grow from an estimated $12.4 billion in 1997 to $237.2 billion in 2001,
with the business commerce segment of the market growing from 47% in 1997 to 60%
in 2001.
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NEED FOR A NEW SOLUTION
Sagent believes that new demands for high performance information access,
analysis and delivery, particularly through the Internet, have stretched the
capabilities of traditional data warehousing and decision support systems. Many
organizations now require a new generation of Enterprise Intelligence solutions
that can leverage Internet technologies and accommodate the rapidly growing
number of internal and external users who need to access business-critical
information. To be most effective, Sagent believes that these solutions should
satisfy four critical requirements:
- First, solutions must be capable of accessing and assembling increasing
amounts of data from multiple, disparate and complex sources into a
single business view of information for the end user.
- Second, solutions must be capable of scaling to hundreds and thousands of
concurrent users and delivering information through the bandwidth of many
Internet connections, as well as through new access devices such as
hand-held computers and alphanumeric pagers.
- Third, solutions must deliver information fast enough to meet the demands
of the new business environment, particularly the performance
requirements of e-Business and Internet applications.
- Fourth, solutions should be delivered by a single vendor that can provide
a complete, integrated product and the professional services required to
implement a working, timely solution.
THE SAGENT SOLUTION
Sagent offers a new generation of Enterprise Intelligence software
solutions designed to address organizations' rapidly growing information access,
analysis and delivery needs. The Sagent DMS product suite provides end-to-end,
fully integrated data movement, access, analysis and presentation capabilities
on all major database platforms and is specifically designed to deliver
information over the Internet. The Sagent DMS product suite utilizes a
multi-dimensional data structure known as a Star Schema and advanced dataflow
technology to construct and provide access to data marts capable of handling
some of the most complex and demanding Enterprise Intelligence requirements.
Sagent's data marts, which are data warehouses that contain a subset of specific
corporate data, provide a more detailed, single business view of information
that is focused on the needs of a specific group of users. Sagent's Web
technology enables the distribution of information throughout the organization
and gives end users the ability to access and analyze data through common Web
browsers. Sagent also offers Sagent Professional Services, which include system
and application design, and education services, to facilitate the successful
implementation of the Sagent DMS product suite.
Sagent believes its solution provides the following key benefits:
High Performance Internet Access. The Sagent DMS product suite is designed
to provide customers with the ability to access, analyze and deliver critical
information easily and rapidly over the Web. The Sagent architecture utilizes
Internet based processing capabilities to minimize the bandwidth required for
the delivery of information over the Web and other new access technologies. This
technology significantly reduces the waiting time for Web-page processing and
information delivery, thus increasing user productivity.
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Single Business View of Information. The Sagent DMS product suite utilizes
a 32-bit application server, a proprietary dataflow model and Star Schema data
structure to create a single business view of information from complex,
disparate data sources. Sagent believes this consolidated view of information
allows Sagent users to access and analyze complex data more easily and rapidly
than with traditional solutions. This approach also allows Sagent's customers to
manage the rapidly growing levels of data within their organizations.
Highly Scalable. Sagent's use of advanced bandwidth management technology,
combined with its core Star Schema data structure, enables the Sagent DMS
product suite to provide Web-based information access and data analysis
capabilities to thousands of users without degrading application performance and
availability.
Low Total Cost of Ownership. The Sagent DMS product suite is designed to
deliver low total cost of ownership by leveraging industry standards such as the
Windows NT operating system and other Microsoft technology, by providing an
integrated product suite to lower implementation time and cost, and by providing
extensive administrative functionality to reduce ongoing systems management
burdens.
STRATEGY
Sagent's objective is to become a leading provider of Enterprise
Intelligence software solutions to address organizations' rapidly growing
information access, analysis and delivery needs.
The following are key elements of Sagent's strategy:
Focus on Internet Market Opportunity. Sagent believes that the growing
global use of the Internet is driving widespread implementation of new
e-Business applications. These applications depend on the efficient access,
analysis and presentation of enterprise data. By providing a product that
delivers large amounts of highly complex data through the Web to large numbers
of simultaneous users, Sagent believes that its products can be a foundation and
enabler of Web-based Enterprise Intelligence and e-Business applications.
Extend Product Functionality and Technology Leadership. Sagent believes it
provides the first fully integrated, end-to-end Enterprise Intelligence software
solution capable of meeting the performance demanded by the emerging e-Business
environment. Sagent is currently developing the next version of the Sagent DMS
product suite, which is being designed to significantly enhance user
scalability, and which is currently scheduled for release in the first half of
1999. Sagent plans to add capabilities that broaden and complement the Sagent
DMS product suite, such as data analysis, which includes data mining,
forecasting and modeling, data visualization, data sorting, Web querying,
extraction of data from SAP applications and information broadcasting. In
addition, Sagent may introduce new international versions of its products and
may port its products to additional UNIX platforms as opportunities arise.
Although Sagent expects that certain of its new products will be developed
internally, Sagent may, based on timing and cost considerations, acquire
technology or products from third parties.
Offer Pre-Built Enterprise Intelligence Applications. Sagent believes there
is a large market for pre-built applications that utilize the underlying
analytical capabilities of the Sagent DMS product suite and offer "out of the
box" functionality in targeted vertical markets. To date, Sagent has designed,
developed and marketed such applications in conjunction with strategic partners,
including Siebel Systems, Advent Software, Inc. and Automatic Data Processing,
Inc. In the future, Sagent plans to leverage the vertical and functional
knowledge gained through these relationships and through implementations by
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its Professional Services Group to develop other pre-built Enterprise
Intelligence applications.
Broaden Distribution and Strategic Relationships. Sagent believes that it
can continue to expand its market penetration and build its brand recognition by
aggressively expanding its direct sales force; pursuing strategic relationships
with selected enterprise application vendors, consulting firms, system
integrators and development partners; and expanding its network of resellers and
distributors. To date, Sagent has entered into relationships with companies such
as Microsoft Corporation, Oracle Corporation, Siebel Systems, Automatic Data
Processing, Inc., Advent Software, and USinternetworking, Inc. Sagent also
believes that a significant opportunity exists to sell its products
internationally and intends to leverage its existing distributor relationships
in Europe and Japan and expand its direct and indirect international sales
efforts to exploit this opportunity.
Provide High Quality Services to Customers. Sagent provides comprehensive
implementation, support and training services to help customers adopt Sagent
products and build customer satisfaction, strong references and long-term
relationships. Sagent plans to continue to expand its professional services
capabilities and infrastructure. In addition, Sagent intends to expand the
education and training services it offers to its strategic partners and
resellers to help these companies market Sagent products more effectively.
Exploit Rapid Growth of Microsoft Windows NT. Sagent will continue to focus
its development efforts on the Microsoft Windows NT platform. Sagent believes
Windows NT is rapidly gaining share in the enterprise computing market due to
its ease of maintenance and cost effectiveness. International Data Corporation
projects that the installed base of Windows NT-based servers will increase from
1.6 million in 1997 to 5.9 million in 2002. Sagent Company believes that the
Sagent DMS product suite has a competitive advantage in leveraging the growth of
the Windows NT platform because it was designed to optimize Microsoft
technology.
PRODUCTS
The Sagent DMS product suite is comprised of software application servers
that handle the core components of an end-to-end solution, as well as end user
analysis applications.
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LOGO
As illustrated above, the Sagent DMS product suite consists of three core
functional areas: Data Load and Management, Data Access and Analysis, and
Administration and Design.
DATA LOAD AND MANAGEMENT
Sagent Data Load Server. The Sagent Data Load Server extracts data from
multiple client/server and mainframe databases, transforms that data into a Star
Schema data structure, and then loads that data into a Sagent data mart. The
server relies upon a 32-bit multithreaded architecture to achieve its high level
of performance.
DATA ACCESS AND ANALYSIS
Sagent Data Access Server. The Sagent Data Access Server delivers the data
loaded into a Sagent data mart to end users. The server is designed to allow
large numbers of users to access and analyze data stored in Star Schema
structures. The server relies upon a 32-bit multithreaded architecture to
achieve its high level of performance.
Sagent WebLink Server. The Sagent WebLink Server is a high performance,
scalable application server that delivers information from the Sagent Data
Access Server, allowing end users to query, analyze and report business
information from a Web browser. The server also provides management capabilities
that maintain the security and availability of Internet connections.
Sagent Statistical Calculator. The Sagent Statistical Calculator adds
advanced statistical analysis capabilities to the Sagent Data Access Server. The
calculator allows organizations to automate statistical analyses of large,
complex data sets, thereby improving the single business view of information
distributed to end users.
Sagent Information Studio. Sagent Information Studio enables users to
access and analyze an organization's information in client/server environments.
Information Studio, as well as WebLink Server, can be integrated with Microsoft
Excel to aid in exporting result sets to spreadsheets for further analysis.
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The following reporting and analysis products can be integrated with the
Sagent DMS product suite:
Sagent Reports. Sagent Reports allows end users to create, publish and view
graphically rich presentations of corporate information.
Sagent Analysis. Sagent Analysis provides a wide range of analytical
capabilities for business data, such as rankings, deciles, periodic and
exception reporting. The product's drill down analysis capabilities allow users
to view information in either cross-tabular or chart format.
StatView for Sagent. StatView for Sagent provides an end user with the
ability to create, publish and view complex statistical analyses of corporate
data in client/server environments.
ADMINISTRATION AND DESIGN
Sagent Design Studio. Sagent Design Studio provides a visual environment
for describing data and designing the flow of data for both loading and
accessing a data mart. Sagent Design Studio minimizes the requirement that users
have in-depth knowledge of databases, networks and operating systems and allows
them to concentrate on the business purpose of accessing, analyzing and
delivering information.
Sagent Admin. Sagent Admin enables administrators to manage and control one
or more Sagent DMS servers from a single location. In addition, Sagent Admin
manages user security and access privileges.
Sagent Automation. Sagent Automation automates common tasks within the
Sagent DMS product suite, such as data loading, error recovery and quality
assurance. Tasks can be initiated by events such as a pre-determined time of day
or date, reaching disk storage capacity or the availability of new data.
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT
The Sagent Professional Services Group offers an extensive set of
consulting and education services to Sagent's customers. The Sagent Professional
Services Group has significant experience in the design and implementation of
Enterprise Intelligence applications using a Star Schema data architecture.
Sagent's customers are able to select an appropriate level of support for their
implementations, including project planning, design and implementation
assistance.
In addition to consulting services, the Sagent Professional Services Group
offers design and product training classes to facilitate customer success in
initial implementations and provide a foundation for expanding the use of Sagent
products in customer organizations. The Sagent Professional Services Group also
offers to third party consultants product certification training, which Sagent
believes helps develop market awareness of its product offerings.
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<PAGE> 37
CUSTOMERS
The following is a representative list of Sagent's customers that have
purchased more than $75,000 in product licenses or services from Sagent since
January 1, 1997:
<TABLE>
<S> <C> <C>
ARINC DiaLogos Mashantucket Pequot Tribal
Automatic Data Processing Eddie Bauer Nation
AT&T Ernst & Young MCI WorldCom
Barnesandnoble.com Express Scripts/ValueRx Miller Freeman
Bell Communications Research Farm Credit Services NationsBanc
BellSouth Cellular General American NETCOM On-Line
BellSouth Entertainment Transportation Communication Services
CEISS/BC Ministry of Education Hoechst Marion Roussel Nordstrom
CellStar GPU Energy Nycomed
Ceridian J.P. Morgan & Co. PairGain Technologies
City of Santa Clara Jiffy Lube International Pharmaceutical Care Network
Cohn & Wells John Hopkins University Prudential Insurance
Deutsche Financial Services Kaufman & Broad Home Rohm & Haas
Kawasaki Steel Systems R&D The Application Group
</TABLE>
In 1997, Sagent received in excess of 10% of its total revenues from each
of Oracle Corporation and Automated Data Processing.
CASE STUDIES
The following case studies illustrate how certain of Sagent's customers
have utilized the Sagent DMS product suite:
PHARMACEUTICAL CARE NETWORK
Pharmaceutical Care Network is a pharmacy benefits management and
healthcare information services company.
Business Challenge. Pharmaceutical Care Network was one of the first
pharmacy benefit management companies to institute on-line, real-time claim
processing for a nationwide network of participating pharmacies. When a plan
participant presents a prescription at a Pharmaceutical Care Network
participating pharmacy, the applicable plan guidelines are referenced on-line
instantly, ensuring that a customer pays for appropriate and eligible
prescriptions at the contracted price. Pharmaceutical Care Network wanted to
leverage the information it was gathering through its nationwide network of
pharmacies to improve the level of service across its pharmaceutical care value
chain, including plan members, health care providers and plan sponsors and
affiliated pharmacies. To provide this service, Pharmaceutical Care Network
wanted to install an Enterprise Intelligence solution that would allow customers
to access and analyze the vast amounts patient care information through a Web
browser.
Solution. Pharmaceutical Care Network established MedIntelligence, a family
of information-based products for its pharmaceutical care value chain, to screen
and review prescription data, initiate notifications that identify drug therapy
problems and recommend action to improve the quality and cost of patient care.
Pharmaceutical Care Network selected the Sagent DMS product suite as the core of
MedIntelligence to integrate large amounts of disparate information within the
Pharmaceutical Care Network and to rapidly deliver MedIntelligence products over
the Web. The MedIntelligence products and the Sagent DMS product suite furnishes
healthcare providers with access to a more complete view of patient drug
regimens, which reduce the risk of harmful drug interactions, and provide health
care payers and plan administrators with the ability to monitor pharmacy related
plan costs and usage trends.
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CELLSTAR CORPORATION
CellStar Corporation is an integrated wholesaler and retailer of wireless
handsets and other wireless communication products, with operations in the
United States, Asia/Pacific, Latin America and the United Kingdom.
Business Challenge. CellStar Corporation required a solution to provide its
global sales force and key customers access to sales data for analysis and
presentation. In particular Cellstar Corporation wanted to provide it's
employees with the ability to monitor sell through, perform customer rankings
and identify high margin products. In addition CellStar Corporation wished to
provide it's key customers and vendors with worldwide data on the most popular
products by volume to maximize their revenue opportunity.
Solution. CellStar Corporation uses the Sagent DMS product suite to manage
and access CellStar Corporation data. The Sagent Analysis desktop module with
Sagent's WebLink lets users perform multidimensional analysis on the data mart
to gain sales data information either from a client/server environment for their
internal employees or through a Web browser for their global sales force,
customers and vendors. While the WebLink product is used to provide access to
data mart information to general users, Sagent's Information Studio with the
analysis module is generally utilized by internal business analysts. This
Enterprise Intelligence solution provides CellStar Corporation's manufacturers
and key customers with the ability to analyze sell-through data so that they can
determine which products are selling at acceptable margins to make better
informed channel marketing decisions.
TECHNOLOGY
Sagent has invested significant resources in developing leading
technologies and believes that utilizing a Star Schema data architecture and
Sagent's advanced dataflow technology to construct and provide access to data
marts gives it a competitive advantage over traditional solutions. Sagent also
believes that its technology maximizes the advantages of an Internet based
architecture to provide one of the most scalable solutions currently offered in
the market. The following are the key underlying technologies of the Sagent DMS
product suite:
Dataflow Technology. Sagent's dataflow technology is the foundation for the
Sagent DMS product suite load and access servers. Dataflow technology allows
users to rapidly construct processes that load and access a data mart without
writing code. These services relieve the need for users to have in-depth
knowledge of databases, networks and multithreaded operating systems and allow
them to concentrate on the application they are building. The dataflow engine
executes the processes that are visually designed by the user. The dataflow
technology is implemented using the Component Object Model standard, known as
COM, developed by Microsoft Corporation. The utilization of a modular,
language-independent component technology allows customers and resellers to
incorporate new functionality into the product via a transform software
development kit. This same development kit provides Sagent with the ability to
add new functionality to the server rapidly and send it to the customer
electronically without requiring a complete upgrade of the system.
Star Schema Design. Sagent has implemented a set of dataflow components to
support the loading and accessing of Star Schemas. Star Schemas are a database
design technique used to provide high performance for ad hoc data analysis
within a relational database by minimizing the number of relations to process in
a query. By combining query
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<PAGE> 39
generation with the dataflow engine's processing capability, Sagent provides
power and speed to users accessing Star Schema structured data. In addition, the
Sagent DMS product suite provides a set of specialized dataflow components for
loading Star Schemas that significantly lowers the implementation time for the
Sagent DMS product suite.
Internet-Based Architecture. Sagent has developed an architecture that
utilizes the network of computing tiers that comprise the Web. These tiers
include browsers, Internet servers, data access servers, data load servers and
database servers. The efficient usage of CPU cycles and memory provided by these
tiers enables the Sagent DMS product suite to achieve a high degree of
scalability and performance. In addition, on-demand data delivery minimizes
bandwidth usage, improving the rate at which information is delivered to users.
SALES AND MARKETING
Sales. Sagent sells its products and services in North America primarily
through its direct sales and services organization. Sagent has domestic sales
offices in eleven states.
The direct sales process involves the generation of sales leads through
direct mail, seminars, telemarketing, advertising and the Web. Sagent's field
sales force typically conducts demonstrations and presentations of Sagent's
products to developers and management at customer sites as part of its direct
sales effort. The time between initial customer contact and an actual sales
order may span six months or more. See "Risk Factors--Our Operating Results May
Vary Significantly Due to our Lengthy Sales and Implementation Cycles for our
Products Which Could Cause our Stock Price to Fall."
Within Sagent's direct sales group, a separate group targets strategic
partnerships with industry-leading application software providers such as Siebel
Systems, Advent Software, Automatic Data Processing and Oracle Corporation.
These vendors embed all or a portion of Sagent's products within their own
applications and then sell the integrated products to their customers. Siebel
Systems, for example, embeds a portion of our product suite in Siebel Marketing
Enterprise to integrate and analyze customer interaction in sales, service and
all center environments. The enterprise application vendor's customer receives a
license to use Sagent's products solely in conjunction with the vendor's
application with which Sagent DMS products are integrated. Enterprise
application vendors provide the first level of post-sales support to customers.
Sagent also utilizes a limited number of resellers, such as Unisys Corporation,
USinternetworking, Inc. and Cap Gemini Group, that remarket Sagent's products to
their customer base. Resellers are offered discounts on Sagent's products and
sell a full use license of the product. Sagent's resellers do not provide
post-sales support. Sagent's ability to achieve revenue growth in the future
will depend in large part on its success in expanding its direct sales force and
in further establishing and maintaining relationships with enterprise
application vendors and resellers. See "Risk Factors--If our Relationships with
Channel Partners are Not Successful and if We Cannot Recruit Additional Channel
Partners We May Not Be Able to Expand our Sales."
Sagent also sells its products internationally through distributors located
in France, Germany, Japan, South Africa and the United Kingdom. These
distributors perform some or all of sales and marketing, systems integration,
software development, and ongoing consulting training and customer support
functions. In exchange for providing such services, Sagent offers its
distributors discounts on products. International sales are subject to certain
risks, including, but not limited to, costs of localizing products for foreign
countries, dependence on local vendors, currency fluctuations and greater
difficulty or delay in accounts receivable collection.
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We have agreements with our United Kingdom distributor and the parent
company of our French and German distributors, under each of which we have the
option to acquire the distributor. In the event of a change of control of
Sagent, we could be required to acquire the German distributor. In connection
with any such acquisition, we would be required to pay a purchase price. The
purchase price would be equal to the greater of a multiple of such distributor's
last 12 months' revenues as of the date of the acquisition or a minimum purchase
price specified in each agreement in cash or a combination of cash and
registered shares of our common stock. See "Risk Factors--We Intend to Expand
International Operations but We May Encounter a Number of Problems in Doing so
Which Could Limit our Future Growth."
Marketing. Sagent has a comprehensive marketing strategy which includes
public relations, user group meetings, programs to work closely with analysts
and other influential third parties, and direct mail campaigns. Sagent also
utilizes the Web for advertising campaigns on frequently visited Web sites
including those of its strategic partners. Sagent uses its Web site,
www.sagenttech.com, to establish its market presence, generate leads and extend
its program offerings to customers and strategic partners. A key element of
Sagent's marketing strategy is to leverage its relationship with Dr. Ralph
Kimball, one of Sagent's consultants and strategic partners, by sponsoring his
data mart design courses. Sagent has also invested in building a partner and
channel marketing function to recruit, train, support and offer co-marketing
opportunities to technology partners and resellers.
RESEARCH AND PRODUCT DEVELOPMENT
Sagent's research and development group is organized by product teams,
which consist of product managers, software engineers, quality assurance
engineers and technical documentation specialists. The teams are encouraged to
maintain consistent architectural standards, engineering practices, quality
goals and documentation standards across a broad product line. The product teams
use a phased development approach that monitors cost, schedule, quality, time,
functionality and customer satisfaction. Sagent has established an executive
product steering committee which reviews the progress of individual product
teams at each phase of development. In order to incorporate customer needs in
product releases, the product teams actively solicit requirements from
customers, user groups, professional services, industry analysts and technical
support.
Sagent's total expenses for research and development for the year ended
December 31, 1996, 1997 and 1998 were $3.4 million, $5.0 million and $6.0
million respectively. Sagent believes that research and development expenses
will continue to increase in the future. To date, Sagent's development efforts
have not resulted in any capitalized software development costs.
Sagent has made substantial investments in research and development. Sagent
is currently developing the next version of the Sagent DMS product suite, which
is being designed to significantly enhance user scalability, and is currently
scheduled for release in the first half of 1999. Sagent plans to add
capabilities that broaden and complement the Sagent DMS product suite, such as
data analysis, which includes data mining, forecasting and modeling, data
visualization, data sorting, Web querying, extraction of data from SAP
applications and information broadcasting. In addition, Sagent may introduce new
international versions of its products and may port its products to additional
UNIX platforms as opportunities arise. Although Sagent expects that certain of
its new products will be developed internally, Sagent may, based on timing and
cost considerations, acquire technology or products from third parties.
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Sagent believes that its future performance will depend in large part on
its ability to maintain and enhance its current product line, develop new
products that achieve market acceptance, maintain technological competitiveness
and meet an expanding range of customer requirements. Sagent's inability to
enhance its existing products and develop new ones in a timely and effective
manner, could have a material adverse effect upon Sagent's business, financial
condition and operating results. See "Risk Factors--We May Lose Existing
Customers or Be Unable to Attract New Customers if We Do Not Develop New
Products," "--Changes in Internet Technology and Operating System Standards May
Impede Market Acceptance for our Products" and "--If We Discover Software
Defects We May Have Product-Related Liabilities Which May Lead to Loss of
Revenue or Delay in Market Acceptance for our Products."
COMPETITION
The markets for Sagent's products are intensely competitive and subject to
rapidly changing technology. Sagent competes against providers of decision
support software, data warehousing software, enterprise application software and
e-Business software. The primary bases of competition in this market include
performance, scalability, ease of use, operating platform and cost of ownership.
Sagent's competitors providing traditional decision support software
include Brio Technology, Inc., Business Objects S.A., Cognos Incorporated,
Information Advantage, Inc. and MicroStrategy, Inc. Sagent's competitors
providing data warehousing software include Ardent Software, Inc., Informatica
Corporation, Information Builders, Oracle, PLATINUM Technology, Inc. and SAS
Institute, Inc. In addition, enterprise application software vendors such as
Baan Company N.V., J.D. Edwards & Company, PeopleSoft, Incorporated and SAP AG
are beginning to offer decision support and analytical modules, although each
tends to support the analysis of data only from its own operational systems. One
or more of these companies may expand its technologies to support greater
Enterprise Intelligence functionality. Sagent may also face competition from
vendors of products and turn-key solutions for e-Business applications that
could include Internet based information functionality.
Many of Sagent's competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Sagent's competitors may be able to respond more quickly
than Sagent can to new or emerging technologies and changes in customer
requirements. Competition could seriously harm Sagent's ability to sell
additional software and maintenance and support renewals on terms favorable to
Sagent. Competitive pressures could reduce Sagent's market share or require it
to reduce the price of products, either of which could materially and adversely
affect Sagent's business, financial condition and operating results.
INTELLECTUAL PROPERTY
Sagent seeks to protect its software, documentation and other written
materials primarily through a combination of patent, trade secret, trademark and
copyright laws, confidentiality procedures and contractual provisions. For
example, Sagent licenses rather than sells its software and requires licensees
to enter into license agreements that impose certain restrictions on the
licensees' ability to utilize the software. In addition, Sagent seeks to avoid
disclosure of its trade secrets, by, among other things, requiring those persons
with access to Sagent's proprietary information to execute confidentiality
agreements with Sagent and restricting access to Sagent's source code.
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Sagent has two patent applications pending and one patent application
allowed in the United States with respect to certain aspects of its software.
None of these patents have been issued, and there can be no assurance that any
patents will be issued pursuant to these applications or that, if granted, such
patent would survive a legal challenge to its validity or provide significant
protection to Sagent. Despite Sagent's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of Sagent's products or
obtain and use information that Sagent regards as proprietary. Policing
unauthorized use of Sagent's products is difficult. While Sagent is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem, particularly in foreign
countries where the laws may not protect Sagent's proprietary rights as fully as
in the United States. There can be no assurance that Sagent's means of
protecting its proprietary rights will be adequate or that Sagent's competitors
will not independently develop similar technology.
From time to time, Sagent may be involved in intellectual property
disputes. In May 1998, Acta Technology, Inc. filed suit against Sagent alleging,
among other things, copyright infringement, and Sagent filed suit against Acta
Technology, Inc. alleging misappropriation of Sagent trade secrets. The parties
settled the dispute in February 1998. Other than Acta Technology, Inc., Sagent
has not been notified that Sagent's products infringe the proprietary rights of
third parties. However, third parties in the future may claim infringement
against Sagent with respect to current or future products. Sagent expects that
software product developers will increasingly be subject to infringement claims
as the number of products and competitors in Sagent's industry segment grows and
the functionality of products in different industry segments overlaps. See "Risk
Factors--Our Proprietary Technology May Be Subjected to Infringement Claims or
May Be Infringed Upon."
Sagent relies upon certain software it has licensed from Opalis S.A. to
perform key functions of its Sagent Automation product which automates common
tasks in managing data. This license may not continue to be available to Sagent
on commercially reasonable terms. The loss of this license could result in
delays or reductions of shipments of the Sagent Automation product until
equivalent software could be developed, identified, licensed and integrated. If
customers require the automation features provided by this product, they may
delay or decline to purchase Sagent's product suite, which could materially
adversely affect Sagent's business, financial condition and operating results.
EMPLOYEES
As of December 31, 1998, Sagent had a total of 152 employees, of whom 147
were based in the United States and 4 were based internationally. Sagent's
employees were employed as follows:
- 60 were engaged in sales and marketing
- 43 in research and development
- 32 in professional services and customer support
- 17 in finance, administration and corporate operations
Sagent's future performance depends in significant part on its continuing
ability to attract, train and retain highly qualified technical, sales, service,
marketing and managerial personnel. None of Sagent's employees is represented by
a labor union. Sagent has not experienced any work stoppages and considers its
relations with its employees to be good. See "Risk Factors--Our Executive
Officers and Key Personnel are Critical to our Business and These Officers and
Key Personnel May Not Remain With Us in the Future."
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FACILITIES
Sagent's principal offices currently occupy approximately 34,000 square
feet in Mountain View, California pursuant to a lease which expires in October
2003. In addition, Sagent also leases executive suites on a short-term basis for
North American offices in:
<TABLE>
<S> <C>
- Englewood, Colorado - Wellesley, Massachusetts
- Atlanta, Georgia - New York, New York
- Orlando, Florida - Bala Cynwyd, Pennsylvania
- Plantation, Florida - Houston, Texas
- Chicago, Illinois - Alexandria, Virginia
- Toronto, Ontario
</TABLE>
Sagent believes that its facilities are adequate for the next 12 months and
that, if required, suitable additional space will be available on commercially
reasonable terms to accommodate expansion of Sagent's operations.
LEGAL PROCEEDINGS
On March 22, 1999, Timeline, Inc. filed a complaint against Sagent in the
United States District Court for the Western District of Washington at Seattle.
Timeline alleges that the Sagent DMS product suite infringes one or more of the
claims of a Timeline patent. Timeline is seeking relief in the forms of an
injunction, damages, punitive damages, attorney's fees, prejudgment and
postjudgment interest and costs. Sagent is not currently a party to any other
material legal proceedings. See "Risk Factors -- Our Proprietary Technology May
Be Subjected to Infringement Claims or May Be Infringed Upon and Timeline, Inc.
Has Filed an Infringement Suit Against Us."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Sagent as of January 29, 1999 are
set forth below. The board of directors has appointed Mr. Luft to the board of
directors, and Mr. Luft has agreed to join, effective as of the first meeting of
the board of directors following completion of the offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth C. Gardner........................ 48 President, Chief Executive Officer and
Director
John E. Zicker............................ 42 Executive Vice President, Technology,
Chief Technology Officer and Director
W. Virginia Walker........................ 53 Executive Vice President, Finance and
Administration, and Chief Financial
Officer
Thomas M. Lounibos........................ 42 Executive Vice President, Sales and
Marketing
Kenneth C. Holcomb........................ 49 Vice President, Operations
Michael P. Venerable...................... 36 Vice President, Professional Services
Shanda Bahles (a)(b)...................... 43 Director
Richard W. Shapero(a)(b).................. 51 Director
Jeffrey T. Webber......................... 46 Director
Klaus S. Luft............................. 57 Director designee
</TABLE>
- -------------------------
(a) Member of the Audit Committee.
(b) Member of the Compensation Committee.
Kenneth C. Gardner. Mr. Gardner has been President, Chief Executive Officer
and a director since commencement of operations in June 1995. From March 1994
until March 1995, Mr. Gardner was Vice President of Products at Borland
International, Inc., which has since changed its name to Inprise Corporation, an
enterprise applications company. From February 1992 until March 1994, Mr.
Gardner was President, Chief Executive Officer and a co-founder of ReportSmith,
Inc., a database report applications company, which was purchased by Borland in
1994. Mr. Gardner is a director of ObjectSwitch Corp., Data Sage, Inc. and
CommerceOne Inc., which are privately held companies. Mr. Gardner received his
B.S.C. degree in Finance from the University of Louisville.
John E. Zicker. Mr. Zicker has been Executive Vice President, Technology,
Chief Technology Officer and a director since Sagent's commencement of
operations in June 1995. From March 1994 until May 1995, Mr. Zicker was Director
of Client/Server Development at Borland International, Inc. From February 1992
until March 1994, Mr. Zicker was Vice President of Technology and a co-founder
of ReportSmith, Inc. Mr. Zicker has 13 years experience in software development
and image processing at NASA Ames Research Center, Lawrence Livermore
Laboratories and the Stanford Linear Accelerator Center. Mr. Zicker received his
B.S. degree in Electrical Engineering at the University of California at Davis
and his M.S. degree in Electrical Engineering from the University of Wisconsin
at Madison.
W. Virginia Walker. Ms. Walker has been Executive Vice President, Finance
and Administration, and Chief Financial Officer since January 1998. From June
1996 to January 1998, Ms. Walker pursued personal interests. From November 1995
until June 1996, Ms. Walker was Executive Vice President of Finance and
Administration, Chief
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Financial Officer and Secretary of JTS Corporation, a publicly traded disk drive
manufacturer. From May 1985 until September 1995, Ms. Walker worked at Scios
Nova, Inc., a publicly traded biopharmaceutical company, where she held the
positions of Vice President of Finance and Administration and Chief Financial
Officer. Ms. Walker received her B.S. degree in Business Administration,
Accounting from San Jose State University.
Thomas M. Lounibos. Mr. Lounibos has been Executive Vice President, Sales
and Marketing since January 1999. Mr. Lounibos was Sagent's Executive Vice
President, Worldwide Sales, from October 1998 until January 1999 and was
Sagent's Vice President, Sales from March 1996 until October 1998. From October
1995 until March 1996, Mr. Lounibos was Vice President of Sales for
ParcPlace-DigiTalk Incorporated, an object-oriented programming tools company,
and from November 1993 until October 1995 Mr. Lounibos was Vice President of
Sales for DigiTalk, Incorporated, which was acquired by ParcPlace Incorporated.
Prior to joining DigiTalk, Incorporated, Mr. Lounibos worked for Knowledgeware,
Incorporated, a software company, where he served as Vice President of
Sales--Western United States and Vice President of Marketing. Mr. Lounibos
received his B.S. degree in Business Economics from the University of San
Francisco.
Kenneth C. Holcomb. Mr. Holcomb has been Vice President, Operations since
March 1998. From March 1997 until February 1998, Mr. Holcomb was Vice President,
Operations of Pilot Network Services, Inc., a publicly-traded network security
company. From May 1996 until February 1997, Mr. Holcomb was Vice President,
Systems Integration of WorldCom, Inc., a publicly traded telecommunications
company. From January 1996 until May 1996, Mr. Holcomb was Vice President,
Internet Development of MFS Communications Company, Inc., a telecommunications
company. From January 1992 until December 1996, Mr. Holcomb was Senior Vice
President, Customer Service and Operations of MFS Datanet, Inc., and subsidiary
of MFS Communications, Inc. a data communications company. Mr. Holcomb received
his B.A. degree in Business Administration, Finance, from the University of
Notre Dame.
Michael P. Venerable. Mr. Venerable has been Vice President, Sagent
Professional Services since March 1998. In March 1992, Mr. Venerable founded
Talus, Incorporated, a privately held company with significant experience in the
design and implementation of Enterprise Intelligence applications, and served as
its President until February 1998, when Sagent acquired Talus, Incorporated. Mr.
Venerable received his B.S. degree in Criminal Justice from the University of
Dayton.
Shanda Bahles. Ms. Bahles has been a director of Sagent since May 1995.
Since May 1991, Ms. Bahles has been a General Partner of El Dorado Ventures, a
venture capital firm. Ms. Bahles joined El Dorado Ventures as an associate in
June 1987. From 1979 to 1985, Ms. Bahles held various engineering, marketing and
management positions with Millennium Systems, Inc., a systems integration
company, and Fortune Systems Corporation, a workstation manufacturer. Ms. Bahles
is a director of Pilot Network Services, Inc., a publicly traded company, and
Women.com Networks, Inc., Poet Holdings, Inc. and MS2, Inc., which are privately
held companies. Ms. Bahles received her B.S.E.E. and M.B.A. degrees from
Stanford University.
Richard W. Shapero. Mr. Shapero has been a director of Sagent since May
1995. Since April 1993, Mr. Shapero has been a General Partner of Crosspoint
Venture Partners, a venture capital firm. From January until June 1992, Mr.
Shapero was Chief Operating Officer of Shiva Corporation, a networking company.
Previously, he was a Vice President of Sun Microsystems, Inc., Senior Director
of Marketing of AST Research, Inc. and held marketing and sales positions at
Informatics General Corporation and UNIVAC's Communications Division. Mr.
Shapero is a director of Covad Communications Group,
45
<PAGE> 46
Inc., a publicly traded company, and Digital Island, Inc., Diamond Lane
Communications Corporation, NetBoost Corporation, Fabrik Communications, Inc.,
ObjectSwitch Corp., Jetstream Communications, Inc., AristaSoft Corporation and
iBeam Broadcasting Corporation, which are privately held companies. Mr. Shapero
received his B.A. degree in English from the University of California at
Berkeley.
Jeffrey T. Webber. Mr. Webber has been a director of Sagent since September
1995. Mr. Webber founded, and since January 1991 has served as President of,
R.B. Webber & Company, Inc., a management consulting firm. From 1987 to January
1991, he was a partner of Edgar, Dunn & Company, a management consulting firm.
Mr. Webber serves as a director of Sybase, Inc., a publicly traded company, and
CommerceOne, Inc., enCommerce, Inc., Persistence Software, Inc., Spear
Technologies, Inc. and Workwise Software, Inc., which are privately held
companies. Mr. Webber received his B.A. degree in American Studies from Yale
University.
Klaus S. Luft. Mr. Luft is the founder and President of MATCH -- Market
Access for Technology Services GmbH, a provider of sales and marketing services
to high technology companies, since February 1994. Mr. Luft is also the founder,
limited partner and President of ISAR-Vermogensverwaltung GbR mbH. Since August
1990, Mr. Luft has served as an International Advisor and Vice-Chairman of
Goldman Sachs Europe Limited, an investment bank. From March 1986 to November
1989, Mr. Luft was Chief Executive Officer of Nixdorf Computer AG, a
manufacturer of computer systems in Paderborn, Germany, where he also held
various other executive positions in marketing, manufacturing and finance for
more than 17 years. Mr. Luft is a director of Dell Computer Corporation, a
publicly traded company. Mr. Luft received his German Arbitur in Bruchsal,
Germany.
BOARD OF DIRECTORS AND COMMITTEES
Following the offering, Sagent's board of directors will consist of six
directors divided into three classes with each class serving for a term of three
years. At each annual meeting of stockholders, directors will be elected by the
holders of the common stock to succeed those directors whose terms are expiring.
Mr. Shapero and Ms. Bahles are Class I directors whose terms will expire in
2000. Mr. Webber is a Class II director whose term will expire in 2001. Messrs.
Gardner and Zicker are Class III directors whose terms will expire in 2002.
The board of directors has a compensation committee and an audit committee.
The compensation committee, which is comprised of Ms. Bahles and Mr. Shapero,
administers the amended 1995 stock option plan, the 1998 stock option plan and
the 1999 employee stock purchase plan and all matters concerning executive
compensation. The audit committee, which is comprised of Ms. Bahles and Mr.
Shapero, approves Sagent's independent auditors, reviews the results and scope
of annual audits and other accounting related services, and evaluates Sagent's
internal audit and control functions. Each of these committees was established
in February 1997.
DIRECTOR COMPENSATION
Sagent does not pay any compensation to directors for serving in that
capacity, nor does it reimburse directors for expenses incurred in attending
board meetings. The board has the discretion to grant options to non-employee
directors pursuant to the director option plan. See " -- 1999 Director Option
Plan."
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<PAGE> 47
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee is currently comprised of Ms. Bahles and Mr.
Shapero. Neither of these individuals has at any time been an officer or
employee of Sagent. Prior to formation of the compensation committee, all
decisions regarding executive compensation were made by the full board of
directors. No interlocking relationship exists between Sagent's board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Sagent's certificate of incorporation limits the liability of directors to
the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation shall not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except for:
- Any breach of the director's duty of loyalty to Sagent or its
stockholders
- Acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law
- Unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions
- Any transaction from which the director derived an improper personal
benefit
These provisions are permitted under Delaware law.
Sagent's bylaws provide that Sagent shall indemnify its directors and
executive officers and may indemnify its other officers and employees and agents
and other agents to the fullest extent permitted by law. Sagent believes that
indemnification under its bylaws covers at least negligence and gross negligence
on the part of indemnified parties. Sagent's bylaws also permit Sagent to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the bylaws would permit indemnification.
Sagent has entered into agreements to indemnify its directors and officers,
in addition to indemnification provided for in Sagent's bylaws. These
agreements, among other things, indemnify Sagent's directors and officers for
certain expenses, including attorneys' fees, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding, including any
action by or in the right of Sagent, arising out of such person's services as a
director or officer of Sagent, any subsidiary of Sagent or any other company or
enterprise to which the person provides services at the request of Sagent. In
addition, Sagent intends to obtain directors' and officers' insurance providing
indemnification for certain of Sagent's directors, officers and employees for
certain liabilities. Sagent believes that these provisions, agreements and
insurance are necessary to attract and retain qualified directors and officers.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of Sagent where indemnification will be
required or permitted. Sagent is not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.
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<PAGE> 48
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation that
Sagent paid during the year ended December 31, 1998 to Sagent's Chief Executive
Officer and each of Sagent's other four most highly compensated executive
officers whose salary and bonus exceeded $100,000 during such fiscal year. These
officers are referred to as Named Officers elsewhere in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION(A)
--------------------------- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Kenneth C. Gardner................ $225,000 $ 90,000 -- $366
President and Chief Executive
Officer
John E. Zicker.................... 150,000 60,000 -- 120
Executive Vice President,
Technology and Chief Technology
Officer
W. Virginia Walker................ 173,965 69,586 180,000 240
Executive Vice President,
Finance and Administration and
Chief Financial Officer
Thomas M. Lounibos................ 164,590 124,420(b) 90,000 120
Executive Vice President, Sales
and Marketing
Perry S. Mizota(c)................ 140,000 35,000 -- 72
Former Vice President, Marketing
</TABLE>
- -------------------------
(a) Consists of premiums paid on term life insurance.
(b) Consists of commissions calculated based on Sagent's revenues.
(c) Perry S. Mizota resigned from his position as Vice President, Marketing of
Sagent effective January 29, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with respect to stock
options granted to each of the Named Officers in 1998, including the potential
realizable value over the ten-year term of the options, based on assumed rates
of stock appreciation of 5% and 10%, compounded annually. These assumed rates of
appreciation comply with the rules of the Securities and Exchange Commission and
do not represent Sagent's estimate of future stock price. Actual gains, if any,
on stock option exercises will be dependent on the future performance of
Sagent's common stock.
48
<PAGE> 49
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER ANNUAL RATES OF STOCK
OF SECURITIES % OF PRICE APPRECIATION FOR
UNDERLYING TOTAL OPTIONS EXERCISE OPTION TERM
OPTIONS GRANTED TO PRICE PER EXPIRATION -----------------------
NAME GRANTED EMPLOYEES SHARE DATE 5% 10%
---- ------------- ------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth C. Gardner......... -- -- -- -- -- --
John E. Zicker............. -- -- -- -- -- --
W. Virginia Walker......... 180,000 13.12% $2.90 01/20/08 $328,283 $ 831,934
Thomas M. Lounibos......... 90,000 6.56% 7.00 12/28/08 396,204 1,004,058
Perry S. Mizota............ -- -- -- -- -- --
</TABLE>
In 1998, Sagent granted options to purchase up to an aggregate of 1,367,400
shares to employees, directors and consultants. All options were granted under
Sagent's amended 1995 stock option plan and 1998 stock option plan at exercise
prices at the fair market value of Sagent's common stock on the date of grant,
as determined in good faith by the board of directors. All options are
immediately exercisable upon grant; however, any unvested shares are subject to
repurchase by Sagent at their cost in the event of the optionee's termination of
employment. One-forty-eighth of the shares subject to Ms. Walker's option vest
monthly after January 5, 1998. One-twenty-fourth of the shares subject to Mr.
Lounibos' option vest on each monthly anniversary after July 1, 1999.
OPTION EXERCISES AND HOLDINGS
The following table sets forth for each of the Named Officers information
concerning exercisable and unexercisable options held as of December 31, 1998.
The value of in-the-money options is based on a value of $7.00 per share, the
fair market value of the common stock at December 31, 1998, as determined by the
board, and net of the option exercise price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS
SHARES VALUE 1998 AT DECEMBER 31, 1998
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth C. Gardner... -- -- 100,000 -- $450,000 --
John E. Zicker....... -- -- 80,000 -- 360,000 --
W. Virginia Walker... 180,000 -- -- -- -- --
Thomas M. Lounibos... 230,000 $1,244,300 208,255 51,745 624,342 $232,853
Perry S. Mizota...... -- -- 50,000 -- 225,000 --
</TABLE>
The $1,244,300 value realized by Mr. Lounibos on the exercise of options as
set forth in the table above is based on a value of $5.50 per share, the fair
market value of the common stock on the date of exercises as determined by the
board of directors, minus the exercise price. Except in the case of Mr.
Lounibos, all options were granted under the amended 1995 stock option plan. Mr.
Lounibos was granted a non plan option to purchase 268,255 shares, of which
38,255 remain unexercised and outstanding, an option to purchase 131,745 shares
under the amended 1995 stock option plan and an option to purchase 90,000 shares
under the 1998 stock option plan.
49
<PAGE> 50
EMPLOYMENT AGREEMENTS
Sagent requires each of its employees to enter into confidentiality
agreements prohibiting the employee from disclosing any confidential or
proprietary information of Sagent. In addition, the agreements generally provide
that upon termination such employee will not work for a competitor and will not
solicit Sagent customers and employees. At the time of commencement of
employment, Sagent's employees also generally sign offer letters specifying
basic terms and conditions of employment. In general, employees of Sagent are
not subject to written employment agreements. However, in connection with
Sagent's acquisition of Talus, Incorporated. Michael Venerable entered into an
employment agreement with Sagent. See "Certain Transactions--Acquisition of
Talus, Incorporated."
EMPLOYEE BENEFIT PLANS
1998 Stock Option Plan. Sagent's 1998 stock option plan provides for the
granting to employees of incentive stock options within the meaning of Section
422 of the Internal Revenue Code and for the granting to employees and
consultants of nonstatutory stock options. The stock option plan was approved by
the board of directors and the stockholders in December 1998. Unless terminated
sooner, the stock option plan will terminate automatically in December 2008. A
total of 2,440,000 shares of common stock is reserved for issuance plus annual
increases, beginning in May 2000, equal to the lesser of:
- 1,500,000 shares
- Five percent of the outstanding shares on the designated date in May or
- A lesser amount determined by the board
The stock option plan may be administered by the board of directors or a
committee of the board. The administrator has the power to determine the terms
of the options granted, including the exercise price, the number of shares
subject to each option, the exercisability thereof, and the form of
consideration payable upon exercise.
The stock option plan provides that in the event of a merger of Sagent with
or into another corporation, or the sale of substantially all of Sagent's
assets, each outstanding option will be assumed or substituted for by the
successor corporation. If the outstanding options are not assumed or substituted
for, each outstanding option will vest and become exercisable, including the
options that would not have been vested or exercisable. As of December 31, 1998,
no shares had been issued upon the exercise of stock options under the 1998
stock option plan and 218,900 shares were subject to outstanding options.
Amended 1995 Stock Option Plan. Sagent's amended 1995 stock option plan
provides for the granting to employees of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code and for the granting to
employees and consultants of nonstatutory stock options. The amended 1995 stock
option plan was approved by the board of directors in July 1998 and the
stockholders in September 1998. The terms of the amended 1995 stock option plan
are substantially similar to those of the 1998 stock option plan. The board of
directors terminated the amended 1995 stock option plan as to new option grants
in December 1998. As of December 31, 1998, 1,214,443 shares had been issued upon
the exercise of stock options granted under the amended 1995 stock option plan
and 2,056,580 shares were subject to outstanding options.
50
<PAGE> 51
1999 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in the 1999 director
option plan. The director option plan was adopted by the board of directors in
January 1999 and approved by the stockholders in February 1999, but it will not
become effective until the date of this offering. The director option plan has a
term of 10 years, unless terminated sooner by the board. A total of 150,000
shares of common stock have been reserved for issuance under the director option
plan.
The board has the discretion to grant options to non-employee directors
pursuant to the director option plan. The exercise price of all options is
required to be 100% of the fair market value per share of the common stock,
determined with reference to the closing price of the common stock as reported
on the Nasdaq National Market on the date of grant.
In the event of a merger of Sagent or the sale of substantially all of the
assets of Sagent, if the option is not assumed or substituted, each option shall
become fully vested and exercisable for a period of 15 days from the date the
board notifies the optionee of the option's full exercisability. If an option is
assumed or substituted and the optionee's service as a director is terminated,
other than upon a voluntary resignation, the option becomes fully vested.
Options granted under the director option plan must be exercised within thirty
days of the end of the optionee's termination of service to Sagent as a
director, employee or consultant, within six months after such director's
termination by death, or within twelve months after such director's termination
by death or disability, but not later than the expiration of the option's
10-year term.
1999 EMPLOYEE STOCK PURCHASE PLAN
Sagent's 1999 employee stock purchase plan was adopted by the board of
directors in January 1999 and by the stockholders in February 1999. A total of
450,000 shares of common stock has been reserved for issuance under the employee
stock purchase plan, plus annual increases every January equal to the lesser of:
- The number of shares optioned during the prior year or
- A lesser amount determined by the board
The employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, contains successive six-month offering
periods. The offering periods generally start on the first trading day on or
after May 1 and November 1 of each year, except for the first such offering
period which commences on the first trading day on or after the effective date
of this offering and ends on the last trading day on or before October 31, 1999.
Employees are eligible to participate if they are employed by Sagent or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, the following employees may not be granted
options to purchase stock under the employee stock purchase plan:
- Any employee who immediately after grant owns stock possessing five
percent or more of the total combined voting power or value of all
classes of the capital stock of Sagent or
- Any employee whose rights to purchase stock under all employee stock
purchase plans of Sagent accrues at a rate which exceeds $25,000 worth of
stock for each calendar year
51
<PAGE> 52
Participants may purchase common stock through payroll deductions of up to
20% of the participant's compensation. The maximum number of shares a
participant may purchase during a single offering period is 10,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lower of the fair market value
of the common stock at the beginning of the offering period and the end of each
purchase period.
The purchase plan provides that, in the event of a merger of Sagent with or
into another corporation or a sale of substantially all of Sagent's assets, each
outstanding option may be assumed or substituted for by the successor
corporation. If the successor corporation refuses to assume or substitute for
the outstanding options, the offering period then in progress will be shortened
and a new exercise date will be set, which will occur before the proposed sale
or merger.
The purchase plan will terminate in February 2009. The board of directors
has the authority to amend or terminate the purchase plan, except that no such
action may adversely affect any outstanding rights to purchase stock.
401(K) PLAN
Sagent has a 401(k) plan covering Sagent's full-time employees located in
the United States who are at least 21 years of age. The 401(k) plan is intended
to qualify under Section 401(k) of the Internal Revenue Code. Consequently,
contributions to the 401(k) plan by employees or by Sagent, and the investment
earnings thereon, are not taxable to employees until withdrawn from the 401(k)
plan. Employees may elect to reduce up to 25% of their pre-tax earnings up to
the statutorily prescribed annual limit, which was $10,000 in 1998, and to have
the amount of such reduction contributed to the 401(k) plan. The 401(k) plan
permits, but does not require, additional matching contributions to the 401(k)
plan by Sagent on behalf of all participants in the 401(k) plan. To date, Sagent
has not made any contributions to the 401(k) plan.
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<PAGE> 53
CERTAIN TRANSACTIONS
Since April 1995, Sagent's inception, there has not been nor is there
currently proposed any transaction or series of similar transactions to which
Sagent or any of its subsidiaries was or is to be a party in which the amount
involved exceeds $60,000 and in which any director, executive officer, holder of
more than five percent of the common stock of Sagent or any member of the
immediate family of any of the foregoing persons had or will have a direct or
indirect material interest other than (1) compensation agreements and other
arrangements, which are described where required in "Management," and (2) the
transactions described below.
EQUITY INVESTMENT TRANSACTIONS
In July, August and September 1996, Sagent sold 2,615,680 shares of its
Series C preferred stock for $2.50 per share. In August and September 1997 and
January 1998, Sagent sold 1,572,327 shares of its Series D preferred stock for
$3.18 per share. In February and March 1998, Sagent sold 1,895,370 shares of its
Series E preferred stock for $5.40 per share. Listed below are those directors,
executive officers and stockholders who beneficially own five percent or more of
Sagent's securities who participated in the above financings. Sagent believes
that the shares issued in these transactions were sold at the then fair market
value and that the terms of these transactions were no less favorable than
Sagent could have obtained from unaffiliated third parties.
<TABLE>
<CAPTION>
SERIES C SERIES D SERIES E AGGREGATE CASH
STOCKHOLDER PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK CONSOLIDATION
----------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Entities affiliated with
Crosspoint Venture
Partners................ 531,708 411,130 925,926 $7,636,664
Entities Affiliated with
El Dorado Ventures...... 531,708 411,130 485,185 5,256,662
Greylock Equity Limited
Partnership............. 480,584 371,599 437,963 4,748,145
Entities affiliated with
U.S. Venture Partners... 1,040,000 150,405 -- 3,078,288
Jeffrey T. Webber......... 6,000 58,262 46,296 450,272
Thomas M. Lounibos........ -- 45,785 -- 145,596
</TABLE>
The Crosspoint Venture Partners shares include shares purchased by
Crosspoint 1993 Entrepreneurs Fund, Crosspoint Venture Partners LS 1997 and with
Crosspoint Venture Partners 1993 which are affiliated entities. Crosspoint 1993
Entrepreneurs Fund has four general partners: Bob Hoff, Don Milder, John Mumford
and Richard W. Shapero, a director of Sagent. Each of these general partners
shares voting and investment power over the shares held by Crosspoint 1993
Entrepreneurs Fund. Crosspoint Venture Partners LS 1997 has one general partner,
Crosspoint Associates 1997, which has six general partners: Mr. Hoff, Mr.
Milder, Mr. Mumford, Mr. Shapero, Barbara Lubash and Seth Neiman. Each of these
general partners shares voting and investment power over the shares held by
Crosspoint Associates 1997. Crosspoint Venture Partners 1993 has one general
partner, Crosspoint Associates 1993, which has four general partners: Mr. Hoff,
Mr. Milder, Mr. Mumford and Mr. Shapero. Each of these general partners shares
voting and investment power over the shares held by Crosspoint Associates 1993.
Mr. Shapero disclaims beneficial ownership of the securities held by such
entities except for his proportional interest in the entities.
The El Dorado Ventures shares include shares purchased by El Dorado
Technology IV, L.P., El Dorado Ventures III, L.P., El Dorado Ventures IV, L.P.
and El Dorado Technology '98, L.P. which are affiliated entities. El Dorado
Ventures III is the general
53
<PAGE> 54
partner of El Dorado Technology IV, L.P. and El Dorado Ventures III, L.P. El
Dorado Ventures III has three general partners: Gary Kalbach, Tom Peterson and
Shanda Bahles, a director of Sagent. Each of these general partners shares
voting and investment power over the shares held by El Dorado Ventures III. El
Dorado Ventures Partners IV, LLC is the general partner of El Dorado Ventures
IV, L.P. and El Dorado Technology '98, L.P. Mr. Kalbach, Mr. Peterson and Ms.
Bahles are the managing directors of El Dorado Ventures IV, L.P. Ms. Bahles
disclaims beneficial ownership of the securities held by such entities except
for her proportional interest in the entities.
The Jeffrey Webber shares include shares purchased by The Enterpreneurs'
Fund, RBW Investments, LLC, individually, his IRA account and his wife. Jeffrey
T. Webber, a director of Sagent, is one of the managing directors of BW
Management LLC, the general partner of The Entrepreneurs' Fund, L.P. Mr. Webber
disclaims beneficial ownership of the shares held by The Entrepreneurs' Fund,
L.P., except to the extent of his proportionate interest in the entity. Mr.
Webber is the managing director of RBW Investments, LLC. Mr. Webber disclaims
beneficial ownership of the shares held by RBW Investments, LLC, except to the
extent of his proportionate interest in the entity.
RESTRICTED STOCK PURCHASE AGREEMENTS
In February 1998, Ms. Walker, Sagent's Executive Vice President, Finance
and Administration, and Chief Financial Officer, exercised two options to
purchase an aggregate of 180,000 shares of common stock and entered into
restricted stock purchase agreements regarding the shares. Ms. Walker paid the
$522,000 aggregate exercise price by delivering three-year full-recourse
promissory notes at a 5.47% per annum interest rate. The notes are secured by
the shares of common stock purchased by Ms. Walker. As of February 28, 1999,
$553,465 in unpaid principal and interest was outstanding in the aggregate under
the notes.
In February 1999, Mr. Lounibos, Sagent's Executive Vice President, Sales
and Marketing, exercised three options to purchase an aggregate of 248,255
shares of common stock and entered into restricted stock purchase agreements
regarding the shares. Mr. Lounibos paid the $933,442 aggregate exercise price by
delivering three-year full-recourse promissory notes bearing interest at the
rate of 4.66% per annum. The notes are secured by the shares of common stock
purchased by Mr. Lounibos. As of February 28, 1999, $933,442 in unpaid principal
and interest was outstanding in the aggregate under the notes.
In March 1999, Mr. Holcomb, Sagent's Vice President, Operations, exercised
an option to purchase an aggregate of 46,510 shares of common stock and entered
into a restricted stock purchase agreement regarding the shares. Mr. Holcomb
paid the $199,993 aggregate exercise price by delivering a three-year
full-recourse promissory note at a 4.62% per annum interest rate. The note is
secured by the shares of common stock purchase by Mr. Holcomb. As of March 17,
1999, $199,993 in unpaid principal and interest was outstanding in the aggregate
under the note.
ACQUISITION OF TALUS, INCORPORATED
In February 1998, Sagent and Talus, Incorporated entered into an agreement
and plan of reorganization in which Sagent acquired Talus, Incorporated for
total consideration of $1,170,000 in cash and 259,258 shares of Series E
preferred stock. Michael P. Venerable, Sagent's Vice President, Professional
Services, was President of Talus, Incorporated at the
54
<PAGE> 55
time of the acquisition. As consideration for his shares of Talus, Incorporated,
Mr. Venerable received:
- $571,051 in cash
- 109,919 shares of Series E preferred stock and
- An employment agreement with Sagent
As part of the employment agreement, Mr. Venerable received:
- A salary of $123,000
- A bonus based upon performance milestones and
- An option to purchase 150,000 shares of common stock at an exercise price
of $4.30 per share
The vesting of his option is as follows:
- 20% on the first anniversary of the agreement
- 20% on the second anniversary of the agreement
- 60% on the third anniversary of the agreement
In the event of a change of control of Sagent, the option will accelerate
and become immediately exercisable if such options are not assumed. If Mr.
Venerable's options are assumed and he is terminated for any reason other than
for cause or if he voluntarily terminates his employment for good reason, after
the change of control, the unvested portion of the option will accelerate and
become immediately exercisable. If Mr. Venerable's employment is terminated for
cause or if he resigns for any reason other than good reason, he has agreed not
to engage in a restricted business or solicit any of Sagent's employees for
three years.
EXECUTIVE CHANGE OF CONTROL POLICY
The board has adopted an executive change of control policy applicable to
key executives of Sagent. The policy provides that options granted to key
executives will be assumed upon a change of control of Sagent. Furthermore, if a
key executive remains an employee at the time of the change of control, the
vesting of that individual's key executive options will accelerate, and Sagent's
right to repurchase will lapse, as to 50% of the unvested portion of such
options. If a key executive is terminated for any reason other than for cause or
terminates employment for good reason during the one-year period after the date
of the change of control, then the remaining unvested portion of such key
executive options will accelerate and become immediately exerciseable, and
Sagent's right to repurchase the applicable portion of such shares will lapse.
TRANSACTIONS WITH ISAR
Klaus S. Luft, who has agreed to join the board as of the first meeting of
the board following completion of the offering, is a limited partner of ISAR.
Sagent has entered into an agreement with ISAR, pursuant to which ISAR
established a German company, Magnolia II, to distribute and support Sagent's
products in Germany, Austria and Switzerland. Sagent has entered into an
agreement with Magnolia II pursuant to which Magnolia II has the exclusive
right, other than with respect to value added resellers who have been or will be
granted worldwide distribution rights, to distribute Sagent's products in
Germany, Austria and Switzerland. Magnolia II has agreed to pay Sagent royalties
on sales and maintenance of Sagent's products. Sagent has a call option to
acquire Magnolia II with cash, registrable securities or a combination of cash
and registrable
55
<PAGE> 56
securities, with the acquisition price determined according to the date of the
acquisition and Magnolia II's revenues.
In May 1998, Sagent and ISAR entered into a common stock purchase agreement
in which ISAR purchased 28,000 shares of Sagent's common stock for an aggregate
purchase price of $120,960. In May 1998, Sagent granted ISAR a warrant to
purchase 22,000 shares of Sagent's common stock at an exercise price of $5.40
per share. Mr. Luft disclaims beneficial ownership of the shares and warrant
held by ISAR except to the extent of his proportionate interest in ISAR.
COMMON STOCK PURCHASE AGREEMENT
In February 1999, in order to make an investment in Sagent, Mr. Luft
entered into an agreement with Sagent to purchase 10,000 shares of Sagent's
common stock at $9.00 per share. The agreement also provides that prior to
transferring any of these shares to any third party, Mr. Luft must offer the
shares to Sagent first on the same terms and conditions as offered to the third
party. Sagent's right of first refusal expires upon the effective date of the
registration statement filed in connection with the offering.
OTHER TRANSACTIONS
Sagent has entered into indemnification agreements with each of its
executive officers and directors.
Sagent has granted options to certain of its executive officers. See
"Management--Option Grants in Last Fiscal Year."
Holders of preferred stock are entitled to certain registration rights with
respect to the common stock issued or issuable upon conversion thereof. See
"Description of Capital Stock--Registration Rights."
Sagent believes that all related-party transactions described above were on
terms no less favorable than could have been otherwise obtained from unrelated
third parties. All future transactions between Sagent and its principal
officers, directors and affiliates will be approved by a majority of the
independent and disinterested members of the board and will be on terms no less
favorable that could be obtained from unrelated third parties.
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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of Sagent's common stock as of December 31, 1998, by the following individuals
or groups:
- - Each person or entity who is known by Sagent to own beneficially more than 5%
of Sagent's outstanding stock
- - Each of the Named Executive Officers
- - Each director of Sagent
- - All directors and executive officers as a group
Applicable percentage ownership in the following table is based on
18,669,377 shares of common stock outstanding as of December 31, 1998, as
adjusted to reflect the conversion of all outstanding shares of preferred stock
upon the closing of this offering, treating as outstanding all shares of common
stock issuable upon exercise of options exercisable within 60 days of December
31, 1998 held by the particular stockholder and that are included in the first
column. The numbers shown in the table below assume no exercise by the
underwriters of their over-allotment option.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Sagent Technology, Inc., 800 W. El Camino Real, Suite
300, Mountain View, California 94040. Except as otherwise indicated, and subject
to applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock held by
them.
<TABLE>
<CAPTION>
PERCENTAGE
OWNED
SHARES OWNED -------------------
PRIOR TO THE BEFORE AFTER
OFFERING OFFERING OFFERING
------------ -------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS:
Entities affiliated with Crosspoint Venture
Partners(a).............................. 4,179,876 22.4% 17.7%
Entities affiliated with El Dorado
Ventures(b).............................. 3,739,135 20.0 15.8
Greylock Equity Limited Partnership(c)...... 3,379,034 18.1 14.3
Entities affiliated with U.S. Venture
Partners(d).............................. 1,190,405 6.4 5.0
DIRECTORS AND OFFICERS:
Kenneth C. Gardner(e)....................... 1,200,000 6.4 5.1
Jeffrey T. Webber(f)........................ 341,884 1.8 1.4
John E. Zicker(g)........................... 968,000 5.2 4.1
W. Virginia Walker(h)....................... 180,000 * *
Perry S. Mizota(i).......................... 320,000 1.7 1.4
Thomas M. Lounibos(j)....................... 434,040 2.8 2.2
Richard W. Shapero(a)....................... 4,179,876 22.4 17.7
Shanda Bahles(b)............................ 3,739,135 20.0 15.8
All directors and officers as a group
(10 persons)(k)............................. 11,809,364 61.0 48.5
</TABLE>
- -------------------------
* Represents less than one percent of the total
(a) Principal address is The Pioneer Hotel Building, 2925 Woodside Road,
Woodside, CA 94062. Number of shares includes 3,155,547 shares held by
Crosspoint Venture Partners 1993, 925,926 shares held by Crosspoint Venture
Partners LS 1997 and 98,403 shares held by Crosspoint 1993 Entrepreneurs
Fund. Crosspoint 1993 Entrepreneurs Fund has four general partners: Bob
Hoff, Don Milder, John Mumford and Richard W. Shapero, a director of
Sagent. Each of these general
57
<PAGE> 58
partners shares voting and investment power over the shares held by
Crosspoint 1993 Entrepreneurs Fund. Crosspoint Venture Partners LS 1997 has
one general partner, Crosspoint Associates 1997, which has six general
partners: Mr. Hoff, Mr. Milder, Mr. Mumford, Mr. Shapero, Barbara Lubash
and Seth Neiman. Each of these general partners shares voting and
investment power over the shares held by Crosspoint Associates 1997.
Crosspoint Venture Partners 1993 has one general partner, Crosspoint
Associates 1993, which has four general partners: Mr. Hoff, Mr. Milder, Mr.
Mumford and Mr. Shapero. Each of these general partners shares voting and
investment power over the shares held by Crosspoint Associates 1993. Mr.
Shapero disclaims beneficial ownership of the securities held by such
entities except for his proportional interest in the entities.
(b) Principal address is 2400 Sand Hill Road, Suite 100, Menlo Park, CA 94025.
Number of shares includes 3,172,773 shares held by El Dorado Ventures III
L.P., 478,658 shares held by El Dorado Ventures IV, L.P., 81,177 shares
held by El Dorado Technology IV, L.P. and 6,527 shares held by El Dorado
Technology '98, L.P. El Dorado Ventures III is the general partner of El
Dorado Technology IV, L.P. and El Dorado Ventures III, L.P. El Dorado
Ventures III has three general partners: Gary Kalbach, Tom Peterson and
Shanda Bahles, a director of Sagent. Each of these general partners shares
voting and investment power over the shares held by El Dorado Ventures III.
El Dorado Venture Partners IV, LLC is the general partner of El Dorado
Ventures IV, L.P. and El Dorado Technology '98, L.P. Mr. Kalbach, Mr.
Peterson and Ms. Bahles are the managing directors of El Dorado Ventures
IV, L.P. Ms. Bahles disclaims beneficial ownership of the securities held
by such entities except for her proportional interest in the entities.
(c) Principal address is 755 Page Mill Road, Suite A-100, Palo Alto, CA 94304.
(d) Principal address is 2180 Sand Hill Road, Suite 300, Menlo Park, CA 94025.
Number of shares includes 1,026,129 shares held by U.S. Venture Partners
IV, L.P., 124,993 shares held by Second Ventures II, L.P., 35,712 shares
held by U.S.V.P. Entrepreneur Partners II, L.P. and 3,571 shares held by
2180 Associates Fund. 2180 Associates Fund, Second Ventures II, L.P., U.S.
Venture Partners IV, L.P. and U.S.V.P. Entrepreneur Partners II, L.P. are
affiliated entities. Presidio Management Group IV, L.P. is the general
partner of Second Ventures II, L.P., U.S. Venture Partners IV, L.P. and
U.S.V.P. Entrepreneur Partners II, L.P. Presidio Management Group IV, L.P.
has four general partners: William K. Bowes, Irwin Federman, Steve Krausz
and Phil Young. Each of these general partners shares voting and investment
power over the shares held by Presidio Management Group IV, L.P. 2180
Associates Fund has three general partners: Marc A. Friend, Jonathan Root,
M.D. and Jeff Canin. Each of these general partners shares voting and
investment power over the shares held by 2180 Associates Fund. Each of the
general partners of the above entities disclaims beneficial ownership of
the securities held by such entities except for his proportional interest
in the entity.
(e) Includes 925,000 shares registered in the name of Kenneth C. Gardner and
Patricia T. Gardner, Trustees of the Gardner Family Trust u/d/t dated
September 6, 1996, 100,000 shares registered in the name of Delaware
Charter Guarantee & Trust Co., Trustee fbo Kenneth C. Gardner, IRA and
75,000 shares registered in the name of trusts. Also includes an option
granted to Kenneth C. Gardner to purchase 100,000 shares exercisable within
60 days of December 31, 1998.
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<PAGE> 59
(f) Includes 207,692 shares registered in the name of Jeffrey T. Webber, 91,325
shares registered in the name of The Entrepreneurs' Fund, L.P., 32,778
shares registered in the name of Mr. Webber's wife, 6,944 shares registered
in the name of RBW Investments, LLC and 3,145 shares registered in the name
of First Trust Corporation fbo Jeffrey T. Webber. Jeffrey T. Webber, a
director of Sagent, is one of the managing directors of BW Management, LLC,
the general partner of The Entrepreneurs' Fund, L.P. Mr. Webber disclaims
beneficial ownership of the shares held by The Entrepreneurs' Fund, L.P.,
except to the extent of his proportionate interest in the entity. Mr.
Webber is the managing director of RBW Investments, LLC. Mr. Webber
disclaims beneficial ownership of the shares held by RBW Investments, LLC,
except to the extent of his proportionate interest in the entity. Mr.
Webber holds shares directly, holds shares through his IRA account, First
Trust Corporation fbo Jeffrey T. Webber, and shares are held by his wife.
(g) Includes 788,000 shares registered in the name of John E. Zicker and
100,000 shares registered in the name of Delaware Charter Guarantee & Trust
Co., Trustee fbo John E. Zicker, IRA. Also includes an option granted to
John E. Zicker to purchase 80,000 shares, exercisable within 60 days of
December 31, 1998.
(h) Includes 138,750 shares which are subject to a repurchase option held by
Sagent as of December 31, 1998.
(i) Includes an option to purchase 50,000 shares, exercisable within 60 days of
December 31, 1998.
(j) Includes an option to purchase an aggregate of 248,255 shares exercisable
within 60 days of December 31, 1998 and 45,575 shares which are subject to
a repurchase option held by Sagent as of December 31, 1998.
(k) Includes all shares described in the above footnotes and includes shares,
of which 137,919 were outstanding as of December 31, 1998 and 218,510
shares are subject to options and warrants that are exercisable within 60
days of December 31, 1998, held by other executive officers and an
affiliate of Klaus Luft, a director designee.
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<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the offering, the authorized capital stock of Sagent
will consist of 70,000,000 shares of common stock, $0.001 par value, and
5,000,000 shares of preferred stock, $0.001 par value.
The following summary of provisions of the common stock and preferred stock
does not purport to be complete and is subject to, and qualified in its entirety
by, the provisions of Sagent's certificate of incorporation, which is included
as an exhibit to the registration statement of which this prospectus is a part,
and by the provisions of Delaware law.
COMMON STOCK
After giving effect to the conversion of all previously outstanding
preferred stock into shares of common stock, as of December 31, 1998, there were
18,669,377 shares of common stock outstanding held of record by approximately
144 stockholders. There will be 23,669,377 shares of common stock outstanding,
assuming no exercise of the underwriters' over-allotment option and no exercise
of certain outstanding options or warrants, after giving effect to the sale of
common stock in the offering.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably any dividends
declared by the board of directors out of funds legally available for the
payment of dividends. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of Sagent, the holders of common stock are entitled to
share ratably in all assets, subject to prior distribution rights of the
preferred stock, if any, then outstanding. Holders of common stock have no
preemptive rights or rights to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock to be issued in the offering will
be fully paid and non-assessable.
PREFERRED STOCK
Upon the consummation of the offering of Sagent's common stock, each
outstanding share of preferred stock will automatically convert into one share
of common stock. Pursuant to Sagent's certificate of incorporation, the board of
directors has the authority, without further action by the stockholders, to
issue up to 5,000,000 shares of preferred stock in one or more series and to fix
the designations, powers, preferences, privileges, which may be greater than the
rights of the common stock. The board, without stockholder approval, can issue
preferred stock with voting, conversion or other rights that could adversely
affect the voting power and other rights of the holders of common stock.
Preferred stock could thus be issued quickly with terms calculated to delay or
prevent a change in control of Sagent or make removal of management more
difficult. Additionally, the issuance of preferred stock may have the effect of
decreasing the market price of the common stock. At present, there are no shares
of preferred stock outstanding, and Sagent has no plans to issue any preferred
stock.
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<PAGE> 61
COMMON STOCK WARRANTS
Upon completion of the offering, Sagent will have three warrants
outstanding to purchase an aggregate of 18,306 shares of common stock,
exerciseable as follows:
- 5,539 shares at an exercise price of $6.50 per share
- 9,433 shares at an exercise price of $3.18 per share
- 3,334 shares at an exercise price of $5.40 per share
These warrants expire 10 years from the date of execution or five years from the
effective date of the offering, whichever is later.
REGISTRATION RIGHTS
Upon completion of the offering, the holders of an aggregate of
approximately 14.5 million shares of common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities Act
of 1933. Under the terms of the registration rights agreements, if Sagent
proposes to register any of its securities under the Securities Act of 1933,
either for its own account or for the account of other security holders
exercising registration rights, these holders are entitled to notice of such
registration and are entitled to include shares of common stock in the
registration. The rights are subject to conditions and limitations, among them
the right of the underwriters of an offering subject to the registration to
limit the number of shares included in such registration. Holders of these
rights may also require Sagent to file a registration statement under the
Securities Act of 1933 at its expense with respect to their shares of common
stock, and Sagent is required to use its best efforts to effect such
registration, subject to conditions and limitations. Furthermore, stockholders
with registration rights may require Sagent to file additional registration
statements on Form S-3, subject to conditions and limitations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAWS PROVISIONS
Delaware Anti-Takeover Statute. Sagent is subject to Section 203 of the
Delaware General Corporation Law. In general, these provisions prohibit a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder, unless the transaction in which
the person became an interested stockholder is approved in a manner presented in
Section 203 of the Delaware General Corporation Law.
Generally, a "business combination" is defined to include mergers, asset
sales and other transactions resulting in financial benefit to a stockholder. In
general, an "interested stockholder" is a person who, together with affiliates
and associates, owns, or within three years, did own, 15% or more of a
corporation's voting stock.
Certificate of Incorporation. In February 1999, Sagent's stockholders
approved amendments to its certificate of incorporation, to provide:
- That the board of directors may issue, without further action by the
stockholders, up to 5,000,000 shares of undesignated preferred stock
- That any action to be taken by stockholders of Sagent must be effected at
a duly called annual or special meeting and not by a consent in writing
- For the division of the board of directors into three classes, with each
class serving for a term of three years
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<PAGE> 62
- That vacancies on the board, including newly created directorships, can
be filled only by a majority of the directors then in office
- That directors of Sagent may be removed only for cause
- For the elimination of cumulative voting
Bylaws. In January 1999, the board approved amendments to the bylaws to
provide that special meetings of stockholders of Sagent may be called only by
the chairman of the board, the president or the board.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the board and in the policies formulated by the
board and to discourage certain types transactions that may involve an actual or
threatened change of control of Sagent. These provisions also are designed to
reduce the vulnerability of Sagent to an unsolicited proposal for a takeover of
Sagent that does not contemplate the acquisition of all of its outstanding
shares or an unsolicited proposal for the restructuring or sale of all or part
of Sagent. These provisions, however, could discourage potential acquisition
proposals and could delay or prevent a change in control of Sagent. They may
also have the effect of preventing changes in the management of Sagent.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Sagent's common stock is ChaseMellon
Shareholder Services L.L.C.
LISTING
Sagent's common stock has been approved for listing on the Nasdaq National
Market under the trading symbol "SGNT." Sagent has not applied to list its
common stock on any other exchange or quotation system.
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<PAGE> 63
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no market for the common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect the prevailing market price from time to time. Furthermore,
because only a limited number of shares will be available for sale shortly after
this offering, because of contractual and legal restrictions on resale, sales of
substantial amounts of common stock in the public market after the restrictions
lapse could cause the prevailing market price of Sagent's common stock to fall
and impede Sagent's ability to raise equity capital in the future.
Upon completion of the offering, Sagent will have outstanding an aggregate
of 23,669,377 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or outstanding
warrants after December 31, 1998. Of these outstanding shares, the 5,000,000
shares sold in the offering will be freely tradeable without restriction or
further registration under the Securities Act of 1933 unless purchased by
"affiliates" of Sagent as that term is defined in Rule 144 under the Securities
Act of 1933. The remaining 18,669,377 shares of common stock outstanding upon
completion of the offering and held by existing stockholders will be "restricted
shares," as that term is defined in Rule 144 under the Securities Act of 1933.
Restricted shares may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act of 1933, which rules are summarized below,
or another exemption therefrom. Sales of the restricted shares in the public
market, or the availability of such shares for sale, could adversely affect the
market price of the common stock.
All officers, directors and certain other holders of common stock have
entered into contractual "lock-up" agreements providing that they will not
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of shares of common stock owned by them or that could be purchased by
them through the exercise of options for a period of 180 days after the date of
this prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, additional shares will be available for sale in the
public market as follows:
- No shares of common stock will be eligible for sale as of the effective
date of the offering
- No additional shares will be eligible for sale beginning 90 days after
the effective date of the offering
- 18,404,766 additional shares will be eligible for sale beginning 180 days
after the effective date of the offering, subject in some cases to
certain volume limitations
Of the 264,611 remaining restricted shares,
- 236,611 shares are subject to a repurchase option of Sagent in the event
of termination of employment
- 28,000 shares will not be eligible for sale pursuant to Rule 144 until
the expiration of a one-year holding period in December 1999
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
persons who may be deemed to be
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<PAGE> 64
affiliates of Sagent, would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- One percent of the number of shares of common stock then outstanding,
which will equal approximately 236,694 shares immediately after the
offering or
- The average weekly trading volume of the common stock as reported through
the Nasdaq National Market during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are
also subject to certain manner of sale provisions and notice requirements
and to the availability of current public information about Sagent. Under
Rule 144(k), a person who is not deemed to have been an affiliate of
Sagent at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the restricted shares proposed
to be sold, including the holding period of any prior owner except an
affiliate, is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice
provisions of Rule 144.
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 permits resales of shares issued prior to the date an
issuer becomes subject to the reporting requirements of the Securities Exchange
Act of 1934, pursuant to compensatory benefit plans and contracts which meant
the requirements of Rule 701. Such resales may be made commencing 90 days after
the issuer becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, in reliance upon rule 144 but without compliance with
certain restrictions, including the holding period requirements. In addition,
the Securities and Exchange Commission has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, along with the
shares acquired upon exercise of such options, including exercises after the
date the issuer becomes so subject. Securities issued in reliance on Rule 701
are restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this prospectus, may be sold by
persons other than affiliates subject only to the manner of sale provisions of
Rule 144, and by affiliates under Rule 144 without compliance with its one-year
minimum holding period requirement.
Sagent has agreed not to sell or otherwise dispose of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, or enter into any swap or similar agreement that transfers, in
whole or in part, the economic risk of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Sagent intends to file a registration statement under the Securities Act of
1933 covering the shares of common stock subject to outstanding options or
reserved for issuance under the amended 1995 stock option plan, 1998 stock
option plan, 1999 employee stock purchase plan and the director option plan.
Such registration statement is expected to be filed as early as the
effectiveness of the registration statement covering the shares of common stock
offered in this offering and will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will, subject
to Rule 144 volume limitations applicable to affiliates and the expiration of a
180-day lockup period, be available for sale in the open market, except to the
extent that such shares are subject to vesting restrictions with Sagent or the
contractual restrictions described above.
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<PAGE> 65
UNDERWRITING
Subject to the terms and subject to conditions contained in an underwriting
agreement dated April 13, 1999, the underwriters named below, who are
represented by Donaldson, Lufkin & Jenrette Securities Corporation, Hambrecht &
Quist LLC and U.S. Bancorp Piper Jaffray Inc., have severally agreed to purchase
from Sagent the respective number of shares of common stock set forth opposite
their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
------------- ----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation........ 2,110,000
Hambrecht & Quist LLC...................................... 1,477,000
U.S. Bancorp Piper Jaffray Inc. ........................... 633,000
BancBoston Robertson Stephens.............................. 60,000
Bear, Stearns & Co. Inc. .................................. 60,000
Morgan Stanley & Co. Incorporated.......................... 60,000
Salomon Smith Barney Inc. ................................. 60,000
J.C. Bradford & Co. ....................................... 30,000
Dain Rauscher Wessels...................................... 30,000
FAC/EQUITIES............................................... 30,000
Gruntal & Co., L.L.C. ..................................... 30,000
Janney Montgomery Scott Inc................................ 30,000
Johnston, Lemon & Co. Incorporated......................... 30,000
Legg Mason Wood Walker, Incorporated....................... 30,000
McDonald Investments Inc. ................................. 30,000
Nutmeg Securities.......................................... 30,000
Parker/Hunter Incorporated................................. 30,000
Pennsylvania Merchant Group................................ 30,000
Ragen Mackenzie Incorporated............................... 30,000
Raymond James & Associates, Inc. .......................... 30,000
Roney Capital Markets...................................... 30,000
Sanders Morris Mundy....................................... 30,000
Sands Brothers & Co., Ltd. ................................ 30,000
Sutro & Co. Incorporated................................... 30,000
Tucker Anthony Incorporated................................ 30,000
----------
Total................................................... 5,000,000
==========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of legal matters
concerning the offering and to condition precedents that must be satisfied by
Sagent. The underwriters are obligated to purchase and accept delivery of all
the shares of common stock offered hereby, other than those shares covered by
the over-allotment option described below, if any are purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to dealers, including the
underwriters, at such price less a concession not in excess of $0.38 per share.
The underwriters may allow, and such dealers may re-allow, to other dealers a
concession not in excess of $0.10 per share. After the initial offering of the
common stock, the public offering price and other selling terms may
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<PAGE> 66
be changed by the Representatives at any time without notice. The underwriters
do not intend to confirm sales to any accounts over which they exercise
discretionary authority.
An electronic prospectus is available on the Web site maintained by
DLJdirect Inc., a selected dealer and an affiliate of Donaldson, Lufkin &
Jenrette Securities Corporation. The underwriters have agreed to allocate a
limited number of shares to DLJdirect Inc. for sale to its brokerage account
holders.
Sagent has granted to the underwriters an option, exercisable for 30 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of 750,000 additional shares of common stock at the
initial public offering price less underwriting discounts and commission. The
underwriters may exercise the option solely to cover over-allotments, if any,
made in connection with the offering. To the extent that the underwriters
exercise the option, each underwriter will become obligated, subject to
conditions contained in the underwriting agreement, to purchase its pro rata
portion of such additional shares based on the underwriters' percentage
underwriting commitment as indicated in the above table.
Sagent has agreed to indemnify the underwriters against liabilities which
may arise in connection with the offering, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make.
Each of Sagent, its executive officers, directors, stockholders and option
holders has agreed not to:
- Offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock
- Enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock, whether any such transaction described above is to be
settled by delivery of common stock or other securities, in cash or
otherwise
Donaldson, Lufkin & Jenrette Securities Corporation may choose to release
some of these shares from such restrictions prior to the expiration of the
180-day period lock-up period, although it has no current intention of doing so.
In addition, during such 180-day period, Sagent has also agreed not to file
any registration statement with respect to, and each of its executive officers,
directors and stockholders of Sagent have agreed not to make any demand for, or
exercise any right with respect to, the registration of any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price of the shares of common stock
offered was determined by negotiation among Sagent and the underwriters. The
factors considered in determining the initial public offering price included:
- The history of and the prospects for the industry in which Sagent
competes
- The past and present operations of Sagent
- The historical results of operations of Sagent
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<PAGE> 67
- The prospects for future earnings of Sagent
- The recent market prices of securities of generally comparable companies
- The general condition of the securities markets at the time of the
offering
Other than in the United States, no action has been taken by Sagent or the
underwriters that would permit a public offering of the shares of common stock
offered in any jurisdiction where action for that purpose is required. The
shares of common stock offered may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and observe any restrictions
relating to the offering and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any shares of common stock offered in any jurisdiction in which such an
offer or a solicitation is unlawful.
In connection with the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot the offering,
creating a syndicate short position. The underwriters may bid for and stabilize
the price of the common stock. In addition, the underwriting syndicate may
reclaim selling concessions from syndicate members and selected dealers if they
repurchase previously distributed common stock in syndicate covering
transactions, in stabilizing transactions or otherwise. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Sagent by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Arthur F. Schneiderman, a member of Wilson Sonsini
Goodrich & Rosati, is Secretary of Sagent. Mr. Schneiderman and investment
partnerships, of which members of Wilson Sonsini Goodrich & Rosati are general
partners, beneficially own an aggregate of 180,445 shares of Sagent's common
stock. Legal matters in connection with this offering will be passed upon for
the underwriters by Brobeck Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The consolidated balance sheets as of December 31, 1998 and 1997 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998 for Sagent
Technology, Inc. included in this prospectus and registration statement, have
been included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given upon the authority of such firm as experts in
accounting and auditing.
The balance sheets as of December 31, 1997 and 1996 and the statements of
operations and retained earnings and cash flows for the two years in the period
ended December 31, 1997 for Talus, Incorporated included in this prospectus and
registration
67
<PAGE> 68
statement, have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given upon the authority of
such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act of 1933, a registration statement on Form S-1
relating to the common stock offered hereby. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules thereto. For further information with respect to Sagent and the
shares we are offering pursuant to this prospectus you should refer to the
registration statement, including the exhibits and schedules thereto. You may
inspect a copy of the registration statement without charge at the Public
Reference Section of the Securities and Exchange Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 or at the Securities and Exchange
Commission's regional offices at 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036. The Securities and Exchange Commission maintains an
Internet site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The Securities and Exchange Commission's World Wide Web
address is www.sec.gov.
Sagent intends to furnish holders of the common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. Sagent intends to furnish such other reports as it may determine or as may
be required by law.
68
<PAGE> 69
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SAGENT TECHNOLOGY, INC. PAGE
<S> <C>
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998....................... F-4
Consolidated Statements of Stockholders' Equity as of
December 31, 1995, 1996, 1997 and 1998................. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998....................... F-6
Notes to Consolidated Financial Statements................ F-7
TALUS, INCORPORATED
Report of Independent Accountants......................... F-25
Balance Sheets as of December 31, 1996 and 1997........... F-26
Statements of Operations and Retained Earnings for the
years ended December 31, 1996 and 1997................. F-27
Statements of Cash Flows for the years ended December 31,
1996 and 1997.......................................... F-28
Notes to Financial Statements............................. F-29
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Consolidated Financial Statements (unaudited)... F-34
Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1998 (unaudited)............... F-35
Notes to Pro Forma Consolidated Financial Statements
(unaudited)............................................ F-36
</TABLE>
F-1
<PAGE> 70
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Sagent Technology, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related statements of operations and stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Sagent Technology,
Inc. and its subsidiaries at December 31, 1997 and 1998, 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. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Jose, California
January 27, 1999
F-2
<PAGE> 71
SAGENT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Assets
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
AS OF DECEMBER 31, EQUITY AS OF
------------------- DECEMBER 31,
1997 1998 1998
-------- -------- -------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................... $ 3,813 $ 3,093
Accounts receivable, net of allowance for
doubtful accounts of $450 in 1997 and $508
in 1998................................... 1,603 5,376
Prepaid assets............................... 220 832
-------- --------
Total current assets...................... 5,636 9,301
Property and equipment, net.................. 1,396 3,044
Other assets................................. 153 851
-------- --------
Total assets.............................. $ 7,185 $ 13,196
======== ========
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Accounts payable............................. $ 512 $ 1,478
Accrued liabilities.......................... 1,383 4,216
Deferred revenue............................. 1,077 1,304
Current portion of capital lease
obligations............................... 463 1,181
-------- --------
Total current liabilities................. 3,435 8,179
Long-term portion of capital lease
obligations............................... 627 3,346
-------- --------
Total liabilities......................... 4,062 11,525
-------- --------
Commitments and contingencies (Note 5)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value $.001
per share:
Authorized: 13,056 shares in 1997 and
15,556 in 1998;
Issued and outstanding: 12,390 shares in
1997 and 14,544 shares in 1998 and no
pro forma shares (unaudited)
(Liquidation value of $29,554 at
December 31, 1998)...................... 12 15 $ --
Common stock, par value $.001 per share:
Authorized: 20,000 shares in 1997 and
25,000 shares in 1998;
Issued and outstanding: 3,249 shares in
1997, 4,125 shares in 1998 and 18,669
pro forma shares (unaudited)............ 3 4 19
Additional paid-in capital................... 18,033 30,699 30,699
Notes receivable from stockholder............ (522) (522)
Cumulative translation adjustment............ 101 101
Accumulated deficit.......................... (14,925) (28,626) (28,626)
-------- -------- --------
Total stockholders' equity................ 3,123 1,671 $ 1,671
-------- -------- ========
Total liabilities and stockholders'
equity.................................. $ 7,185 $ 13,196
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 72
SAGENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
REVENUES, NET:
Licenses...................................... $ 240 $ 5,728 $ 10,459
Services...................................... 39 1,350 6,584
------- ------- --------
Total revenues, net........................ 279 7,078 17,043
------- ------- --------
COST OF REVENUES:
Licenses...................................... 120 194 143
Services...................................... 127 679 4,923
------- ------- --------
Total cost of revenues..................... 247 873 5,066
------- ------- --------
Gross profit.................................... 32 6,205 11,977
------- ------- --------
OPERATING EXPENSES:
Sales and marketing........................... 2,727 5,929 12,037
Research and development...................... 3,425 4,969 6,013
General and administrative.................... 1,111 2,215 5,186
Acquired in-process technology (Note 7)....... 2,425
------- ------- --------
Total operating expenses................... 7,263 13,113 25,661
------- ------- --------
Loss from operations............................ (7,231) (6,908) (13,684)
Interest expense................................ (65) (191) (207)
Other income.................................... 257 199 190
------- ------- --------
Net loss........................................ $(7,039) $(6,900) $(13,701)
======= ======= ========
Historical basic net loss per share............. $ (2.67) $ (2.41) $ (3.47)
======= ======= ========
Historical diluted net loss per share........... $ (2.67) $ (2.41) $ (3.68)
======= ======= ========
Number of shares used in calculation of
historical basic net loss per share........... 2,637 2,860 3,951
Number of shares used in calculation of
historical diluted net loss per share......... 2,637 2,860 3,722
Pro forma net loss per share, basic
(unaudited)................................... $ (0.74)
========
Pro forma net loss per share, diluted
(unaudited)................................... $ (0.75)
========
Shares used in computing pro forma net loss per
share, basic (unaudited)...................... 18,495
Shares used in computing pro forma net loss per
share, diluted (unaudited).................... 18,266
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 73
SAGENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE STOCKHOLDERS
--------------- --------------- PAID-IN TRANSLATION NOTE ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT RECEIVABLE DEFICIT
------ ------ ------ ------ ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1995............. 8,122 $ 8 2,625 $2 $ 6,136 $ $ $ (986)
Issuance of common stock at $.09
per share........................... 13 1
Issuance of Series C preferred stock
at $2.50 per share for cash, net of
issuance costs of $16............... 2,616 3 6,525
Repurchase of common stock at $.045
per share........................... (18) (1)
Stock options exercised............... 14 1
Net loss.............................. (7,039)
------ --- ----- -- ------- ---- ----- --------
BALANCES, DECEMBER 31, 1996............. 10,738 11 2,634 2 12,662 -- -- (8,025)
Issuance of Series C preferred stock
at $2.50 per share for cash......... 79 198
Issuance of Series D preferred stock
at $3.18 per share for cash, net of
issuance costs of $15............... 1,573 1 4,983
Stock options exercised............... 615 1 67
Issuance of Series C preferred stock
warrant............................. 23
Issuance of common stock warrant...... 100
Net loss.............................. (6,900)
------ --- ----- -- ------- ---- ----- --------
BALANCES, DECEMBER 31, 1997............. 12,390 12 3,249 3 18,033 -- -- (14,925)
Issuance of Series D preferred stock
at $3.18 per share for cash, net of
issuance costs of $13............... 45 132
Issuance of Series E preferred stock
at $5.40 per share for cash, net of
issuance costs of $7................ 1,896 3 10,225
Issuance of Series E preferred stock
at $5.40 per share in connection
with Talus, Incorporated
Acquisition, net of issuance costs
of $1............................... 259 1,400
Stock options exercised............... 715 1 235
Repurchase of Series C preferred stock
at $2.50 per share.................. (40) (100)
Repurchase of Series D preferred stock
at $3.18 per share.................. (6) (18)
Repurchase of common stock............ (57) (20)
Issuance of Series E preferred stock
warrant............................. 18
Issuance of common stock warrants..... 96
Exercise of common stock options at
$5.50 per share..................... 10 55
Cumulative translation adjustment..... 101
Issuance of notes receivable for
common stock........................ 180 522 (522)
Exercise of stock purchase right...... 28 121
Net loss.............................. (13,701)
------ --- ----- -- ------- ---- ----- --------
BALANCES, DECEMBER 31, 1998............. 14,544 $15 4,125 $4 $30,699 $101 $(522) $(28,626)
====== === ===== == ======= ==== ===== ========
<CAPTION>
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCES, DECEMBER 31, 1995............. $ 5,160
Issuance of common stock at $.09
per share........................... 1
Issuance of Series C preferred stock
at $2.50 per share for cash, net of
issuance costs of $16............... 6,527
Repurchase of common stock at $.045
per share........................... (1)
Stock options exercised............... 1
Net loss.............................. (7,039)
--------
BALANCES, DECEMBER 31, 1996............. 4,649
Issuance of Series C preferred stock
at $2.50 per share for cash......... 198
Issuance of Series D preferred stock
at $3.18 per share for cash, net of
issuance costs of $15............... 4,984
Stock options exercised............... 68
Issuance of Series C preferred stock
warrant............................. 23
Issuance of common stock warrant...... 100
Net loss.............................. (6,899)
--------
BALANCES, DECEMBER 31, 1997............. 3,123
Issuance of Series D preferred stock
at $3.18 per share for cash, net of
issuance costs of $13............... 132
Issuance of Series E preferred stock
at $5.40 per share for cash, net of
issuance costs of $7................ 10,228
Issuance of Series E preferred stock
at $5.40 per share in connection
with Talus, Incorporated
Acquisition, net of issuance costs
of $1............................... 1,400
Stock options exercised............... 236
Repurchase of Series C preferred stock
at $2.50 per share.................. (100)
Repurchase of Series D preferred stock
at $3.18 per share.................. (18)
Repurchase of common stock............ (20)
Issuance of Series E preferred stock
warrant............................. 18
Issuance of common stock warrants..... 96
Exercise of common stock options at
$5.50 per share..................... 55
Cumulative translation adjustment..... 101
Issuance of notes receivable for
common stock........................ --
Exercise of stock purchase right...... 121
Net loss.............................. (13,701)
--------
BALANCES, DECEMBER 31, 1998............. $ 1,671
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 74
SAGENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net loss.......................................... $(7,039) $(6,900) $(13,701)
Adjustments to reconcile net loss to net cash used
in operating activities:
Acquired in-process technology................. -- -- 2,425
Depreciation and amortization.................. 268 835 1,445
Fair value of stock warrants issued............ 123 114
Change in operating assets and liabilities, net
of acquisition:
Accounts receivable.......................... (152) (1,451) (3,773)
Prepaid assets............................... (67) (99) (550)
Other assets................................. (105) 16 (1,011)
Accounts payable............................. 513 (72) 966
Accrued liabilities.......................... 221 1,136 2,833
Deferred revenue............................. 51 1,027 227
------- ------- --------
Net cash used in operating activities............... (6,310) (5,385) (11,025)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of restricted investments................ 26 150 --
Purchase of restricted investments................ (150) --
Purchase of property and equipment................ (1,143) (1,072) (1,170)
Acquisition of Talus, Incorporated................ -- -- (2,696)
------- ------- --------
Net cash used in investing activities............... (1,267) (922) (3,866)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital lease financings............ 738 650 4,103
Payments of principal under capital lease
obligations.................................... (139) (356) (666)
Proceeds from issuance of preferred stock, net of
issuance costs................................. 6,527 5,183 10,360
Repurchase of common stock........................ (1) -- (20)
Repurchase of preferred stock..................... -- -- (118)
Proceeds from issuance of common stock............ 2 68 411
------- ------- --------
Net cash provided by financing activities........... 7,127 5,545 14,070
Effect of exchange rate changes in cash........ -- -- 101
------- ------- --------
Net decrease in cash and cash equivalents........... (450) (762) (720)
Cash and cash equivalents, beginning of year........ 5,025 4,575 3,813
------- ------- --------
Cash and cash equivalents, end of year.............. $ 4,575 $ 3,813 $ 3,093
======= ======= ========
Supplemental disclosure of cash flow information:
Cash payments for interest........................ $ 65 $ 184 $ 191
Supplemental non-cash financing activities:
Issuance of preferred stock warrants.............. -- 23 18
Issuance of common stock warrants................. -- 100 96
Issuance of common stock for notes and interest
receivable..................................... -- -- 522
Liabilities assumed in connection with acquisition
of Talus, Incorporated:
Fair value of assets acquired..................... 3,526
Cash paid......................................... (1,170)
Preferred stock issued............................ (1,400)
--------
Liabilities assumed............................ $ 956
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 75
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. FORMATION AND BUSINESS OF SAGENT
Sagent Technology, Inc. develops, markets and supports software designed to
address organizations' information access, analysis and delivery needs.
Sagent was incorporated under the laws of the State of California in April
1995 under the name of Savant Software, Inc. In June 1995, Sagent changed its
name to Sagent Technology, Inc. Sagent was reincorporated under the laws of the
State of Delaware in September 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Sagent
Technology, Inc. and its wholly-owned subsidiaries, Sagent Technology Japan KK
and Sagent Technology (Canada), Inc. All significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The functional currency of Sagent's subsidiaries is the local currency.
Accordingly, Sagent applies the current rate method to translate the
subsidiaries' financial statements into U.S. dollars. Translation adjustments
are included as a separate component of stockholders' equity in the accompanying
consolidated financial statements.
CASH AND CASH EQUIVALENTS
Sagent considers all highly liquid investments with an original or
remaining maturity of three months or less at the time of purchase to be cash
equivalents.
BUSINESS RISK AND CONCENTRATION OF CREDIT RISK
Sagent operates in one segment and its revenue is attributable to the sale
of one product line and related maintenance, consulting and training services.
Sagent's future success will depend upon its ability to continue to improve its
product and to develop new products to meet diverse and evolving customer
demands.
Financial instruments which potentially subject Sagent to concentrations of
credit risk consist primarily of temporary cash investments, including money
market accounts. Sagent places its temporary cash investments with two major
financial institutions. Sagent maintains allowances for potential credit losses
and such losses to date have been within
F-7
<PAGE> 76
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
management's expectations. There were no customers with balances due to Sagent
in excess of 10% of aggregate accounts receivable at December 31, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of Sagent's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and other liabilities, approximate fair value due to their short
maturities. Based upon borrowing rates currently available to Sagent for loans
with similar terms, the carrying value of capital lease obligations approximates
fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the related assets,
generally two to five years. Leased assets are amortized on a straight-line
basis over the lesser of the estimated useful life or the lease term. Gains and
losses upon asset disposal are taken into income in the year of disposition.
REVENUE RECOGNITION
Sagent's revenues are derived from two sources, product license revenues
and service revenues. License revenues are derived from product sales to end
users, resellers and distributors and enterprise application vendors as well as
royalties from enterprise application vendors. For enterprise application
vendors, Sagent receives quarterly reports from these vendors on sell-through of
Sagent products to end users. The reports also indicate the amount of royalty
revenue the enterprise application vendor owes to Sagent. License revenues are
based upon the number and capacity of servers on which a product is installed,
as well as on a per user basis. Service revenues are derived from providing
consulting and training, maintenance and support services to end users.
Sagent recognizes revenues in accordance with the American Institute of
Certified Public Accountants Statement of Position No. 97-2, "Software Revenue
Recognition." License revenues from sales to end users are recognized upon
shipment of the product, if a signed contract exists, the fee is fixed and
determinable and collection is deemed probable. If an acceptance period is
provided, revenue is recognized upon the earlier of customer acceptance or the
expiration of that period. Sagent recognizes royalty as revenues based on an
enterprise application vendor's sell-through of Sagent's products. Fees for
services are charged separately from licenses. Service revenues from consulting
and training are recognized upon completion of the work to be performed.
Revenues from maintenance and support agreements which includes product updates
are deferred and recognized on a straight-line basis as service revenues over
the term of the related agreement, which is typically one year.
Sagent performs ongoing credit evaluations of its customers' financial
condition and does not require collateral. Sagent maintains allowances for
potential credit losses and the amount of such losses have been within
management's expectations.
F-8
<PAGE> 77
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ADVERTISING
Sagent expenses advertising costs as incurred. Advertising costs amounted
to $137, $50, and $532 for 1996, 1997 and 1998, respectively.
INCOME TAXES
Sagent accounts for income taxes in accordance with Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." This statement prescribes the use of the liability method
whereby deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
and measured at tax rates that will be in effect when the differences are
expected to reverse. Valuation allowances are established when necessary to
reduce deferred tax assets where it is more likely than not the deferred tax
asset will not be realized.
STOCK-BASED COMPENSATION
In 1997, Sagent adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-based Compensation." The Company has elected to continue
accounting for stock-based compensation issued to employees using Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and,
accordingly, pro forma disclosures required under SFAS No. 123 have been
presented (See Note 9). Under APB No. 25, compensation expense is based on the
difference, if any, on the date of the grant, between the fair value of Sagent's
common stock and the exercise price. Additionally, pursuant to SFAS No. 123,
stock issued to non-employees is accounted for at the fair value of the equity
instruments issued, or at the fair value of the consideration received,
whichever is more reliably measurable.
RESEARCH AND DEVELOPMENT EXPENSES
Costs related to research, design and development of products are charged
to research and development expense as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. To date, completing a working model of Sagent's products and general
release have substantially coincided. As a result, Sagent has not capitalized
any software development costs.
RECLASSIFICATION
Sagent has reclassified the presentation of certain prior year information
to conform to the current year presentation. These changes had no effect on
previously reported financial position or results of operations.
NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
Sagent computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share," and Securities and Exchange Commission Staff Accounting
Bulletin No. 98. Under the provisions of SFAS No. 128 and SAB 98, basic net loss
per share is computed
F-9
<PAGE> 78
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
by dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net loss per share is computed by dividing the net loss for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. Options, warrants and convertible preferred stock were not
included in the computation of diluted net loss per share because the effect
would be antidilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, even if antidilutive, to common equivalent shares from preferred
stock that will automatically convert upon the closing of Sagent's initial
public offering, under the as-if-converted method. Upon consummation of the
offering, all of the convertible preferred stock outstanding, as of the closing
date will automatically be converted into an aggregate of approximately 14,544
shares of common stock based on the shares of convertible preferred stock
outstanding at December 31, 1998. Unaudited pro forma stockholders' equity at
December 31, 1998, as adjusted for the conversion of preferred stock, is
disclosed on the balance sheet.
F-10
<PAGE> 79
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
A reconciliation of shares used in the calculation of historical and pro
forma basic and diluted net loss per share follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
HISTORICAL NET LOSS PER SHARE, BASIC AND
DILUTED:
Net loss................................. $(7,039) $(6,900) $(13,701)
======= ======= ========
Shares used in computing net loss per
share, basic.......................... 2,637 2,860 3,951
======= ======= ========
Net loss per share, basic................ $ (2.67) $ (2.41) $ (3.47)
======= ======= ========
Shares used in computing net loss per
share, diluted........................ 2,637 2,860 3,722
======= ======= ========
Net loss per share, diluted.............. $ (2,67) $ (2,41) $ (3.68)
======= ======= ========
Antidilutive securities including
options, warrants and preferred stock
not included in historical net loss
per share calculations................ 12,006 14,350 17,055
======= ======= ========
PRO FORMA NET LOSS PER SHARE:
Net loss................................. $(13,701)
========
Shares used in computing net loss per
share, basic and diluted.............. 3,951
Adjustment to reflect assumed conversion
of convertible preferred stock........ 14,544
--------
Shares used in computing pro forma net
loss per share, basic................. 18,495
Adjustment to reflect share subject to
repurchase............................ (335)
Adjustment to reflect reverse treasury
stock method.......................... 106
--------
Shares used in computing pro forma net
loss per share, diluted............... 18,266
========
Pro forma net loss per share, basic
(unaudited)........................... $ (0.74)
========
Pro forma net loss per share, diluted
(unaudited)........................... $ (0.75)
========
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
The American Institute of Certified Public Accountants issued Statement of
Position No. 98-1, "Software for Internal Use" which provides guidance on
accounting for the cost of computer software developed or obtained for internal
use. Statement of Position No. 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. Sagent does not expect that the
adoption of Statement of Position No. 98-1 will have a material impact on its
financial statements.
F-11
<PAGE> 80
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. There was no difference between Sagent's net loss and its total
comprehensive loss for the years ended December 31, 1996 and 1997. The only
component of comprehensive income for the year ended December 31, 1998 related
to a cumulative translation adjustment and amounted to $101.
During June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information" SFAS No. 131 replaces SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise" and changes the way
the public companies report segment information. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997 and has been adopted by Sagent
for the year ending December 31, 1998. Sagent markets and sells its services
primarily in North America and operates in one business segment.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." This standard requires companies to expense
the costs of start-up activities and organization costs as incurred. In general,
Statement of Position 98-5 is effective for fiscal years beginning after
December 15, 1998. Sagent believes the adoption of Statement of Position 98-5
will not have a material impact on its results of operations.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1997 1998
------- -------
<S> <C> <C>
Office equipment................................. $ 612 $ 2,166
Computer software and equipment.................. 1,847 2,996
Leasehold improvements........................... 73 83
------- -------
2,532 5,245
Less accumulated depreciation and amortization... (1,136) (2,201)
------- -------
$ 1,396 $ 3,044
======= =======
</TABLE>
Property and equipment under capital leases consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
Computer equipment.................................. $1,594 $ 2,208
Office equipment.................................... 447 1,527
------ -------
2,041 3,735
Less accumulated amortization....................... (811) (1,662)
------ -------
$1,230 $ 2,073
====== =======
</TABLE>
F-12
<PAGE> 81
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
4. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Accrued employee compensation........................ $ 530 $1,198
Sales returns and allowances......................... -- 830
Accrued taxes........................................ -- 622
Accrued other........................................ 853 1,566
------ ------
$1,383 $4,216
====== ======
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Sagent has entered into a line of credit with a leasing company and a bank.
See Note 6 of Notes to Consolidated Financial Statements. The capital lease
obligations, which expire through January 2002 are collateralized by the related
assets. Under the terms of the capital lease obligations, Sagent is responsible
for taxes, insurance and maintenance costs. Sagent also leases various
facilities under noncancelable operating leases expiring through August 2003.
Future minimum lease payments under these leases at December 31, 1998, are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- -------
<S> <C> <C>
1999............................................... $1,771 $1,404
2000............................................... 1,623 2,831
2001............................................... 1,491 628
2002............................................... 1,536 8
2003............................................... 1,312 --
------ ------
Total minimum lease payments....................... $7,733 4,871
======
Less amount representing interest.................. (344)
------
Present value of minimum lease payments............ 4,527
Current portion.................................... 1,181
------
$3,346
======
</TABLE>
Rent expense for the years ended December 31, 1996, 1997, and 1998 was
$241, $606, and $1,112, respectively.
From time to time, Sagent may be involved in litigation relating to claims
arising out of its ordinary course of business. Sagent believes that there are
no claims or actions pending or threatened against Sagent, the ultimate
disposition of which would have a material impact on Sagent's financial position
or results of operations.
6. LINE OF CREDIT
During 1997, Sagent entered into a loan and security agreement with a bank
under which Sagent can borrow up to an aggregate amount of $4.8 million as at
December 31, 1998. The agreement is used to finance various leased assets and
(see also Note 3) includes a revolving line of credit for up to $2 million and
an equipment line of credit for up to $2.8 million. Both lines are
collateralized by all assets of Sagent, including
F-13
<PAGE> 82
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
receivables, equipment and intellectual property. Effective January 1999 Sagent
can borrow up to an aggregate amount of $7.2 million which includes a revolving
line of credit of up to $4.0 million and an equipment line of credit of up to
$3.2 million.
The revolving credit line consists of advances against eligible accounts
receivable in an aggregate amount not to exceed the lesser of, the committed
revolving line or the borrowing base, less any outstanding letters of credit.
Advances against the revolving line bear interest at the bank's prime rate,
7.75% at December 31, 1998, and are due no later than January 15, 2000. During
1998 advances totaled $1.75 million.
The equipment line of credit consists of advances for the acquisition of
equipment through May 5, 1999. Each advance bears interest at the bank's prime
rate, 7.75% at December 31, 1998, and is due in 36 monthly principal and
interest payments. The equipment line matures on May 7, 2002.
Under these agreements, Sagent is required to comply with certain
covenants, among which are minimum quick ratios, debt to net worth ratios,
tangible net worth ratios and profitability. As of December 31, 1998, Sagent was
not in compliance with certain of these covenants. Subsequent to December 31,
1998, the loan and security agreement was amended to waive the aforementioned
covenant violations through the period ending December 31, 1998.
7. ACQUISITION OF BUSINESS
In February 1998, Sagent acquired Talus, Incorporated for cash of
approximately $1.2 million, 259 shares of preferred stock amounting to $1.4
million and the assumption of certain liabilities for an aggregate purchase
price of $3.5 million. Sagent accounted for the acquisition under the purchase
method and, accordingly, the purchase price was allocated to the fair value of
tangible and intangible assets acquired and liabilities assumed.
Sagent has allocated approximately $2.4 million of the purchase price to
acquired in-process technology. Prior to the acquisition, Talus was in the
process of developing analytical software applications to complement its design
and implementation business. These projects are unique and complex because they
integrate the industry knowledge of Talus' consultants with advanced data mart
and business intelligence software to develop analytical software applications
for specific industries. These analytical software applications allow
organizations to model decision processes unique to their industry, such as
decisions on products, sales and distribution channels, and customers. The
method used to estimate the fair value of the analytical software applications
under development was a discounted cash flow model, similar to the traditional
income approach, adjusted for cost to complete and stage of completion. The
analytical software applications under development had not reached technological
feasibility as of the acquisition date and there was no alternative future use
for this technology. The classification of analytical software applications as
under development was made in accordance with the guidelines of SFAS 2,
"Accounting for Research and Development Costs," SFAS 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," and FIN
4, "Applicability of FASB Statement No. 2 to Business Combinations Accounted for
by the Purchase Method, an Interpretation of FASB Statement No. 2." Sagent
anticipates that these analytical software applications can be sold on a stand
alone basis with implementation assistance.
F-14
<PAGE> 83
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The determination of the acquired in-process technology allocation was
based upon recently issued guidance issued by the Securities and Exchange
Commission to the AICPA SEC Regulations Committee and considered such factors as
degree of completion, technological uncertainties, costs incurred and projected
costs to complete. The value assigned to the acquired workforce was based on the
cost to recreate the assembled work force. The allocation of the purchase price
resulted in additional intangible assets, primarily non-compete agreements and
the value of an assembled workforce of $587, which has been capitalized and is
being amortized on a straight line basis over six months to three years.
Amortization expense for the year ended December 31, 1998 was $102.
As of the date of acquisition, the Talus, Incorporated development projects
consisted of ongoing research and development efforts on four analytical
software applications for manufacturing, food service and hospitality, and high
technology. Based on management's estimates, the remaining research and
development efforts relating to the completion of the technology were expected
to be completed during 1999 through 2000, with initial revenue expected in 1999.
Accordingly, the cost to complete the in-process technology was estimated based
on the number of man months required to reach technological feasibility for the
technology, the type of professional and engineering staff involved in the
completion process and their fully burdened months' salaries.
The allocation of Sagent's aggregate purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed in connection
with this acquisition were based primarily on estimates by independent
appraisers of fair values. The allocation is summarized below:
<TABLE>
<CAPTION>
TALUS, INCORPORATED
-------------------
<S> <C>
Acquired in-process technology............ $2,425
Current assets............................ 494
Other intangibles......................... 587
Other assets.............................. 11
Goodwill.................................. 9
------
Total purchase price.................... $3,526
======
</TABLE>
The excess of the purchase price over the fair value of the net tangibles
and identifiable intangible assets acquired has been recorded as goodwill, which
is being amortized on a straight-line basis over a period of three years.
8. CONVERTIBLE PREFERRED STOCK
Holders of Series A, B, C, D and E preferred stock are entitled to
preferential noncumulative dividends at the rate of $0.04, $0.07, $0.20, $0.25
and $0.43 per share, respectively, if and when declared by the board of
directors. No dividends have been declared as of December 31, 1998. The holders
of Series A, B, C, D and E preferred stock have liquidation preferences of
$0.45, $0.90, $2.50, $3.18 and $5.40 per share, respectively, plus an amount
equal to all declared but unpaid dividends. In the event of liquidation, if the
assets of Sagent are insufficient to pay the entirety of such amounts to the
preferred stockholders, the assets shall be distributed ratably among the
preferred stockholders in proportion to their preferential amounts. Preferred
stockholders are entitled to one vote for each share of common stock into which
their preferred stock is convertible. After payment
F-15
<PAGE> 84
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
to the preferred stockholders of the full preferential amounts specified above,
the remaining assets will be distributed ratably among the holders of the common
stock.
At the option of the holder, and at any time after the date of issuance of
such share, each share of Series A, B, C, D and E preferred stock is convertible
on a one-for-one basis into shares of common stock subject to adjustment for
stock splits and certain dilutive issuances of securities. The shares will
automatically convert into common stock upon the closing of an underwritten
public offering of common stock under the Securities Act of 1933, as amended,
with minimum proceeds of $10.0 million. As of December 31, 1998, Sagent has
reserved 14,544 shares of its common stock in the event of conversion of all
preferred stock. The holders of preferred stock have certain registration
rights.
At December 31, 1998, preferred stock consists of the following:
<TABLE>
<CAPTION>
COMMON
SHARES STOCK
SHARES ISSUED AND RESERVED FOR LIQUIDATION
SERIES AUTHORIZED OUTSTANDING PROCEEDS (NET) CONVERSION VALUE
------ ---------- ----------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
A.................. 2,800 2,567 $ 1,138 2,567 $ 1,155
B.................. 5,656 5,555 4,981 5,555 5,000
C.................. 2,800 2,655 6,625 2,655 6,637
D.................. 1,800 1,612 5,100 1,612 5,127
E.................. 2,500 2,155 11,627 2,155 11,635
------ ------ ------- ------ -------
15,556 14,544 $29,471 14,544 $29,554
====== ====== ======= ====== =======
</TABLE>
9. RESTRICTED STOCK PURCHASE AGREEMENT:
Sagent has sold shares of its common stock to founders and employees of
Sagent under agreements which provide for repurchase of the shares by Sagent at
the stock's original purchase price upon termination of employment of such
persons. Sagent's right to repurchase shares generally lapses as to 1/48 of the
total shares on the date of purchase and 1/48 on the first day of each
subsequent month thereafter until the founder or employee is fully vested. At
December 31, 1998, 335 shares of common stock were subject to repurchase.
10. STOCK OPTION PLAN:
Under the 1995 stock option plan, Sagent initially reserved 1,200 shares of
common stock for issuance to employees, officers, directors and consultants of
Sagent. Sagent amended the 1995 stock option plan in 1996, 1997 and 1998 to
increase the number of shares reserved under the 1995 stock option plan to, in
the aggregate, 1,800 shares, 2,800 shares and 3,276 shares, respectively.
Under the terms of the 1995 stock option plan, incentive stock options may
be granted at prices not lower than fair market value at the date of grant,
while nonqualified options may be granted at prices not lower than 85.0% of fair
market value at the date of grant, each as determined by the board of directors.
However, if an employee or other person who, at the time of the grant of such
stock option, owns stock representing more than 10.0% of the voting power of all
classes of stock in Sagent, the exercise price may be
F-16
<PAGE> 85
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
no less than 110% of the fair market value per share on the date of grant.
Options granted under the 1995 stock option plan are exercisable immediately,
conditioned upon the optionee entering into a restricted stock purchase
agreement, and generally vest to the extent of 25.0% of the shares granted 12
months from the vesting commencement date and the remainder to the extent of
1/48 of the options granted each month thereafter, such that all options granted
will be vested four years from the vesting commencement date. Options granted
expire 10 years from the date of grant.
In December 1998, the board of directors approved the 1998 stock option
plan which authorized 2,440 shares of common stock as available for issuance to
employees, officers, directors and consultants of Sagent.
Under the terms of the 1998 stock option plan, incentive options may be
granted at prices not lower than fair market value at the date of grant, while
nonqualified options may be granted at prices as determined by the administrator
at the date of grant. However, if an employee or other person who, at the time
of the grant of such stock option, owns stock representing more than 10.0% of
the voting power of all classes of stock in Sagent, the exercise price may be no
less than 110% of the fair market value per share on the date of grant. In the
case of nonqualified options intended to qualify as performance-based
compensation, the exercise price shall be no less than 100% of fair market value
on the date of grant.
Options granted under the 1998 stock option plan are generally exercisable
one year after the vesting commencement date. Upon exercise of an option, the
optionee shall enter into a restricted stock purchase agreement. Options
generally vest to the extent of 25% of the shares granted 12 months from the
vesting commencement date and the remainder to the extent of 1/48 of the shares
granted each month thereafter, such that all options granted will be vested four
years from the vesting commencement date. Options generally expire 10 years from
the date of grant.
Upon adoption of the 1998 stock option plan, the board of directors
approved the cessation of grants under the 1995 stock option plan and determined
that all shares of common stock then reserved under the 1995 stock option plan
for the future grant of stock options were no longer reserved for issuance.
At December 31, 1998, 1,158 shares were no longer subject to repurchase. Of
the stock options exercised, 879 shares were no longer subject to repurchase.
F-17
<PAGE> 86
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes activity under the amended 1995 stock option
plan and 1998 stock option plan for the years ended December 31, 1996, 1997 and
1998:
<TABLE>
<CAPTION>
WEIGHTED
AGGREGATE AVERAGE
NUMBER OF EXERCISE PRICE EXERCISE EXERCISE
SHARES PER SHARE PRICE PRICE
--------- -------------- --------- --------
<S> <C> <C> <C> <C>
Options outstanding at January 1,
1996............................... 625 $0.05 - $0.09 $ 35 $0.06
Options granted under the amended
1995 stock option plan.......... 558 0.09 - 0.25 72 0.13
Options canceled under the amended
1995 stock option plan.......... (13) 0.09 - 0.25 (2) 0.13
Options exercised under the amended
1995 stock option plan.......... (14) 0.05 (1) 0.05
----- ------------- ------- -----
Options outstanding at December 31,
1996............................... 1,156 0.05 - 0.25 104 0.09
Options granted under the amended
1995 stock option plan.......... 1,280 0.25 - 2.80 2,309 1.80
Options canceled under the amended
1995 stock option plan.......... (146) 0.09 - 2.50 (32) 0.22
Options exercised under the amended
1995 stock option plan.......... (535) 0.05 - 0.50 (47) 0.09
----- ------------- ------- -----
Options outstanding at December 31,
1997............................... 1,755 0.05 - 2.80 2,334 1.33
Options granted under the amended
1995 stock option plan.......... 1,148 2.90 - 6.50 5,094 4.43
Options granted under the 1998
stock option plan............... 219 7.00 1,532 7.00
Options canceled under the amended
1995 stock option plan.......... (182) 0.09 - 5.50 (418) 2.30
Options exercised under the amended
1995 stock option plan.......... (665) 0.05 - 5.50 (737) 1.11
----- ------------- ------- -----
Options outstanding at December 31,
1998............................... 2,275 $0.05 - $7.00 $ 7,805 $3.43
===== ============= ======= =====
</TABLE>
At December 31, 1997 and 1998, 496 shares and 2,221 shares, respectively,
remained available for issuance.
F-18
<PAGE> 87
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes information with respect to stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OF SHARES CONTRACTUAL EXERCISE OF SHARES EXERCISE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- -------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.04 - $0.09 259 7.01 $ 0.07 259 $ 0.07
0.25 - 0.50 112 7.87 0.27 112 0.27
2.00 - 4.60 1,448 8.96 3.34 1,448 3.34
5.50 - 7.00 456 9.85 6.42 237 5.89
----- -----
$0.04 - $7.00 2,275 2,056
===== =====
</TABLE>
The following information concerning Sagent's stock option plans is
provided in accordance with SFAS No. 123. Sagent accounts for such plans in
accordance with APB No. 25.
The fair value of each option grant has been estimated on the date of grant
using the minimum value method with the following weighted average assumptions
used for grants:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Risk-free interest rate................. 5.31% - 6.54% 5.14% - 5.94%
Expected life........................... 4 years 4 years
Dividends............................... -- --
</TABLE>
The weighted average fair value per option granted in 1996, 1997 and 1998
was $0.15, $1.20 and $4.94, respectively.
The following pro forma net loss and net loss per share information has
been prepared as if Sagent had followed the provisions of SFAS No. 123:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Net loss:
As reported........................... $(7,039) $(6,900) $(13,701)
Pro forma............................. (7,042) (6,940) (13,999)
Basic and diluted net loss per share:
As reported........................... $ (2.67) $ (2.41) $ (3.47)
Pro forma............................. (2.67) (2.43) (3.54)
Diluted net loss per share:
As reported........................... $ (2.67) $ (2.41) $ (3.68)
Pro forma............................. (2.67) (2.43) (3.76)
</TABLE>
F-19
<PAGE> 88
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. NON-PLAN STOCK OPTIONS:
During 1996, Sagent granted options to purchase 268,255 shares to an
officer of Sagent outside of the amended 1995 stock option plan. These options
are exercisable at $0.09 per share and vest at the rate of 1/48 per month over a
four-year period. In addition, these options have certain accelerated vesting
requirements in the event of a change of control in Sagent, as defined in the
option grant agreement.
At December 31, 1998 and 1997, 38,255 and 268,255 shares of common stock,
respectively, were reserved for the exercise of non-plan stock options.
At December 31, 1998, of the non-plan stock options exercised, 45,575
shares are subject to repurchase.
The following table summarizes activity under the non-plan stock options
for the years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AGGREGATE AVERAGE
NUMBER OF PRICE EXERCISE EXERCISE
SHARES PER SHARE PRICE PRICE
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Options outstanding at January 1,
1996............................... -- -- -- --
Options granted.................... 268 $0.09 $ 24 $0.09
---- ----- ---- -----
Options outstanding and exercisable
at December 31, 1996............... 268 0.09 24 0.09
---- ----- ---- -----
Options outstanding and exercisable
at December 31, 1997............... 268 0.09 24 0.09
Options exercised.................. (230) 0.09 (21) 0.09
---- ----- ---- -----
Options outstanding and exercisable
at December 31, 1998............... 38 $0.09 $ 3 $0.09
==== ===== ==== =====
</TABLE>
At December 31, 1998, the remaining contractual life of these options was
7.2 years.
Sagent accounts for the fair value of its non-plan stock option grants in
accordance with APB 25. Accordingly, no compensation expense has been recognized
for these non-plan stock options.
The fair value of the options is estimated using the minimum value option
pricing method allowable for non-public companies and using the following
assumptions; dividend yield of 0.0%, volatility of 0.0%, risk-free interest rate
of 6.45% at the date of grant, and an expected term of four years.
12. STOCKHOLDER NOTES RECEIVABLE
Stockholder notes receivable represents amounts due from a stockholder in
exchange for the issuance of common stock together with interest. The notes bear
interest at a rate of 5.47% and are due February 1, 2001 but may be repaid
earlier. The notes are collateralized by a pledge of a portion of the underlying
common stock issued.
F-20
<PAGE> 89
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
13. WARRANTS
In connection with equipment leasing activity under a master lease
agreement with a leasing company, Sagent has issued warrants to the leasing
company to purchase up to 42 shares of Series A preferred stock at a price of
$0.45 per share, 61 shares of Series B preferred stock at a price of $0.90 per
share and 22 shares of Series C preferred stock at a price of $2.50 per share.
Each warrant has a seven year life and can be exercised at any time prior to
expiration, except that the warrants will immediately expire on the effective
date of an initial public offering if not exercised. The estimate fair value of
these warrants of $23 has been recorded as debt issuance costs.
In connection with a reseller and technology license agreement with another
software company, Sagent issued a warrant to purchase up to 70 shares of
Sagent's common stock. The warrant can be exercised at any time prior to
expiration. The exercise price will be equal to $7.20 per share. The warrant
expires on December 22, 2002. The estimate fair value of the warrant of $100 has
been recorded as cost of sales.
Sagent issued warrants to purchase common stock and preferred stock to
establish and increase a line of credit with a financial institution. Each
warrant can be exercised at any time prior to expiration. At December 31, 1998
such warrants were as follows.
<TABLE>
<CAPTION>
SHARES OF EXERCISE
COMMON PRICE
STOCK PER SHARE EXPIRATION DATE
--------- --------- ---------------------------
<S> <C> <C> <C>
Series D preferred stock... 93 $3.18 Later of July 16, 2007 or
five years after the
closing of an initial
public offering
Series E preferred stock... 3 5.40 Later of May 7, 2008 or
five years after the
closing of an initial
public offering
Common stock............... 6 6.50 Later of September 30, 2008
or five years after the
closing of an initial
public offering
</TABLE>
The estimate fair value of these warrants of $54 has been recorded as debt
issuance costs. In 1998, in connection with a joint venture to conduct business
in a foreign country, Sagent issued a warrant to purchase 22 shares of common
stock at a price of $5.40 per share. The warrant is immediately exercisable and
expires on the later of May 21, 2003, the closing of a business combination or
the closing of Sagent's initial public offering. The estimate fair value of the
warrant of $60 has been recorded as general and administrative expense.
The estimated fair value of these warrants has been determined based on a
Black Scholes fair value model.
F-21
<PAGE> 90
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
14. INCOME TAXES
Sagent's effective tax rate differs from the U.S. Federal statutory tax
rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Tax benefit at statutory rate................ $(2,393) $(2,346) $(4,652)
State taxes, net of federal benefit.......... -- -- (744)
Nonrecognition of tax benefits............... 2,481 2,554 5,885
Tax credits.................................. (100) (240) (420)
Other........................................ 12 32 (69)
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1997 1998
------- --------
<S> <C> <C>
Deferred tax assets and liabilities:
Net operating loss carry forwards............... $ 4,083 $ 7,588
Capitalized research and development costs...... 958 1,796
Research and development credit................. 516 1,080
Depreciation and amortization................... 73 68
Other........................................... 460 1,457
------- --------
6,090 11,989
Valuation allowance............................... (6,090) (11,989)
------- --------
$ -- $ --
======= ========
</TABLE>
Due to the uncertainty surrounding the realization of the deferred tax
asset in future tax returns, Sagent has placed a valuation allowance against its
net deferred tax assets. The valuation allowance increased by $2,739 and $5,899
during 1997 and 1998, respectively.
The difference between the statutory rate of approximately 40.0% (34.0%
federal and 6.0% state, net of federal benefits) and the tax benefit of zero
recorded by Sagent is primarily due to Sagent's full valuation allowance against
its net deferred tax assets.
At December 31, 1998, Sagent had available net operating loss carryforwards
for federal and state income tax purposes of approximately $20,775 and $17,819,
respectively. These carryforwards expire from 2003 to 2018. Although a
significant portion of the state net operating losses expire in 2003. At
December 31, 1998, Sagent also had available research and development credit
carryforwards for federal and state income tax purposes of approximately $741
and $514 respectively. These carryforwards expire from 2010 to 2013.
For federal and state tax purposes, a portion of Sagent's net operating
loss carryforwards may be subject to certain limitation on annual utilization in
case of a change in ownership, as defined by federal and state tax law.
F-22
<PAGE> 91
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
15. EMPLOYEE BENEFIT PLANS
Sagent maintains a Profit Sharing Salary Deferral 401(k) plan for all of
its employees. This 401(k) plan allows eligible employees to defer up to 15%,
but no greater than the stated limitation in any plan year, of their pretax
compensation in certain investments at the discretion of the employee. Under the
401(k) plan, Sagent was not required to and has not made a contribution to the
401(k) plan for 1996, 1997 or 1998.
Sagent Professional Services maintained a separate profit sharing salary
deferral 401(k) plan for eligible employees until January 1, 1999. This plan
allowed eligible employees to defer up to 15.0%, but no greater than the stated
limitation in any plan year, of their pretax compensation in certain investments
at the discretion of the employee. Under the plan Sagent was required to make
matching contributions to the plan. Sagent could elect to make additional
contributions on the basis of (a) a percentage of the employee deferral and (b)
profit sharing. Costs related to matching contributions amounted to $0, $50 and
$51 for 1996, 1997 and 1998, respectively.
Effective January 1, 1999, all employees, including those formerly covered
by the separate profit sharing salary deferral 401(k) plan, will be included in
the Sagent plan.
16. SUBSEQUENT EVENTS
In January 1999, the board of directors adopted the director plan, which
was approved by Sagent's stockholders in February 1999, which allows Sagent to
grant up to 150 shares of common stock to non-employee directors. The exercise
price of any option granted under the director plan will be equal to the fair
market value per share of common stock on the date of grant. Each option granted
will have a term of ten years and the shares subject to the option will become
exercisable in four equal annual installments subject to the optionee's
completion of each year of board service.
In January 1999 the board of directors approved the 1999 employee stock
purchase plan, which was approved by Sagent's stockholders in February 1999. A
total of 450 shares of common stock has been reserved for issuance under the
1999 employee stock purchase plan. The number of shares reserved will be subject
to an annual increase every January equal to the lesser of the number of shares
optioned during the prior year or lesser amount determined by the board of
directors. The 1999 employee stock purchase plan permits eligible employees to
purchase common stock through payroll deductions at a price equal to 85% of the
lower of the fair market value of the common stock at the beginning or end of
each six-month offering period.
Upon the closing of Sagent's initial public offering the authorized capital
stock will be 70,000 shares of common stock, $0.001 par value per share, and
5,000 shares of preferred stock, $0.001 par value per share.
F-23
<PAGE> 92
TALUS, INCORPORATED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants........................... F-25
Balance Sheets.............................................. F-26
Statements of Operations and Retained Earnings.............. F-27
Statements of Cash Flows.................................... F-28
Notes to Financial Statements............................... F-29
</TABLE>
F-24
<PAGE> 93
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Sagent Technology, Inc.
and Talus, Incorporated Stockholders:
We have audited the accompanying balance sheets of Talus, Incorporated
(formerly known as InCASE Corporation) as of December 31, 1996 and 1997, and the
related statements of operations and retained earnings and cash flows for each
of the two years in the period ended December 31, 1997. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Talus, Incorporated as of
December 31, 1996 and 1997, and the results of operations and its cash flows for
each of the two years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
PricewaterhouseCoopers LLP
McLean, VA
February 20, 1998
F-25
<PAGE> 94
TALUS, INCORPORATED
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash...................................................... $ 13 $ 1
Accounts receivable, net.................................. 511 361
Prepaid expenses.......................................... 7 35
---- ----
Total current assets................................... 531 397
Property and equipment, net............................... 111 76
Deposits and other noncurrent assets...................... 19 8
---- ----
Total assets........................................... $661 $481
==== ====
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Borrowings under line of credit........................... $299 $ 90
Note payable.............................................. -- 90
Accounts payable and accrued expenses..................... 97 63
Accrued vacation.......................................... 41 36
Accrued retirement contributions.......................... 49 50
Due to stockholders....................................... 17 --
---- ----
Total current liabilities.............................. 503 329
Accrued bonus to stockholders............................. 105 105
---- ----
Total liabilities...................................... 608 434
---- ----
Commitments (Note 5)
STOCKHOLDERS' EQUITY:
Common stock; par value $.01 per share; authorized 200
shares; issued and outstanding 102 shares.............. 1 1
Additional paid-in capital................................ 4 4
Retained earnings......................................... 48 42
---- ----
Total stockholders' equity............................. 53 47
---- ----
Total liabilities and stockholders' equity............. $661 $481
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 95
TALUS, INCORPORATED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Gross revenue............................................... $2,667 $2,830
Cost of revenues............................................ 1,238 1,178
------ ------
Gross profit................................................ 1,429 1,652
Operating expenses:
Sales and marketing....................................... 161 140
Research and development.................................. 573 627
General and administrative................................ 686 857
------ ------
Total operating expenses............................... 1,420 1,624
------ ------
Income from operations...................................... 9 28
Interest expense............................................ (22) (30)
Loss on investment.......................................... (2) --
Loss on disposal of property and equipment.................. -- (4)
------ ------
Net loss.................................................... (15) (6)
Retained earnings, beginning of year........................ 63 48
------ ------
Retained earnings, end of year.............................. $ 48 $ 42
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 96
TALUS, INCORPORATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1996 1997
------ -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (15) $ (6)
Adjustments to reconcile net losses to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 43 40
Provision for doubtful accounts and writeoff of
uncollectible accounts............................... 40 41
Loss on sale of property and equipment................. -- 4
Changes in operating assets and liabilities:
Accounts receivable.................................. (176) 109
Prepaid expenses..................................... -- (28)
Deposits............................................. (10) 10
Accounts payable and accrued expenses................ (14) (34)
Accrued vacation..................................... -- 1
Accrued retirement contributions..................... 7 (4)
Accrued stockholders bonus........................... (45) --
------ -----
Net cash provided by (used in) operating activities......... (170) 133
------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (12) (9)
Sales of property and equipment........................... -- 1
------ -----
Net cash used in investing activities....................... (12) (8)
------ -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit........................... 1,112 769
Repayments on line of credit.............................. (940) (978)
Proceeds from issuance of stockholder note................ 17 --
Repayment of stockholder note............................. -- (17)
Proceeds from note payable................................ -- 100
Repayments of note payable................................ -- (11)
Distributions to stockholders............................. -- --
------ -----
Net cash (used in) provided by financing activities......... 189 (137)
------ -----
Net increase (decrease) in cash............................. 7 (12)
Cash at beginning of year................................... 6 13
------ -----
Cash at end of year......................................... $ 13 $ 1
====== =====
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 21 $ 30
Write-off of investment received in exchange for
services............................................... 2 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE> 97
TALUS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
Talus, Incorporated, previously known as InCASE Corporation, was formed to
provide advanced information technology services to both governmental and
commercial customers. Talus, Incorporated was incorporated in Virginia in 1992
and is owned by two stockholders. The primary activities of Talus, Incorporated
consist of design and implementation of Enterprise Intelligence applications.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
ACCOUNTS RECEIVABLE
Accounts receivable include amounts billed and unbilled costs and fees
recoverable under contracts. Included in unbilled costs and fees at December 31,
1997 and 1996 are amounts currently billable in accordance with specified
contract terms. Of the stated amounts, $224 and $331 were billed by December 31,
1997 and 1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets as
follows:
<TABLE>
<CAPTION>
DESCRIPTION YEARS
----------- -----
<S> <C>
Furniture and fixtures...................................... 7
Software.................................................... 3
Office equipment............................................ 5
</TABLE>
Expenditures for repairs and maintenance are charged to expense as
incurred. The costs of major improvements are capitalized and depreciated over
their estimated useful lives. The cost and related accumulated depreciation of
property and equipment are removed from the accounts upon disposition and any
resulting gain or loss is reflected in operations at that time.
REVENUE RECOGNITION
Talus, Incorporated's revenue is derived primarily from time and materials
contracts. Revenue on time and material contracts is recognized based on actual
hours performed at the contracted hourly rate plus the costs of any direct
materials provided.
INCOME TAXES
The Company has elected to be treated as an "S" Corporation under the
Internal Revenue Code of 1986. Accordingly, the income or loss of Talus,
Incorporated is taxable to the stockholders and Talus, Incorporated is not
liable for federal and state income taxes.
F-29
<PAGE> 98
TALUS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
MAJOR CUSTOMERS
During 1997 and 1996, Talus, Incorporated's revenue was primarily derived
from three major customers, each of which contributed more than 10.0% of total
revenues. These customers accounted for 55.0% and 48.0% of gross revenue for
1997 and 1996, respectively. As of December 31, 1997 and 1996, these customers
had accounts receivable balances totalling $147 and $140, respectively.
ACCOUNTING ESTIMATES
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
EMPLOYEE BONUSES
Talus, Incorporated adopted a bonus plan in 1994 which provided that 83.0%
of Talus, Incorporated's income before bonuses be allocated to a bonus pool. Of
this amount, 40.0% was allocated to employee performance, 40.0% to sales
performance and 20.0% to the two stockholders of Talus, Incorporated. In 1994
the two stockholders earned $63 in sales performance bonuses, approximately
50.0% of the total sales performance bonuses, and $25 in direct stockholder
bonuses, and in 1995 they earned $17 in direct stockholder bonuses. The two
stockholders have agreed to defer collection of these bonuses, totaling $105,
until Talus, Incorporated is able to operate with less debt. It is not
anticipated that these bonuses will be paid during 1998.
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
Billed and unbilled receivables......................... $537 $389
Allowance for doubtful accounts......................... (26) (28)
---- ----
Accounts receivable, net................................ $511 $361
==== ====
</TABLE>
F-30
<PAGE> 99
TALUS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------
1996 1997
---- ----
<S> <C> <C>
Furniture and fixtures.................................. $ 33 $ 23
Computers and equipment................................. 158 163
Computer software....................................... 22 27
---- ----
213 213
Less accumulated depreciation........................... 102 137
---- ----
Property and equipment, net............................. $111 $ 76
==== ====
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1996 was $40
and $42, respectively.
5. COMMITMENTS
LEASE OBLIGATIONS
Talus, Incorporated leases its office space and various equipment under
noncancelable operating leases with original terms in excess of the year. Future
minimum payments on noncancelable operating leases were as follows at December
31, 1997:
<TABLE>
<S> <C>
1998.................................................... $120
1999.................................................... 113
2000.................................................... 85
----
Total......................................... $318
====
</TABLE>
Rental expense was $116 and $126 for the years ended December 31, 1997 and
1996, respectively.
6. LINE OF CREDIT AND NOTE PAYABLE
In March 1995, Talus, Incorporated entered into a revolving credit facility
agreement with maximum borrowings of $150 subject to certain borrowing base
restrictions which matured on March 24, 1996. Interest was at the prime rate
plus 1.5% per annum, a total of 10.15% at December 31, 1995. Borrowings were
collateralized by Talus, Incorporated's eligible accounts receivable. Talus,
Incorporated's two principal stockholders and one other member of management
were guarantors on the credit facility.
In March 1996, Talus, Incorporated entered a credit facility agreement with
maximum borrowing of $300 subject to certain borrowing base restrictions.
Interest was at the prime rate plus 1.5% per annum, a total of 9.75% at December
31, 1996. In April 1997, the agreement was amended to decrease the maximum
borrowings to $200, amended to increase the interest rate to prime rate plus
2.0% per annum, a total of 10.5% at December 31, 1997, and extended through May
1998.
F-31
<PAGE> 100
TALUS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
In July 1997, Talus, Incorporated entered into a term loan agreement with
the same financial institution of $100 due July 24, 2001. Interest is at the
prime rate plus 2.0% per annum, a total of 10.5% at December 31, 1997.
These agreements contain certain restrictive terms and covenants, the most
restrictive of which requires Talus, Incorporated to maintain a specified
liabilities to tangible net worth ratio. Talus, Incorporated was not in
compliance with this restrictive covenant as of December 31, 1997. Accordingly,
the entire balance of the note payable as of December 31, 1997 has been
classified as current. Borrowings are collateralized by Talus, Incorporated's
eligible accounts receivable. Talus, Incorporated's two principal stockholders
and one other member of management are guarantors on the loan agreement.
In 1996, majority stockholders loaned Talus, Incorporated $17 bearing
interest at 10.0%. The loans were repaid during 1997.
7. RETIREMENT PLAN
In 1995, Talus, Incorporated established a qualified salary reduction
simplified employee pension plan (SARSEP) for all eligible employees. Talus,
Incorporated was required to contribute 3.0% of eligible salaries to the SARSEP
each year. Because of restrictions imposed by the Internal Revenue Code of 1986,
the 3.0% contribution for the highly compensated employees could not be made to
the SARSEP. Accordingly, Talus, Incorporated adopted a policy that any amount
that could not be funded to the SARSEP due to these restrictions would be paid
directly to those highly compensated employees as additional compensation. As of
December 31, 1996, six employees were deemed to be highly compensated. The
compensation provided for such employees was $17. The total Talus, Incorporated
contributions for 1996 for all eligible employees, as defined by the Internal
Revenue Code of 1986, were $32. The SARSEP was terminated during 1997.
During 1997 Talus, Incorporated established a 401(k) plan for the benefit
of all eligible employees. Employees may make contributions to the plan, subject
to certain limitations contained in the Internal Revenue Code of 1986. Talus,
Incorporated matches up to 50.0% of the first 6.0% of compensation deferred
under the plan. Employees vest 50.0% in the employer contributions after one
year and 100% after two years of employment at Talus, Incorporated Employer
contributions to the plan were $50 for the year ended December 31, 1997.
8. COMMON STOCK, ADDITIONAL PAID-IN CAPITAL AND STOCK OPTIONS
At Talus, Incorporated's inception in 1992, 25 shares of common stock with
$0.10 par value per share were authorized and 10 shares were issued. In 1996,
the Articles of Incorporation were amended to authorize 200 shares of common
stock with a $0.01 par value per share. A stock split was effective in 1996
increasing the number of issued and outstanding shares to 102.
A stock option plan, which was adopted in 1996, provides for the granting
of stock options to employees. The agreements provide the participants an option
to purchase shares of Talus, Incorporated's common stock generally based on
certain time vesting requirements. On June 21, 1996, Talus, Incorporated granted
7 options with an exercise
F-32
<PAGE> 101
TALUS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
price of $1.00 per share. On May 31, 1997, Talus, Incorporated granted 11
options with an exercise price of $4.77 per share. As of December 1997, options
for 7 shares are exercisable.
The effects of applying SFAS No. 123 are immaterial as the application of
SFAS No. 123 would not result in a significant difference from reported net
loss. Accordingly, the following disclosures are omitted: (1) pro forma net
income, (2) weighted-average grant date fair value of options granted during the
year and (3) description of method and assumptions used to estimate fair value
of options.
9. SUBSEQUENT EVENTS
Talus, Incorporated is currently negotiating a merger agreement with Sagent
Technology, Inc.
F-33
<PAGE> 102
SAGENT TECHNOLOGY, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following financial statements present the Sagent Technology, Inc. pro
forma consolidated statements of operations for the year ended December 31,
1998.
Sagent's acquisition of Talus, Incorporated has been accounted for under
the "purchase" method of accounting, which requires the purchase price to be
allocated to the acquired assets and liabilities of Talus, Incorporated on the
basis of their estimated fair values as of the date of acquisition. The
following pro forma consolidated statements of operations for the year ended
December 31, 1998 give effect to the acquisition of Talus, Incorporated as if it
occurred on January 1, 1998, and include adjustments directly attributable to
the acquisition of Talus, Incorporated and expected to have a continuing impact
on the combined company.
The pro forma information is based on historical financial statements. The
pro forma results of operations for the year ended December 31, 1998 includes
the results of operations of Talus, Incorporated from January 1, 1998 to
February 28, 1998. The assumptions give effect to the business combination with
Talus, Incorporated under the purchase method of accounting. The information has
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and is provided for comparative purposes only. The pro forma
information does not purport to be indicative of the results that actually would
have occurred had the combination been effected at the beginning of the periods
presented.
F-34
<PAGE> 103
SAGENT TECHNOLOGY, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------------------
PURCHASE PRO FORMA
SAGENT TALUS ADJUSTMENTS CONSOLIDATED
-------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Total revenues, net....................... $ 17,043 $ 452 $ -- $ 17,495
Cost of revenues.......................... 5,066 167 (102) 5,131
-------- -------- -------- --------
Gross profit.............................. 11,977 285 102 12,364
Operating expenses:
Sales and marketing..................... 12,037 383 12,420
Research and development................ 6,013 283 6,296
General and administrative.............. 5,186 342 5,528
Acquired in-process technology.......... 2,425 (2,425) --
-------- -------- -------- --------
Total operating expenses............. 25,661 1,008 (2,425) 24,244
-------- -------- -------- --------
Loss from operations...................... (13,684) (723) (2,527) (11,880)
Interest expense.......................... (207) (207)
Other income.............................. 190 190
-------- -------- -------- --------
Net loss.................................. $(13,701) $ (723) $ (2,527) $(11,897)
======== ======== ======== ========
Pro forma net loss per share.............. $ (0.75) $ (0.66)
======== ========
Weighted average shares used in
computation of pro forma net loss per
share................................... 18,160 18,160
</TABLE>
See accompanying notes.
F-35
<PAGE> 104
SAGENT TECHNOLOGY, INC.
NOTES TO PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
1. BASIS OF PRESENTATION
On February 28, 1998, Sagent acquired Talus, Incorporated, a privately held
company that has experience in the design and implementation of Enterprise
Intelligence applications.
The unaudited pro forma information presented is not necessarily indicative
of future consolidated results of operations of Sagent or the consolidated
results of operations that would have resulted had the acquisition taken place
on January 1, 1998. The unaudited pro forma consolidated statements of
operations for the year ended December 31, 1998 reflect the effects of the
acquisition, assuming the related events occurred as of January 1, 1998 for the
purposes of the unaudited pro forma consolidated statements of operations.
2. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL ADJUSTMENTS
The unaudited pro forma consolidated financial statements reflect a total
purchase price of $3.5 million, and the acquisition was recorded under the
purchase method of accounting. In connection with the acquisition, Sagent
expensed $2.4 million of in-process technology in the quarter ended March 31,
1998. In addition, Sagent recorded other intangibles of $587, which are being
amortized on a straight-line basis over six months to three years following the
acquisition. The determination of the acquired in-process technology allocation
was based upon recently issued guidance issued by the Securities and Exchange
Commission and considered such factors as degree of completion, technological
uncertainties, costs incurred and projected costs to complete. In-process
technology charges have not been reflected in the pro forma consolidated
financial statements of operations for the year ended December 31, 1998 as they
are considered a non-recurring charge.
3. UNAUDITED PRO FORMA CONSOLIDATED NET LOSS PER SHARE
The net loss per share and shares used in computing the net loss per share
for the year ended December 31, 1998 is based upon the historical weighted
average common shares outstanding. The Sagent common stock issuable upon the
exercise of the stock options and warrants have been excluded as the effect
would be antidilutive. In addition to the shares used in computing the net loss
per share above, pro forma net loss per share is calculated using the
convertible preferred stock outstanding as if such shares were converted to
common stock at the time of issuance.
4. PURCHASE ADJUSTMENTS
Pro forma adjustments have been prepared to reflect the elimination of the
non-recurring one-time charge for acquired in-process technology and to reflect
the amortization of capitalized technology and other intangible assets.
F-36
<PAGE> 105
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors of
Sagent Technology, Inc.:
In connection with our audits of the consolidated financial statements of
Sagent Technology, Inc. as of December 31, 1997 and 1998, and for each of the
three years in the period ended December 31, 1998, which financial statements
are included in the Prospectus, we have also audited the financial statement
schedule listed in Item 16(b) herein. In our opinion, this financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information required to
be included therein.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
January 27, 1999
F-37
<PAGE> 106
[SAGENT LOGO OVER GRAPHIC OF GLOBE APPEARS HERE]
CAPTION: A Leading Provider of Enterprise Intelligence Software Solutions
[Logo]
[SIDEBAR]
The Sagent DMS Product Suite gathers data from a variety of sources and
organizes that data into a repository known as a data mart. The Sagent DMS
Product Suite allows organizations to more efficiently analyze the data and
provides access to the information through personal computers, reports and
importantly, through the Internet.
[Schematic depicting the Sagent Data Mart and its components: Input into Sagent
Data Load Server: Data Sources and Mainframe. Input into Data Mart: Sagent Data
Load Server, Data Mart: Sagent Design Studio, Sagent Automation and Sagent
Admin. Output from Data Mart: Sagent Data Access Server to Sagent Web Link
Server and Sagent Information Studio. Output from Sagent Web Link Server:
Analysis, Reports and Excel. Output from Sagent Information Studio: StatView,
Analysis, Reports and Excel.]
[GRAPHIC DEPICTING A SCREEN SHOT OF A BALANCE SHEET REPORT] Caption: Sagent
Reports allows end users to create, publish and view graphically rich
presentations of corporate information.
[GRAPHIC DEPICTING A SCREEN SHOT OF A Z ANALYSIS VS GOAL REPORT] Caption: Sagent
Analysis provides a wide range of analytical capabilities for business data.
[GRAPHIC DEPICTING A SCREEN SHOT OF A DATA FLOW REPORT] Caption: Sagent Design
Studio provides a visual environment for describing data and designing the flow
of data for both loading and accessing a data mart.
[GRAPHIC DEPICTING A SCREEN SHOT OF A STATISTICS REPORT] Caption: StatView
provides an end user with the ability to create, publish and view complex
statistical analysis of corporate data in client/server environments.
[Logo]
<PAGE> 107
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APRIL 14, 1999
LOGO
5,000,000 SHARES OF COMMON STOCK
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PROSPECTUS
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DONALDSON, LUFKIN & JENRETTE
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
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DLJDIRECT INC.
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We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made pursuant to this prospectus after the date of this prospectus shall
create an implication that the information contained in this prospectus or the
affairs of Sagent have not changed since the date of this prospectus.
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Until May 10, 1999 (25 days after the date of this prospectus), all dealers that
effect transactions in these shares of common stock may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
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