<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 2000
REGISTRATION NO. 333-95761
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SABA SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7372 94-3267638
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2400 BRIDGE PARKWAY
REDWOOD SHORES, CALIFORNIA 94065
(650) 696-3840
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BOBBY YAZDANI
CHIEF EXECUTIVE OFFICER AND PRESIDENT
SABA SOFTWARE, INC.
2400 BRIDGE PARKWAY
REDWOOD SHORES, CALIFORNIA 94065
(650) 696-3840
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PAUL "CHIP" L. LION III, ESQ. ALAN F. DENENBERG, ESQ.
CORI M. ALLEN, ESQ. SHEARMAN & STERLING
HEIKE E. FISCHER, ESQ. 1550 EL CAMINO REAL
TIMOTHY J. HARRIS, ESQ. SUITE 100
MORRISON & FOERSTER LLP MENLO PARK, CA 94025
755 PAGE MILL ROAD (650) 330-2200
PALO ALTO, CA 94304
(650) 813-5600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered in this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ___________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE PRICE(2) REGISTRATION FEE(3)
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par
value..................... 4,600,000 $14.00 $64,400,000 $17,002
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 600,000 shares that may be purchased by the Underwriters to cover
over-allotments.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES
IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED MARCH 3, 2000.
4,000,000 Shares
[SABA LOGO]
Common Stock
----------------------
This is an initial public offering of shares of common stock of Saba
Software, Inc. All of the 4,000,000 shares of common stock are being sold by
Saba.
Prior to this offering, there has been no public market for the common
stock. Saba anticipates that the initial public offering price per share will be
between $12.00 and $14.00. Saba has applied for quotation of the common stock on
the Nasdaq National Market under the symbol "SABA".
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying shares of the common stock.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Saba.......................... $ $
</TABLE>
To the extent that the underwriters sell more than 4,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
600,000 shares from Saba at the initial public offering price, less the
underwriting discount.
----------------------
The underwriters expect to deliver the shares on , 2000.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
BANC OF AMERICA SECURITIES LLC
----------------------
Prospectus dated , 2000.
<PAGE> 3
[Description of graphics:
Set forth on the inside front cover are graphics depicting the following: Across
the top is a bar labeled "Saba Learning Networks." Below, there are two columns.
Above the left-hand column is the sentence "Over 2,000,000 people are licensed
to learn on Saba." The left-hand column is entitled "Saba Customers" and
includes a list of the following names: 3Com, Adobe, Agilent, Amazon.com,
Anheuser-Busch, Baan, BMC Software, Caterpillar, Ceridian, Cisco Systems,
Continental Airlines, DaimlerChrysler, Documentum, Ford, General Electric,
Hillenbrand Industries, Hyundai, i2 Technologies, Informix Software, Lucent
Technologies, PainWebber, PriceWaterhouseCoopers, Procter & Gamble, Qwest
Communications, Safeco Insurance, Scient, SGI, Strong Capital, Texas
Utilities-Europe, U.S. Department of Veterans Affairs, VERITAS Software, Wells
Fargo, Whittman-Hart and York International. The column in the middle is
entitled "Saba Learning Exchange." Above the right-hand column is the sentence
"Over 20,000 learning offerings are available from Saba learning providers. The
right-hand column is entitled "Saba Learning Providers" and includes a list of
the following names: Achieve Global, Allen Communication, Aptech Worldwide, Bell
Canada Enterprises Media, Cisco Systems, Competence Software, Corporate
University Xchange, Crisp Publications, DigitalThink, Eloquent, ExecuTrain, IBM
Catapult, International Air Transport Association, LearningByte International,
NETg, PRIMEDIA Workplace, PROVANT, SkillSoft, Sun-Netscape Alliance, TECH
Connect, Thomson Learning Course Technology, TrainingNet, Wilson Learning and
Xebec McGraw-Hill.
The left-hand side of the gate fold depicts the words "What can Saba do for
you?" super imposed on a picture of a world globe. The right-hand side of the
gate fold has, from top to bottom, the Ford logo with the following paragraph
"Ford has licensed the Saba Learning Network Solution for more than 375,000
dealership personnel throughout its worldwide Ford Motor Company dealership
network. Ford plans to use the products to align dealer learning with the
business goals that support Ford's vision to become the world's leading consumer
company for automotive products and services. Ford intends to implement
certification standards for all dealership personnel and transition to a
competency-driven and individual-specific model for learning throughout its
worldwide dealership network."; the Cisco Systems logo with the following
paragraph; Cisco has licensed the Saba Learning Network Solution to deliver and
track training for 25,000 employees globally. Cisco chose Saba to help speed the
deployment of training and information modules relating to its rapidly changing
products, services, and technologies around the world. Using the Saba products,
Cisco will provide learning to employees anytime, anywhere, over the Internet.";
and the IATA logo with the following paragraph "IATA chose the Saba Learning
Network Solution to help meet its vision of becoming the leading provider of
aviation training and development in the world. The Aviation Training and
Development Institute of IATA intends to connect more than 30,000 people to
learning annually. IATA plans to use the Saba products to support training of
employees of more than 600 airlines, as well as civilian aviation and airport
organizations in more than 185 countries, and employees of travel agencies and
air cargo organizations around the world." The bottom of the page has the Saba
logo with "connecting people to learning" beneath it.]
<PAGE> 4
PROSPECTUS SUMMARY
You should read this summary together with the entire prospectus, including
the more detailed information in our consolidated financial statements and
accompanying notes appearing elsewhere in this prospectus. Unless otherwise
indicated, all information contained in this prospectus relating to our
outstanding shares of common stock or options or warrants to purchase our common
stock is based upon information as of February 29, 2000 and assumes (1) the
conversion of each outstanding share of preferred stock into one share of our
common stock, (2) an amendment to our Certificate of Incorporation authorizing
5,000,000 shares of preferred stock and 200,000,000 shares of common stock and
(3) no exercise of the underwriters' over-allotment option.
SABA
We are a provider of software and services that enable businesses and
governments to create and deploy global networks over the Internet that connect
people to learning. Our Internet-based software platform and related services
enable organizations to procure and deliver learning and systematically close
knowledge and competency gaps across their base of employees, customers,
partners and suppliers, known as the "extended enterprise." In addition, we
offer learning providers an Internet-based global marketing and distribution
channel. We recently launched the Saba Learning Exchange, an Internet-based
business-to-business learning marketplace. The Saba Learning Exchange is
designed to enable businesses, governments and learning providers to buy and
sell learning offerings, such as on-line and off-line courses and related
materials, as well as collaborate within learning communities.
As of December 31, 1999, our software was licensed for use by over two
million people and more than 20,000 third-party learning offerings were
accessible on Saba learning networks. Our significant customers include 3Com,
Agilent, Anheuser-Busch, Cisco Systems, Continental Airlines, DaimlerChrysler,
Ford, General Electric, Hyundai, Lucent Technologies, Procter & Gamble and Qwest
Communications. Our learning offerings are available from over 50 third-party
learning providers, including DigitalThink, ExecuTrain, IBM Catapult,
International Air Transport Association, NETg, PROVANT, SkillSoft and the
Sun-Netscape Alliance.
To remain competitive in today's rapidly changing business environment,
organizations must continually strive to improve the knowledge and competencies
of their extended enterprises. A more knowledgeable and competent extended
enterprise leads to improved performance through, among other things, increased
productivity, reduced time and expense associated with bringing new products and
services to market, and improved customer satisfaction and loyalty. Because of
these benefits, many organizations make significant learning investments.
However, they are unable to realize the full potential of these investments
because traditional learning management solutions typically fail to address the
full spectrum of an organization's learning management needs. Additionally,
learning providers have faced significant limitations on their ability to
develop, market, sell, distribute and improve their content offerings.
The rapid adoption of the Internet has created an opportunity to solve many
of the shortcomings of the business learning market. The Internet has the
potential to significantly improve the procurement, deployment and management of
learning offerings. However, existing offerings did not take full advantage of
the Internet and usually were not designed to serve as an integrated solution
capable of improving the manner in which learning is managed across the extended
enterprise. As a result, we believe there is a significant opportunity for a
software and services solution that is designed to leverage the benefits of the
Internet to create learning networks to meet the needs of businesses, their
employees, customers, partners and suppliers, as well as the needs of
third-party learning providers.
3
<PAGE> 5
Our integrated software platform consists of the Saba Learning Network and
Saba Learning Provider Network software applications, as well as Saba Learning
Exchange. Saba Learning Network is an Internet-based software application that
allows enterprises to assess the learning needs of individuals and
organizations, select and purchase on-line and off-line learning materials and
programs, track individual learners' progress, and manage enterprise-wide
learning initiatives. Saba Learning Provider Network is an Internet-based
software application that enables learning providers to develop, market, sell
and distribute on-line and off-line learning materials to organizations
worldwide. Saba Learning Exchange is a business-to-business learning marketplace
that is designed to serve as a single point of access for the highly fragmented
learning market. We also provide a full range of strategic consulting, business
process reengineering, and technical implementation and support services for our
customers.
We have generated most of our revenues to date from license fees for our
Saba Learning Network and Saba Learning Provider Network software products and
related services, including implementation, consulting, support and education
services. We intend to pursue transaction-based revenues, as well as other forms
of revenues, from our recently introduced Saba Learning Exchange.
We intend to increase the number of learners and providers using our
Internet-based platform in order to create the leading global exchange that
connects people to learning. Key elements of our strategy include:
- Increasing the number of our Global 2000 and government customers;
- Extending penetration within our existing customer base and their
affiliates;
- Increasing the number of learning offerings in our network;
- Expanding Saba Learning Exchange;
- Expanding our international presence; and
- Developing new uses and markets for the Saba platform.
We were incorporated in Delaware in April 1997. Our headquarters are
located at 2400 Bridge Parkway, Redwood Shores, California 94065, and our
telephone number at this location is (650) 696-3840. We maintain a World Wide
Web site at www.saba.com. The reference to this World Wide Web site address does
not constitute incorporation by reference of the information contained therein.
Saba, the Saba logo, Saba Software, saba.com, Saba Learning Exchange, the
phrase "Connecting People to Learning", the phrase "Connect People to Learning",
Saba Learning Network Solution, Saba Learning Network, Saba Learning Provider
Network, Saba Learning e-Store and the marks relating to other Saba products and
services referenced are our trademarks and service marks. All other trademarks
appearing in this prospectus are the property of their respective owners.
4
<PAGE> 6
THE OFFERING
Common stock offered.................... 4,000,000 shares
Common stock to be outstanding after the
offering................................ 42,171,169 shares
Use of proceeds......................... For general corporate purposes,
including working capital and
capital expenditures. See "Use of
Proceeds".
Proposed Nasdaq National Market
symbol.................................. "SABA"
The number of shares of our common stock to be outstanding after the
offering excludes:
- 6,370,271 shares of our common stock subject to outstanding options and
warrants as of February 29, 2000; and
- 9,141,118 additional shares of our common stock available for future
grant or purchase under our stock plans as of February 29, 2000.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1997 SIX MONTHS ENDED
(INCEPTION) NOVEMBER 30,
THROUGH YEAR ENDED -------------------
MAY 31, 1998 MAY 31, 1999 1998 1999
--------------- ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues................................ $ 40 $ 1,939 $ 483 $ 5,204
Gross profit (loss)..................... (32) 675 195 2,476
Total operating expenses................ 1,531 11,572 2,807 20,309
Loss from operations.................... (1,563) (10,897) (2,612) (17,833)
Net loss................................ (1,571) (10,852) (2,601) (17,677)
Basic and diluted net loss per
share(1).............................. (0.17) (0.84) (0.20) (1.26)
Shares used in computing basic and
diluted net loss per share(1)......... 9,439 12,987 12,896 13,996
Pro forma basic and diluted net loss per
share (unaudited)..................... $ (0.52) $ (0.62)
Shares used in computing pro forma basic
and diluted net loss per share
(unaudited)........................... 20,881 28,557
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, 1999
------------------------
AS
ACTUAL ADJUSTED(2)
-------- -------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $29,390 $76,750
Working capital............................................. 23,955 71,315
Total assets................................................ 40,188 87,548
Long-term obligations, less current portion................. 2,615 2,615
Total stockholders' equity.................................. 24,961 72,321
</TABLE>
- ---------------
(1) See note 2 of notes to our consolidated financial statements for an
explanation of the determination of the number of shares used in computing
per share amounts.
(2) The as adjusted consolidated balance sheet data gives effect to the sale of
our shares of common stock in this offering, at an assumed initial public
offering price of $13.00 per share, and after deducting the estimated
underwriting discounts and commissions and the estimated offering expenses.
See "Capitalization".
6
<PAGE> 8
RISK FACTORS
You should carefully consider the risks and uncertainties described below
and the other information in this prospectus before deciding whether to invest
in shares of our common stock.
The occurrence of any of the following risks could materially and adversely
affect our business, financial condition and operating results. In this case,
the trading price of our common stock could decline and you might lose all or
part of your investment.
WE HAVE A LIMITED OPERATING HISTORY AND ARE SUBJECT TO THE RISKS ENCOUNTERED BY
EARLY-STAGE COMPANIES
We were founded in April 1997, shipped our first products in April 1998 and
began to operate Saba Learning Exchange in December 1999. Because we have a
limited operating history, you should consider and evaluate our operating
prospects in light of the risks and uncertainties frequently encountered by
early stage companies in rapidly evolving markets. For us, these risks include:
- risks that our revenue forecasts may be incorrect because of our limited
sales to date and our long sales process;
- risks associated with our dependence on Saba Learning Network and Saba
Learning Provider Network, and related services, for substantially all of
our revenues for the foreseeable future;
- risks that our strategy of establishing Saba Learning Exchange may not be
successful; and
- risks that fluctuations in our quarterly operating results will be
significant relative to our revenues.
These risks are described in more detail below. Our future growth will depend
substantially on our ability to address these and the other risks described in
this section. If we do not successfully address these risks, our business would
be significantly harmed.
WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND CANNOT ASSURE YOU THAT WE
WILL ACHIEVE PROFITABILITY
We have incurred significant net losses and negative cash flow from
operations since our inception. We incurred net losses of $1.6 million in fiscal
1998, $10.9 million in fiscal 1999 and $17.7 million in the first six months of
fiscal 2000. As of November 30, 1999, we had an accumulated deficit of $30.1
million. Although our revenues have increased continuously on a quarterly basis
since inception, we have not achieved profitability and cannot be certain that
we will be able to sustain these growth rates or realize sufficient revenues to
achieve profitability. We expect to derive substantially all of our revenues for
the foreseeable future from the licensing of our Saba Learning Network and Saba
Learning Provider Network, and providing related services. Over the longer term,
we expect to derive revenues from Saba Learning Exchange, which is based on an
evolving and unproven business model. Moreover, we also expect to continue to
incur significantly greater sales and marketing, research and development, and
general and administrative expenses. In the future, we expect to incur
substantial non-cash expenses relating to the amortization of deferred
compensation that will contribute to our net losses. As of February 29, 2000, we
had an aggregate of $22.8 million of deferred compensation to be amortized. As a
result of all of the foregoing, we expect to incur significant losses for the
foreseeable future and will need to generate significantly higher revenues in
order to achieve profitability. If we achieve profitability, we may not be able
to sustain it.
7
<PAGE> 9
FLUCTUATIONS OF OUR QUARTERLY RESULTS COULD CAUSE OUR STOCK PRICE TO EXPERIENCE
SIGNIFICANT FLUCTUATIONS OR DECLINES
Our quarterly operating results have varied significantly in the past and
will likely fluctuate significantly in the future. We believe that
quarter-to-quarter comparisons of our revenues and operating results are not
necessarily meaningful and should not be relied on as indicators of future
performance. Our operating expenses are based on our expectations of future
revenues and are relatively fixed in the short term. We plan to increase our
operating expenses to expand our sales and marketing operations, fund greater
levels of research and development, develop new alliances, increase our services
and support capabilities and improve our operational and financial systems. If
our revenues do not increase along with these expenses, our business would be
seriously harmed and net losses in a given quarter would be even larger than
expected. It is possible that in some future quarter our operating results may
be below the expectations of public market analysts or investors, which could
cause the market price of our common stock to fall.
Our quarterly revenues are especially subject to fluctuation because they
depend on the sale of a small number of relatively large orders, principally
orders for Saba Learning Network and Saba Learning Provider Network, and related
services. As a result, our quarterly operating results may fluctuate
significantly if we are unable to complete one or more substantial sales in any
given quarter. We generally recognize revenues derived from sales of product
licenses and annual support over a twelve-month period and from sales of
services as the services are provided. Therefore, if we do not book a sufficient
number of large orders in a particular quarter, our revenues in future periods
could be lower than expected. We have not fully developed our business model for
Saba Learning Exchange, including the structure and amount of the fees we intend
to charge. As this business model evolves, the potential for fluctuations in our
quarterly results could increase. Furthermore, our quarterly revenues may be
affected significantly by other revenue recognition policies and procedures.
These policies and procedures may evolve or change over time based on applicable
accounting standards and how these standards are interpreted. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
OUR LENGTHY SALES CYCLE COULD CAUSE DELAYS IN REVENUE GROWTH
The period between our initial contact with a potential customer and the
purchase of our products and services is often long. A customer's decision to
purchase our products and services requires the commitment to improve learning,
involves a significant allocation of resources, and is influenced by a
customer's budgetary cycles. To successfully sell our products and services, we
generally must educate our potential customers regarding the use and benefits of
our products and services, which can require significant time and resources.
Many of our potential customers are large enterprises that generally take longer
to make significant business decisions. Our typical sales cycle has been
approximately six to 12 months. The delay or failure to complete sales in a
particular quarter could reduce our revenues in that quarter, as well as
subsequent quarters over which revenues for the sale would likely be recognized.
If our sales cycle unexpectedly lengthens in general or for one or more large
orders, it would adversely affect the timing of our revenues and our revenue
growth. If we were to experience a delay of several weeks on a large order, it
could harm our ability to meet our forecasts for a given quarter.
A DECLINE IN THE PRICE OF, OR DEMAND FOR, EITHER OF OUR MAIN PRODUCTS, SABA
LEARNING NETWORK OR SABA LEARNING PROVIDER NETWORK OR OUR RELATED SERVICE
OFFERINGS, WOULD SERIOUSLY HARM OUR REVENUES AND OPERATING MARGINS
Saba Learning Network and Saba Learning Provider Network, and related
services, accounted for substantially all of our revenues in fiscal 1999 and for
the six months ended November 30, 1999. We anticipate that revenues from our
Saba Learning Network and Saba Learning Provider Network, and
8
<PAGE> 10
related services, will continue to constitute substantially all of our revenues
for the foreseeable future. Consequently, a decline in the price of, or demand
for, Saba Learning Network or Saba Learning Provider Network, or their
respective failure to achieve broad market acceptance, would seriously harm our
business.
OUR STRATEGY OF ESTABLISHING SABA LEARNING EXCHANGE IS UNPROVEN AND MAY NOT BE
SUCCESSFUL
We need to more fully establish and enhance Saba Learning Exchange, where
organizations and learning providers can transact business and collaborate. Our
success depends on a significant number of organizations implementing Saba
Learning Network and Saba Learning Provider Network, and conducting business
with learning providers over the Internet through Saba Learning Exchange. If
this business strategy is flawed, or if we are unable to execute it effectively,
our revenues will be seriously harmed. We began operating Saba Learning Exchange
in December 1999. Accordingly, we have limited experience developing and
operating Saba Learning Exchange. To date, only a limited number of learning
providers and organizations are connected to Saba Learning Exchange. It is
possible that we, together with the organizations and learning providers who
comprise this exchange, will not be able to effectively operate this exchange,
both in terms of technical performance as well as commercial viability. It is
possible that an insufficient number of organizations and/or learning providers
will join and remain in Saba Learning Exchange, and that we will be unable to
generate significant revenues from Saba Learning Exchange. Unless a critical
mass of organizations and learning providers join Saba Learning Exchange, our
solutions may not achieve widespread market acceptance and our business would be
seriously harmed. To date, we have not generated significant revenues from Saba
Learning Exchange.
THE FAILURE TO MAINTAIN OUR RELATIONSHIP WITH CURRENT AND FUTURE CUSTOMERS COULD
REDUCE THE VIABILITY OF OUR SABA LEARNING EXCHANGE
Because many of our Saba Learning Network customers are Global 2000
organizations, a relatively small number of these organizations account for a
substantial portion of the learners on the Saba platform. In addition, the
quantity of learning offerings made available by our learning providers through
Saba Learning Exchange varies significantly. The concentration of learners
within these organizations and learning offerings offered by these key learning
providers exposes us to the risk that the loss of even a small number of
organizations or learning providers could reduce the viability of Saba Learning
Exchange. This would substantially hinder our ability to generate revenues from
Saba Learning Exchange as well as our other products.
IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
QUALIFIED PERSONNEL WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS AND
ACHIEVE OUR OBJECTIVES
We believe our future success will depend upon our ability to retain our
key management personnel including Bobby Yazdani, our President and Chief
Executive Officer. These employees are not subject to employment contracts. We
may not be successful in attracting, assimilating and retaining our key
employees in the future.
Our future success and our ability to expand our operations will also
depend in large part on our ability to attract and retain additional qualified
technical, sales and marketing personnel. Competition for these types of
employees is intense due to the limited number of qualified professionals and
the high demand for them, particularly in the San Francisco Bay Area, where our
headquarters is located. We have in the past experienced difficulty in
recruiting qualified personnel. Failure to attract, assimilate and retain
personnel, particularly technical, sales and marketing personnel, would have a
material adverse effect on our business and potential growth.
9
<PAGE> 11
DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS
We have experienced a period of rapid and substantial growth that has
placed, and if such growth continues, will continue to place a strain on our
administrative infrastructure. We have increased the number of our employees
from approximately 40 employees at May 31, 1998 to approximately 140 employees
at May 31, 1999 and 357 employees at February 29, 2000. In addition, we intend
to hire a significant number of employees in the future. This expansion is
placing a significant strain on our managerial and financial resources. To
manage the expected growth of our operations and personnel, we will be required
to:
- improve existing and implement new operational, financial and management
controls, reporting systems and procedures;
- install enhanced management information systems; and
- hire, train, retain, motivate and manage our employees.
We may not be able to install adequate management information and control
systems in an efficient and timely manner, and our current or planned personnel,
systems, procedures and controls may not be adequate to support our future
operations. If we are unable to manage growth effectively, our business would be
seriously harmed.
OUR REVENUES DEPEND ON A SMALL NUMBER OF LARGE SALES, AND IF WE FAIL TO COMPLETE
ONE OR MORE LARGE SALES OR TO COLLECT ACCOUNTS RECEIVABLE FROM THESE LARGE
SALES, OUR OPERATING RESULTS WILL BE HARMED
To date, we have received a significant portion of our revenues from large
sales to a small number of customers. During the six months ended November 30,
1999, our two largest customers, Ford and US West, each accounted for more than
10% of our total revenues and collectively comprised 25% of our total revenues.
During fiscal 1999, Baan, Documentum and Wells Fargo each accounted for more
than 10% of our total revenues and collectively comprised approximately 66% of
our total revenues. In addition, at November 30, 1999, two customers accounted
for a total of 41% of our accounts receivable and at May 31, 1999, five
customers accounted for a total of 80% of our accounts receivable. Our operating
results may be harmed if we are not able to complete one or more substantial
sales to any large customers or we are unable to collect accounts receivable
from any of our large customers in any future period.
INTENSE COMPETITION IN OUR TARGET MARKET COULD IMPAIR OUR ABILITY TO GROW AND TO
ACHIEVE PROFITABILITY
The market for our products and services is intensely competitive, dynamic
and subject to rapid technological change. The intensity of the competition and
the pace of change are expected to increase in the future. Increased competition
is likely to result in price reductions, reduced gross margins and loss of
market share, any one of which could seriously harm our business. Competitors
vary in size and in the scope and breadth of the products and services offered.
We encounter competition with respect to different aspects of our solution from
a variety of sources including:
- companies that operate Internet-based marketplaces for the sale of
on-line learning;
- companies that operate Internet-based marketplaces for the sale of goods
and services that may decide to evolve their marketplaces to include
learning offerings;
- Internet portals that offer learning content;
- companies that market and license training management systems;
10
<PAGE> 12
- enterprise software vendors that offer human resources information
systems training modules; and
- potential customers' internal development efforts.
Because there are relatively low barriers to entry in the electronic commerce
market, which comprises a portion of our business model, we expect competition
from a variety of established and emerging companies.
Many of our competitors have longer operating histories, substantially
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly than
we can to new or emerging technologies and changes in customer requirements.
Competition could seriously impede our ability to sell additional products and
services on terms favorable to us. Our current and potential competitors may
develop and market new technologies that render our existing or future products
and services obsolete, unmarketable or less competitive. Our current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with other learning solution providers,
thereby increasing the availability of their services to address the needs of
our current and prospective customers. We may not be able to compete
successfully against our current and future competitors, and competitive
pressures that we encounter may seriously harm our business.
IF WE ARE UNABLE TO MANAGE THE COMPLEXITY OF CONDUCTING BUSINESS GLOBALLY, OUR
INTERNATIONAL REVENUES MAY SUFFER
International revenues accounted for 4% of our revenues in each of fiscal
1999 and the first six months of fiscal 2000. We intend to expand our
international presence in the future. Conducting business outside of the United
States is subject to certain risks, including:
- changes in regulatory requirements and tariffs;
- language barriers;
- difficulties in staffing and managing foreign operations;
- longer payment cycles and greater difficulty in collecting accounts
receivable;
- reduced protection of intellectual property rights;
- potentially harmful tax consequences;
- fluctuating exchange rates;
- price controls and other restrictions on foreign currency;
- difficulties in obtaining import and export licenses;
- the burden of complying with a variety of foreign laws; and
- political or economic constraints on international trade or instability.
We might not successfully market, sell or distribute our products and
services in foreign markets and we cannot be certain that one or more of such
factors will not materially adversely affect our future international
operations, and consequently, our business and future growth.
11
<PAGE> 13
OUR REVENUES MAY DECREASE IF USE OF THE INTERNET IN THE MARKETS WE TARGET DOES
NOT GROW AS PROJECTED
The use of the Internet as a means to interconnect organizations and
learning providers and to create Saba Leaning Exchange is integral to our
business model. Our business strategy is, in part, to create a global,
business-to-business learning marketplace for organizations and learning
providers to transact business and collaborate. However, the use of the Internet
as a means of transacting business is relatively new and has not been accepted
by all customers in the markets we have targeted. The failure of the Internet to
continue to develop as a commercial or business medium or of significant numbers
of organizations and learning providers to transact business and collaborate on
the Internet would harm our revenues and earnings. The acceptance and use of the
Internet to transact business and collaborate is dependent upon a number of
factors, such as the growth and use of the Internet in general, the relative
ease of conducting business on the Internet, the efficiencies and improvements
that conducting commerce on the Internet provides, the resolution of concerns
about transaction security and taxation of transactions on the Internet.
A FAILURE TO EXPAND AND IMPROVE THE INFRASTRUCTURE OF THE INTERNET COULD
CONSTRAIN THE FUNCTIONALITY OF OUR PRODUCTS AND SERVICES AND THUS LIMIT OUR
REVENUES
The recent growth in Internet traffic has caused frequent periods of
decreased performance, and if Internet usage continues to grow rapidly, the
Internet infrastructure may not be able to support this growth and reliability
may decline. If outages or delays on the Internet occur frequently or increase
in frequency, overall Internet usage including usage of our products and
services could grow more slowly or decline. Our ability to increase the speed
and scope of our services to customers is ultimately limited by, and depends
upon, the speed and reliability of both the Internet and our customers' internal
networks. Consequently, the emergence and growth of the market for our products
and services depends upon improvements being made to the entire Internet as well
as to our individual customers' networking infrastructures to alleviate
overloading and congestion. If these improvements are not made, the ability of
our customers to use our products and services will be hindered, and our
business may suffer.
A BREACH OF INTERNET COMMERCE SECURITY MEASURES COULD REDUCE DEMAND FOR OUR
PRODUCTS AND SERVICES
A requirement of the continued growth of Internet-based,
business-to-business electronic commerce is the secure transmission of
confidential information over public networks. Failure to prevent security
breaches of Saba Learning Exchange or our customers' networks, or well
publicized security breaches affecting the Internet in general, could
significantly harm our growth and revenues. We cannot be certain that advances
in computer capabilities, new discoveries in the field of cryptography, or other
developments will not result in a compromise or breach of the algorithms we use
to protect content and transactions on Saba Learning Exchange or within our
customers' networks or proprietary information in our databases. Anyone who is
able to circumvent our security measures could misappropriate proprietary and
confidential information or could cause interruptions in our operations. We may
be required to expend significant capital and other resources to protect against
such security breaches or to address problems caused by such breaches. Concerns
over the security of the Internet and other on-line transactions and the privacy
of users may also deter people from using the Internet to conduct transactions
that involve transmitting confidential information.
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<PAGE> 14
WE MAY BECOME SUBJECT TO GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES THAT
COULD REDUCE DEMAND FOR OUR PRODUCTS AND SERVICES OR INCREASE THE COST OF DOING
BUSINESS, THEREBY ADVERSELY AFFECTING OUR FINANCIAL RESULTS
We are not currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable to businesses
generally, export control laws and laws or regulations directly applicable to
Internet commerce. However, due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may become
applicable to us or may be adopted in the future with respect to the Internet
covering issues such as:
- user privacy;
- taxation;
- content;
- right to access personal data;
- copyrights;
- distribution; and
- characteristics and quality of services.
The applicability of existing laws governing issues such as property
ownership, copyrights, and other intellectual property issues, encryption,
taxation, libel, export or import matters and personal privacy to the Internet
is uncertain. The vast majority of these laws were adopted prior to the broad
commercial use of the Internet and related technologies. As a result, they do
not contemplate or address the unique issues of the Internet and related
technologies. Changes to these laws intended to address these issues, including
some recently proposed changes, could create uncertainty in the Internet
marketplace. Such uncertainty could reduce demand for our services or increase
the cost of doing business due to increased costs of litigation or increased
service delivery costs.
OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND TO COMPETE, WE MUST
CONTINUALLY ENHANCE OUR PRODUCTS AND SERVICES
We must continue to enhance and improve the performance, functionality and
reliability of our products and services. The software and electronic commerce
industries are characterized by rapid technological change, changes in user
requirements and preferences, frequent new product and services introductions
embodying new technologies and the emergence of new industry standards and
practices that could render our products and services obsolete. In the past, we
have discovered that some of our customers desire additional performance and
functionality not currently offered by our products. Our success will depend, in
part, on our ability to both internally develop and license leading technologies
to enhance our existing products and services, develop new products and services
that address the increasingly sophisticated and varied needs of our customers,
and respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis. The development of our
technology and other proprietary technology involves significant technical and
business risks. We may fail to use new technologies effectively or to adapt our
proprietary technology and systems to customer requirements or emerging industry
standards. If we are unable to adapt to changing market conditions, customer
requirements or emerging industry standards, we may not be able to increase our
revenues and expand our business.
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<PAGE> 15
DELAYS IN RELEASING ENHANCED VERSIONS OF OUR PRODUCTS COULD ADVERSELY AFFECT OUR
COMPETITIVE POSITION
As part of our strategy, we expect to regularly release new versions of our
Saba Learning Network, Saba Learning Provider Network and Saba Learning
Exchange. Even if our new versions contain the features and functionality our
customers want, in the event we are unable to timely introduce these new product
releases, our competitive position may be harmed. We cannot assure you that we
will be able to successfully complete the development of currently planned or
future products in a timely and efficient manner. Due to the complexity of these
products, internal quality assurance testing and customer testing of
pre-commercial releases may reveal product performance issues or desirable
feature enhancements that could lead us to postpone the release of these new
versions. In addition, the reallocation of resources associated with any
postponement would likely cause delays in the development and release of other
future products or enhancements to our currently available products. Any delay
in releasing other future products or enhancements of our products could cause
our stock price to decline.
IF WE RELEASE PRODUCTS CONTAINING DEFECTS, WE MAY NEED TO HALT FURTHER SHIPMENTS
AND OUR BUSINESS AND REPUTATION WOULD BE HARMED
Products as complex as ours often contain unknown and undetected errors or
performance problems. Many serious defects are frequently found during the
period immediately following introduction and initial shipment of new products
or enhancements to existing products. Although we attempt to resolve all errors
that we believe would be considered serious by our customers before shipment to
them, our products are not error-free. These errors or performance problems
could result in lost revenues or delays in customer acceptance and would be
detrimental to our business and reputation. As is typical in the software
industry, with each release we have discovered errors in our products after
introduction. We may not be able to detect and correct errors before releasing
our product commercially. We cannot assure you that undetected errors or
performance problems in our existing or future products will not be discovered
in the future or that known errors considered minor by us will not be considered
serious by our customers, resulting in a decrease in our revenues.
IF THIRD PARTIES CLAIM THAT WE INFRINGE THEIR PATENTS, IT MAY RESULT IN COSTLY
LITIGATION
We cannot assure you that third parties will not claim our current or
future products or services infringe their rights. Any such claims, with or
without merit, could cause costly litigation that could consume significant
management time. As the number of product and services offerings in our market
increases and functionalities increasingly overlap, companies such as ours may
become increasingly subject to infringement claims. Such claims also might
require us to enter into royalty or license agreements. If required, we may not
be able to obtain such royalty or license agreements, or obtain them on terms
acceptable to us.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY, AND OUR
COMPETITORS MAY BE ABLE TO OFFER SIMILAR PRODUCTS AND SERVICES WHICH WOULD HARM
OUR COMPETITIVE POSITION
Our success depends upon our proprietary technology. We rely primarily on
copyright, trademark and trade secret laws, confidentiality procedures and
contractual provisions to establish and protect our proprietary rights. As part
of our confidentiality procedures, we enter into non-disclosure agreements with
our employees. Despite these precautions, third parties could copy or otherwise
obtain and use our technology without authorization, or develop similar
technology independently. In addition, we have filed six provisional patent
applications in the U.S. We cannot assure you that any formal or approved patent
applications will result from these provisional applications, that any patents
that may issue will protect our intellectual property or that any issued patents
will not be challenged by third parties. Furthermore, effective protection of
intellectual property rights is unavailable or limited
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<PAGE> 16
in certain foreign countries. We cannot assure you that the protection of our
proprietary rights will be adequate or that our competitors will not
independently develop similar technology, duplicate our products and services or
design around any patents or other intellectual property rights we hold. For
more detailed information regarding the protection of our proprietary rights see
"Business -- Proprietary Rights".
WE DO NOT HAVE A DISASTER RECOVERY PLAN OR BACK-UP SYSTEM, AND A DISASTER COULD
SEVERELY DAMAGE OUR OPERATIONS
We currently do not have a disaster recovery plan in effect and do not have
fully redundant systems for our services at an alternate site. A disaster could
severely harm our business because our services could be interrupted for an
indeterminate length of time. Our operations depend upon our ability to maintain
and protect our computer systems in our principal facilities in Redwood Shores,
California, which are located on or near known earthquake fault zones. Although
these systems are designed to be fault tolerant, they are vulnerable to damage
from fire, floods, earthquakes, power loss, telecommunications failures and
other events. Additionally, we do not carry sufficient business insurance to
compensate us for our losses that could occur.
WE MUST OUTSOURCE THE MANAGEMENT AND MAINTENANCE OF SABA LEARNING EXCHANGE TO
THIRD PARTIES AND WILL DEPEND UPON THEM TO PROVIDE ADEQUATE MANAGEMENT AND
MAINTENANCE SERVICES
We are currently negotiating with third parties to expand, manage and
maintain the computer and communications equipment and software needed for the
day-to-day operations of Saba Learning Exchange. Services provided by any of
these third parties will likely include managing the Saba Learning Exchange web
server, maintaining communications lines and managing network data centers,
which are the locations on our network where data is stored. If we are unable to
successfully contract with one or more third parties for these services, we
would have to perform these functions ourselves. We may not successfully obtain
or perform these services on a timely and cost-effective basis. If the
installation of the computer and communications equipment and software needed
for the day-to-day operations of Saba Learning Exchange is successfully
completed by one or more third parties, we will be entirely dependent on that
party or parties to manage, maintain and provide security for Saba Learning
Exchange.
WE MAY NOT BE ABLE TO SECURE NECESSARY FUNDING IN THE FUTURE
We require substantial working capital to fund our business. We have had
significant operating losses and negative cash flow from operations since
inception and expect this to continue for the foreseeable future. We expect to
use the net proceeds of this offering primarily to expand sales and marketing
activities, fund research and development, fund continued operations, and
possibly make future acquisitions. We believe that these proceeds, together with
our existing capital resources, will be sufficient to meet our capital
requirements for the next twelve months. However, if our capital requirements
increase materially from those currently planned, we may require additional
financing sooner than anticipated. If additional funds are raised through the
issuance of equity securities, the percentage ownership of our stockholders will
be reduced, stockholders may experience additional dilution, or such equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. Additional financing may not be available when
needed on terms favorable to us or at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to develop or enhance
our products and services, take advantage of future opportunities or respond to
competitive pressures.
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<PAGE> 17
WE INTEND TO PURSUE ACQUISITIONS, AND OUR BUSINESS COULD BE MATERIALLY ADVERSELY
AFFECTED IF WE FAIL TO ADEQUATELY INTEGRATE ACQUIRED BUSINESSES
As part of our overall business strategy, we intend to pursue acquisitions
of complementary businesses or technologies that would provide additional
product or service offerings, additional industry expertise or an expanded
geographic presence. Any future acquisition could result in the use of
significant amounts of cash, potentially dilutive issuances of equity
securities, or the incurrence of debt or amortization of expenses related to
goodwill and other intangible assets, any of which could materially adversely
affect our business. In addition, acquisitions involve numerous risks,
including:
- difficulties in the assimilation of the operations, technologies,
products and personnel of the acquired company;
- the diversion of management's attention from other business concerns;
- risks of entering markets in which we have no or limited prior
experience; and
- the potential loss of key employees of the acquired company.
OUR STOCK PRICE MAY FLUCTUATE SUBSTANTIALLY
Prior to this offering, there has been no public market for shares of our
common stock. An active public trading market may not develop following
completion of this offering or, if developed, may not be sustained. The initial
public offering price of the shares of our common stock will be determined by
negotiation between us and representatives of the underwriters. This price will
not necessarily reflect the market price of our common stock following this
offering. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
The market price for our common stock following this offering will be
affected by a number of factors, including those described above and the
following:
- the announcement of new products and services or product and service
enhancements by us or our competitors;
- quarterly variations in our results of operations or those of our
competitors;
- changes in earnings estimates or recommendations by securities analysts
that may follow our stock;
- developments in our industry; and
- general market conditions and other factors, including factors unrelated
to our operating performance or the operating performance of our
competitors.
In addition, stock prices for many companies in the technology and emerging
growth sectors have experienced wide fluctuations that have often been unrelated
to the operating performance of such companies. Such factors and fluctuations,
as well as general economic, political and market conditions, may materially
adversely affect the market price of our common stock.
CERTAIN EXISTING STOCKHOLDERS CAN EXERT CONTROL OVER SABA TO THE DETRIMENT OF
MINORITY STOCKHOLDERS
After this offering, our executive officers, directors and principal
stockholders (i.e., greater than 5% stockholders) will together control
approximately 71.8% of our outstanding common stock. As a result, these
stockholders, if they act together, will be able to control our management and
affairs and all matters requiring stockholder approval, including the election
of directors and approval of
16
<PAGE> 18
significant corporate transactions. This concentration of ownership may have the
effect of delaying or preventing our change in control and might affect the
market price of our common stock.
OUR BUSINESS MIGHT BE HARMED IF THE SYSTEMS WE USE ARE NOT YEAR 2000 COMPLIANT
OR IF OUR CUSTOMERS OR POTENTIAL CUSTOMERS ALTER THEIR PURCHASING PATTERNS AS A
RESULT OF THE YEAR 2000 PROBLEM
Although January 1, 2000 has occurred, our information technology systems
could be impaired or cease to operate due to the year 2000 problem.
Additionally, we rely on technology supplied by third parties. These third
parties may experience year 2000 related problems. Any year 2000 problems
experienced by us or any of these third parties could harm our business.
Additionally, the Internet could face serious disruption arising from the year
2000 problem.
Further, any year 2000 problems with respect to our products could lead to
claims from our customers asserting liability, including liability for breach of
warranties related to our products, which could result in large settlements or
judgments against us.
SALES OF SHARES ELIGIBLE FOR FUTURE SALE AFTER THIS OFFERING COULD CAUSE OUR
STOCK PRICE TO DECLINE
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options and warrants) in the
public market following this offering, the market price of our common stock
could fall. Such sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have outstanding
42,171,169 shares of common stock, assuming no exercise of outstanding options
or warrants after February 29, 2000. Of these shares, the 4,000,000 shares sold
in this offering will be freely tradable. The remaining shares of common stock
outstanding after this offering will be available for sale in the public market
as follows:
<TABLE>
<CAPTION>
NUMBER OF
DATE OF AVAILABILITY FOR SALE SHARES
----------------------------- ----------
<S> <C>
At the date of this prospectus.............................. 0
181 days after the date of this prospectus.................. 31,669,861
Periodically thereafter..................................... 6,501,308
</TABLE>
THE ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS COULD ADVERSELY AFFECT THE
RIGHTS OF THE HOLDERS OF OUR COMMON STOCK
Upon the closing of this offering, our Certificate of Incorporation and
Bylaws will contain provisions which could make it harder for a third party to
acquire us without the consent of our board of directors. For example, if a
potential acquiror were to make a hostile bid for us, the acquiror would not be
able to call a special meeting of stockholders to remove our board of directors
or act by written consent without a meeting. In addition, our board of directors
will have staggered terms that makes it difficult to remove them all at once.
The acquiror would also be required to provide advance notice of its proposal to
remove directors at an annual meeting. The acquiror also will not be able to
cumulate votes at a meeting, which will require the acquiror to hold more shares
to gain representation on the board of directors than if cumulative voting were
permitted.
Our board of directors also has the ability to issue preferred stock which
would significantly dilute the ownership of a hostile acquiror. In addition,
Section 203 of the Delaware General Corporation Law limits business combination
transactions with 15% stockholders that have not been approved by the board of
directors. These provisions and other similar provisions make it more difficult
for a third party to acquire us without negotiation. These provisions may apply
even if the offer may be considered beneficial by some stockholders.
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<PAGE> 19
Our board of directors could choose not to negotiate with an acquiror that
it did not feel was in the strategic interests of Saba. If the acquiror was
discouraged from offering to acquire us or prevented from successfully
completing a hostile acquisition by the anti-takeover measures, you could lose
the opportunity to sell your shares at a favorable price.
WE HAVE BROAD DISCRETION TO US THE OFFERING PROCEEDS AND HOW WE INVEST THESE
PROCEEDS MAY NOT YIELD A FAVORABLE, OR ANY, RETURN FOR US AND YOU MAY LOSE THE
ENTIRE AMOUNT OF YOUR INVESTMENT
The net proceeds of this offering are not allocated for specific uses other
than working capital and general corporate purposes. Thus, our management has
broad discretion over how these proceeds are used and could spend the proceeds
in ways with which you may not agree. We cannot assure you that the proceeds
will be invested in a way that yields a favorable, or any, return for us.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
SHARES
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of approximately $11.23, at an assumed initial public
offering price of $13.00 per share, in the book value per share of our common
stock from the price you pay for our common stock. For additional information on
dilution of the book value of your shares, see "Dilution".
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<PAGE> 20
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on current
expectations, estimates and projections about our industry, our beliefs and our
assumptions. Words such as "anticipates", "expects", "intends", "plans",
"believes", "seeks" and "estimates", and variations of these words and similar
expressions, are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control and
difficult to predict, and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks and
uncertainties include those described in "Risk Factors" and elsewhere in this
prospectus. Except as required by law, we undertake no obligation to update any
forward-looking statement, whether as a result of new information, future events
or otherwise.
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<PAGE> 21
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 4,000,000 shares of
common stock that we are offering will be approximately $47.4 million, at an
assumed initial public offering price of $13.00 per share and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate that our net proceeds will be approximately $54.6 million.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock, to enhance our ability to
acquire other businesses, products or technologies and to facilitate future
access to public equity markets. We intend to use the net proceeds for general
corporate purposes, including working capital, capital expenditures and
investments in product development, expansion of sales and marketing activities,
and other corporate expenses. We may also use a portion of the net proceeds from
this offering to acquire or invest in businesses, products or technologies that
are complementary to our business. We currently have no commitments or
agreements with respect to any acquisitions or investments. We have not
determined the amounts we plan to spend on any of the uses described above or
the timing of these expenditures. Pending our use of the net proceeds of this
offering, we intend to invest them in short-term, investment grade,
interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future.
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<PAGE> 22
CAPITALIZATION
The following table sets forth our capitalization as of November 30, 1999:
- on an actual basis; and
- on an as adjusted basis to give effect to the sale of our common stock in
this offering at an assumed initial public offering price of $13.00 per
share and the receipt of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
NOVEMBER 30, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations net of current portion................ $ 2,615 $ 2,615
Stockholders' equity:
Preferred Stock, $0.001 par value, 23,000,000 shares
authorized, 19,648,857 shares designated as convertible
preferred stock, 19,568,540 shares issued and
outstanding -- actual; 5,000,000 shares authorized, no
shares designated, issued or outstanding -- as
adjusted............................................... 20 --
Common stock, $0.001 par value; 50,000,000 shares
authorized, 17,213,448 shares issued and
outstanding -- actual; 200,000,000 shares authorized,
40,781,988 shares issued and outstanding -- as
adjusted............................................... 17 41
Additional paid-in capital................................ 66,260 113,616
Deferred stock compensation............................... (10,743) (10,743)
Notes receivable from stockholders........................ (493) (493)
Accumulated deficit....................................... (30,100) (30,100)
-------- --------
Total stockholders' equity................................ 24,961 72,321
-------- --------
Total capitalization.............................. $ 27,576 $ 74,936
======== ========
</TABLE>
- ---------------
The share numbers above exclude:
- 5,640,425 shares of our common stock subject to outstanding options under
our 1997 Stock Incentive Plan, at a weighted-average exercise price of
$0.13 per share, and 1,158,000 shares of our common stock available for
future grant under our 1997 Stock Incentive Plan, as of November 30,
1999;
- 6,000,000 shares of our common stock available for future grant under our
2000 Stock Incentive Plan and 2,000,000 shares of our common stock
available for future issuance under our 2000 Employee Stock Purchase
Plan; and
- 262,341 shares issuable upon exercise of outstanding warrants, at a
weighted-average exercise price of $1.34 per share.
Subsequent to November 30,1999 and through February 29, 2000, we granted
options to purchase 1,443,750 shares of our common stock under our 1997 Stock
Incentive Plan at a weighted average exercise price of $3.20 per share, issued a
warrant to purchase 23,930 shares of our common stock at a per share exercise
price equal to 80% or 90% (subject to certain events) of the initial price to
the public of the shares offered in this offering, and issued 525,789 shares of
our common stock at a weighted average purchase price of $1.61 per share.
You should read this table together with "Management -- Employee Benefit
Plans", "Description of Capital Stock", "Related Party Transactions" and note 8
of the notes to our consolidated financial statements.
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<PAGE> 23
DILUTION
Our pro forma net tangible book value as of November 30,1999 was
approximately $25.0 million, or $0.68 per share, assuming the conversion of all
outstanding shares of our preferred stock into shares of our common stock. Pro
forma net tangible book value per share is determined by dividing the pro forma
number of outstanding shares of our common stock into our net tangible book
value, which is our total tangible assets less total liabilities. After giving
effect to the receipt of the estimated net proceeds from this offering, based on
an assumed initial public offering price of $13.00 per share and after deducting
estimated underwriting discounts and commissions and our estimated offering
expenses, our pro forma net tangible book value as of November 30, 1999 would
have been approximately $72.3 million, or $1.77 per share. This represents an
immediate increase in pro forma net tangible book value of $1.09 per share to
existing stockholders and an immediate dilution in pro forma net tangible book
value of $11.23 per share to new investors purchasing shares at the initial
public offering price. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 13.00
Pro forma net tangible book value per share as of November
30, 1999............................................... $ 0.68
Increase per share attributable to new investors.......... 1.09
-------
Pro forma net tangible book value per share after this
offering.................................................. 1.77
-------
Dilution per share to new investors......................... $ 11.23
=======
</TABLE>
The following table sets forth as of November 30, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by investors purchasing shares of common stock in this
offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 36,781,988 90.2% $ 51,784,000 49.9% $ 1.41
New investors............... 4,000,000 9.8 52,000,000 50.1 $ 13.00
----------- ----- ------------ -----
Total............. 40,781,988 100.0% $103,784,000 100.0%
=========== ===== ============ =====
</TABLE>
The above computations assume no exercise of options after November 30,
1999. As of November 30, 1999, there were options outstanding under our 1997
Stock Incentive Plan to purchase a total of 5,640,425 shares of our common stock
at a weighted-average exercise price of $0.13 per share. Subsequent to November
30,1999 and through February 29, 2000, we granted options to purchase 1,443,750
shares of our common stock under our 1997 Stock Incentive Plan at a weighted
average exercise price of $3.20 per share and issued 525,789 shares of our
common stock at a weighted average purchase price of $1.61 per share. The above
computations assume no exercise of warrants outstanding to purchase 244,914
shares, at a weighted-average exercise price of $1.69 per share, and 23,930
shares, at an exercise price equal to 80% or 90% (subject to certain events) of
the initial public offering price. To the extent that any options or warrants
are exercised, there will be further dilution to new public investors. See
"Capitalization", "Management -- Stock Plans", "-- Executive Compensation",
"Related Party Transactions" and note 8 of the notes to our consolidated
financial statements.
22
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with, and are qualified by reference to, our consolidated financial
statements and related notes to our consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The consolidated statement of operations data for the period from
April 16, 1997 (inception) through May 31, 1998, and for the year ended May 31,
1999 and the consolidated balance sheet data as of May 31, 1998 and 1999 are
derived from, and are qualified by reference to, our audited consolidated
financial statements included elsewhere in this prospectus, which have been
audited by Ernst & Young LLP, independent auditors. The consolidated financial
data as of November 30, 1999 and for the six months ended November 30, 1998 and
1999 were derived from unaudited financial statements included elsewhere in this
prospectus. We have prepared the unaudited information on the same basis as the
audited consolidated financial statements and have included all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for these
periods.
The historical results are not necessarily indicative of results to be
expected in any future period and results for the six months ended November 30,
1999 are not necessarily indicative of results to be expected for the full
fiscal year.
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1997 SIX MONTHS ENDED
(INCEPTION) YEAR ENDED NOVEMBER 30,
THROUGH MAY 31, --------------------
MAY 31, 1998 1999 1998 1999
-------------- ---------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
License...................................... $ 7 $ 612 $ 119 $ 1,920
Service...................................... 33 1,327 364 3,284
------- -------- -------- --------
40 1,939 483 5,204
------- -------- -------- --------
Cost of revenues............................... 72 1,264 288 2,728
------- -------- -------- --------
Gross profit (loss)............................ (32) 675 195 2,476
Operating expenses:
Research and development..................... 694 3,627 934 6,246
Sales and marketing.......................... 535 6,319 1,467 8,560
General and administrative................... 302 1,437 406 1,992
Amortization of deferred compensation........ -- 189 -- 3,511
------- -------- -------- --------
Total operating expense........................ 1,531 11,572 2,807 20,309
------- -------- -------- --------
Loss from operations........................... (1,563) (10,897) (2,612) (17,833)
Interest income (expense), net................. (8) 45 11 156
------- -------- -------- --------
Net loss....................................... $(1,571) $(10,852) $ (2,601) $(17,677)
======= ======== ======== ========
Net loss per share(1).......................... $ (0.17) $ (0.84) $ (0.20) $ (1.26)
======= ======== ======== ========
Shares used in computing basic and diluted net
loss per share(1)............................ 9,439 12,987 12,896 13,996
======= ======== ======== ========
Pro forma basic and diluted net loss per share
(unaudited).................................. $ (0.52) $ (0.62)
======== ========
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)....... 20,881 28,557
======== ========
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
MAY 31,
---------------- NOVEMBER 30,
1998 1999 1999
----- ------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 41 $10,384 $29,390
Working capital (deficiency)................................ (481) 7,807 23,955
Total assets................................................ 239 14,068 40,188
Long-term obligations, less current portion................. 578 1,010 2,615
Total stockholders' equity (deficit)........................ (974) 8,429 24,961
</TABLE>
- ---------------
(1) See note 2 of notes to our consolidated financial statements for an
explanation of the determination of the number of shares used in computing
per share amounts.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following Management's Discussion and Analysis of
Financial Condition and Results of Operations together with the consolidated
financial statements and related notes included elsewhere in this prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including
those set forth under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
General
We are a provider of software and services that enable businesses and
governments to create and deploy global networks over the Internet that connect
people to learning. We provide an Internet-based software platform and related
services that enable organizations to procure and deliver learning and
systematically close knowledge and competency gaps across their extended
enterprises. At the same time, we offer learning providers a global marketing
and distribution channel. We recently launched the Saba Learning Exchange, an
Internet-based business-to-business learning marketplace.
We commenced operations in April 1997 and, through March 1998, focused
substantially all of our efforts on research activities, developing our products
and building our business infrastructure. We shipped our first Saba Learning
Network and Saba Learning Provider Network products and began to generate
revenues from software license fees, implementation and consulting services fees
and support fees in April 1998. We began to operate Saba Learning Exchange in
December 1999. To date, we have not generated significant revenues from the Saba
Learning Exchange.
Sources of Revenues and Revenue Recognition
To date, we have generated revenues primarily from licensing Saba Learning
Network and Saba Learning Provider Network and providing related services,
including implementation, consulting, support and education. In the future, in
addition to such license and services revenues, we intend to pursue
transaction-based and other forms of revenues from Saba Learning Exchange.
Our license agreements generally provide that our customers pay a license
fee based on a specified number of learners and the type of software modules
licensed. Customers can subsequently pay additional license fees to allow
additional learners to use previously licensed modules or to license additional
modules. Customers that license Saba Learning Network and Saba Learning Provider
Network generally enter into one year support agreements pursuant to which they
are entitled to receive software upgrades, error corrections and telephone and
web-based assistance, generally for a fixed fee.
Customers may also purchase implementation, consulting, and education
services from us. Although we generally provide implementation and consulting
services on a time and materials basis, a significant portion of these services
have been provided on a fixed fee basis. Our education services are offered for
a fixed fee. In the future, we expect to rely in significant part on third-party
consulting organizations to perform implementation, consulting and education
services.
We recognize license revenues in accordance with the provisions of American
Institute of Certified Public Accountants, or AICPA, Statement of Position 97-2,
"Software Revenue Recognition", as amended by Statement of Position 98-4,
"Deferral of the Effective Date of Certain Provisions of SOP 97-2." We recognize
revenue in accordance with the Statement of Position 97-2, as amended. To date,
we have sold license and support together as components of multiple element
arrangements. Our agreements provide for support, which consists of software
upgrades, error corrections and
25
<PAGE> 27
telephone and web-based assistance, for which we have not established vendor
specific objective evidence of fair value. Until such evidence of fair value is
determinable, we recognize license revenues monthly over the initial support
period, generally one year, if all of the following conditions are met:
- There is persuasive evidence of an arrangement;
- We have delivered the product to the customer;
- Collection of the license fees is probable; and
- The amount of the fee to be paid by the customer is fixed or
determinable.
If an agreement with a customer provides that the customer has the right,
during a specified period, to accept or reject our products, subject to the
foregoing conditions, license revenues are recognized ratably over the remainder
of the support period beginning upon the earlier of customer acceptance or the
expiration of the acceptance period. License and services revenues deferred to
future periods are reflected as deferred revenues on our balance sheet.
The AICPA has also issued Statement of Position 98-9 which is effective for
us for transactions entered into beginning January 1, 2000. However, full
implementation guidelines for this standard have not yet been issued. Once
available, such implementation guidelines could lead to unanticipated changes in
our current revenue recognition policies, which changes could significantly
affect our operating results.
Software support revenues are recognized monthly over the term of the
support contract, typically one year. Revenues from other professional services
are recognized as the services are provided.
Cost of Revenues
Our cost of revenues includes cost of our license revenues and cost of our
services revenues. Our cost of license revenues include the cost of manuals and
product documentation, production media and shipping costs. Our cost of services
revenues include salaries and related expenses for our professional services
organization. Because our cost of services revenues is greater than cost of
license revenues, cost of revenues may fluctuate based on the mix of products
and services sold.
Operating Expenses
Our operating expenses are classified into three general operational
categories: sales and marketing, research and development and general and
administrative. In addition, our operating expenses include amortization of
deferred stock compensation.
We classify all charges to the research and development, sales and
marketing and general and administrative expense categories based on the nature
of the expenditures. Each of these three categories include commonly recurring
expenditures such as salaries, employee benefits, travel and entertainment
costs, and allocated communication, rent and depreciation costs. We allocate
these expenses to each of the functional areas that derive a benefit from such
expenses based upon their respective headcount. The research and development
category of operating expense also includes purchased technology. The sales and
marketing category of operating expenses also includes sales commissions, and
expenditures related to public relations and advertising, trade shows and
marketing collateral materials. The general and administrative category of
operating expenses also includes administrative and professional services fees.
In connection with the granting of stock options to, and restricted stock
purchases by, our employees, we recorded deferred stock compensation totaling
approximately $14.4 million as of November 30, 1999. This amount represents the
difference between the exercise or purchase price, as applicable, and the deemed
fair value of our common stock for financial accounting purposes on the date
these stock options were granted or purchase agreements for restricted stock
were signed.
26
<PAGE> 28
This amount is included as a component of stockholders' equity and is being
amortized by charges to operations over the vesting period of the options or
restricted stock. As of December 31, 1999, we expect to record an additional
$9.3 million of deferred stock compensation for stock options granted subsequent
to November 30, 1999. The amortization of the remaining deferred stock
compensation will result in additional charges to operations through fiscal
2005.
History of Losses
We have incurred significant net losses and negative cash flows from
operations since our inception. As of November 30, 1999, we had an accumulated
deficit of $30.1 million. Although our revenues have increased on a quarterly
basis since May 31, 1998, we have not achieved profitability and cannot be
certain that we will be able to sustain these growth rates or realize sufficient
revenues to achieve profitability. We expect to continue to incur significantly
greater operating expenses. We also expect to incur substantial non-cash
expenses relating to stock based compensation. As a result, we expect to incur
significant losses for the foreseeable future and will need to generate
significantly higher revenues in order to achieve profitability. If we achieve
profitability, we may not be able to sustain it.
We had 357 full-time employees as of February 29, 2000. We intend to hire a
significant number of employees in the future. This expansion places significant
demands on our management and operational resources. To manage this rapid
growth, we must invest in scalable operational systems, procedures and controls.
We must also be able to recruit qualified candidates to manage our expanding
operations. We expect future expansion to continue to challenge our ability to
hire, train, manage and retain our employees. Additional personnel will increase
our operating expenses in the foreseeable future.
Limited Operating History
We have a limited operating history that makes it difficult to forecast our
future operating results. We believe that period-to-period comparisons of our
operating results should not be relied upon as predictive of future performance.
Our prospects must be considered in light of the risks, expenses and
difficulties encountered by companies at an early state of development,
particularly companies in new and rapidly evolving markets, such as electronic
commerce and Internet software. We may not be successful in addressing these
risks and difficulties. Although we have experienced significant growth in
revenues in recent periods, we do not believe that prior growth rates are
sustainable or indicative of our future operating results.
RESULTS OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
Revenues
Total revenues increased to $5.2 million for the six months ended November
30, 1999, from $483,000 for the six months ended November 30, 1998. This rapid
growth in revenues reflects our relatively early stage of development, and we do
not expect revenues to increase at the same rate in the future. During the six
months ended November 30, 1999, Ford and US West each accounted for more than
10% of our revenues and collectively comprised approximately 25% of our
revenues.
License revenues increased to $1.9 million, or 37% of total revenues, for
the six months ended November 30, 1999, from $119,000, or 25% of total revenues,
for the six months ended November 30, 1998. The increase in the amount of
license revenues is primarily attributable to an increase in sales of licenses
to new customers resulting from increased headcount in our sales force.
27
<PAGE> 29
Services revenues increased to $3.3 million, or 63% of total revenues, for
the six months ended November 30, 1999, from $364,000 or 75% of total revenues,
for the six months ended November 30, 1998. The increase in dollar amount of
service revenues is primarily attributable to increased implementation and
consulting services performed in connection with increased license sales and to
support services sold to our new customers.
Deferred license and services revenues reflected on our balance sheet were
$7.5 million at November 30, 1999.
The mix of license and services revenues as a percentage of total revenues
has varied significantly due to our relatively early stage of development.
Cost of Revenues
Total cost of revenues increased to $2.7 million for the six months ended
November 30, 1999, from $288,000 for the six months ended November 30, 1998. To
date, our cost of product license revenues has been insignificant. The increase
in the amount of cost of revenues is primarily attributable to the hiring of
additional employees to support increased customer demand for our implementation
and consulting services. Cost of services revenues represented 83% of services
revenues for the six months ended November 30, 1999 and 79% of services revenues
for the six months ended November 30, 1998. The increase in the cost of services
as a percentage of services revenues is primarily attributable to the inability
to fully utilize these new employees prior to their completion of required Saba
learning.
Operating Expenses
Research and development. Research and development expenses increased to
$6.2 million for the six months ended November 30, 1999, from $934,000 for the
six months ended November 30, 1998. This increase is primarily attributable to
an increase in the number of employees engaged in research and development and a
$1.3 million expense related to the purchase of an early stage product framework
which had not yet reached technological feasibility. We refer to the product
framework as the intellectual property obtained from a third party, which
includes technical and design documents, flow charts, and diagrams. We intend to
develop the product framework for integration into our Saba Learning Network and
Saba Learning Provider Network.
Research and development expenses exclude $572,000 of deferred stock
compensation for the six months ended November 30, 1999. To date, all software
development costs have been expensed in the period incurred. We believe that
continued investment in research and development is critical to attaining our
strategic objectives, and we anticipate that research and development expenses
will continue to increase in absolute dollars due to our internal product
development.
Sales and marketing. Sales and marketing expenses increased to $8.6 million
for the six months ended November 30, 1999, from $1.5 million for the six months
ended November 30, 1998. This increase is primarily attributable to an increase
in the number of employees in our sales and marketing organizations, and related
costs, such as increased sales commissions and costs associated with the
establishment of sales offices in additional domestic and international
locations. Sales and marketing expenses exclude $1,308,000 of deferred stock
compensation for the six months ended November 30, 1999. We anticipate that the
amount of sales and marketing expenses will continue to increase due to the
planned growth of our sales force and to expected additional increases in
advertising and marketing programs and other promotional activities.
28
<PAGE> 30
General and administrative. General and administrative expenses increased
to $2.0 million for the six months ended November 30, 1999, from $406,000 for
the six months ended November 30, 1998. This increase is primarily attributable
to an increase in the number of executive, finance and administrative employees
and in the amount of administrative and professional services fees. General and
administrative expenses exclude $1,382,000 of deferred stock compensation for
the six months ended November 30, 1999. We expect that the amount of general and
administrative expenses will continue to increase in future periods as we add
personnel to support the expansion of our operations, incur additional expenses
related to the anticipated growth of our business both domestically and
internationally, and assume the responsibilities of a public company.
Amortization of deferred stock compensation. During the six month period
ended November 30, 1999, we recorded deferred stock compensation of $13.2
million and amortization of $3.5 million.
Interest income, net
Interest income, net consists of interest income, interest expense and
other non-operating expenses. Interest income, net increased to $156,000 for the
six months ended November 30, 1999, from $11,000 for the six months ended
November 30, 1998. This increase is attributable primarily to interest income
from average invested cash proceeds from financing activities, partially offset
by interest expense related to equipment loans, the proceeds of which were used
to purchase computer equipment and office furniture and equipment.
YEARS ENDED MAY 31, 1999 AND 1998
The following discussion includes, with respect to fiscal 1998 data, data
from the period commencing on April 16, 1997 (inception) through May 31, 1997.
Revenues
Total revenues increased to $1.9 million in fiscal 1999, from $40,000 in
fiscal 1998. In fiscal 1999, Baan, Norwest and Documentum each accounted for
more than 10% of our revenues and collectively comprised approximately 66% of
our revenues.
License revenues increased to $612,000, or 32% of total revenues, in fiscal
1999, from $7,000, or 18% of total revenues, in fiscal 1998. The increase in the
amount of license revenues is attributable to a full year of sales of licenses
for our products in fiscal 1999 after their commercial release in late fiscal
1998.
Services revenues increased to $1.3 million, or 68% of total revenues, in
fiscal 1999, from $33,000 or 83% of total revenues, in fiscal 1998. The increase
in dollar amount of service revenues is primarily attributable to increased
implementation and consulting services performed in connection with increased
license sales and to support services sold to our new customers.
Deferred license and services revenues reflected on our balance sheet were
$1.8 million at May 31, 1999.
Cost of Revenues
Total cost of revenues increased to $1.3 million in fiscal 1999, from
$72,000 in fiscal 1998. This increase is primarily attributable to the hiring of
additional employees to support increased customer demand for our implementation
and consulting.
29
<PAGE> 31
Operating Expenses
Research and development. Research and development expenses increased to
$3.6 million in fiscal 1999, from $694,000 in fiscal 1998. This increase is
primarily attributable to the hiring of additional employees to support the
development of new products.
Sales and marketing. Sales and marketing expenses increased to $6.3 million
in fiscal 1999, from $535,000 in fiscal 1998. This increase resulted primarily
from building a direct sales force and investing in sales and marketing
infrastructure, including personnel-related expense, travel expenses and related
facility and equipment costs, as well as increased marketing activities.
General and administrative. General and administrative expenses increased
to $1.4 million in fiscal 1999, from $302,000 in fiscal 1998. This increase is
primarily attributable to an increase in the number of executive, finance and
administrative employees to support the growth of our business.
Amortization of deferred stock compensation. We recorded deferred stock
compensation of $1.3 million in fiscal 1999. Of this deferred stock
compensation, $189,000 was amortized in fiscal 1999.
Interest income, net
Interest income, net consists of interest income, interest expense and
other non-operating expenses. Interest income, net increased to $45,000 in
fiscal 1999, from an expense of $8,000 in fiscal 1998. This change from expense
to income is attributable primarily to interest income on higher average cash
balances relating to financing activities which offset higher capital costs.
Provision for Income Taxes
From inception through May 31, 1999, we incurred net losses for federal and
state tax purposes and have not recognized any tax provision or benefit. As of
May 31, 1999, we had approximately $9.0 million of federal and state net
operating loss carryforwards to offset future taxable income. The federal and
state tax net operating loss carryforwards are available to reduce future
taxable income and expire at various dates into fiscal 2019. Given our limited
operating history, our losses incurred to date and the difficulty in accurately
forecasting our future results, management does not believe that the realization
of the related deferred income tax asset meets the criteria required by
generally accepted accounting principles. Therefore, we have recorded a 100%
valuation allowance against the deferred income tax asset. See note 9 of the
notes to our consolidated financial statements.
30
<PAGE> 32
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth consolidated statement of operations data
for each of the six quarters in the period ended November 30, 1999. This
information has been derived from our unaudited consolidated financial
statements that, in the opinion of our management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of this information. You should read this information in
conjunction with our audited consolidated financial statements and related notes
appearing elsewhere in this prospectus. We have experienced and expect to
continue to experience fluctuations in operating results from quarter to
quarter. We incurred net losses in each quarter since inception and expect to
continue to incur losses in the foreseeable future. You should not draw any
conclusions about our future results from the results of operations for any
quarter, as quarterly results are not indicative of the results for a full
fiscal year or any other period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------
AUG. 31, NOV. 30, FEB. 28, MAY 31, AUG. 31, NOV. 30,
1998 1998 1999 1999 1999 1999
-------- -------- -------- ------- -------- --------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License........................ $ 15 $ 104 $ 179 $ 314 $ 668 $ 1,252
Services....................... 141 223 375 588 1,039 2,245
----- ------- ------- ------- ------- -------
Total revenues......... 156 327 554 902 1,707 3,497
----- ------- ------- ------- ------- -------
Cost of revenues................. 98 190 347 629 956 1,772
----- ------- ------- ------- ------- -------
Gross profit..................... 58 137 207 273 751 1,725
Operating expenses:
Research and development....... 225 709 980 1,713 3,522 2,724
Sales and marketing............ 234 1,233 1,325 3,527 3,427 5,133
General and administrative..... 146 260 385 646 901 1,091
Amortization of deferred stock
compensation................ -- -- -- 189 1,385 2,126
----- ------- ------- ------- ------- -------
Total operating
expenses............. 605 2,202 2,690 6,075 9,235 11,074
----- ------- ------- ------- ------- -------
Loss from operations............. (547) (2,065) (2,483) (5,802) (8,484) (9,349)
Interest income (expense), net... 17 (6) 18 16 48 108
----- ------- ------- ------- ------- -------
Net loss......................... $(530) $(2,071) $(2,465) $(5,786) $(8,436) $(9,241)
===== ======= ======= ======= ======= =======
</TABLE>
Our results of operations could vary significantly from quarter to quarter.
We expect to incur significant sale and marketing expenses to promote our
products and services. Therefore, our quarterly operating results are likely to
be particularly affected by the number of customers licensing our products
during any quarter as well as sales and marketing, research and development and
other expenses for a particular period. If revenues fall below our expectations,
we will not be able to reduce our spending rapidly in response to the shortfall.
We anticipate that our sales will continue to have long sales cycles. Therefore,
the timing of future customer contracts could be difficult to predict, making it
very difficult to predict revenues between quarters, and our operating results
may vary significantly.
Other factors that could affect our quarterly operating results include
those described below and elsewhere in this prospectus:
- dependence of our revenues on a small number of larger orders;
- our ability to attract new customers;
- any changes in revenue recognition policies and provisions and
interpretations of these provisions;
31
<PAGE> 33
- our ability to license additional products to current customers;
- the announcement or introduction of new products or services by us or our
competitors;
- changes in the pricing of our products and services or those of our
competitors;
- variability in the mix of our products and services revenues in any
quarter;
- technical difficulties or service interruptions of our computer network
systems or the Internet generally; and
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through the sale
of equity securities, through which we have raised net proceeds of $51.2 million
through November 30, 1999, equipment leases and other debt. As of November 30,
1999, we had outstanding equipment leases and notes payable of $1.4 million. As
of November 30, 1999, we had approximately $29.4 million of cash and cash
equivalents.
Cash used in operating activities was $10.1 million during the six months
ended November 30, 1999, $7.8 million in fiscal 1999 and $1.0 million in fiscal
1998. The cash used during these periods was primarily attributable to net
losses of $17.7 million during the six months ended November 30, 1999, $10.9
million in fiscal 1999 and $1.6 million in fiscal 1998.
Investments in property and equipment, excluding equipment acquired under
capital leases, were $1.4 million during the six months ended November 30, 1999,
$1.1 million in fiscal 1999 and $70,000 in fiscal 1998.
Cash provided by financing activities was $30.5 million during the six
months ended November 30, 1999, $19.4 million in fiscal 1999 and $1.1 million in
fiscal 1998 resulting primarily from net proceeds from the sale of preferred
stock and, to a lesser extent, from bank borrowings. These amounts were
partially offset by payments on capital lease obligations and notes payable.
As of November 30, 1999, we did not have any material commitments for
capital expenditures. Our principal commitments consisted of obligations of
$33.3 million under operating leases and $1.1 million under capital leases.
We currently anticipate that the net proceeds from our offering, together
with our available cash resources and credit facilities, will be sufficient to
meet our presently anticipated working capital, capital expenditure and business
expansion requirements for at least the next 12 months. However, we may need to
raise additional funds within the next 12 months to support expansion, develop
new or enhanced applications and services, respond to competitive pressures,
acquire complementary businesses or technologies or take advantage of
unanticipated opportunities. Our future liquidity and capital requirements will
depend upon numerous factors, including the success of our existing and new
product and service offerings and competing technological and market
developments. We may be required to raise additional funds through public or
private financing, strategic relationships or other arrangements. There can be
no assurance that additional funding, if needed, will be available on terms
acceptable to us, or at all.
YEAR 2000
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January 1,
2000, computer systems and software used by many companies and organizations in
a wide variety of industries, including technology, transportation, utilities,
finance and telecommunications, may have produced erroneous results or
32
<PAGE> 34
failed unless they had been modified or upgraded to process date information
correctly. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the Year 2000
phenomenon even after January 1, 2000. This failure may involve significant time
and expense, and uncorrected problems could seriously harm our business. In
addition, the potential failure of our customers to ensure that their operations
are Year 2000 compliant could have an adverse effect on them, which in turn
could limit their ability to use our products and services or process our
invoices in a timely manner. Furthermore, customers or potential customers may
delay purchasing our products and services to the extent such customers or
potential customers are required to devote resources to resolving the Year 2000
problem.
MARKET AND CURRENCY RISK
We develop and market our products in North America, Europe and the
Asia-Pacific region. As a result, our financial results could be affected by
factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. To date, a substantial majority of our sales have
been made in U.S. dollars, a strengthening of the dollar could make our products
less competitive in foreign markets. Our interest income is sensitive to changes
in the general level of U.S. interest rates. However, due to the short-term
nature of our investments, we believe that there is no material risk exposure.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". We are required to adopt SFAS No. 133, as amended, for
the year ending May 31, 2001. SFAS No. 133 establishes methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Because we currently hold no
derivative financial instruments and do not currently engage in hedging
activities, adoption of SFAS No. 133 is expected to have no material impact on
our financial condition or results of operations. In December 1999, the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 101
regarding recognition, presentation and disclosure of revenues. We believe that
SAB No. 101 does not have any material effect on our accounting practices or
financial results.
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BUSINESS
OVERVIEW
We are a provider of software and services that enable businesses and
governments to create and deploy global networks over the Internet that connect
people to learning. Organizations face a rapidly changing environment in which a
principal source of competitive advantage is the depth and breadth of the
knowledge and competencies possessed by their "extended enterprise" of
employees, customers, partners and suppliers. We provide an Internet-based
software platform and related services that enable businesses to procure and
deliver learning and systematically close knowledge and competency gaps across
their extended enterprises. At the same time, we offer learning providers an
Internet-based global marketing and distribution channel. Building upon our
growing base of learners and learning offerings, we recently launched the Saba
Learning Exchange, an Internet-based business-to-business learning marketplace.
The Saba Learning Exchange is designed to enable businesses, governments and
learning providers to buy and sell learning offerings, such as on-line and
off-line courses and related materials, as well as collaborate within learning
communities.
Our offerings are designed to cost-effectively meet the needs of both
organizations and learning providers. Organizations implementing our solutions
can establish knowledge and competency goals, assess gaps relative to these
goals, source and distribute learning needed to close these gaps, and
continuously track and measure progress. Our solutions also enable learning
providers to develop, market, sell, deliver and improve their learning
offerings. Learning offerings supported by our solution can be from internal or
external providers, and offered in many languages, off-line or on-line, and over
private or public networks. This breadth of functionality allows organizations
that use our solutions to:
- Accelerate responsiveness to changing business needs. An organization's
employees, customers, partners and suppliers can be quickly educated
through the distribution of targeted learning to speed responsiveness to
changing business objectives.
- Enhance customer satisfaction and loyalty. Organizations can provide
relevant and updated product and usage knowledge to customers leading to
improved satisfaction and loyalty.
- Improve recruitment and retention. Learning can be used as a tool to
recruit and retain employees, by offering learners an opportunity to
improve their performance and enhance their knowledge.
- Align disparate business units. Learning can be used to align disparate
workforces, for example, recently acquired or merged businesses and
geographically-dispersed business units.
- Ensure regulatory compliance. Targeted knowledge and competencies can be
deployed to ensure compliance with applicable laws, such as those
governing the health care, financial services, transportation, chemical
and energy industries.
As of December 31, 1999, our software was licensed for use by over two
million people and more than 20,000 third-party learning offerings were
accessible on Saba learning networks. To increase this base of learners and
learning offerings quickly, we intend to continue to target large organizations,
including Global 2000 and government organizations, and their learning
providers. Our significant customers include 3Com, Agilent, Anheuser-Busch,
Cisco Systems, Continental Airlines, DaimlerChrysler, Ford, General Electric,
Hyundai, Lucent Technologies, Procter & Gamble and Qwest Communications. Our
content offerings are available from over 50 learning providers, including
DigitalThink, ExecuTrain, IBM Catapult, International Air Transport Association,
NETg, PROVANT, SkillSoft and the Sun-Netscape Alliance. Some of our customers,
such as Cisco Systems, act as learning content providers and also license
learners for their extended enterprise.
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INDUSTRY BACKGROUND
Traditional Learning Solutions
Organizations face an increasingly competitive environment driven by rapid
and constant change, globalization and technological advancements. To remain
competitive, organizations must continually work on improving the knowledge and
competencies not only of their employees, but also of their customers, partners
and suppliers. By educating their extended enterprise, organizations can improve
performance by, among other things, increasing productivity, reducing the time
and expense associated with bringing new products and services to market, and
improving customer satisfaction and loyalty.
TRAINING Magazine estimates that the training budget of U.S. enterprises
was approximately $63 billion in 1999. We believe that the worldwide education
budget for businesses, as well as for federal and state governments, is
significantly higher. Despite the focus and spending on learning, many
businesses struggle to realize significant strategic benefits from learning
investments due to the significant shortcomings of traditional learning
management solutions. Most of the learning management solutions offered today,
which include systems developed in-house and third party systems intended for
back-office support of employee training, have a number of shortcomings. These
solutions typically:
- Are unable to identify and systematically close knowledge and competency
gaps. Most organizations today lack the systems to identify and assess
knowledge and competency gaps across their extended enterprise. They have
limited ability to identify and offer appropriate learning to address
each individual's needs, track performance improvement at the individual
level or across a department or organization, and generate associated
management reports that effectively measure the return on their learning
investment.
- Are unable to personalize learning. Traditional learning management
systems do not provide the breadth of relevant learning offerings
required to meet the learning needs, language requirements and learning
style of each individual in the extended enterprise. Consequently,
learners are typically limited to "one-size-fits-all" learning offerings.
- Are limited in their ability to source offerings. The learning industry
is highly fragmented with a multitude of content providers and a large
number of buyers within organizations. The lack of a learning marketplace
results in significant time and resources spent on locating relevant
content.
- Are difficult to update. The lack of enterprise-wide learning management
systems makes it difficult for both organizations and learning providers
to disseminate time-sensitive information, such as schedules and updated
learning offerings.
- Are costly and inefficient to deploy and manage across the extended
enterprise. Traditional learning management systems are often costly and
inefficient. They rely on a combination of manual and automated
processes, and are difficult to deploy across geographically dispersed
extended enterprises.
As a result of these shortcomings, individuals within the extended enterprise do
not receive required knowledge or attain necessary competencies in a timely
fashion. Consequently, organizations suffer numerous inefficiencies, such as
delays in time to market, reduced sales force productivity and violations of
safety and other regulations.
The providers of learning offerings have faced significant limitations on
their ability to develop, market, distribute, sell and improve their offerings.
Most learning providers have had limited marketing and distribution channels,
making it difficult to cost-effectively reach new customers and markets. They
have also been unable to estimate and aggregate demand for their content, as
demand within
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enterprises is highly fragmented, with a multitude of decision-makers and
learning buyers. Therefore, many of these providers have no choice but to
deliver solutions that are typically in the form of "one-size-fits-all,
just-in-case" learning offerings that are not tailored to the knowledge needs
and learning style of the individual learner.
The Need for an Internet-Based Solution
The rapid adoption of the Internet has created an opportunity to solve many
of the shortcomings in the business learning market. The Internet is one of the
fastest-growing global communications mediums in history and is dramatically
changing the way businesses and individuals communicate and share information.
International Data Corporation, or IDC, estimates that the number of Internet
users worldwide will grow from 142 million in 1998 to 502 million in 2003. In
addition, according to Forrester Research, business-to-business electronic
commerce is expected to grow from $43 billion in 1998 to $1.3 trillion in 2003,
underscoring the significance of this marketing and procurement channel.
This rapid growth and deployment of the Internet as a business platform for
worldwide communication and commerce is fundamentally transforming the way
businesses interact with their employees, customers, partners and suppliers,
creating the opportunity to streamline complex processes, lower costs and
improve productivity. The Internet has the potential to significantly improve
the procurement, deployment and management of learning. However, existing
offerings did not take full advantage of the Internet and were not designed to
serve as an integrated solution capable of improving the manner in which
learning is managed across the extended enterprise. As a result, we believe
there is a significant opportunity for a software and services solution that is
designed to leverage the benefits of the Internet to create learning networks to
meet the needs of businesses, their employees, customers, partners and
suppliers, as well as the needs of third party learning providers.
THE SABA SOLUTION
We are a provider of software and services that enable businesses and
governments to create and deploy global networks over the Internet that connect
people to learning. Our integrated solutions consist of the Saba Learning
Network and Saba Learning Provider Network software applications, as well as the
Saba Learning Exchange, an Internet-based business-to-business learning
marketplace. Our software platform is standards-based, content-neutral and
designed to enable the procurement, deployment and management of on-line or
off-line learning in many languages across the extended enterprise.
Saba Learning Network is an Internet-based software application that allows
enterprises to assess the learning needs of individuals and organizations,
select and purchase on-line and off-line learning materials and programs, track
individual learners' progress and manage enterprise-wide learning initiatives
and processes. Saba Learning Provider Network is an Internet-based software
application that enables learning providers to develop, market, sell and
distribute on-line and off-line learning materials to organizations worldwide.
We also provide a full range of strategic consulting, business process
reengineering, and technical implementation and support services for our
business customers and learning providers.
Our established base of organizations and learning providers will form the
basis of Saba Learning Exchange. We believe that the efficiencies created by
this exchange will attract a growing number of organizations and learning
providers. As more organizations use the Saba Learning Exchange to procure,
deploy and manage their learning programs, we believe they will attract more
learning providers to our exchange. As we attract additional learning providers,
we believe that even more organizations will be encouraged to use our services,
resulting in a network effect, where the value of our services to each
participant increases with the addition of new participants.
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Benefits to Organizations
Our offerings are designed to meet the learning needs of extended
enterprises. They enable organizations to offer a diverse array of on-line or
off-line learning to achieve a variety of objectives. Examples include quickly
educating a worldwide sales force in conjunction with new product introductions,
disseminating information to ensure compliance with new government regulations,
integrating geographically dispersed or recently-acquired business units and
enabling customers to achieve higher utility from products and services about
which they are now more knowledgeable.
With our products, organizations can systematically identify and
cost-effectively close knowledge and competency gaps across their extended
enterprises. Our extensive network of learning providers allows organizations to
select and deliver the breadth of learning content required to meet the learning
needs of individuals. Additionally, our solutions include standardized tracking
and measurement tools as well as consulting services to better monitor the
progress of individuals and the effectiveness of different learning offerings.
This centralization and automation of the procurement and management of learning
enables organizations to realize a higher return on learning investments through
reduced learning provider search and selection costs, improved distribution of
learning content across the extended enterprise and improved productivity and
performance.
Benefits to Learning Providers
We offer learning providers a powerful marketing and distribution channel
to sell their content and other offerings to organizations worldwide, extending
their reach to new customers and across existing business customers'
enterprises. We provide a range of options to serve the diverse needs of our
learning providers, including: placing simple hyper-links on Saba Learning
Exchange to their own websites, incorporating electronic versions of their
paper-based catalogs on Saba Learning Exchange, delivering their content
electronically to learning organizations and creating fully hosted, commerce-
enabled electronic storefronts within Saba Learning Exchange. Moreover, by
providing channels for end-user feedback, our learning providers are able to
continuously improve their offerings and reduce their time to market for new
content and services. In addition, our learning providers are able to take
advantage of our management tools that assist them with expanding their
offerings, aggregating demand for their offerings, budgeting, managing customer
profiles, conducting electronic commerce, invoicing, tracking inventory and
measuring and improving resource utilization.
Benefits to Learners
Learners on our software platform are able to improve performance and
increase the value of their intellectual capital by accessing relevant on-line
and off-line learning offerings. Our platform also allows learners to better
understand knowledge requirements and provides them with the means to assess and
close their knowledge gaps. The "around-the-clock" availability of our
Internet-based platform provides learners with the convenience and flexibility
to choose offerings that fit their personal schedules. In addition, customized
learning reduces the wasted time and effort resulting from "one-size-fits-all,
just-in-case" programs.
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STRATEGY
We intend to increase the number of learners and providers using our
Internet-based platform in order to create the leading global exchange that
connects people to learning. Key elements of our strategy include:
Increasing the number of our Global 2000 and government customers
Global 2000 and government organizations have large budgets dedicated to
the education and development of their employees, customers, suppliers and
partners. We believe that continuing to add these "anchor tenants" to our
customer base will strengthen our leadership position, provide significant
follow-on revenue opportunities and enhance the attractiveness of the Saba
Learning Exchange for learning providers. We intend to continue to add these
large organizations by establishing strategic relationships, adding to our
direct sales force and enhancing the value of our offerings to these customers.
Extending penetration within our existing customer base and their affiliates
Our existing customers have broad extended enterprises that include
customers, suppliers and partners that are directly or indirectly experiencing
the benefits of our products and services. We believe that this exposure, which
allows potential customers to benefit first hand from our products and services,
creates demand, generates recognition within a customer's industry and
accelerates adoption of our products. We intend to capitalize on this exposure
to expand our customer base. Additionally, we intend to increase penetration
within our existing customer base by cross-selling our products and services to
other divisions and geographic regions within these customers.
Increasing the number of learning offerings in our network
In order to increase the number of learning offerings on Saba Learning
Exchange, we intend to increase the number of learning providers in our network.
We believe that the expansion of our learning provider base will strengthen our
market position, provide us with a significant source of competitive advantage
and increase the value that we provide to our customer base. We intend to target
providers of diverse and high quality content, including high technology
companies, independent training providers and colleges and universities.
Expanding Saba Learning Exchange
We intend to expand Saba Learning Exchange to become the leading global
business-to-business learning marketplace. Saba Learning Exchange is designed to
be an open-architecture, flexible, scalable, global, Internet-based learning
platform supporting multiple languages, currencies and data formats. Through the
expansion of Saba Learning Exchange, learning providers will have access to a
large number of buyers, buyers will have access to a wide selection of learning
offerings and both buyers and sellers will have the ability to collaborate. We
believe Saba Learning Exchange will allow us to attract additional learning
providers and that even more organizations will be encouraged to use our
services, resulting in a network effect, where the value of our services to each
participant increases with the addition of new participants.
Expanding our international presence
We plan to capitalize on international opportunities by establishing
additional international sales offices, expanding our network of international
learning content providers and, where appropriate, establishing strategic
alliances to enter new geographic markets. We currently have international sales
offices in Australia, Canada, Germany, India and the United Kingdom. Many of our
customers are large
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multinational organizations which are deploying our solution globally, and we
are creating both regional and international exchanges to benefit them.
Currently, our platform enables learning in English, French, German and Spanish,
and we intend to adapt it for other languages. We also plan to leverage our
existing customer base and the benefits of our solutions to further our
international expansion.
Developing new uses and markets for the Saba platform
We intend to utilize our open, scalable, standards-based architecture to
develop new applications and address new markets for our learning platform. Our
architecture will allow us to take advantage of emerging technologies to further
extend the reach of our platform. For instance, our architecture allows for the
possible distribution of learning content through the growing number of emerging
Internet-enabled appliances such as personal digital assistants, cellular
telephones, pagers, television set-top boxes and on-line kiosks. We also intend
to continue to develop our products to enable us to address markets beyond
learning.
PRODUCTS AND SERVICES
Our Saba Learning Network Solution consists of two product families: Saba
Learning Network and Saba Learning Provider Network. In addition, we offer Saba
Learning Exchange and provide associated services to our customers. The
functionality of these products and the scope of our service offerings are
described more fully below.
Saba Learning Network
Saba Learning Network enables businesses to cost-effectively close critical
knowledge and competency gaps. Anyone within an organization who oversees the
learning of others inside or outside the organization can use this product to
establish knowledge and competency goals, assess gaps relative to these goals,
source and distribute learning needed to close these gaps and continuously track
and measure progress. The underlying business objectives may include speed to
market, regulatory compliance, recruitment and retention of employees, and
management of change. Examples of specific initiatives include:
- sales executives using Saba Learning Network to set product knowledge
certification requirements for the direct sales force and resellers;
- maintenance executives setting and updating knowledge requirements for
technicians as products change; and
- supply chain executives setting and managing supplier training
requirements on design guidelines and quality.
Saba Learning Network provides management with broad reporting and
procurement capabilities and pre- and post-learning competency assessment. Saba
Learning Network leads managers through a simple process to help them set
knowledge targets and close knowledge gaps across the extended enterprise. Using
a standard Internet-browser, a manager can establish knowledge targets by role
and by competency for any group of learners. The manager can then select and
make available a range of offerings to learners by subscribing to them, while
simultaneously forecasting the costs associated with such learning. Learners can
use Saba Learning Network to assess their knowledge relative to targets and
identify knowledge gaps. They can select from, register for and participate in
on-line or off-line offerings and keep track of their progress and test results.
Concurrently, the manager can track and report on each individual's progress.
Finally, management can use Saba Learning Network to compare actual versus
budgeted learning expenditures and to assess the return on learning investments.
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Saba Learning Provider Network
Saba Learning Provider Network enables both internal and third-party
learning providers to cost-effectively develop, market, sell, and distribute
consistent learning on a worldwide basis. Third-party content providers can use
our product to gain access to a large number of customers and manage their
offerings. Learning providers within organizations, such as corporate
universities, can distribute offerings across their extended enterprises.
Additionally, they may market and sell learning outside of their extended
enterprises, if they choose to do so, thereby converting what has traditionally
been viewed as a cost center into a source of revenue.
Saba Learning Provider Network categorizes each offering in the learning
provider's catalog in several ways: by competency, certification, role,
industry, language, geography and delivery method. Additionally, providers can
control the distribution of their offerings by limiting access to authorized
learners. For example, distribution of information and training for new products
can be limited to the sales force. Learning providers can assess demand, market
to organizations using our platform, transact with electronic commerce
capability, manage assets and inventory such as classrooms and supplies to meet
demand for off-line learning, deliver on-line learning, and take advantage of
multiple reporting capabilities to better manage their business. Our products
can also be used by independent learning providers to establish electronic
storefronts which can be accessed through their websites or through Saba
Learning Exchange.
Saba Learning Exchange
Saba Learning Exchange is our recently launched global business-to-business
learning marketplace that is designed to meet the learning needs of learning
providers and learning organizations. Saba Learning Exchange has broad
functionality, including:
- search capability for the thousands of publicly available offerings by
competency, certification, role, industry, geography, language, provider
and delivery method;
- access to private learning networks and offerings via secure pass codes;
- community features such as chat rooms and discussion groups for buyers,
users and providers of learning solutions; and
- electronic commerce capabilities.
Managers within organizations can use Saba Learning Exchange to find
offerings that close knowledge and competency gaps in the groups of people they
manage. Learning providers can use Saba Learning Exchange to market learning. We
believe that we will attract additional learning providers to Saba Learning
Exchange as we add to our base of over two million licensed learners. As we
attract additional learning providers and they bring more offerings to Saba
Learning Exchange, we believe that even more organizations will be encouraged to
use Saba Learning Exchange, resulting in a network effect, where the value of
our services to each participant increases with the addition of each new
participant.
Services
We offer comprehensive services to assist in the successful implementation
of our products. As of February 29, 2000, we employed 95 people worldwide in
services-related activities.
Our global services organization supports multiple consulting functions,
including:
- Strategic consulting. We assist in the definition of areas where learning
has the greatest impact on business results and in the establishment of
strategies to optimize learning investments.
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- Implementation consulting. Our implementation services include the
definition of learning objectives, the design of phased plans for
achieving these objectives, technical solution specifications,
establishment of implementation timelines and resource requirements,
installation of Saba solutions, systems configuration, data loading,
custom report and notification design, website development, enterprise
system integration and post-implementation assessment.
- Customer support. We provide several support options so that customers
may utilize their own resources to the degree desired and leverage their
existing investments in customer support. Options include enterprise
support, an end-user help desk and on-site support.
- Education solutions. We provide product training and learning content
conversion to prepare project team members, administrators, and learners
for managing and using Saba products.
We are in the process of establishing relationships with systems
integrators.
CUSTOMERS
Our customers include a wide spectrum of large, global organizations.
Customers that have licensed at least 1,000 learners as of February 29, 2000
include:
<TABLE>
<S> <C> <C>
Automotive High Technology Professional Services
DaimlerChrysler Adobe PricewaterhouseCoopers
Ford Agilent Scient
Hyundai Baan Whittman-Hart
BMC Software
Consumer Ceridian Telecommunications
Procter & Gamble Documentum Qwest Communications
Informix Software
Financial Services SGI Telecommunications
PaineWebber Sun-Netscape Alliance Equipment
Strong Capital VERITAS Software 3Com
Wells Fargo Cisco Systems
Insurance Lucent Technologies
Food and Beverage Safeco Insurance
Anheuser-Busch Training Providers
Internet DigitalThink
Government Amazon.com ExecuTrain
U.S. Department of i2 Technologies TECH Connect
Veterans Affairs Techies.com
Transportation
Manufacturing Continental Airlines
Caterpillar International Air Transport
General Electric Association
Hillenbrand Industries
York International Utilities
Texas Utilities -- Europe
</TABLE>
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ALLIANCES
We have entered into alliance agreements with content providers, custom
content developers, and learning delivery tool providers in order to increase
the range of content offerings available to licensed learners. There are over 40
Learning Content Alliance members with numerous content offerings available
through Saba Learning Exchange. Over 20 Custom Content Alliance developers are
available to develop customized content to meet a particular user's needs. Our
recently formed Learning Delivery Tool Alliance currently has five members who
provide delivery tools such as on-line classrooms or satellite delivery to
content developers and providers. Many companies are members of more than one
alliance. Selected members of these alliances include the following:
Achieve Global
Allen Communication
Aptech Worldwide
Bell Canada Enterprises Media
Caliber Learning Network
Centra
Competence Software
Corporate University Xchange
Crisp Publications
DigitalThink
Eloquent
headlight.com
IBM Catapult
General Physics
InterWise
LearningByte International
LearnLinc
NETg
ONE TOUCH Systems
PRIMEDIA Healthcare
PROVANT
SkillSoft
TECH Connect
Thomson Learning Course Technology
TrainingNet
VCampus
Wilson Learning
Xebec McGraw-Hill
SALES AND MARKETING
We license our products to organizations primarily through a worldwide
direct sales force. Our direct sales efforts target large organizations
including Global 2000 businesses and government organizations. As of February
29, 2000, we had 104 sales and marketing professionals located in 17 sales
offices, 10 of which offices are in the United States.
Our sales process includes pre-sales lead qualification, identification of
key buyers and influencers, working with prospective clients to help shape their
vision of a learning solution and educating them on Saba products and services.
Our sales professionals continue to work with clients after they have selected
Saba products and services, and advise them on the entire procurement and
implementation process from due diligence and funding approval through
implementation and post-implementation services.
We focus our marketing efforts on sales lead generation, sales support,
creating market awareness of our solutions and establishing strategic
relationships. Our marketing activities include seminar programs, speaking
engagements, industry trade-shows, website programs, e-mail programs, public
relation events and direct mailings. We have also established an Advisory Board
of 14 industry leaders. Members include senior executives from Global 2000 and
government organizations, consulting firm principals, and academics. We believe
our Advisory Board will assist us in gaining broad marketplace acceptance and
will enhance our marketing capabilities.
TECHNOLOGY
Our product architecture facilitates the rapid development, deployment, and
customization of Internet-based solutions for organizational learning. Our
products share a common core foundation, based on widely-adopted standard
Internet technology that leverages thin client computing and electronic commerce
capabilities over the Internet.
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The Core Foundation
Our core foundation consists of a scalable application server and a
database server, and uses standard web-browser clients. The core foundation
accelerates application development by providing transaction management,
persistence management, and resource pooling services so application developers
can focus on building business logic and user interfaces. Key features of this
core foundation include:
- Open interfaces. Published Java application programming interfaces, or
APIs, enable developers to build custom Saba application extensions, and
public database views allow analysts to design custom reports using
standard reporting tools.
- Scalability. Scalability is accomplished using load-balancing techniques,
allowing multiple servers to be deployed to handle peak periods when the
largest number of concurrent users are expected on the system.
- Standard relational database server. We use standard relational database
servers. To enhance performance and ensure that users are served
efficiently, the core foundation executes database-stored procedures to
optimize intense database processing. The core foundation currently
supports Oracle, Microsoft SQL Server and Informix Dynamic Server
databases.
- Java-based application server. The business and application logic reside
on a Java application server. This Java-based architecture allows us to
deploy a site across a farm of servers with diverse operating
environments, such as Microsoft Windows NT, Sun Solaris or HP UX.
- Electronic commerce enabled. The core foundation includes interfaces to
external electronic payment services, enabling real-time electronic
commerce.
- Multiple language support. The core foundation is designed to support
multiple languages. Currently supported languages include English,
French, German, and Spanish.
- Workflow monitoring of learning object changes. A workflow component
applies business rules when learning objects change. For example, e-mail
can automatically be sent to students when details about their class
change.
- Integration with legacy enterprise applications. The core foundation is
capable of exchanging data with external legacy systems. We provide
connectors to popular human resources and financial systems.
Research and Development
Our research and development operations are divided into two departments:
one focusing on our software platform and applications, and one focusing on Saba
Learning Exchange. These two departments share resources and collaborate on
design and development. These departments are further divided into teams that
are responsible for platform and infrastructure development, application
development, user interface and application design, enterprise connectivity,
Internet applications and design, quality assurance, documentation, and release
management. As of February 29, 2000, we had 116 research and development
employees.
Our development methodology provides guidelines for planning, controlling
and implementing projects. To continue to address market requirements, we
involve our consulting, support, and sales teams, as well as our customers, in
the product development cycle. We conduct our development efforts at multiple
sites in the United States and India, which enables development 24 hours per
day.
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COMPETITION
The market for our products and services is intensely competitive, dynamic
and subject to rapid technological change. The intensity of competition and the
pace of change are expected to increase in the future. Competitors vary in size
and in the scope and breadth of the products and services they offer. Although
we believe that we offer the most comprehensive Internet-based learning
platform, we encounter competition with respect to different aspects of our
solution from a variety of sources including:
- companies that operate Internet-based marketplaces for the sale of
on-line learning;
- companies that operate Internet-based marketplaces for the sale of goods
and services and could potentially decide to evolve their marketplaces to
include content offerings;
- Internet portals that offer learning content;
- companies that market and license training management systems;
- enterprise software vendors that offer human resources information
systems training modules; and
- potential customers' internal development efforts.
We expect additional competition from other established and emerging
companies as the market for Internet-based, business-to-business learning
solutions continues to evolve. Increased competition is likely to result in
price reductions, reduced gross margins and loss of market share, any one of
which could seriously harm our business.
We believe the principal competitive features affecting our market include:
- breadth and depth of the solution;
- a significant installed base of Global 2000 and government customers;
- the ability to support on-line as well as traditional content offerings;
- product quality and performance;
- product features and functions;
- customer service and support;
- ease of implementation;
- core technology; and
- price/performance.
Although we believe that our solutions currently compete favorably with
respect to these factors, our market is relatively new and is changing rapidly.
We may not be able to maintain our competitive position against current and
potential competitors, especially those with significantly greater financial,
technical, service, support, marketing and other resources.
PROPRIETARY RIGHTS
Proprietary rights are important to our success and our competitive
position. To protect our proprietary rights, we rely on copyright, trademark,
and trade secret laws, confidentiality procedures and contractual provisions.
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We license rather than sell our software products and require our customers
to enter into written license agreements, which impose restrictions on the use
of the software. Our Internet edition products are licensed pursuant to
Internet-based agreements, rather than by a means of a formal, written contract.
Users of these products "click" on a dialog box and are deemed to agree to
electronically displayed terms and conditions. Because these agreements are not
signed, there is a possibility that a court, arbitrator or regulatory body could
deem this type of agreement to be unenforceable or determine that the terms and
conditions governing the agreement do not fully protect our intellectual
property rights. Therefore, we cannot assure you that this user agreement will
afford us adequate protection. In addition, we seek to avoid disclosure of our
trade secrets through a number of means, including but not limited to, requiring
those persons with access to our proprietary information to execute
confidentiality agreements with us and restricting access to our source code. We
seek to protect our software, documentation and other written materials under
trade secret and copyright laws, which afford only limited protection.
In addition, we have filed six provisional patent applications in the U.S.
We cannot assure you that any formal or approved patent applications will result
from these provisional applications, that any patents that may issue will
protect our intellectual property or that any issued patents will not be
challenged by third parties. Furthermore, other parties may independently
develop similar or competing technologies or design around any patents that may
be issued to us. It is possible that any patent issued to us may not provide any
competitive advantages, that we may not develop future proprietary products or
technologies that are patentable, and that the patents of others may seriously
limit our ability to do business. In this regard, we have not performed any
comprehensive analysis of patents of others that may limit our ability to do
business.
We have applied for registration of several trademarks, including "Saba",
in the United States and in various foreign countries and will seek to register
additional trademarks as appropriate. There can be no assurance that we will be
successful in obtaining the trademarks for which we have applied. Even if these
applications are approved, the trademarks may be successfully challenged by
others or invalidated. If the applications are not approved because third
parties own the trademarks, the use of the trademarks will be restricted unless
we enter into arrangements with the third parties which may be unavailable on
commercially reasonable terms.
We cannot assure you that any of our proprietary rights with respect to our
products or services will be viable or of value in the future since the
validity, enforceability and type of protection of proprietary rights in
Internet-related industries are uncertain and still evolving.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect
proprietary rights to as great an extent as do the laws of the United States,
and effective copyright, trademark and trade secret protection may not be
available in those jurisdictions. Our means of protecting our proprietary rights
may not be adequate to protect us from the infringement or misappropriation of
such rights by others.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights, particularly in the
software and Internet-related industries. We could become subject to
intellectual property infringement claims as the number of our competitors grows
and our products and services overlap with competitive offerings. These claims,
even if not meritorious, could be expensive to defend and could divert
management's attention from operating our company. If we become liable to third
parties for infringing their intellectual property rights, we could be required
to pay a substantial award of damages and to develop noninfringing technology,
obtain a license or cease selling the products that contain the infringing
intellectual property. We may be unable to develop noninfringing technology or
obtain a license on commercially reasonable terms, if at all.
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<PAGE> 47
EMPLOYEES
As of February 29, 2000, we had a total of 357 employees, including 116 in
research and development, 104 in sales and marketing, 95 in services and 42 in
administration and finance. Of these employees, 288 were located in North
America and 69 were located outside of North America. None of our employees is
represented by a collective bargaining agreement, nor have we experienced any
work stoppage. We consider our relations with our employees to be good. Our
future success depends on our continuing ability to attract and retain highly
qualified technical, sales and senior management personnel.
FACILITIES
Our principal executive offices occupy approximately 48,000 square feet in
Redwood Shores, California under a lease that expires in April 2014. We have
additional facilities in the Atlanta, Boston, Chicago, Columbus, Dallas, Denver,
Detroit, Houston, Irvine, Los Angeles, Minneapolis, New York City, and
Washington D.C. metropolitan areas and in Australia, Canada, Germany, India and
the United Kingdom. We believe that our facilities are adequate to meet our
needs for the foreseeable future.
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<PAGE> 48
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, and their ages and positions as of
February 29, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Bobby Yazdani............................ 36 Chief Executive Officer, President and
Chairman of the Board of Directors
Terry Carlitz............................ 48 Chief Financial Officer and Director
Chris Helgeson........................... 43 Vice President, Research and Development
Stuart Jacobson.......................... 42 Vice President, Sales and Alliances
Brook Manville........................... 49 Chief Learning Officer and Chief Customer
Evangelist
David Martin............................. 35 Vice President, Marketing
Michael Toepel........................... 38 Vice President, Services
Peter Williams........................... 38 Vice President, Corporate Development,
General Counsel and Secretary
Nicholas Zaldastani...................... 42 Vice President, Internet Services
Douglas Allred........................... 49 Director
Robert Cohn(1)........................... 50 Director
Joseph Costello(1)(2).................... 46 Director
Joe Kiani(2)............................. 35 Director
Michael Moritz(2)........................ 45 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Bobby Yazdani founded Saba and has been our President and Chief Executive
Officer since our inception in April 1997. From 1988 until founding Saba, Mr.
Yazdani served in various positions at Oracle, most recently as Senior Director.
Mr. Yazdani holds a B.A. from the University of California, Berkeley.
Terry Carlitz has served as our Chief Financial Officer and a director
since joining us in July 1999. From May 1998 until July 1999, Ms. Carlitz served
as Senior Vice President Finance and Operations and Chief Financial Officer of
SPL WorldGroup, a provider of information technology consulting and enterprise
solutions. From February 1995 until May 1998, Ms. Carlitz served as Vice
President Finance and Chief Financial Officer of Infinity Financial Technology,
a developer of trading and financial risk management software, throughout its
initial public offering and subsequent merger with SunGard Data Systems. From
February 1993 until February 1995, Ms. Carlitz served as Director, Business
Development and Strategic Investments of Apple. Ms. Carlitz holds a B.S. from
San Jose State University and an M.B.A. from Stanford University.
Chris Helgeson has served as our Vice President, Research and Development
since joining us in June 1999. From September 1998 until May 1999, Mr. Helgeson
served as Chief Technical Officer of Business Projects, a provider of
Internet-based collaboration software. From October 1996 until August 1998, Mr.
Helgeson served as Vice President, Engineering and Vice President, Technology of
Carnelian, a provider of Internet-based publishing and delivery software. From
June 1995 until September 1996, Mr. Helgeson served as Vice President,
Engineering of Verity, a provider of knowledge retrieval software. Mr. Helgeson
holds a B.S. and B.A. from the University of California, Berkeley.
Stuart Jacobson has served as our Vice President, Sales and Alliances since
joining us in January 1999. From May 1998 until December 1999, Mr. Jacobson
served as a consultant to various software
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<PAGE> 49
companies. From August 1994 until April 1998, Mr. Jacobson served as Executive
Vice President of Novadigm, a provider of automated software management
solutions. Mr. Jacobson holds a B.A. from Lewis & Clark College.
Brook Manville has served as our Chief Learning Officer and Chief Customer
Evangelist since joining us in August 1999. From January 1988 until July 1999,
Mr. Manville was employed by McKinsey & Company, a management consulting firm,
where he was a partner from July 1994 until July 1999. Mr. Manville holds a B.A.
from Yale University, an M.A. from Oxford University, and a Ph.D. from Yale
University.
David Martin has served as our Vice President, Marketing since joining us
in November 1997. From November 1995 until October 1997, Mr. Martin served as a
Vice President of SuccessFactors.com, a provider of enterprise competency
management software. From October 1990 until November 1995, Mr. Martin served as
a Vice President of Oracle. Mr. Martin holds a B.S. from the Massachusetts
Institute of Technology.
Michael Toepel has served as our Vice President, Services since joining us
in August 1999. From January 1998 until June 1999, Mr. Toepel served as
President and Chief Executive Officer of Bay Logics, a provider of
infrastructure asset management software. From February 1994 until January 1998,
Mr. Toepel served as Vice President, Sales and Marketing at SMG, a provider of
real estate asset management software. Mr. Toepel holds a B.A. from the
University of Texas at Austin and an M.B.A. from the University of Texas at
Austin Graduate School of Business.
Peter Williams has served as Vice President, Corporate Development and
General Counsel of Saba since joining us in October 1999 and has served as our
Secretary since our inception in April 1997. Mr. Williams has been a partner at
Morrison & Foerster LLP, an international law firm, since January 1995. Mr.
Williams holds B.A. degrees from the University of California, Los Angeles and a
J.D. from Santa Clara University.
Nicholas Zaldastani has served as our Vice President, Internet Services
since joining us in June 1999. From August 1997 until May 1999, Mr. Zaldastani
served as principal of Zaldastani.com, a strategic consulting firm which advised
growth-stage software companies, including Saba. From July 1994 until July 1997,
Mr. Zaldastani served as President and Chief Executive Officer of Open Horizon,
a provider of Internet and enterprise connectivity software. From July 1988
until June 1994, Mr. Zaldastani served in various positions at Oracle, most
recently as a Director in the Applications Division. Mr. Zaldastani holds a B.S.
from Duke University and an M.B.A. from the Harvard Business School.
Douglas Allred has been a director of Saba since January 2000. Mr. Allred
has served as Senior Vice President, Customer Advocacy of Cisco Systems since
July 1991. Mr. Allred holds a B.S. from Washington State University.
Robert Cohn has been a director of Saba since December 1998. From September
1997 until May 1999, Mr. Cohn served as Executive Vice President of Lucent
Technologies. From June 1982 until September 1997, Mr. Cohn served as founder,
Chief Executive Officer and Chairman of the Board of Octel Communications, a
provider of voice messaging systems. Mr. Cohn presently serves as a director of
Chapters Online Inc. Mr. Cohn holds a B.S. from the University of Florida and an
M.B.A. from Stanford University.
Joseph Costello has been a director of Saba since October 1999. Mr.
Costello has served as founder, Chairman of the Board and Chief Executive
Officer of think3, a provider of mechanical computer aided design software,
since February 1998. From March 1987 until October 1997, Mr. Costello served as
President and Chief Executive Officer of Cadence Design Systems, a provider of
product development services and technology to electronics companies. Mr.
Costello presently serves as a director of Zamba, a consulting and systems
integration company focused on the customer care market, Calico Commerce, a
provider of seller-focused electronic commerce software
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<PAGE> 50
and services, and Clarify, a provider of front-office sales and service
software. Mr. Costello holds a B.S. from Harvey Mudd College, M.S. from Yale
University and M.S. from the University of California, Berkeley.
Joe Kiani has been a director of Saba since July 1997. Mr. Kiani has served
as co-founder, Chairman of the Board and President and Chief Executive Officer
of Masimo, a provider of signal processing and sensor technology to the medical
device industry, since February 1989. Mr. Kiani holds a B.S. and M.S. from San
Diego State University.
Michael Moritz has been a director of Saba since August 1998. Mr. Moritz
has been a general partner of Sequoia Capital, a venture capital firm, since
1986. Mr. Moritz serves as a director of Agile Software, a provider of product
content management software, eToys, Flextronics, a provider of electronics
products manufacturing and logistical services, PlanetRX.com, an online
healthcare destination, Webvan Group and Yahoo! Mr. Moritz holds an M.A. from
Christ Church, Oxford.
BOARD COMPOSITION
We currently have authorized seven directors. Our Certificate of
Incorporation provides for a classified board of directors consisting of three
classes of directors, each serving staggered three-year terms. As a result, a
portion of our board of directors will be elected each year. To implement the
classified structure, two of the nominees to the board have been elected to
one-year terms, two have been elected to two-year terms and three of the
nominees to the board have been elected to three year terms. Messrs. Cohn and
Kiani have been designated Class I directors whose term expires at the 2001
annual meeting of stockholders. Ms. Carlitz and Mr. Costello have been
designated Class II directors whose term expires at the 2002 annual meeting of
stockholders. Messrs. Allred, Moritz and Yazdani have been designated Class III
directors whose term expires at the 2003 annual meeting of stockholders. For
more information on our classified board, see "Description of Capital
Stock -- Anti-takeover Effects of Provisions of our Certificate of Incorporation
and Bylaws, and Delaware Law".
Our executive officers are appointed by, and serve at the discretion of,
our board of directors. Each of our officers and directors, excluding
non-employee directors, devotes substantially full time to our affairs. Our
non-employee directors devote such time to our affairs as is necessary to
discharge their duties. There are no familial relationships among any of our
directors, officers or key employees.
BOARD COMMITTEES
Our Audit Committee reviews, acts on and reports to our board of directors
with respect to various auditing and accounting matters, including the selection
of our independent accountants, the scope of the annual audits, fees to be paid
to the independent accountants, the performance of our independent accountants
and our accounting practices. Messrs. Costello, Kiani and Moritz are the members
of our Audit Committee.
Our Compensation Committee establishes salaries, incentives and other forms
of compensation for executive officers and other key employees. This Committee
also administers our incentive compensation and benefit plans. Messrs. Cohn and
Costello are the members of our Compensation Committee.
COMPENSATION COMMITTEE, INSIDER PARTICIPATION AND INTERLOCKS
None of the members of our Compensation Committee is an officer or employee
of Saba. No interlocking relationship exists between our board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has such an interlocking relationship existed in the
past.
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<PAGE> 51
DIRECTOR COMPENSATION
We do not pay directors cash compensation for their services as directors
or members of committees of the board of directors. We do reimburse them for
their reasonable expenses incurred in attending meetings of the board of
directors. In addition, each new non-employee director receives an option to
purchase 20,000 shares of our common stock upon joining the board of directors.
These options vest in two equal installments on the first and second annual
stockholder meetings following the date of joining the board of directors. Each
incumbent non-employee director is granted an option to purchase an additional
10,000 shares of our common stock at each annual meeting of stockholders
thereafter. These options vest at the next annual meeting of stockholders. No
options will be granted to any non-employee director who serves on our board of
directors at the effective time of this offering until all shares of common
stock held by the director have fully vested. See "Stock Plans -- 2000 Stock
Incentive Plan".
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
of our Chief Executive Officer and each of our executive officers whose
aggregate cash compensation exceeded $100,000 during fiscal 1999 (collectively,
our "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) OPTIONS
--------------------------- --------- ----------- ------------
<S> <C> <C> <C>
Bobby Yazdani................................. 140,000(2) -- --
President and Chief Executive Officer
David Martin.................................. 84,163 90,000 --
Vice President, Marketing
Stuart Jacobson............................... 53,923(3) 21,591 280,000
Vice President, Sales and Alliances
</TABLE>
- ---------------
(1) Includes bonus amounts earned in fiscal 1998 and paid in fiscal 1999.
(2) Does not include $136,075 in deferred compensation earned by Mr. Yazdani in
fiscal 1998 and paid in fiscal 1999.
(3) Reflects a partial year of service as an employee. Mr. Jacobson's annual
target compensation is $240,000. Does not include $53,000 paid to Mr.
Jacobson in fiscal 1999 for consulting services performed prior to joining
us as a full-time employee.
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<PAGE> 52
OPTION GRANTS IN FISCAL YEAR 1999
The following table sets forth certain information for each of our Named
Executive Officers concerning stock options granted to them during fiscal 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS EXERCISE OPTION TERM(5)
OPTIONS GRANTED TO PRICE EXPIRATION --------------------
GRANTED(1) EMPLOYEES(2) PER SHARE(3) DATE(4) 5%($) 10%($)
---------- ---------------- ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Bobby Yazdani..................... -- -- -- -- -- --
David Martin...................... -- -- -- -- -- --
Stuart Jacobson(6)................ 280,000 9.15% $0.07 01/08/2009 $12,326 $31,237
</TABLE>
- ---------------
(1) Options granted pursuant to our 1997 Stock Incentive Plan. 25% of the
options granted vest one year from the date of grant. Thereafter the
remaining 75% of the options granted vest quarterly over the next three
years.
(2) In fiscal 1999, we granted options to employees to purchase an aggregate of
3,060,500 shares.
(3) In determining the fair market value of our common stock, our board of
directors considered various factors, including our financial condition and
business prospects, our operating results, the absence of a market for our
common stock and the risks normally associated with high technology
companies. The exercise price may be paid in cash, check, promissory note,
shares of our common stock, through a cashless exercise procedure involving
same-day sale of the purchased shares or any combination of such methods.
(4) Options may terminate before their expiration dates if the optionee's status
as an employee or consultant is terminated or upon the optionee's death or
disability.
(5) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices.
(6) Does not include 360,000 shares of common stock issued subsequent to fiscal
1999 and subject to a right of repurchase in favor of Saba which lapses over
time.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning exercises of
stock options during fiscal 1999 by each of our Named Executive Officers and the
number and value of unexercised options held by each of our Named Executive
Officers on May 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT MAY 31,
SHARES AT MAY 31, 1999(#) 1999($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bobby Yazdani................ -- -- -- -- -- --
David Martin................. -- -- 225,000 375,000 $56,250 $93,750
Stuart Jacobson.............. -- -- -- 280,000 -- 64,400
</TABLE>
- ---------------
(1) The value of "in-the-money" stock options represents the positive spread
between the exercise price of stock options and the fair market value for
our common stock of $0.30 per share as of May 31, 1999, as determined by our
Board of Directors.
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<PAGE> 53
STOCK PLANS
We have adopted a 1997 Stock Incentive Plan, a 2000 Stock Incentive Plan
and a 2000 Employee Stock Purchase Plan. The purpose of each plan is to enhance
our long-term stockholder value by offering our employees, directors, officers,
consultants, agents, advisors and independent contractors the opportunity to
promote and participate in our growth and success, and to encourage these people
to remain in our service and acquire and maintain stock ownership in us. Our
board of directors or a committee appointed by the board may administer the
plans.
1997 Stock Incentive Plan. In July 1997, we adopted our 1997 Stock
Incentive Plan. As of February 29, 2000, we had reserved 9,815,550 shares of
common stock for the grant of stock options and other equity incentive awards
under the 1997 Incentive Plan. As of February 29, 2000, there were options to
purchase 6,155,354 shares of common stock outstanding under the 1997 Incentive
Plan with exercise prices ranging from $0.05 to $5.36 per share, 2,479,008
shares had been issued pursuant to the exercise of options or equity incentive
awards under the 1997 Incentive Plan, and 1,144,188 shares of common stock were
available for the grant of stock options and other equity incentive awards under
the 1997 Incentive Plan. Our board of directors determined that no further stock
options or other equity incentive awards will be granted under the 1997
Incentive Plan after the initial public offering.
2000 Stock Incentive Plan. In January 2000, we adopted our 2000 Stock
Incentive Plan. We have reserved 6,000,000 shares of common stock for the grant
of stock options and other equity incentive awards under the 2000 Incentive
Plan. Annual increases will be added to the 2000 Incentive Plan equal to the
lesser of: (A) 3,000,000 shares, (B) 5% of all outstanding shares of our common
stock or (C) a lesser amount determined by our board of directors. As of the
date of this prospectus, no options or other equity incentive awards have been
granted under the 2000 Incentive Plan.
The administrator has the authority to select individuals who are to
receive options or other equity incentive awards under the 2000 Incentive Plan
and to specify the terms and conditions of options or other equity incentive
awards granted (including whether or not such options are incentive or
nonstatutory stock options), the vesting provisions, the term and the exercise
price. The 2000 Incentive Plan provides that we may grant incentive stock
options within the meaning of Section 422 of the Internal Revenue Code to
employees, including our officers and employee directors, and we may grant
nonstatutory stock options to employees and consultants, including non-employee
directors.
The exercise price of incentive stock options granted under the 2000
Incentive Plan shall equal the fair market value of our common stock on the date
of grant (except in the case of grants to any person holding more than 10% of
the total combined voting power of all classes of our, or any of our parent's or
subsidiaries', stock in which case the exercise price shall equal 110% of the
fair market value on the date of grant). The exercise price of nonqualified
stock options shall not be less than 85% of the fair market value on the date of
grant (except in the case of grants to any person holding more than 10% of the
total combined voting power of all classes of our, or any of our parent's or
subsidiaries', stock in which case the exercise price shall equal 110% of the
fair market value on the date of grant). Option holders may pay for an exercise
in cash or other consideration, including a promissory note, as approved by the
administrator.
Generally, options granted under the 2000 Incentive Plan (other than those
granted to non-employee directors) will vest at a rate of 25% of the shares
underlying the option after one year and the remaining shares vest in equal
portions over the following 12 quarters, such that all shares are vested after
four years. Unless otherwise provided by the administrator, an option granted
under the 2000 Stock Plan generally expires 6 years from the date of grant (five
years in the case of an incentive stock option granted to any person holding
more than 10% of the total combined voting power of all classes of our, or any
of our parent's or subsidiary's, stock). Upon the optionee's termination of
employment or service with us or any of our affiliates without cause, the option
will
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<PAGE> 54
terminate in three months. Upon the optionee's termination of employment or
service with us or any of our affiliates for cause, the option may be terminated
immediately. Upon the optionee's death or disability, the option will terminate
12 months after the optionee's death or disability. In addition, options granted
under our 2000 Stock Plan are not generally transferable by the optionee except
by will or the laws of descent and distribution and generally are exercisable
during the lifetime of the optionee only by such optionee.
In the event we merge with or into another corporation or dispose of all or
substantially all of our assets, or in the event of other transactions in which
our stockholders before the transaction own less than 50% of the total combined
voting power of all our outstanding securities after the transaction, all
outstanding awards under the 2000 Incentive Plan will terminate unless they are
assumed or equivalent awards are substituted by the successor corporation or any
of its parents or subsidiaries.
The 2000 Incentive Plan also provides for automatic grants to non-employee
directors. Each new non-employee director receives an option to purchase 20,000
shares of our common stock upon joining the board of directors. These options
vest in two equal installments on the first and second annual stockholder
meetings following the date of joining the board of directors. Each incumbent
non-employee director is granted an option to purchase an additional 10,000
shares of our common stock at each annual meeting of stockholders following such
director's election of reelection. These options vest at the next annual meeting
of stockholders. No options will be granted to any non-employee director who
serves on our board of directors at the effective time of this offering until
all shares of common stock held by the director have fully vested. Options
granted to non-employee directors pursuant to the automatic grant provisions of
the 2000 Incentive Plan will be nonqualified stock options with an exercise
price equal to the fair market value of our common stock as of the date of
grant. Grants to non-employee directors are subject to the general requirements
of the 2000 Incentive Plan.
2000 Employee Stock Purchase Plan. In January 2000, we also adopted our
2000 Employee Stock Purchase Plan. We have reserved 2,000,000 shares of common
stock for issuance under the 2000 Purchase Plan. Annual increases will be added
to the 2000 Purchase Plan equal to the lesser of: (A) 2,000,000 shares, (B) 2%
of all outstanding shares of our common stock or (C) a lesser amount determined
by our board of directors. Our 2000 Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code in
order to provide our employees with an opportunity to purchase common stock
through payroll deductions. All of our employees (and employees of our
"subsidiary corporation" and "parent corporation" (as defined by the Internal
Revenue Code) designated by the administrator, if any) whose customary
employment is for more than five months in any calendar year and more than 20
hours per week are eligible to participate in the 2000 Purchase Plan. In
addition, employees must have been employed for three business days or more to
participate in the 2000 Purchase Plan. Non-employee directors, consultants, and
employees subject to the rules or laws of a foreign jurisdiction that prohibit
or make impractical the participation of such persons in the 2000 Purchase Plan
are not eligible to participate in the 2000 Purchase Plan.
The 2000 Purchase Plan designates offer periods, purchase periods and
exercise dates. The 2000 Purchase Plan provides for overlapping or consecutive
24-month offer periods. Each offer period includes four six-month purchase
periods commencing each January 1 and July 1 (except that the initial purchase
period commenced on the effective date of this offering and will end on December
31, 2000). Exercise dates are the last date of each purchase period, that is
June 30 and December 31. In the event we merge with or into another corporation
or dispose of all or substantially all of our assets, or in the event of other
transactions in which our stockholders before the transaction own less than 50%
of the total combined voting power of all our outstanding securities after the
transaction, the administrator may elect to shorten the offer period then in
progress.
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<PAGE> 55
On the first day of each offer period, a participating employee is granted
a purchase right, which is a form of option to be automatically exercised on the
next exercise date. Deductions are to be made from the salary of participants
(in accordance with their authorizations) and credited to their accounts under
the 2000 Purchase Plan. When the purchase right is exercised, the participant's
withheld salary is used to purchase shares of common stock. The price per share
at which shares of common stock are to be purchased under the 2000 Purchase Plan
for any six month period is the lesser of (A) 85% of the fair market value of
the common stock on the date of the grant of the option (the commencement of the
offer period) or (B) 85% of the fair market value of the common stock on the
exercise date (the last day of the offer period).
Payroll deductions may range from 1% to 15% (in whole-percentage
increments) of a participant's regular base pay, bonuses and commissions,
exclusive of overtime, shift premiums, and reimbursements or other expense
allowances. Participants may not make direct cash payments to their accounts.
For any six-month period the employee may purchase up to 500 shares, and for any
calendar year, the employee may purchase up to $25,000 worth of stock. The
Internal Revenue Code imposes certain additional limitations on the amount of
common stock that may be purchased during any calendar year.
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<PAGE> 56
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of February 29, 2000 as adjusted
to reflect the sale of shares offered hereby, by
- each person known by us to own beneficially more than 5% of the
outstanding shares of common stock,
- each of our directors,
- each Named Executive Officer (see "Management -- Executive
Compensation"), and
- all current executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of February 29, 2000 are deemed
outstanding. Percentage of beneficial ownership as of February 29, 2000 is based
upon 38,171,169 shares of common stock outstanding prior to this offering and
42,171,169 shares of common stock outstanding after this offering. To our
knowledge, except as set forth in the footnotes to this table and subject to
applicable community property laws, each person named in the table has sole
voting and investment power with respect to the shares set forth opposite such
person's name. Except as otherwise indicated, the address of each of the persons
in this table is: c/o Saba Software, Inc., 2400 Bridge Parkway, Redwood Shores,
California 94065.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE PERCENTAGE
NUMBER OF SUBJECT TO RIGHT PRIOR TO AFTER THIS
NAME OF BENEFICIAL OWNER SHARES OF REPURCHASE(1) THIS OFFERING OFFERING
------------------------ ---------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Entities affiliated with Sequoia
Capital(2)............................... 8,672,710 0 22.7% 21.1%
3000 Sand Hill Road, Building 4, Suite
280
Menlo Park, CA 94025
Michael Moritz(3).......................... 8,672,710 0 22.7 21.1
c/o Sequoia Capital
3000 Sand Hill Road, Building 4, Suite
280
Menlo Park, CA 94025
Bobby Yazdani(4)........................... 7,500,000 0 19.6 18.2
London Pacific Life & Annuity Company...... 2,631,284 0 6.9 6.4
3109 Poplarwood Court, Suite 108
Raleigh, NC 27604(5)
Entities affiliated with Crosslink Capital,
Inc.(6).................................. 2,605,613 0 6.8 6.3
555 California Street, Suite 2350
San Francisco, CA 94104
Kamyar Kaviani............................. 2,042,250 0 5.4 5.0
5301 Water Wheel Court
Rockville, MD 20855
Terry Carlitz.............................. 690,000 655,000 1.8 1.7
Stuart Jacobson(7)......................... 513,047 360,000 1.3 1.2
David Martin(8)............................ 494,611 0 1.3 1.2
Joe Kiani(9)............................... 303,333 0 * *
Joseph Costello............................ 232,012 185,358 * *
Robert Cohn(10)............................ 412,608 121,500 1.1 1.0
Douglas Allred............................. 245,789 185,358 * *
All executive officers and directors as a
group (14 persons)(11)................... 20,232,504 2,541,074 52.7 49.0
</TABLE>
- ---------------
* Less than 1% of the outstanding common stock.
(1) Represents shares of common stock subject to a right of repurchase in favor
of Saba which lapses over time.
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<PAGE> 57
(2) Includes 6,371,375 shares held by Sequoia Capital VIII, 80,837 shares held
by Sequoia International Technology Partners VIII, 421,760 shares held by
Sequoia International Technology Partners VIII(Q), 140,586 shares held by
CMS Partners LLC, 14,781 shares held by Sequoia 1997, 1,468,453 shares held
by Sequoia Capital Franchise Fund and 174,918 shares held by Sequoia
Capital Franchise Partners.
(3) Includes 8,672,710 shares held by the entities affiliated with Sequoia
Capital. Mr. Moritz disclaims beneficial ownership of shares held by these
entities except to the extent of his pecuniary interest in these entities,
if any.
(4) Includes 66,666 shares of common stock held in trust for the benefit of Mr.
Yazdani's children. Mr. Yazdani disclaims beneficial ownership of these
shares.
(5) London Pacific Life & Annuity Company has advised us that the members of
the board of directors are the natural persons with voting and investment
control over our common stock.
(6) Includes 882,279 shares held by Crosslink Omega Ventures III, L.L.C.,
1,375,823 shares held by Crosslink Offshore Omega Ventures III, 121,638
shares held by Omega Bayview, L.L.C., 182,195 shares held by Crossover Fund
III, L.P., 43,678 shares held by Crosslink Crossover Fund III, L.P. The
entities affiliated with Crosslink Capital, Inc. have supplied to us the
name of Vladmir Jacimovic as the natural person with voting and investment
control over our common stock.
(7) Includes options to purchase 87,500 shares of common stock exercisable
within 60 days of February 29, 2000 .
(8) Includes warrants to purchase 14,283 shares of common stock exercisable
within 60 days of February 29, 2000 and options to purchase 37,500 shares
of common stock exercisable within 60 days of February 29, 2000.
(9) Includes options to purchase 83,333 shares of common stock exercisable
within 60 days of February 29, 2000.
(10) Includes 222,753 shares held in trust for the benefit of certain members of
Mr. Cohn's family. Mr. Cohn disclaims beneficial ownership as to the
222,753 shares.
(11) Includes options to purchase 210,000 shares of common stock exercisable
within 60 days of February 29, 2000 held by all executive officers and
directors of Saba. Includes 14,283 shares of common stock issuable upon
exercise of warrants within 60 days of February 29, 2000 held by all
executive officers and directors of Saba. As to disclaimers of beneficial
ownership, see footnotes 3, 4 and 9 above.
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<PAGE> 58
RELATED PARTY TRANSACTIONS
PREFERRED STOCK ISSUANCES
In July 1997, we issued shares of Series A preferred stock in private
placements to investors at a purchase price of $0.48 per share. In August 1998,
we issued shares of Series B preferred stock in private placements to investors
at a purchase price of $0.70014 per share. In April 1999, we issued shares of
Series C preferred stock in private placements to investors at a purchase price
of $3.0512 per share. In November 1999, we issued shares of Series D preferred
stock in private placements to investors at a purchase price of $5.3586 per
share. Upon the closing of our initial public offering, each share of Series A,
Series B, Series C and Series D preferred stock will convert into one share of
common stock. Pursuant to such private placements, we sold shares of preferred
stock to the following officers, directors or beneficial owners of more than 5%
of our outstanding common stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PREFERRED STOCK
------------------------------------------------
PURCHASER SERIES A SERIES B SERIES C SERIES D
--------- -------- --------- --------- --------
<S> <C> <C> <C> <C>
Entities affiliated with Sequoia
Capital(1).............................. -- 5,713,143(2) 1,769,795(3) 839,772(4)
Entities affiliates with Crosslink
Capital, Inc.(5)........................ -- -- 2,001,750(6) 503,863(7)
Kamyar Kaviani(8)......................... 156,250 -- -- --
David Martin.............................. -- 142,828 49,160 --
Robert Cohn............................... -- -- 49,160(9) 23,495(10)
Joseph Costello........................... -- -- -- 46,654
Stuart Jacobson........................... -- -- 65,547 --
</TABLE>
- ---------------
(1) Mr. Moritz is a General Partner of Sequoia Capital and funds affiliated
with Sequoia Capital own beneficially more than 5% of the outstanding
shares of our common stock. For a description of this affiliation and
disclaimers of beneficial ownership, see "Principal Stockholders".
(2) Includes 5,177,822 shares purchased by Sequoia Capital VIII, 65,701 shares
purchased by Sequoia International Technology Partners VIII, 342,788 shares
purchased by Sequoia International Technology Partners VIII (Q), 114,263
shares purchased by CMS Partners and 12,569 shares purchased by Sequoia
1997.
(3) Includes 594,062 shares purchased by Sequoia Capital VIII, 7,538 shares
purchased by Sequoia International Technology Partners VIII, 39,329 shares
purchased by Sequoia International Technology Partners VIII (Q), 1,442
shares purchased by Sequoia 1997, 947,168 shares purchased by Sequoia
Capital Franchise Fund and 167,147 shares purchased by Sequoia Capital
Franchise Partners.
(4) Includes 282,286 shares purchased by Sequoia Capital VIII, 3,573 shares
purchased by Sequoia International Technology Partners VIII, 18,643 shares
purchased by Sequoia International Technology Partners VIII (Q), 6,214
shares purchased by CMS Partners, 465,569 shares purchased by Sequoia
Capital Franchise Fund and 63,487 shares purchased by Sequoia Capital
Franchise Partners.
(5) Funds affiliated with Crosslink Capital, Inc. own beneficially more than 5%
of the outstanding shares of our common stock.
(6) Includes 677,806 shares purchased by Omega Ventures III, L.L.C., 1,056,970
shares purchased by RS & Co. Offshore Omega Ventures III, 93,448 shares
purchased by Omega Bayview, L.L.C. and 173,526 shares purchased by
Crossover Fund II, L.P.
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<PAGE> 59
(7) Includes 23,522 shares purchased by Omega Bayview, L.L.C., 170,612 shares
purchased by Crosslink Omega Ventures III, L.L.C., 266,051 shares purchased
by Crosslink Offshore Omega Ventures III and 43,678 shares purchased by
Crosslink Crossover Fund III, L.P.
(8) At the time of Mr. Kaviani's purchase, he was a director of Saba. Mr.
Kaviani also owns beneficially more than 5% of the outstanding shares of
our common stock.
(9) Includes 49,160 shares of common stock held by Robert or Martha A. Cohn,
TTEES, The Wellington Trust U/A/D 1-30-86.
(10) Includes 23,495 shares of common stock held by Robert or Martha A. Cohn,
TTEES, The Wellington Trust U/A/D 1-30-86.
We believe that the shares sold in transactions described above were sold
at fair market value and the terms of the other arrangements described above
were no less favorable to us than we could have obtained from unaffiliated third
parties.
COMMON STOCK ISSUANCES
In November 1997, we sold 2,570,000 shares of common stock to Mr. Kaviani
for an aggregate consideration of $128,500 pursuant to a stock purchase
agreement. In connection with such sale, Mr. Kaviani gave us a promissory note
in the principal amount of $43,500.
In September 1999, we sold 695,000 shares of common stock to Ms. Carlitz,
our Chief Financial Officer and one of our directors, for an aggregate
consideration of $208,500 pursuant to a restricted stock purchase agreement. In
connection with such sale, Ms. Carlitz gave us a secured, full-recourse
promissory note in the principal amount of $144,375 secured by the pledge of
481,250 shares of common stock pursuant to a stock pledge agreement.
In September 1999, we sold 360,000 shares of common stock to Mr. Jacobson,
our Vice President, Sales and Alliances, for an aggregate consideration of
$108,000 pursuant to a restricted stock purchase agreement. In connection with
such sale, Mr. Jacobson gave us a secured, full-recourse promissory note in the
principal amount of $81,000 secured by the pledge of 270,000 shares of common
stock pursuant to a stock pledge agreement.
In September 1999, we sold 200,000 shares of common stock to Mr. Toepel,
our Vice President, Services, for an aggregate consideration of $60,000 pursuant
to a restricted stock purchase agreement. In connection with such sale, Mr.
Toepel gave us a secured, full-recourse promissory note in the principal amount
of $45,000 secured by the pledge of 150,000 shares of common stock pursuant to a
stock pledge agreement.
In September 1999, we sold 630,000 shares of common stock to Mr. Williams,
our Vice President, Corporate Development, General Counsel and Secretary, for an
aggregate consideration of $189,000 pursuant to a restricted stock purchase
agreement. In connection with such sale, Mr. Williams gave us a secured,
full-recourse promissory note in the principal amount of $141,750 secured by the
pledge of 472,500 shares of common stock pursuant to a stock pledge agreement.
In January 2000, we sold to Mr. Allred, one of our directors, 185,358
shares of common stock for an aggregate consideration of $176,090 pursuant to a
restricted stock purchase agreement and 60,431 shares of common stock for an
aggregate consideration of $323,910 pursuant to a stock purchase agreement.
In January 2000, we sold 140,000 shares of common stock to Mr. Helgeson,
our Vice President, Research and Development, for an aggregate consideration of
$133,000 pursuant to a restricted stock purchase agreement. In connection with
such sale, Mr. Helgeson gave us a secured, full-recourse promissory note in the
principal amount of $95,000 secured by the pledge of 100,000 shares of common
stock pursuant to a stock pledge agreement.
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<PAGE> 60
In January 2000, we sold 20,000 shares of common stock to Mr. Kiani, one of
our directors, for an aggregate consideration of $107,200 pursuant to a stock
purchase agreement.
In January 2000, we sold an aggregate of 20,000 shares of common stock to
trusts designated by Mr. Cohn, one of our directors, for an aggregate
consideration of $107,200 pursuant to stock purchase agreements. Mr. Cohn
disclaims beneficial ownership as to 10,000 of these shares that were sold to
and are held in trust for the benefit of certain members of Mr. Cohn's family.
We believe that the shares sold in transactions described above were sold
at fair market value and the terms of the other arrangements described above
were no less favorable than we could have obtained from unaffiliated third
parties.
WARRANT ISSUANCES
In December 1997 in connection with our Series B preferred stock financing,
at which time Mr. Martin was a director of Saba, we entered into a Note and
Warrant Purchase Agreement with Mr. Martin pursuant to which we issued to Mr.
Martin a Convertible Promissory Note in the principal amount of $100,000 and
warrants to purchase up to 14,283 shares of common stock at a price of $0.70014
per share.
In January 2000, we issued to entities affiliated with Crosslink Capital,
Inc. warrants to purchase up to 100,000 shares of common stock at an exercise
price of $0.01 per share. The warrant was exercised in January 2000.
OPTION GRANTS TO EXECUTIVE OFFICERS
We granted options to the following executive officers to purchase shares
of common stock on the date, for the number of shares, with an exercise price as
indicated opposite each person's name:
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
NAME OPTION DATE OPTIONS EXERCISE PRICE
---- ----------- ---------- --------------
<S> <C> <C> <C>
Chris Helgeson......................... 07/09/1999 140,000 $0.30
Stuart Jacobson........................ 01/08/1999 280,000 0.07
Joe Kiani.............................. 08/16/1997 100,000 0.05
David Martin........................... 11/22/1997 600,000 0.05
</TABLE>
For a description of compensation arrangements we have with our executive
officers and officers, see "Management".
OTHER TRANSACTIONS
In August 1997, we issued 5,876,016 shares of common stock to HTR, Inc. in
exchange for intellectual property. In connection with the acquisition of HTR,
Inc. by a third party in October 1997, we repurchased all 5,876,016 shares using
a promissory note in the principal amount of $150,000, which was secured by a
pledge of 7,500 shares of our common stock held by Mr. Yazdani, our President
and Chief Executive Officer. At the time of the initial issuance to HTR, Inc.,
Mr. Kaviani was a director of Saba and an affiliate of HTR, Inc. During the
period from our inception through May 31, 1998, we recorded $16,000 in services
revenues from HTR, Inc.
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<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
We are authorized to issue up to 200,000,000 shares of common stock and
5,000,000 shares of preferred stock. The following describes the material terms
of our capital stock. For more detailed information, see our Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws, both of
which will be effective as of the completion of this offering and which were
included as exhibits to the registration statement of which this prospectus
forms a part, and the provisions of applicable Delaware law.
COMMON STOCK
As of February 29, 2000, there were 38,171,169 shares of common stock
outstanding held of record by approximately 143 stockholders. The holders of
common stock are entitled to one vote per share on all matters to be voted upon
by the stockholders. The board of directors may declare a dividend out of funds
legally available therefor and, subject to preferences applicable to any
outstanding preferred stock, the holders of common stock are entitled to receive
ratably any such dividends. In the event of our liquidation, dissolution or
winding up, holders of our common stock are entitled to share ratably in all of
our assets. Holders of our common stock have no preemptive rights or other
subscription rights to convert their shares 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 nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of our preferred
stock will be converted into an aggregate of 19,568,540 shares of common stock.
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 privileges and rights of each series. These privileges and
rights may be greater than those of the common stock. The board of directors,
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. Therefore, we could issue preferred stock quickly
with terms calculated to delay or prevent a change in control of Saba or make
removal of management more difficult. Additionally, if we issue preferred stock,
then the market price of common stock may decrease, and voting and other rights
may decrease. We have no plans to issue any preferred stock.
WARRANTS
As of February 29, 2000 there were warrants outstanding to purchase up to
193,380 shares, with per share exercise prices ranging from $0.10 to 80% or 90%
(subject to certain events) of the initial price to the public of the shares
offered in this offering. All of these warrants, except for warrants to purchase
up to 104,226 shares, will terminate if not exercised prior to the closing of
this offering.
REGISTRATION RIGHTS
After the SEC declares this registration statement effective, and assuming
we comply with various other requirements, the holders of approximately
26,692,470 shares of common stock will hold registration rights. These rights
are held under the terms of an agreement between us and various stockholders.
Under the terms of this agreement, if we propose to register any of our
securities under the Securities Act, either for our own account or for other
security holders, we must give the holders of registration rights notice of such
registration and include a portion of their shares of common stock
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<PAGE> 62
in such registration if they so choose at our expense. In addition, some holders
of registration rights may require us to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock. We
are required to use our commercially reasonable efforts to effect such
registration. All of these registration rights are subject to specific
conditions and limitations, among them the right of the underwriters of any
offering to limit the number of shares included in such registration and our
right not to effect a registration in specific situations. Under this agreement,
we have agreed to bear all registration expenses (other than underwriting
discounts and commissions and fees, and specific fees and disbursements of
counsel of the holders of registration rights). We have agreed to indemnify the
holders of registration rights against specific liabilities under the Securities
Act.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND
BYLAWS, AND DELAWARE LAW
Upon the closing of this offering, some provisions of Delaware law and our
Certificate of Incorporation and Bylaws could make the following more difficult:
- acquisition of Saba by means of a tender offer,
- acquisition of Saba by means of a proxy contest or otherwise, or
- removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our board of directors. We believe that the benefits of increased
protection of our ability to negotiate with the proponent of an unfriendly or
unsolicited acquisition proposal outweigh the disadvantages of discouraging such
proposals because negotiation of such proposals could result in an improvement
of their terms.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term, one
class being elected each year by our stockholders. For more information on the
classified board, see the section entitled "Management -- Board Composition".
This system of electing and removing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of us
because it generally makes it more difficult for stockholders to replace a
majority of the directors.
Stockholder Meetings. Under our Bylaws, only the board of directors, the
Chairman of the Board and the Chief Executive Officer may call special meetings
of stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our Bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board of directors.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder" is
a person who, together with affiliates and associates, owns or within three
years prior to the determination of interested stockholder status, did own, 15%
or more of a corporation's voting stock. The existence of this provision may
have an anti-takeover effect with respect to transactions
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<PAGE> 63
not approved in advance by the board of directors, including discouraging
attempts that might result in a premium over the market price for the shares of
common stock held by stockholders.
Elimination of Stockholder Action By Written Consent. Our Certificate of
Incorporation eliminates the right of stockholders to act by written consent
without a meeting.
Elimination of Cumulative Voting. Our Certificate of Incorporation and
Bylaws do not provide for cumulative voting in the election of directors.
Cumulative voting provides for a minority stockholder to vote a portion or all
of its shares for one or more candidates for seats on the board of directors.
Without cumulative voting, a minority stockholder will not be able to gain as
many seats on our board of directors based on the number of shares of our stock
that such stockholder holds than if cumulative voting were permitted. The
elimination of cumulative voting makes it more difficult for a minority
stockholder to gain a seat on our board of directors to influence the board of
directors' decision regarding a takeover.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of Saba. These and other provisions may have the
effect of deferring hostile takeovers or delaying changes in control or
management of Saba.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding stock.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY; INDEMNIFICATION
Our Certificate of Incorporation includes provisions that limit the
personal liability of our officers and directors for monetary damages for breach
of their fiduciary duties as directors, except for liability that cannot be
eliminated under the Delaware General Corporation Law. The Delaware General
Corporation Law does not permit a provision in a corporation's Certificate of
Incorporation that would eliminate such liability (i) for any breach of their
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) for any unlawful payment of a dividend or unlawful stock
repurchase or redemption, as provided in Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of a corporation only if he or she is a director of such corporation and
is acting in his or her capacity as director, and do not apply to the officers
of the corporation who are not directors.
Our Bylaws provide that, to the fullest extent permitted by the Delaware
General Corporation Law, we may indemnify our directors, officers and employees
and agents. In addition, we anticipate that each director will enter into an
indemnification agreement pursuant to which we will indemnify such director to
the fullest extent permitted by the Delaware General Corporation Law. At
present, there is no pending litigation or proceeding involving any of our
directors or officers in which indemnification is required or permitted, and we
are not aware of any threatened litigation or proceeding that may result in a
claim for such indemnification.
We have entered into indemnification agreements with each of our executive
officers and directors, in addition to the indemnification provided in our
Bylaws. These agreements, among other things, provide for indemnification of our
executive officers and directors for expenses, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding arising out of
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<PAGE> 64
such person's services as an executive officer or director at our request. We
believe these provisions and agreements are necessary to attract and retain
qualified persons as executive officers and directors.
LISTING
Application has been made for quotation of our common stock on the Nasdaq
National Market under the symbol "SABA".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
Its address is , and its telephone number is
.
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<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 42,171,169 shares of common
stock outstanding based on shares outstanding as of February 29, 2000. Of these
shares, the 4,000,000 shares sold in this offering will be freely transferable
without restriction under the Securities Act, unless they are held by our
"affiliates" as that term is used under the Securities Act and the Regulations
promulgated thereunder.
The remaining 38,171,169 outstanding shares were sold by us in reliance on
exemptions from the registration requirements of the Securities Act and are
restricted securities within the meaning of Rule 144 under the Securities Act.
Beginning 181 days after the date of this prospectus, approximately 31,669,861
shares will become eligible for sale subject to the provisions of Rule 144, Rule
144(k) or Rule 701 upon the expiration of agreements not to sell these shares
entered into between the underwriters and stockholders of Saba. Beginning 181
days after the date of this prospectus, approximately 2,018,420 additional
shares will become eligible for sale subject to vested options as of the
Effective Date in compliance with Rule 701 and upon the expiration of agreements
not to sell these shares entered into between the underwriters and optionholders
of Saba. Any shares subject to lock-up agreements may be released at any time,
without notice, by the underwriters. See "Risk Factors -- Shares Eligible for
Future Sale".
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the effectiveness of the
registration statement of which this prospectus is a part, a number of shares
that does not exceed the greater of 1% of the then outstanding shares of common
stock (approximately 221,712 shares immediately after this offering) or the
average weekly trading volume in the common stock during the four calendar weeks
preceding this sale, subject to the filing of a Form 144 with respect to this
sale and other limitations and restrictions. In addition, a person who is not
deemed to have been an affiliate of Saba at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years, would be entitled to sell their shares under Rule 144(k)
without regard to the requirements described above.
Any employee, officer or director of or consultant to Saba who purchased
his or her shares prior to the effectiveness of the registration statement of
which this prospectus is a part or who holds vested options as of that date
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits non-affiliates to sell their Rule
701 shares without having to comply with the public-information, holding-period,
volume-limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with Rule 144's
holding-period restrictions, in each case commencing 90 days after the
effectiveness of the registration statement of which this prospectus is a part.
However, we and some of our officers, directors and other stockholders have
agreed not to sell or otherwise dispose of any shares of common stock for the
180-day period after the date of this prospectus without the prior written
consent of the underwriters. See "Underwriting".
As soon as practicable after the effectiveness of the registration
statement of which this prospectus is a part, we intend to file a registration
statement on Form S-8 under the Securities Act to register shares of common
stock reserved for issuance under the 1997 Stock Incentive Plan, the 2000 Stock
Incentive Plan and the 2000 Employee Stock Purchase Plan, thus permitting the
resale of such shares by non-affiliates in the public market without restriction
under the Securities Act. These registration statements will become effective
immediately upon filing.
Prior to this offering, there has been no public market for our common
stock, and any sale of substantial amounts in the open market may adversely
affect the market price of our common stock offered in this offering.
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LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Morrison & Foerster LLP, Palo Alto, California. Certain legal matters in
connection with this offering will be passed upon for the underwriters by
Shearman & Sterling, Menlo Park, California. Peter Williams, a partner with
Morrison & Foerster LLP, counsel to the Company, also serves as our Vice
President, Corporate Development, General Counsel and Secretary. Mr. Williams
holds 668,000 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited Saba Software, Inc.'s
consolidated financial statements at May 31, 1998 and 1999, and for the period
from April 16, 1997 (inception) through May 31, 1998 and for the year ended May
31, 1999, as set forth in their report. We have included Saba Software, Inc.'s
consolidated financial statements in this prospectus and registration statement
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
CHANGE IN ACCOUNTANTS
In August 1999, we engaged Ernst & Young LLP to audit our financial
statements and dismissed Deloitte & Touche LLP as our principal accountant. The
board of directors has approved the appointment of Ernst & Young LLP as our
principal accountant. No report issued by Deloitte & Touche LLP on any of our
financial statements contained any adverse opinion, a disclaimer of opinion, or
any qualifications or modifications related to uncertainty, limitation of audit
scope, or application of accounting principles. In connection with the services
conducted by Deloitte & Touche LLP for any period, including the periods from
April 16, 1997 (inception) through May 31, 1998, the year ended May 31, 1999,
and the six months ended November 30, 1999, there were no disagreements with
Deloitte & Touche LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures, which, if not
resolved to Deloitte & Touche LLP's satisfaction, would have caused them to
reference the subject matter of the disagreement in their opinion.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Some items are omitted in accordance with the rules and
regulations of the SEC. For further information with respect to Saba and our
common stock offered in this offering, we refer you to the registration
statement and the attached exhibits and schedules. Statements made in this
prospectus as to the contents of any document referred to in this prospectus are
not necessarily complete. With respect to each document filed as an exhibit to
the registration statement, we refer you to the exhibit for a more complete
description of the matter involved. The registration statement, including
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices located at the North
Western Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and Seven World Trade Center, 13th Floor, New York, NY 10048. Copies of
these materials may be obtained from these offices after payment of fees
prescribed by the SEC. The SEC maintains a web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.
65
<PAGE> 67
UNDERWRITING
Saba and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, FleetBoston Robertson Stephens Inc. and
Banc of America Securities LLC are the representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
FleetBoston Robertson Stephens Inc..........................
Banc of America Securities LLC..............................
--------
Total........................................
========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 600,000
shares from Saba to cover such sales. They may exercise that option for 30 days.
If any shares are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Saba. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase 600,000 additional shares.
Paid by Saba
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share............................................... $ $
Total......................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and the
other selling terms.
Saba and its directors, officers, employees and other stockholders have
agreed with the underwriters not to dispose of or hedge any of their common
stock or securities convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, except with the prior written
consent of Goldman, Sachs & Co. This agreement does not apply to any issuance
under any existing employee benefit plans or, with respect to individuals,
transfers by gift, will or intestate succession, or with respect to
partnerships, transfers to partners, provided that in each case the transferee
agrees to be bound by the restriction for any remaining period. See "Shares
Eligible for Future Sale" for a discussion of transfer restrictions.
Prior to the offering, there has been no public market for the shares. The
initial public offering price for the common stock will be negotiated among Saba
and the representatives. Among the factors to be considered in determining the
initial public offering price of the shares, in addition to
66
<PAGE> 68
prevailing market conditions, will be Saba's historical performance, estimates
of the business potential and earnings prospects of Saba, an assessment of
Saba's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
Saba has applied for quotation of its common stock on the Nasdaq National
Market under the symbol "SABA".
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
At the request of Saba, the underwriters are reserving up to 400,000 shares
of common stock for sale at the initial public offering price to parties that
have a pre-existing relationship with Saba through a directed share program. The
number of shares of common stock available for sale to the general public in the
public offering will be reduced to the extent these persons purchase these
reserved shares. Any shares not so purchased will be offered by the underwriters
to the general public on the same basis as other shares offered hereby.
In November 1999, an entity affiliated with Goldman, Sachs & Co. purchased
an aggregate of 839,772 shares of our Series D preferred stock for an aggregate
purchase price of approximately $4.5 million. In January 2000, these shares were
transferred to an affiliated investment entity. In November 1999, an individual
affiliated with Banc of America Securities LLC purchased an aggregate of 18,195
shares of our Series D preferred stock for an aggregate purchase price of
approximately $100,000. In August 1998 an individual affiliated with Banc of
America Securities LLC purchased an aggregate of 71,414 shares of our Series B
preferred stock for approximately $50,000, and in April 1999 purchased an
aggregate of 10,712 shares of our common stock for approximately $7,500. In
August 1998 an individual affiliated with FleetBoston Robertson Stephens Inc.
purchased an aggregate of 35,707 shares of our Series B preferred for
approximately $25,000, and in November 1999 purchased 5,458 shares of our Series
C preferred stock for approximately $16,650.
Saba estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately $1.0
million.
Saba has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
67
<PAGE> 69
SABA SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 70
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Saba Software, Inc.
We have audited the accompanying consolidated balance sheets of Saba
Software, Inc. as of May 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
period from April 16, 1997 (inception) through May 31, 1998 and the year ended
May 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Saba Software,
Inc. at May 31, 1998 and 1999, and the consolidated results of its operations
and its cash flows for the period from April 16, 1997 (inception) through May
31, 1998 and year ended May 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
December 16, 1999,
except for Note 12, as to which the date is
January 28, 2000.
F-2
<PAGE> 71
SABA SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
MAY 31, EQUITY
----------------- NOVEMBER 30, NOVEMBER 30,
1998 1999 1999 1999
------- ------- ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 41 $10,384 $29,390
Accounts receivable (net of allowance of none at May 31,
1998, $124 at May 31, 1999, and $214 at November 30,
1999)................................................... 84 1,930 6,872
Prepaid expenses and other current assets................. 29 122 305
------- ------- -------
Total current assets................................ 154 12,436 36,567
Property and equipment, net................................. 85 1,122 3,111
Other assets................................................ -- 510 510
------- ------- -------
Total assets........................................ $ 239 $14,068 $40,188
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 201 $ 1,667 $ 2,988
Accrued compensation and related expenses................. 195 1,132 1,404
Accrued expenses.......................................... 26 600 1,958
Deferred revenue.......................................... 81 1,197 6,081
Note payable to related party............................. 120 -- --
Current portion of capital lease obligations.............. 12 33 181
------- ------- -------
Total current liabilities........................... 635 4,629 12,612
Deferred revenue............................................ -- 626 1,417
Notes payable............................................... -- 329 329
Convertible debt............................................ 565 -- --
Capital lease obligations, less current portion............. 13 55 869
------- ------- -------
Total liabilities................................... 1,213 5,639 15,227
Commitments
Stockholders' equity (deficit):
Convertible preferred stock, issuable in series: $0.001
par value; authorized: 5,000,000 shares at May 31, 1998,
14,700,000 shares at May 31, 1999 and 23,000,000 shares
at November 30, 1999; issued and outstanding: 749,996
shares at May 31, 1998, 13,942,771 shares at May 31,
1999 and 19,568,540 shares at November 30, 1999 (none
pro forma); Aggregate liquidation preference of $20,432
at May 31, 1999......................................... 1 14 20 $ --
Common stock, $0.001 par value; authorized: 50,000,000
shares; issued: 15,799,174 shares at May 31, 1998;
16,326,168 shares at May 31, 1999 and 17,213,448 shares
at November 30, 1999 (36,781,988 shares pro forma)...... 16 16 17 37
Additional paid-in capital................................ 627 21,925 66,260 66,260
Deferred stock compensation............................... -- (1,092) (10,743) (10,743)
Notes receivable from stockholders........................ (10) -- (493) (493)
Treasury stock; 3,609,174 shares at May 31, 1998,
3,112,456 shares at May 31, 1999 and none at November
30, 1999 (none pro forma), at cost...................... (37) (11) -- --
Accumulated deficit....................................... (1,571) (12,423) (30,100) (30,100)
------- ------- ------- --------
Total stockholders' equity (deficit)................ (974) 8,429 24,961 $ 24,961
------- ------- ------- ========
Total liabilities and stockholders' equity
(deficit)......................................... $ 239 $14,068 $40,188
======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 72
SABA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1997
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED NOVEMBER 30,
MAY 31, MAY 31, ------------------
1998 1999 1998 1999
-------------- ---------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License........................................ $ 7 $ 612 $ 119 $ 1,920
Services....................................... 33 1,327 364 3,284
------- -------- ------- --------
Total revenues......................... 40 1,939 483 5,204
------- -------- ------- --------
Cost of revenues:
Cost of license................................ -- -- -- --
Cost of services............................... 72 1,264 288 2,728
------- -------- ------- --------
72 1,264 288 2,728
------- -------- ------- --------
Gross profit (loss).............................. (32) 675 195 2,476
Operating expenses:
Research and development....................... 694 3,627 934 6,246
Sales and marketing............................ 535 6,319 1,467 8,560
General and administrative..................... 302 1,437 406 1,992
Amortization of deferred stock compensation.... -- 189 -- 3,511
------- -------- ------- --------
Total operating expenses............... 1,531 11,572 2,807 20,309
------- -------- ------- --------
Loss from operations............................. (1,563) (10,897) (2,612) (17,833)
Interest and other income, net................... 7 93 58 229
Interest expense................................. (15) (48) (47) (73)
------- -------- ------- --------
Net loss......................................... $(1,571) $(10,852) $(2,601) $(17,677)
======= ======== ======= ========
Basic and diluted net loss per share............. $ (0.17) $ (0.84) $ (0.20) $ (1.26)
======= ======== ======= ========
Shares used in computing basic and diluted net
loss per share................................. 9,439 12,987 12,896 13,996
======= ======== ======= ========
Pro forma basic and diluted net loss per share
(unaudited).................................... $ (0.52) $ (0.62)
======== ========
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)......... 20,881 28,557
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 73
SABA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED RECEIVABLE
------------------- ------------------- PAID-IN STOCK FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STOCKHOLDERS
---------- ------ ---------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders.......................... -- $-- 7,500,000 $ 8 $ 7 $ -- $ --
Issuance of common stock for
in-process research and
development....................... -- -- 5,876,016 6 144 -- --
Purchase of treasury stock......... -- -- -- -- -- -- --
Issuance of common stock for cash
and notes receivable.............. -- -- 2,163,158 2 106 -- (32)
Issuance of convertible preferred
stock for cash and notes, net of
issuance costs.................... 749,996 1 -- -- 352 -- (25)
Collections under notes
receivable........................ -- -- -- -- -- -- 47
Issuance of common stock in
connection with exercise of stock
options........................... -- -- 260,000 -- 13 -- --
Issuance of common stock options
for services...................... -- -- -- -- 5 -- --
Net loss and comprehensive loss.... -- -- -- -- -- -- --
---------- --- ---------- --- ------- -------- -----
Balances at May 31, 1998........... 749,996 1 15,799,174 16 627 -- (10)
Issuance of common stock for cash
and notes......................... -- -- 526,994 -- 35 -- (54)
Collections under notes
receivable........................ -- -- -- -- -- -- 64
Issuance of convertible preferred
stock for cash, net of issuance
costs............................. 5,713,143 6 -- -- 3,953 -- --
Conversion of convertible debt into
convertible preferred stock....... 2,870,854 3 -- -- 2,007 -- --
Issuance of convertible preferred
stock for cash, net of issuance
costs............................. 4,608,778 4 -- -- 14,014 -- --
Issuance of common stock options
and warrants for services......... -- -- -- -- 8 -- --
Deferred stock compensation........ -- -- -- -- 1,281 (1,281) --
Amortization of deferred stock
compensation...................... -- -- -- -- -- 189 --
Net loss and comprehensive loss.... -- -- -- -- -- -- --
---------- --- ---------- --- ------- -------- -----
Balances at May 31, 1999........... 13,942,771 14 16,326,168 16 21,925 (1,092) --
Issuance of common stock for cash
and notes (unaudited)............. -- -- 592,339 1 656 -- (493)
Issuance of common stock in
connection with exercise of stock
options (unaudited)............... -- -- -- -- 76 -- --
Issuance of common stock in
connection with warrant exercise
(unaudited)....................... -- -- 294,941 -- 206 -- --
Issuance of convertible preferred
stock for cash (unaudited)........ 5,625,769 6 -- -- 30,075 -- --
Issuance of warrant for convertible
preferred stock (unaudited)....... -- -- -- -- 160 -- --
Deferred stock compensation
(unaudited)....................... -- -- -- -- 13,162 (13,162) --
Amortization of deferred stock
compensation (unaudited).......... -- -- -- -- -- 3,511 --
Net loss and comprehensive loss
(unaudited)....................... -- -- -- -- -- -- --
---------- --- ---------- --- ------- -------- -----
Balances at November 30, 1999
(unaudited)....................... 19,568,540 $20 17,213,448 $17 $66,260 $(10,743) $(493)
========== === ========== === ======= ======== =====
<CAPTION>
TOTAL
TREASURY STOCK STOCKHOLDERS'
------------------- ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT (DEFICIT)
---------- ------ ----------- -------------
<S> <C> <C> <C> <C>
Issuance of common stock to
founders.......................... -- $ -- $ -- $ 15
Issuance of common stock for
in-process research and
development....................... -- -- -- 150
Purchase of treasury stock......... (5,876,016) (150) -- (150)
Issuance of common stock for cash
and notes receivable.............. 2,266,842 113 -- 189
Issuance of convertible preferred
stock for cash and notes, net of
issuance costs.................... -- -- -- 328
Collections under notes
receivable........................ -- -- -- 47
Issuance of common stock in
connection with exercise of stock
options........................... -- -- -- 13
Issuance of common stock options
for services...................... -- -- -- 5
Net loss and comprehensive loss.... -- -- (1,571) (1,571)
---------- ----- -------- --------
Balances at May 31, 1998........... (3,609,174) (37) (1,571) (974)
Issuance of common stock for cash
and notes......................... 496,718 26 -- 7
Collections under notes
receivable........................ -- -- -- 64
Issuance of convertible preferred
stock for cash, net of issuance
costs............................. -- -- -- 3,959
Conversion of convertible debt into
convertible preferred stock....... -- -- -- 2,010
Issuance of convertible preferred
stock for cash, net of issuance
costs............................. -- -- -- 14,018
Issuance of common stock options
and warrants for services......... -- -- -- 8
Deferred stock compensation........ -- -- -- --
Amortization of deferred stock
compensation...................... -- -- -- 189
Net loss and comprehensive loss.... -- -- (10,852) (10,852)
---------- ----- -------- --------
Balances at May 31, 1999........... (3,112,456) (11) (12,423) 8,429
Issuance of common stock for cash
and notes (unaudited)............. 1,618,019 6 -- 170
Issuance of common stock in
connection with exercise of stock
options (unaudited)............... 1,494,437 5 -- 81
Issuance of common stock in
connection with warrant exercise
(unaudited)....................... -- -- -- 206
Issuance of convertible preferred
stock for cash (unaudited)........ -- -- -- 30,081
Issuance of warrant for convertible
preferred stock (unaudited)....... -- -- -- 160
Deferred stock compensation
(unaudited)....................... -- -- -- --
Amortization of deferred stock
compensation (unaudited).......... -- -- -- 3,511
Net loss and comprehensive loss
(unaudited)....................... -- -- (17,677) (17,677)
---------- ----- -------- --------
Balances at November 30, 1999
(unaudited)....................... -- $ -- $(30,100) $ 24,961
========== ===== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 74
SABA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1997
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED NOVEMBER 30,
MAY 31, MAY 31, ------------------
1998 1999 1998 1999
-------------- ---------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $(1,571) $(10,852) $(2,601) $(17,677)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 10 106 22 494
Amortization of deferred stock compensation............... -- 189 -- 3,511
Issuance of common stock for services..................... 5 8 -- --
Write-off of in-process research and development.......... 150 -- -- --
Changes in operating assets and liabilities:
Accounts receivable..................................... (84) (1,846) (581) (4,942)
Prepaid expenses and other current assets............... (29) (93) (61) (38)
Accounts payable........................................ 201 1,466 163 1,321
Accrued compensation and related expenses............... 195 937 (77) 272
Accrued expenses........................................ 26 574 249 1,283
Deferred revenue........................................ 81 1,742 385 5,675
------- -------- ------- --------
Net cash used in operating activities....................... (1,016) (7,769) (2,501) (10,101)
------- -------- ------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment, net.................... (70) (1,069) (366) (1,379)
Increase in other assets.................................... -- (181) (168) --
------- -------- ------- --------
Net cash used in investing activities....................... (70) (1,250) (534) (1,379)
------- -------- ------- --------
FINANCING ACTIVITIES:
Net proceeds from issuance of convertible preferred stock... 328 17,977 3,936 30,081
Proceeds from issuance of common stock...................... 217 7 -- 457
Borrowings under line of credit agreement................... -- 542 -- --
Repayments of borrowings under line of credit agreement..... -- (542) -- --
Proceeds from issuance of convertible debt.................. 565 1,445 1,445 --
Principal payments under capital lease obligations.......... -- (11) (6) (52)
Collections on notes receivable from stockholders........... 47 64 64 --
Repayments of note payable to related party................. (30) (120) (120) --
------- -------- ------- --------
Net cash provided by financing activities................... 1,127 19,362 5,319 30,486
------- -------- ------- --------
Increase in cash and equivalents............................ 41 10,343 2,284 19,006
Cash and equivalents, beginning of period................... -- 41 41 10,384
------- -------- ------- --------
Cash and equivalents, end of period......................... $ 41 $ 10,384 $ 2,325 $ 29,390
======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Equipment purchased under capital lease obligations......... $ 25 $ 75 $ -- $ 1,014
======= ======== ======= ========
Common stock issued for notes receivable from
stockholders.............................................. $ 57 $ 54 $ 54 $ 493
======= ======== ======= ========
Common stock issued for in-process research and
development............................................... $ 150 $ -- $ -- $ --
======= ======== ======= ========
Warrant issued for purchase of Series C convertible
preferred stock for financing............................. $ -- $ -- $ -- $ 160
======= ======== ======= ========
Note payable issued in connection with the purchase of
treasury stock............................................ $ 150 $ -- $ -- $ --
======= ======== ======= ========
Conversion of convertible debt into convertible preferred
stock..................................................... $ -- $ 2,010 $ 2,010 $ --
======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION:
Cash paid for interest...................................... $ -- $ 17 $ 12 $ 51
======= ======== ======= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 75
]SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE SIX MONTHS
ENDED NOVEMBER 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY
Saba Software, Inc. ("Saba") provides software and services that enable
businesses and governments to create and deploy global networks over the
Internet that connect people to learning. Saba provides an Internet-based
software platform and related services that deliver a comprehensive learning
solution to organizations and their "extended enterprise" of employees,
customers, partners and suppliers. Saba's solutions enable organizations to
procure and deliver learning and systematically close knowledge and competency
gaps across their extended enterprises. In addition, Saba offers learning
providers a global marketing and distribution channel. Saba recently launched
the Saba Learning Exchange, an Internet-based business-to-business learning
marketplace.
Saba was incorporated in the state of Delaware in April 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Saba and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The consolidated financial
statements for fiscal 1998 include the results of operations of Saba from
inception on April 16, 1997. Operations for the period from April 16, 1997
(inception) through May 31, 1997 were not significant.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information as of November 30, 1999 and for the six
months ended November 30, 1998 and 1999 is unaudited but includes all
adjustments, consisting only of normal recurring adjustments that management
considers necessary for a fair presentation of Saba's consolidated financial
position at that date and its consolidated results of operations and cash flows
for those periods. Operating results for the six months ended November 30, 1999
are not necessarily indicative of results that may be expected for any future
periods.
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 at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ materially
from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid short-term investments
with insignificant interest rate risk and original maturities from date of
purchase of three months or less. Cash and cash equivalents are stated at cost,
which approximates fair value.
F-7
<PAGE> 76
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject Saba to concentrations of
risk include cash and cash equivalents and accounts receivable. Cash and cash
equivalents consist principally of demand deposit and money market accounts held
with domestic financial institutions with high credit standing. Management
believes the financial risks associated with these financial instruments are
minimal.
Saba conducts business with companies in various industries primarily in
the United States. Saba generally does not require collateral. Saba Learning
Network, Saba Learning Provider Network and related services accounted for
substantially all of Saba's revenues in fiscal 1999 and for the six months ended
November 30, 1999. An allowance is maintained for potential credit issues, and
to date, such losses have been within management's expectations. Saba recorded
charges to operations, which increased its allowance for uncollectible accounts
by $18,000 in fiscal 1998, $133,000 in fiscal 1999 and $96,000 in the six months
ended November 30, 1999. Amounts written-off as reductions to the allowance
totaled $18,000 fiscal 1998, $9,000 in fiscal 1999 and $6,000 in the six months
ended November 30, 1999.
At May 31, 1998, one customer accounted for 94% of accounts receivable. At
May 31, 1999, five customers accounted for a total of 80% of accounts receivable
and at November 30, 1999, two customers accounted for a total of 41% of accounts
receivable.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful life of the related assets,
generally three to five years. Assets acquired under capital lease obligations
are amortized over the assets' estimated useful lives. Leasehold improvements
are amortized over the shorter of the estimated useful life of the asset or the
life of the lease.
SOFTWARE DEVELOPMENT COSTS
Saba accounts for software development costs in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed, whereby costs for
the development of new software products and substantial enhancements to
existing software products are expensed as incurred until technological
feasibility has been established, at which time any additional costs are
capitalized. Technological feasibility is established upon completion of a
working model. Through November 30, 1999, software development costs incurred
subsequent to the establishment of technological feasibility have not been
significant, and all software development costs have been charged to research
and development expense in the accompanying consolidated statements of
operations.
INCOME TAXES
Saba accounts for income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes, which requires the use of the liability method. Under this
method, deferred tax assets and liabilities are measured based on differences
between financial reporting and tax bases of assets and liabilities measured
using enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse.
F-8
<PAGE> 77
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK OPTIONS AND EQUITY INSTRUMENTS EXCHANGED FOR SERVICES
Saba accounts for employee stock options using the intrinsic value method
in accordance with Accounting Principles Board Opinion No. 25 ("APB 25"),
Accounting for Stock Issued to Employees and has adopted the disclosure-only
alternative of SFAS No. 123, Accounting for Stock Based Compensation ("SFAS
123"). The value of options, warrants and restricted stock exchanged for
services rendered by non-employees or assets acquired are valued using the
Black-Scholes option pricing model. To calculate the expense or asset value,
Saba uses either the fair value of the consideration received or the fair value
of the equity instruments issued, whichever is more reliably measurable.
NET LOSS PER SHARE
Basic and diluted net loss per share information for all periods is
presented under the requirements of SFAS No. 128, Earnings per Share. Basic net
loss per share is computed by dividing net loss by the weighted-average number
of common shares outstanding for the period, less shares subject to repurchase.
Diluted net loss per share reflects the potential dilution of securities by
adding other common stock equivalents, including stock options, shares subject
to repurchase, warrants and convertible preferred stock, in the weighted-average
number of common shares outstanding for a period, if dilutive. All potentially
dilutive securities have been excluded from the computation, as their effect is
anti-dilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, to the conversion of preferred shares not included above that will
automatically convert upon completion of Saba's initial public offering of
common stock, using the if-converted method.
F-9
<PAGE> 78
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The calculation of historical and pro forma basic and diluted net loss per
share is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 16, 1997 SIX MONTHS ENDED
(INCEPTION) NOVEMBER 30,
THROUGH YEAR ENDED -------------------
MAY 31, 1998 MAY 31, 1999 1998 1999
-------------- ------------ ------- --------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C>
HISTORICAL
Net loss.......................... $(1,571) $(10,852) $(2,601) $(17,677)
======= ======== ======= ========
Weighted-average shares of common
stock outstanding.............. 9,439 13,051 12,896 14,802
Weighted-average shares of common
stock subject to repurchase.... -- (64) -- (806)
------- -------- ------- --------
Weighted-average shares of common
stock outstanding used in
computing basic and diluted net
loss per share................. 9,439 12,987 12,896 13,996
======= ======== ======= ========
Basic and diluted net loss per
share.......................... $ (0.17) $ (0.84) $ (0.20) $ (1.26)
======= ======== ======= ========
PRO FORMA
Net loss.......................... $(10,852) $(17,677)
======== ========
Weighted-average shares of common
stock outstanding used in
computing basic and diluted net
loss per share (from above).... 12,987 13,996
Adjustment to reflect the effect
of the assumed conversion of
convertible preferred stock
from the date of issuance...... 7,894 14,561
-------- --------
Weighted-average shares
outstanding used in computing
pro forma basic and diluted net
loss per share................. 20,881 28,557
======== ========
Pro forma basic and diluted net
loss per share................. $ (0.52) $ (0.62)
======== ========
</TABLE>
REVENUE RECOGNITION
License agreements generally provide that customers pay a license fee based
on a specified number of learners and the type of software modules licensed.
Customers can subsequently pay additional license fees to allow additional
learners to use previously licensed modules or to license additional modules.
Customers that license Saba Learning Network and Saba Learning Provider Network
generally enter into one year support agreements pursuant to which they are
entitled to receive software upgrades, error corrections and telephone and
web-based assistance, generally for a fixed fee.
Although Saba generally provides implementation and consulting services on
a time and materials basis, a significant portion of these services have been
provided on a fixed fee basis. For fixed-price
F-10
<PAGE> 79
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
contracts involving significant professional services, revenues are recognized
using the percentage of completion method using the ratio of labor hours
incurred to total expected labor hours as the measure of progress towards
completion. Saba also provides professional services on a time and materials
basis. Saba recognizes revenues on time and materials contracts as the services
are provided.
Saba recognizes license revenues in accordance with the provisions of
American Institute of Certified Public Accountants, or AICPA, Statement of
Position ("SOP") 97-2 "Software Revenue Recognition" as amended by SOP 98-4,
"Deferral of the Effective Date of Certain Provisions of SOP 97-2." Saba has not
established vendor specific objective evidence for support and therefore,
recognizes revenues from license agreements ratably over the support period if
there is persuasive evidence of an arrangement, the software is delivered,
collection is probable, and the fee is fixed or determinable. If an acceptance
period is required, license revenues are recognized ratably over the term of the
contract beginning upon the earlier of customer acceptance or the expiration of
the acceptance period. Contract terms range from one to four years.
If an agreement includes both license and service elements, the license fee
is recognized beginning on delivery of the software, provided services do not
include significant customization or modification of the base product, and the
payment terms for licenses are not subject to additional acceptance criteria. In
cases where license fee payments are contingent on the acceptance of services,
recognition of revenues is deferred for both the license and the service
elements until the acceptance criteria are met. Support revenues are recognized
ratably over the term of the support contract, typically one year.
Saba believes its current revenue recognition policies and practices are
consistent with SOP 97-2 and SOP 98-4. Additionally, the AICPA issued SOP 98-9
in December 1998, which amends portions of SOP 97-2 and is effective for
transactions entered into beginning June 1, 2000. Full implementation guidelines
for this standard have not yet been issued. Once available, the implementation
guidelines could lead to unanticipated changes in Saba's current revenue
recognition policies and changes could affect the timing of its future revenues.
Accounts receivable includes amounts earned but unbilled as of May 31, 1999
and November 30, 1999 of $14,000 and $103,000, respectively. Deferred revenue
consists of license fees to be recognized in future periods, prepaid fees for
services and support agreements.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Saba incurred $14,000 in
advertising costs in fiscal 1998 and $110,000 in fiscal 1999.
OTHER COMPREHENSIVE INCOME
Saba has no material components of other comprehensive income (loss) and,
accordingly, net loss is equal to comprehensive loss in all periods.
INTERNAL-USE SOFTWARE
In March 1998, the American Institute of Certified Public Accountants
issues SOP 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. SOP 98-1 requires that entities capitalize certain
costs related to internal use software once certain criteria have been met. Saba
adopted SOP 98-1 in the beginning of fiscal 2000.
F-11
<PAGE> 80
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133, as recently amended, is
effective for fiscal years beginning after June 15, 2000. Management believes
the adoption of SFAS 133 will not have a material effect on Saba's consolidated
financial position or results of operations.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
MAY 31,
--------------
1998 1999
---- ------
<S> <C> <C>
Computer equipment.......................................... $ 89 $ 805
Office furniture and fixtures............................... 1 334
Leasehold improvements...................................... 5 99
---- ------
95 1,238
Less accumulated depreciation and amortization.............. (10) (116)
---- ------
$ 85 $1,122
==== ======
</TABLE>
4. RELATED PARTY TRANSACTIONS
In August 1997, Saba issued 5,876,016 shares of common stock to HTR, Inc.
in exchange for intellectual property. In connection with the acquisition of
HTR, Inc. by a third party in October 1997, Saba repurchased all 5,876,016
shares using a promissory note in the principal amount of $150,000, which was
secured by a pledge of 7,500 shares of Saba's common stock held by Saba's
President. At the time of the initial issuance to HTR, Inc., a director of Saba
was also an affiliate of HTR, Inc. During the period from inception through May
31, 1998, $16,000 in services revenues were recognized from HTR, Inc.
5. CONVERTIBLE DEBT
Saba issued 6% convertible debt to third-parties for cash proceeds totaling
$565,000 in fiscal 1998 and $1,445,000 in fiscal 1999. The convertible debt
converted into 2,870,854 shares of Series B convertible preferred stock in
August 1998 at a conversion price of $0.70 per share.
6. NOTES PAYABLE
In November 1998, Saba entered into an equipment line of credit with a
bank, which provided for borrowings of up to $750,000. The note executed under
the agreement accrued interest at 7.75% per annum and was to be repaid in
monthly installments of principal and interest over 36 months. In April 1999,
all amounts outstanding under the line of credit were repaid.
In March 1999, Saba entered into an operating lease agreement for office
space beginning in May 1999 and executed non-interest bearing notes payable to
the lessor totaling $329,000 under this agreement for the deposit on the
building. Principal under the notes is due on December 1, 2000 and May 1, 2001.
F-12
<PAGE> 81
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LEASE COMMITMENTS
Saba leases its office facilities under various noncancelable operating
leases that expire at various dates through 2014. During fiscal 1999, Saba also
financed the acquisition of furniture and equipment under capital leases. At May
31, 1999, the original cost of the assets under capital leases was $75,000 and
the accumulated depreciation was $15,000. Future minimum lease payments under
these leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
YEAR ENDING MAY 31:
2000........................................................ $ 40 $ 1,125
2001........................................................ 25 1,541
2002........................................................ 25 2,213
2003........................................................ 12 2,233
2004........................................................ -- 2,097
Thereafter.................................................. -- 24,071
---- -------
102 $33,280
=======
Less amounts representing interest.......................... (14)
----
Present value of minimum lease payments..................... 88
Less current portion of minimum lease payments.............. (33)
----
$ 55
====
</TABLE>
Rent expense was $59,000 in fiscal 1998 and $473,000 in fiscal 1999.
In April 1999, Saba entered into an additional lease line of credit
agreement with a financing institution which provides for borrowings of up to
$1.5 million to finance equipment and software purchases through October 2000.
Borrowings are due in monthly installments through April 2004 plus interest at
8.3% and are secured by the underlying assets. There were no amounts outstanding
under this agreement at May 31, 1999.
8. STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock consists of the following at May 31, 1999:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED AGGREGATE LIQUIDATION
SERIES DESIGNATED AND OUTSTANDING PREFERENCE
------ ---------- --------------- ---------------------
<S> <C> <C> <C>
A 749,996 749,996 $ 359,998
B 8,583,997 8,583,997 6,010,000
C 4,716,364 4,608,778 14,062,351
---------- ---------- -----------
14,050,357 13,942,771 $20,432,349
========== ========== ===========
</TABLE>
Significant terms of the convertible preferred stock are as follows:
Each share of Series A, B and C convertible preferred stock is convertible,
subject to antidilution provisions, at the option of the holder, into the number
of shares of common stock determined by dividing the original issue price by the
conversion price applicable to each share on the conversion
F-13
<PAGE> 82
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
date. As of May 31, 1999, the per share conversion price of Series A, B, and C
convertible preferred stock is $0.48, $0.70014, and $3.0512, respectively.
Each share will automatically convert into shares of common stock at the
conversion price upon the earlier of the sale of common stock in a qualified
initial public offering, with an offering price of at least $5.25 per share and
$10,000,000 in aggregate or the date specified by written consent or agreement
of the holders of a majority of the outstanding shares of Series A, B and C
convertible preferred stock and two-thirds of the outstanding shares of Series C
convertible preferred stock, voting as a separate class.
Each share of Series A, B and C convertible preferred stock has voting
rights equivalent to the number of shares of common stock into which it is
convertible.
Each share of Series A, B and C convertible preferred stock is entitled to
a non-cumulative dividend of $0.0384 per share, $0.056 per share and $0.2441 per
share, respectively, when and if declared by the Board of Directors.
In the event of Saba's voluntary or involuntary liquidation, dissolution or
winding up, the holders of Series B and C convertible preferred stock are
entitled to receive, prior and in preference to any distribution of any of
Saba's assets to the holders of Series A convertible preferred stock or common
stock an amount equal to $0.70014 for each outstanding share of Series B
convertible preferred stock and $3.0512 for each outstanding share of Series C
convertible preferred stock and any declared but unpaid dividends. Upon the
completion of the distribution, the Series A convertible preferred stockholders
shall be entitled to receive, prior and in preference to any distribution of any
of Saba's remaining assets to the holders of Saba's common stock an amount equal
to $0.48 for each outstanding share of Series A plus any declared but unpaid
dividends. If upon occurrence of such event, the assets and funds distributed
among the holders of the Series A convertible preferred stock are insufficient
to permit the payment to holders the full preferential amounts, the entire
assets and funds of the corporation legally available for distribution shall be
distributed ratably among the holders of the Series A convertible preferred
stock in proportion to the amounts of stock owned by each holder.
SERIES C CONVERTIBLE PREFERRED STOCK WARRANTS
In June 1999, Saba issued warrants to purchase 80,296 shares of series C
convertible preferred stock at $3.05 per share to a lessor in connection with
obtaining a lease line of credit. The warrants expire on the earlier of five
years from the date of issuance or three years from the closing date of Saba's
initial public offering. The warrants were immediately exercisable and remain
outstanding at November 30, 1999. The value attributable to these warrants was
calculated using the Black-Scholes valuation model with the following
weighted-average assumptions: risk free interest rate of 5.5%, expected useful
life of 5 years, 75% volatility, fair market value of $3.05, and no expected
dividends. The fair value of the warrants, approximately $160,000, will be
amortized as additional interest expense over the forty-two month term of the
lease agreement.
SERIES D CONVERTIBLE PREFERRED STOCK
In November 1999, Saba issued 5,598,479 shares of Series D convertible
preferred stock in exchange for cash proceeds totaling $30 million. In
connection with the sale of Series D convertible preferred stock, the
liquidation preferences of the Series B and C convertible preferred stock were
changed from a form of participating preferred to non-participating preferred.
F-14
<PAGE> 83
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMMON STOCK WARRANTS
In connection with the issuance of convertible debt, Saba issued warrants
to purchase 87,125 shares of common stock in fiscal 1998 and 349,573 shares of
common stock in fiscal 1999 at an exercise price of $0.70 per share to
individuals and firms who participated in the debt financing. The warrants were
immediately exercisable and expire on the earlier of five years from the date of
issuance or the closing date of Saba's initial public offering. The fair value
of these warrants was insignificant at the issuance date.
During fiscal 1999, Saba issued warrants to purchase 35,000 shares of
common stock at an exercise price of $0.10 per share and 16,000 shares at an
exercise price of $0.70 per share for services rendered. The warrants were
immediately exercisable and expire on the earlier of two years from the date of
issuance or the closing date of Saba's initial public offering. The fair value
of these warrants was insignificant at the issuance date.
At May 31, 1999, warrants to purchase 487,698 shares of common stock
remained outstanding.
STOCK OPTION PLAN
Under the 1997 Stock Option Plan (the "Plan"), Saba may grant options to
purchase up to 7,500,000 shares of common stock to employees, directors and
consultants at prices not less than the fair market value, as determined by the
Board of Directors, at date of grant for incentive stock options and not less
than 85% of fair market value for non-statutory stock options (110% in certain
circumstances). Options generally expire ten years from the date of grant.
Options generally vest over four years. Some options are exercisable upon grant
and are subject to repurchase in the case of termination of employment prior to
vesting. Shares subject to repurchase totaled 143,000 at May 31, 1999 and
2,353,358 at November 30, 1999.
Saba has granted options to non-employees for services performed and to be
performed after the date of the grant. In connection with these option grants,
Saba recognized expense of $5,000 in fiscal 1998 and $8,000 in fiscal 1999,
based on the options' fair value, determined using the Black-Scholes
option-pricing model.
Details of activity under the Plan are as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER EXERCISE PRICE
OF SHARES PER SHARE
---------- ----------------
<S> <C> <C>
Granted..................................................... 3,225,000 $0.05
Exercised................................................... (260,000) 0.05
----------
Balance, May 31, 1998....................................... 2,965,000 0.05
Granted..................................................... 3,060,500 0.07
Canceled.................................................... (286,000) 0.06
----------
Balance, May 31, 1999....................................... 5,739,500 0.06
----------
Granted (unaudited)......................................... 1,714,300 0.30
Exercised (unaudited)....................................... (1,507,125) 0.05
Canceled (unaudited)........................................ (306,250) 0.10
----------
Balance, November 31, 1999 (unaudited)...................... 5,640,425 0.13
==========
</TABLE>
F-15
<PAGE> 84
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Additional information regarding options outstanding as of May 31, 1999 is
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED-AVERAGE OPTIONS EXERCISABLE
REMAINING ----------------------------
EXERCISE NUMBER CONTRACTUAL LIFE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
PRICES OUTSTANDING (YEARS) EXERCISE PRICE NUMBER EXERCISE PRICE
- -------- ----------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$0.05 4,068,000 8.56 $0.05 1,239,583 $0.05
0.07 1,538,000 9.58 0.07 -- --
0.30 133,500 9.91 0.30 -- --
--------- ---------
5,739,500 1,239,583
========= =========
</TABLE>
At May 31, 1999, 1,500,500 shares were available for future grants under
the Plan.
Saba recorded deferred stock compensation of approximately $1.3 million
during fiscal 1999 and $13.2 million during the six months ended November 30,
1999 representing the difference between the exercise price and the deemed fair
value for financial accounting purposes of Saba's common stock on the grant date
for certain stock options granted to employees. In the absence of a public
market for Saba's common stock, the deemed fair value was based on the price per
share of recent convertible preferred stock financings, less a discount to give
effect to the superior rights of the convertible preferred stock. These amounts
are being amortized by charges to operations over the vesting periods of the
individual stock options using a graded vesting method. The graded vesting
method is an accelerated method of amortization provided under Financial
Accounting Standards Board Interpretation No. 28. Amortization of deferred stock
compensation amounted to approximately $189,000 for fiscal 1999 and
approximately $3.5 million for the six months ended November 30, 1999.
PRO FORMA DISCLOSURES OF THE EFFECT OF DEFERRED STOCK COMPENSATION
Pro forma information regarding net loss and net loss per share, which is
required by SFAS 123, has been determined as if Saba had accounted for its
employee stock options under the fair value method of SFAS 123. The fair value
of these options was estimated at the date of grant using the Black-Scholes
option pricing model, with the following assumptions for fiscal 1998 and 1999:
expected life of 60 months, volatility of 0% and 75%, respectively, risk-free
interest rate of 5.5% and dividend yield of zero. The weighted-average fair
value of options granted for fiscal 1998 and 1999 was $0.02 and $0.44,
respectively.
Had compensation cost for Saba's stock compensation plans been determined
using the fair value at the grant dates for awards under these plans calculated
using the Black-Scholes method of SFAS 123, the Company's historical net loss
and basic and diluted net loss per share would have been increased to the pro
forma amounts indicated below (in thousands except per share amounts):
<TABLE>
<CAPTION>
PERIODS FROM
APRIL 16, 1997
(INCEPTION) YEAR ENDED
THROUGH MAY 31,
MAY 31, 1998 1999
-------------- ----------
<S> <C> <C>
Net loss -- pro forma............................... $ (1,577) $ (10,857)
======== =========
Net loss per share -- pro forma..................... $ (0.17) $ (0.84)
======== =========
</TABLE>
F-16
<PAGE> 85
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The pro forma impact of options on the net loss for fiscal 1998 and 1999 is
not representative of the effects on net income (loss) for future years, as
future years will include the effects of additional years of stock option
grants.
SHARES OF COMMON STOCK RESERVED FOR FUTURE ISSUANCE
Saba has reserved shares of common stock for issuance as follows at May 31,
1999:
<TABLE>
<S> <C>
Conversion of convertible preferred stock................... 14,050,357
Stock options outstanding................................... 5,739,500
Stock options available for future grant.................... 1,500,500
Warrants to purchase preferred and common stock............. 557,282
----------
21,847,639
==========
</TABLE>
In October 1999, the Board of Directors reserved an additional 1,115,000
shares of common stock for issuance under the 1997 Option Plan.
RESTRICTED COMMON STOCK
In September 1999, certain company executives executed full-recourse
promissory notes for purchases of 2,025,000 shares of restricted common stock.
The notes bear interest at 5.5% per annum, are payable over terms that range
from three to four years and are secured by the shares of common stock
underlying the notes as well as the assets owned by the officers.
9. INCOME TAXES
There has been no provision for U.S. federal, state, or foreign income
taxes for any period because Saba has incurred operating losses in all periods
and for all jurisdictions.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax assets are as follows:
<TABLE>
<CAPTION>
MAY 31,
----------------
1998 1999
----- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 434 $ 3,610
Deferred revenue....................................... 25 676
Other reserves and accruals............................ 88 569
----- -------
547 4,855
Valuation allowance...................................... (547) (4,855)
----- -------
Net deferred tax assets.................................. $ -- $ --
===== =======
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. The valuation
allowance increased by $547,000 in fiscal 1998 and $4.3 million in fiscal 1999.
F-17
<PAGE> 86
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of income tax expense at the statutory federal income tax
rate to net income tax expense included in the accompanying consolidated
statements of operations is as follows:
<TABLE>
<CAPTION>
MAY 31,
----------------
1998 1999
----- -------
<S> <C> <C>
U.S. federal taxes (benefit) at statutory rate:.......... $(534) $(3,690)
Unbenefitted net operating losses........................ 470 3,671
Other.................................................... 64 19
----- -------
Effective tax rate....................................... $ -- $ --
===== =======
</TABLE>
As of May 31, 1999, Saba had net operating loss carryforwards for federal
income tax purposes of approximately $9.0 million, which expire in fiscal 2012
to 2019. Saba also had net operating loss carryforwards for state income tax
purposes of approximately $9.0 million expiring in fiscal 2006. Utilization of
the net operating loss may be subject to substantial annual limitation due to
the ownership change limitations provided by the Internal Revenue Code and
similar state provisions. The annual limitation could result in the expiration
of the net operating loss before utilization.
10. RETIREMENT PLAN
Saba has established the Saba Software 401(k) Plan (the "401(k) Plan")
under section 401(k) of the Internal Revenue Code covering substantially all of
its employees. Under the 401(k) Plan, participating employees may defer a
portion of their pretax earnings subject to an annual contribution limit. Saba
may also make matching contributions equal to a discretionary percentage of the
employees' deferral. To date, no matching contributions have been made.
11. SEGMENT INFORMATION
Saba operates primarily in a single operating segment, providing software
and services that connect people to learning over the Internet.
Geographic Information
Saba operates in the United States, Europe and Asia-Pacific. Less than 10%
of revenues were derived from outside the United States in all periods. At May
31, 1998 and 1999 and November 30, 1999, less than 10% of Saba's assets were
located outside the United States.
Major Customers
For fiscal 1998, three customers accounted for 39%, 28% and 20% of revenues
and for fiscal 1999, three customers accounted for 35%, 20% and 11% of revenues.
For the six months ended November 30, 1998, two customers accounted for 28% and
23% of revenues and for the six months ended November 30,1999, two customers
accounted for 15% and 10% of revenues.
12. SUBSEQUENT EVENTS
In January 2000, the Board of Directors adopted the 2000 Stock Incentive
Plan (the "2000 Plan") and reserved 6,000,000 shares for grant under the 2000
Plan. The terms of the 2000 Plan are substantially similar to the 1997 Option
Plan. The 2000 Plan also provides for automatic grants to non-employee
directors.
F-18
<PAGE> 87
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPOSED PUBLIC OFFERING OF COMMON STOCK
In January 2000, the Board of Directors authorized Saba to proceed with an
initial public offering of its common stock. If the offering is consummated as
presently anticipated, all shares of outstanding convertible preferred stock
will automatically convert to common stock. The unaudited pro forma
stockholders' equity (deficit) at November 30, 1999 gives effect to the
conversion of all outstanding shares of convertible preferred stock at that date
into 19,568,540 shares of common stock upon the completion of the initial public
offering.
In January 2000, Saba's Board of Directors approved an amendment to Saba's
Certificate of Incorporation to change the authorized capital stock to 5,000,000
shares of preferred stock and 100,000,000 shares of common stock. This amendment
is effective as of the closing of Saba's initial public offering. Saba also
increased the number of options available for grant under its 1997 Stock
Incentive Plan by 1,200,000 shares.
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors adopted the 2000 Employee Stock Purchase Plan in
January 2000, pending stockholder approval, to be effective upon the completion
of Saba's initial public offering of its common stock. A total of 2,000,000
shares of common stock will be reserved for issuance under the plan. Eligible
employees may purchase common stock at 85% of the lesser of the fair market
value of Saba's common stock on the first day of the applicable two-year
offering period or the last day of the applicable six-month purchase period.
GRANT OF STOCK OPTIONS AND RESTRICTED STOCK
In December 1999, Saba granted to employees options to purchase a total of
706,800 shares of common stock and the Board of Directors approved the issuance
of 325,358 shares of restricted common stock at $0.95 per share, which resulted
in additional deferred stock compensation of approximately $10.6 million.
COMMON STOCK WARRANTS
In December 1999, Saba issued a warrant to a customer to purchase 23,930
shares of common stock. The warrant is exercisable at the earlier of December
31, 2000 or filing of a qualified registration statement with the Securities and
Exchange Commission and has a term of three years and an exercise price of 80%
or 90%, subject to certain events, of Saba's initial public offering price.
Measurement of the warrant's value will be fixed upon the initial public
offering.
In January 2000, Saba issued a warrant to an existing investor to purchase
100,000 shares of common stock at an exercise price of $0.01 per share. The
warrant was issued as a financing cost of the Series D convertible preferred
stock and was immediately exercisable. The value of the warrant has been
accounted for as an increase and immediate reduction of additional paid-in
capital. The warrant expires on January 31, 2000.
F-19
<PAGE> 88
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 3
Risk Factors.......................... 7
Special Note Regarding Forward-
Looking Statements.................. 19
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 34
Management............................ 47
Principal Stockholders................ 55
Related Party Transactions............ 57
Description of Capital Stock.......... 60
Shares Eligible for Future Sale....... 64
Legal Matters......................... 65
Experts............................... 65
Change in Accountants................. 65
Additional Information................ 65
Underwriting.......................... 66
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
----------------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to an unsold allotment or subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,000,000 Shares
SABA SOFTWARE, INC.
Common Stock
----------------------
[SABA LOGO]
----------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
BANC OF AMERICA SECURITIES LLC
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
AMOUNT*
----------
<S> <C>
Securities and Exchange Commission Filing Fee............... $ 26,400
NASD Filing Fee............................................. 10,500
Nasdaq National Market Listing Fee.......................... 95,000
Accounting Fees and Expenses................................ 300,000
Blue Sky Fees and Expenses.................................. 10,000
Legal Fees and Expenses..................................... 300,000
Transfer Agent and Registrar Fees and Expenses.............. 15,000
Printing Expenses........................................... 200,000
Miscellaneous Expenses...................................... 43,100
----------
Total............................................. $1,000,000
==========
</TABLE>
- ---------------
* All amounts are estimates except the SEC filing fee, the NASD filing fee and
the Nasdaq National Market listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate Law of the State of Delaware,
the Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Amended and Restated Bylaws (Exhibit 3.3 hereto) also provide for mandatory
indemnification of its directors and executive officers, and permissive
indemnification of its employees and agents, to the fullest extent permissible
under Delaware law.
The Registrant's Amended and Restated Certificate of Incorporation
(Exhibits 3.1 and 3.2 hereto) provides that the liability of its directors for
monetary damages shall be eliminated to the fullest extent permissible under
Delaware law. Pursuant to Delaware law, this includes elimination of liability
for monetary damages for breach of the directors' fiduciary duty of care to the
Registrant and its stockholders. These provisions do not eliminate the
directors' duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for any transaction from which the director derived
an improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
also does not affect a director's responsibilities under any other laws, such as
the federal securities laws or state or federal environmental laws.
Prior to the effective date of the Registration Statement, the Registrant
will have entered into agreements with its directors and certain of its
executive officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason
II-1
<PAGE> 90
of the fact that such person is or was a director or officer of the Registrant
or any of its affiliated enterprises, provided such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interests of the Registrant and, with respect to any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
The Registrant intends to obtain in conjunction with the effectiveness of
the Registration Statement a policy of directors' and officers' liability
insurance that insures our directors and officers against the cost of defense,
settlement or payment of a judgment under certain circumstances.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
For the period from April 16, 1997 to December 31, 1999, the Registrant has
issued and sold the following unregistered securities:
1. During the period, the Registrant granted stock options to
employees, directors and consultants under its 1997 Stock Incentive Plan
(the "Stock Plan") covering an aggregate of 8,706,600 shares of the
Registrant's common stock, at exercise prices ranging from $0.05 to $0.95
with a weighted average exercise price of $0.18 per share.
2. During the period, the Registrant issued and sold an aggregate of
2,064,625 shares of its common stock to 30 employees, directors and
consultants for an aggregate amount of $109,726.25 upon exercise of stock
options granted pursuant to the Registrant's Stock Plan.
3. In addition, during the period, the Registrant issued and sold an
aggregate of 2,502,916 shares of its common stock to 8 employees and
directors for an aggregate amount of $845,701.50.
4. During the period, the Registrant issued and sold an aggregate of
749,996 shares of its Series A Preferred Stock, convertible into 749,996
shares of its common stock, for an aggregate purchase price of $360,000.
5. During the period, the Registrant issued and sold an aggregate of
8,583,997 shares of its Series B Preferred Stock, convertible into
8,583,997 shares of its common stock, for an aggregate purchase price of
$6,009,999.66.
6. During the period, the Registrant issued an aggregate of 4636,068
shares of its Series C Preferred Stock, convertible into 4,636,068 shares
of its common stock, for an aggregate purchase price of $14,145,570.68.
7. During the period, the Registrant issued and sold an aggregate of
5,598,479 shares of its Series D Preferred Stock, convertible into
5,598,479 shares of its common stock, for an aggregate purchase price of
$30,000,009.57.
8. During the period, the Registrant issued warrants for a total of
587,698 shares of its Common Stock, for an aggregate exercise price of
$684,913.76.
9. During the period, the Registrant issued warrants for a total of
80,296 shares of its Series C Preferred Stock, for an aggregate exercise
price of $244,999.
II-2
<PAGE> 91
10. During the period, the Registrant issued and sold an aggregate of
323,080 shares of its Common Stock for an aggregate amount of $226,201.23
upon exercise of warrants to purchase Common Stock.
The sale and issuance of securities in the transactions described in
paragraphs 1 through 10 above were deemed to be exempt from registration under
the Securities Act by virtue of Rule 701 promulgated thereunder in that they
were offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule 701
or were deemed to be exempt from registration under the Securities Act by virtue
of Section 4(2) thereof.
Appropriate legends were affixed to the stock certificates issued in the
above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. No underwriters were employed in any of
the above transactions.
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The exhibits are as set forth in the Exhibit Index.
(b) Consolidated Financial Statement Schedules
All schedules have been omitted since they are not required or are not
applicable or the required information is shown in the consolidated financial
statements or related notes.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide the underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time the Commission declared it effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
therein, and this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Redwood Shores,
State of California on March 3, 2000.
SABA SOFTWARE, INC.
By: /s/ BOBBY YAZDANI
------------------------------------
Bobby Yazdani
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Amendment to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BOBBY YAZDANI Chairman of the Board of March 3, 2000
- ----------------------------------------------------- Directors, President and
Bobby Yazdani Chief Executive Officer
(Principal Executive
Officer)
/s/ TERRY CARLITZ Chief Financial Officer and March 3, 2000
- ----------------------------------------------------- Director (Principal
Terry Carlitz Financial and Accounting
Officer)
/s/ DOUGLAS ALLRED* Director March 3, 2000
- -----------------------------------------------------
Douglas Allred
/s/ ROBERT COHN* Director March 3, 2000
- -----------------------------------------------------
Robert Cohn
/s/ JOSEPH COSTELLO* Director March 3, 2000
- -----------------------------------------------------
Joseph Costello
/s/ JOSEPH KIANI* Director March 3, 2000
- -----------------------------------------------------
Joseph Kiani
/s/ MICHAEL MORITZ* Director March 3, 2000
- -----------------------------------------------------
Michael Moritz
By: /s/ BOBBY YAZDANI
-------------------------------------------------
Bobby Yazdani
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Certificate of Incorporation of the Registrant.
3.2 Form of Amended and Restated Certificate of Incorporation of
the Registrant to be filed effective as of the closing of
the offering.
3.3* Bylaws of Registrant.
3.4 Form of Amended and Restated Bylaws of Registrant to be
effective as of the closing of the offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
5.1 Opinion of Morrison & Foerster LLP.
10.1* Form of Indemnification Agreement between the Registrant and
each of its officers and directors.
10.2* 1997 Stock Incentive Plan.
10.3* 2000 Stock Incentive Plan.
10.4* 2000 Employee Stock Purchase Plan.
10.5* Third Amended and Restated Investors' Rights Agreement.
10.6* Forms of Restricted Stock Purchase Agreements.
10.7* Lease Agreement dated March 16, 1999 between the Registrant
and Westport Joint Venture for the Registrant's Redwood
Shores, California headquarters.
16.1 Letter from Deloitte & Touche LLP.
23.1 Consent of Morrison & Foerster LLP. Reference is made to
Exhibit 5.1.
23.2 Consent of Ernst & Young LLP Independent Auditors.
24.1* Powers of Attorney. Reference is made to Page II-4.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Previously provided.
<PAGE> 1
EXHIBIT 1.1
SABA SOFTWARE, INC.
COMMON STOCK, PAR VALUE $0.001 PER SHARE
-------------
UNDERWRITING AGREEMENT
................... , 2000
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
FleetBoston Robertson Stephens Inc.
Banc of America Securities LLC
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Saba Software, Inc. a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
........ shares (the "Firm Shares") and, at the election of the Underwriters, up
to ........ additional shares (the "Optional Shares") of Common Stock, par value
$0.001 per share ("Stock") of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof
being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-95761) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act is hereinafter called
a "Preliminary Prospectus"; the
<PAGE> 2
various parts of the Initial Registration Statement and the Rule 462(b)
Registration Statement, if any, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and
deemed by virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective, each as amended at
the time such part of the Initial Registration Statement became effective or
such part of the Rule 462(b) Registration Statement, if any, became or hereafter
becomes effective, are hereinafter collectively called the "Registration
Statement"; such final prospectus, in the form first filed pursuant to Rule
424(b) under the Act, is hereinafter called the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the respective
dates as of which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock, except for the
grant of stock options or issuances of stock upon the exercise of options
pursuant to stock plans, each as described in the Prospectus, or long-term debt
of the Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus;
(e) The Company and its subsidiaries do not own any real property and
have good and marketable title to all personal property owned by them, in each
case free and clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the value of
such property and do not interfere with the use made and proposed to be made of
such property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and
2
<PAGE> 3
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the state of Delaware, with
power and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so qualified
in any such jurisdiction; the Company has no subsidiaries which are significant
subsidiaries as defined in paragraph (w) of Rule 1-02 of Regulation S-X
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); and when combined, the Company's subsidiaries would not constitute a
significant subsidiary as defined in paragraph (w) of Rule 1-02 of Regulation
S-X promulgated under the Exchange Act;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the Prospectus; and all
of the issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and (except for directors' qualifying shares) are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or claims;
(h) The Shares have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other material agreement or material instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action result in
any violation of the provisions of the Certificate of Incorporation or By-laws
of the Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the Shares or
the consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws or rules of the National
Association of Securities Dealers, Inc., in connection with the purchase and
distribution of the Shares by the Underwriters;
(j) No holder of securities of the Company has any rights, not
effectively satisfied or waived, to the registration of such securities for sale
under the Act in connection with this offering as a result of the filing of the
Registration Statement or otherwise in connection with the offer and sale of the
Shares by the Underwriters hereunder;
(k) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or By-laws or in default in the performance
or observance of any material obligation,
3
<PAGE> 4
agreement, covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound;
(l) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock and under the caption "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(m) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries; and, to the
best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(n) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company", as such term is defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(o) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes;
(p) Ernst & Young LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder; and
(q) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which the
business or operations of the Company or any of its subsidiaries will be
affected by the Year 2000 Problem. As a result of such review, the Company has
no reason to believe, and does not believe, that the Year 2000 Problem will have
a material adverse effect on the general affairs, management, the current or
future consolidated financial position, business prospects, stockholders' equity
or results of operations of the Company and its subsidiaries or result in any
material loss or interference with the Company's business or operations. The
"Year 2000 Problem" as used herein means any significant risk that computer
hardware or software used in the receipt, transmission, processing,
manipulation, storage, retrieval, retransmission or other utilization of data or
in the operation of mechanical or electrical systems of any kind will not, in
the case of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring prior to
January 1, 2000.
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences;
4
<PAGE> 5
(s) Except as disclosed in the Prospectus, the Company and its
subsidiaries own or possess adequate rights to use, all material trademarks,
service marks, trade mark registrations, service mark registrations, domain
names, copyrights, licenses, inventions and know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) necessary for the conduct of its business as
described in the Prospectus, and, except as set forth in the Prospectus, the
Company has no reason to believe that the conduct of its business will conflict
with, and has not received any notice of any claim of conflict with, any such
rights of others, except as would not have a material adverse effect on the
business, financial condition, results of operations or prospects of the
Company; and neither the Company nor any of its subsidiaries have infringed or
are infringing any trademarks, service marks, trade mark registrations, service
mark registrations, domain names or copyrights, which infringement could
reasonably be expected to result in a material adverse change in or affecting
the general affairs, financial position, stockholder's equity or results of
operations of the Company and its subsidiaries;
(t) Except as disclosed in the Prospectus, the Company and its
subsidiaries possess adequate rights to use all material patents necessary for
the conduct of its business; no valid United States patent is or would be
infringed by the activities of the Company, except as would not have a material
adverse effect on the business, financial condition, results of operations or
prospects of the Company; there are no actions, suits or proceedings pending
relating to patents or proprietary information to which the Company or any of
its subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is subject and no such actions, suits or proceedings are
threatened by governmental authorities or others; the Company is not aware of
any claim by others that the Company is infringing or otherwise violating the
patents or other intellectual property of others and, except as set forth in the
Prospectus, is not aware of any rights of third parties to any of the Company's
licensed patents or licenses which could materially affect the use thereof by
the Company; and
(u) No material labor dispute with the employees of the Company
exists, or, to the knowledge of the Company, is imminent.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $................, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ................... Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
sales of shares in excess of the number of Firm Shares. Any such election to
purchase Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the
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aggregate number of Optional Shares to be purchased and the date on which such
Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Company otherwise agree in writing, earlier than two or later
than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York City time, on ............., 2000 or
such other time and date as Goldman, Sachs & Co. and the Company may agree upon
in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time,
on the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the offices
of Morrison & Foerster LLP, 755 Page Mill Rd., Palo Alto, CA 94306 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such Time of Delivery. A meeting will be held at the Closing Location at 6:00
p.m., New York City time, on the New York Business Day next preceding such Time
of Delivery, or such other time as agreed to by counsel to the underwriters and
Morrison & Foerster LLP, at which meeting the final drafts of the documents to
be delivered pursuant to the preceding sentence will be available for review by
the parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus which
shall be disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when any amendment
to the Registration Statement has been filed or becomes effective or any
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supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you with copies thereof; to advise you, promptly after it receives
notice thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to obtain
the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time to time,
to furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months after
the time of issue of the Prospectus in connection with the offering or sale of
the Shares and if at such time any event shall have occurred as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading, or, if
for any other reason it shall be necessary during such period to amend or
supplement the Prospectus in order to comply with the Act, to notify you and
upon your request to prepare and furnish without charge to each Underwriter and
to any dealer in securities as many copies as you may from time to time
reasonably request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus in connection with
sales of any of the Shares at any time nine months or more after the time of
issue of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as you
may request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder any securities of the Company that are substantially similar to the
Shares, including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
or purchase plans existing on, or upon the conversion or exchange of convertible
or exchangeable securities outstanding as of, the date of this Agreement),
without your
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prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries certified by independent public accountants) and, as
soon as practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective date
of the Registration Statement), to make available to its stockholders
consolidated summary financial information of the Company and its subsidiaries
for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q or
Form 10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of
this Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey
(iv) all fees and expenses in connection with listing the Shares on the NASDAQ;
(v) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (vi) the cost of preparing
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<PAGE> 9
stock certificates; (vii) the cost and charges of any transfer agent or
registrar; and (viii) all other costs and expenses incident to the performance
of its obligations hereunder which are not otherwise specifically provided for
in this Section. It is understood, however, that, except as provided in this
Section, and Sections 8 and 11 hereof, the Underwriters will pay all of their
own costs and expenses, including the fees of their counsel, stock transfer
taxes on resale of any of the Shares by them, and any advertising expenses
connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order suspending
the effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Shearman & Sterling, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions (a draft of each such opinion
is attached as Annex II(a) hereto), dated such Time of Delivery, with respect to
the matters covered in paragraphs (i), (ii), (vii), (xi) and the last paragraph
of subsection (c) below as well as such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) Morrison & Foerster LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached as
Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the state of Delaware, with power and authority
(corporate and other) to own its properties and conduct its
business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the Shares being delivered at
such Time of Delivery) have been duly and validly authorized and
issued and are fully paid and non-assessable; and the Shares
conform to the description of the Stock contained in the
Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to
require such qualification or is subject to no material
liability or disability by reason of failure to be so qualified
in any such jurisdiction (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local
counsel and in respect of matters of fact upon certificates of
officers
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of the Company, provided that such counsel shall state that they
believe that both you and they are justified in relying upon
such opinions and certificates);
(iv) The Company has no subsidiaries which are
significant subsidiaries as defined in paragraph (w) of Rule
1-02 of Regulation S-X promulgated under the Exchange Act; and
when combined, the Company's subsidiaries would not constitute a
significant subsidiary as defined in paragraph (w) of Rule 1-02
of Regulation S-X promulgated under the Exchange Act;
(v) Any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are
not material and do not interfere with the use made and proposed
to be made of such property and buildings by the Company and its
subsidiaries (in giving the opinion in this clause, such counsel
may state that no examination of record titles for the purpose
of such opinion has been made, and that they are relying upon a
general review of the titles of the Company and its
subsidiaries, upon opinions of local counsel and abstracts,
reports and policies of title companies rendered or issued at or
subsequent to the time of acquisition of such property by the
Company or its subsidiaries, upon opinions of counsel to the
lessors of such property and, in respect to matters of fact,
upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that they
believe that both you and they are justified in relying upon
such opinions, abstracts, reports, policies and certificates);
(vi) To such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect
on the current or future consolidated financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries; and, to such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(vii) This Agreement has been duly authorized, executed
and delivered by the Company;
(viii) The issue and sale of the Shares being delivered
at such Time of Delivery by the Company and the compliance by
the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries
is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation known to
such counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any
of their properties;
(ix) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale
of the
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Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under
the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the rules of the National Association of
Securities Dealers, Inc. or state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by
the Underwriters;
(x) To such counsel's knowledge, neither the Company nor
any of its subsidiaries is in violation of its Certificate of
Incorporation or By-laws or in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be
bound;
(xi) The statements set forth in the Prospectus under
the caption "Description of Capital Stock", insofar as they
purport to constitute a summary of the terms of the Stock and
under the caption "Underwriting", insofar as they purport to
describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair; and
(xii) The Company is not an "investment company", as
such term is defined in the Investment Company Act.
Such counsel shall also state the Registration Statement and the
Prospectus and any further amendments and supplements thereto made by the
Company prior to such Time of Delivery (other than the financial statements,
related schedules and other financial data therein, as to which such counsel
need express no opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder; although they
do not assume any responsibility for the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the Prospectus and
have not independently checked or verified the accuracy, completeness or
fairness thereof, except for those referred to in the opinion in subsection (xi)
of this section 7(c), nothing has come to the attention of such counsel which
has caused them to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior to such
Time of Delivery (other than the financial statements, related schedules and
other financial data therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that, as of its date, the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of Delivery (other
than the financial statements, related schedules and other financial data
therein, as to which such counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further amendment or supplement
thereto made by the Company prior to such Time of Delivery (other than the
financial statements, related schedules and other financial data therein, as to
which such counsel need express no opinion) contains an untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a character
required to be filed as an exhibit to the Registration Statement or required to
be described in the Registration Statement or the Prospectus which are not filed
or described as required;
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(d) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent to
the date of this Agreement and also at each Time of Delivery, Ernst & Young LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(f) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities, if applicable, or
preferred stock, if applicable, by any "nationally recognized statistical rating
organization", as that term is defined by the Commission for purposes of Rule
436(g)(2) under the Act, and (ii) no such organization shall have publicly
announced that it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities, if applicable,
or preferred stock, if applicable;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ ; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared by either Federal
or New York or California State authorities; or (iv) the outbreak or escalation
of hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event specified
in this clause (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on NASDAQ;
(i) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from the directors and executive officers of the
Company, and from [list appropriate stockholders of the Company], substantially
to the effect set forth in Subsection 5(e) hereof in form and substance
satisfactory to you;
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(j) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(k) The Company shall have furnished or caused to be furnished to
you at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and warranties of
the Company herein at and as of such Time of Delivery, as to the performance by
the Company of all of its obligations hereunder to be performed at or prior to
such Time of Delivery, as to the matters set forth in subsections (a) and (e) of
this Section and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party
13
<PAGE> 14
similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and, after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such subsection for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent
14
<PAGE> 15
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any, who
controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Company that you have
so arranged for the purchase of such Shares, or the Company notifies you that it
has so arranged for the purchase of such Shares, you or the Company shall have
the right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting
15
<PAGE> 16
Underwriter or the Company, except for the expenses to be borne by the Company
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
16
<PAGE> 17
If the foregoing is in accordance with your understanding, please sign
and return to us counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
Saba Software, Inc.
By: ...............................
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
FleetBoston Robertson Stephens Inc.
Banc of America Securities LLC
By: ...............................
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
17
<PAGE> 18
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- -----------------
<S> <C> <C>
Goldman, Sachs & Co...................................
Merrill Lynch, Pierce, Fenner Smith Incorporated......
FleetBoston Robertson Stephens Inc....................
Banc of America Securities LLC........................
--------------- -----------------
Total..................................
=============== =================
</TABLE>
18
<PAGE> 19
ANNEX I
FORM OF ANNEX I DESCRIPTION OF COMFORT LETTER
FOR REGISTRATION STATEMENTS ON FORM S-1
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance
with standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
separately furnished to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have
been separately furnished to the Representatives and on the basis of
specified procedures including inquiries of officials of the Company who
have responsibility for financial and accounting matters regarding
whether the unaudited condensed consolidated financial statements
referred to in paragraph (vi)(A)(i) below comply as to form in all
material respects with the applicable accounting requirements of the Act
and the related published rules and regulations, nothing came to their
attention that cause them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the related published rules and regulations;
(iv) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatements where
applicable) in the audited consolidated financial statements for such
five fiscal years which were included or incorporated by reference in
the Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
<PAGE> 20
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of
the latest audited financial statements included in the Prospectus,
inquiries of officials of the Company and its subsidiaries responsible
for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations, or (ii)
any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows
included in the Prospectus for them to be in conformity with
generally accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree with
the corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements
included in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in clause (B)
were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included
in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of those
statements;
(E) as of a specified date not more than five days prior
to the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital
stock upon exercise of options and stock appreciation rights,
upon earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest financial statements included in the
Prospectus) or any increase in the consolidated long-term debt
of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared
with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or
decreases which the
<PAGE> 21
Prospectus discloses have occurred or may occur or which are
described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date
referred to in clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or
per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
the comparable period of the preceding year and with any other
period of corresponding length specified by the Representatives,
except in each case for decreases or increases which the
Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance with
generally accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by the Representatives,
which are derived from the general accounting records of the Company and
its subsidiaries, which appear in the Prospectus, or in Part II of, or
in exhibits and schedules to, the Registration Statement specified by
the Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and its subsidiaries and have found them to be in agreement.
<PAGE> 1
EXHIBIT 3.2
SABA SOFTWARE, INC.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
SABA SOFTWARE, INC., a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Saba Software, Inc., the original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on April 16, 1997, under the name of Saba Software, Inc.
2. Pursuant to Section 242 and 245 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate of Incorporation
restates and amends the provisions of this corporation's Certificate of
Incorporation.
3. The terms and provisions of this Amended and Restated Certificate of
Incorporation have been duly approved by vote of the required number of shares
of each outstanding class of stock of this corporation pursuant to Subsection
242 of the General Corporation Law of the State of Delaware.
4. The text of the Amended and Restated Certificate of Incorporation is
hereby restated and amended to read in its entirety as set forth in Exhibit A
attached hereto.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed this ____ day of ____________ 2000.
SABA SOFTWARE, INC.
------------------------------------
Babak Yazdani, President and
Chief Executive Officer
ATTEST:
------------------------------------
Peter E. Williams III, Secretary
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF SABA SOFTWARE, INC.,
A DELAWARE CORPORATION
I
The name of this corporation is Saba Software, Inc.
II
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
19805. The name of its registered agent at such address is Corporation Service
Company.
III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
IV
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Two Hundred Five
Million (205,000,000) shares, Two Hundred Million (200,000,000) shares of which
shall be Common Stock (the "Common Stock") and Five Million (5,000,000) shares
of which shall be Preferred Stock (the "Preferred Stock"). The Common Stock
shall have a par value of $0.001 per share and the Preferred Stock shall have a
par value of $0.001 per share.
The Preferred Stock authorized by this Amended and Restated Certificate
of Incorporation may be issued from time to time in one or more series. Subject
to applicable protective voting rights which have been or may be granted to the
Preferred Stock, the Board of Directors is authorized to determine or alter any
or all of the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, and to fix, alter or
reduce the number of shares comprising any such series (but not below the number
of such shares outstanding for any such series) and the designation thereof, or
any of them, and to provide for rights and terms of redemption or conversion of
the shares of any such series.
1
<PAGE> 3
V
The corporation is to have perpetual existence.
VI
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the same compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
VII
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation, and regulation of the
powers of the corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws. The phrase "whole Board" and the phrase "total
number of directors" shall be deemed to have the same meaning, to wit, the total
number of directors which the corporation would have if there were no vacancies.
No election of directors need be by written ballot, unless the Bylaws of the
corporation shall so provide.
2. In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized to
adopt, alter, amend or repeal the Bylaws of the corporation.
3. Whenever the corporation shall be authorized to issue only one class
of stock, each outstanding share shall entitle the holder thereof to notice of,
and the right to vote at,
2
<PAGE> 4
any meeting of stockholders. Whenever the corporation shall be authorized to
issue more than one class of stock, no outstanding share of any class of stock
which is denied voting power under the provisions of the Certificate of
Incorporation shall entitle the holder thereof to the right to vote at any
meeting of stockholders except as the provisions of paragraph (2) of subsection
(b) of Section 242 of the General Corporation Law of the State of Delaware shall
otherwise require; provided, that no share of any such class which is otherwise
denied voting power shall entitle the holder thereof to vote upon the increase
or decrease in the number of authorized shares of said class.
VIII
At the election of directors of the corporation, each holder of stock of
any class or series shall be entitled to one vote for each share held. No
stockholder will be permitted to cumulate votes at any election of directors.
The number of directors which constitute the whole Board of Directors of
the corporation shall be fixed exclusively by one or more resolutions adopted
from time to time by the Board of Directors. The Board of Directors shall be
divided into three classes designated as Class I, Class II, and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the date hereof, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second annual meeting of stockholders following the
date hereof, the term of office of the Class II directors shall expire and Class
II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders following the date hereof, the term of office of
the Class III directors shall expire and Class III directors shall be elected
for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Vacancies created by newly created directorships, created in accordance
with the Bylaws of this Corporation, may be filled by the vote of a majority,
although less than a quorum, of the directors then in office, or by a sole
remaining director.
IX
The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provision of paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
The corporation shall, to the fullest extent permitted by the provisions
of Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw,
3
<PAGE> 5
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such person.
Neither any amendment nor repeal of this Article IX, nor the adoption of
any provision of this Amended and Restated Certificate of Incorporation
inconsistent with this Article IX, shall eliminate or reduce the effect of this
Article IX in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article IX, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
X
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
The stockholders of the corporation may not take any action by written
consent in lieu of a meeting, and must take any actions at a duly called annual
or special meeting of stockholders and the power of stockholders to consent in
writing without a meeting is specifically denied.
XI
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
XII
Notwithstanding any other provisions of this Amended and Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of the capital stock required by law or this Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
two-thirds (2/3) or the combined voting power of all the then-outstanding shares
of the corporation entitled to vote shall be required to alter, amend or repeal
Articles VIII, IX, X or XI hereof, or this Article XII, or any provision hereof
or thereof.
XIII
From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed
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by said laws, and all rights at any time conferred upon the stockholders of the
corporation by this certificate of incorporation are granted subject to the
provisions of this Article XIII.
* * *
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
SABA SOFTWARE, INC.
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
ARTICLE 1 OFFICES........................................................................1
SECTION 1.1 REGISTERED OFFICE..............................................................1
SECTION 1.2 OTHER OFFICES..................................................................1
ARTICLE 2 STOCKHOLDERS' MEETINGS.........................................................1
SECTION 2.1 PLACE OF MEETINGS..............................................................1
SECTION 2.2 ANNUAL MEETINGS................................................................1
SECTION 2.3 SPECIAL MEETINGS...............................................................1
SECTION 2.4 NOTICE OF MEETINGS.............................................................1
SECTION 2.5 QUORUM.........................................................................2
SECTION 2.6 VOTING RIGHTS..................................................................3
SECTION 2.7 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS..................................4
SECTION 2.8 LIST OF STOCKHOLDERS...........................................................4
SECTION 2.9 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS.......................................4
SECTION 2.10 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS................5
ARTICLE 3 DIRECTORS......................................................................6
SECTION 3.1 NUMBER AND TERM OF OFFICE......................................................6
SECTION 3.2 POWERS.........................................................................6
SECTION 3.3 VACANCIES......................................................................6
SECTION 3.4 RESIGNATIONS AND REMOVALS......................................................6
SECTION 3.5 MEETINGS.......................................................................7
SECTION 3.6 QUORUM AND VOTING..............................................................7
SECTION 3.7 ACTION WITHOUT MEETING.........................................................8
SECTION 3.8 FEES AND COMPENSATION..........................................................8
SECTION 3.9 COMMITTEES.....................................................................8
ARTICLE 4 OFFICERS.......................................................................9
SECTION 4.1 OFFICERS DESIGNATED............................................................9
SECTION 4.2 TENURE AND DUTIES OF OFFICERS..................................................9
ARTICLE 5 EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION...................................................................10
SECTION 5.1 EXECUTION OF CORPORATE INSTRUMENTS............................................10
SECTION 5.2 VOTING OF SECURITIES OWNED BY CORPORATION.....................................11
ARTICLE 6 SHARES OF STOCK...............................................................11
SECTION 6.1 FORM AND EXECUTION OF CERTIFICATES............................................11
SECTION 6.2 LOST CERTIFICATES.............................................................11
SECTION 6.3 TRANSFERS.....................................................................12
SECTION 6.4 FIXING RECORD DATES...........................................................12
SECTION 6.5 REGISTERED STOCKHOLDERS.......................................................12
ARTICLE 7 OTHER SECURITIES OF THE CORPORATION...........................................13
ARTICLE 8 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS..................13
SECTION 8.1 RIGHT TO INDEMNIFICATION......................................................13
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 8.2 AUTHORITY TO ADVANCE EXPENSES.................................................14
SECTION 8.3 RIGHT OF CLAIMANT TO BRING SUIT...............................................14
SECTION 8.4 PROVISIONS NONEXCLUSIVE.......................................................14
SECTION 8.5 AUTHORITY TO INSURE...........................................................14
SECTION 8.6 SURVIVAL OF RIGHTS............................................................15
SECTION 8.7 SETTLEMENT OF CLAIMS..........................................................15
SECTION 9.8 EFFECT OF AMENDMENT...........................................................15
SECTION 8.9 SUBROGATION...................................................................15
SECTION 8.10 NO DUPLICATION OF PAYMENTS..................................................15
ARTICLE 9 NOTICES.......................................................................15
ARTICLE 10 AMENDMENTS....................................................................16
</TABLE>
<PAGE> 4
AMENDED & RESTATED BYLAWS
OF
SABA SOFTWARE, INC.
A DELAWARE CORPORATION
- --------------------------------------------------------------------------------
ARTICLE 1
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be at 1013 Centre Road, in the City of
Wilmington, County of New Castle, in the State of Delaware. The Corporation
Service Company is the registered agent of the Corporation.
SECTION 1.2 OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at 2400 Bridge Parkway, Redwood Shores,
CA 94065, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE 2
STOCKHOLDERS' MEETINGS
SECTION 2.1 PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 1.2 of Article 1 hereof.
SECTION 2.2 ANNUAL MEETINGS. The annual meetings of the stockholders of
the corporation for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
SECTION 2.3 SPECIAL MEETINGS. Special Meetings of the stockholders of
the corporation may be called, for any purpose or purposes, by the Chairman of
the Board or the Chief Executive Officer or the Board of Directors at any time.
SECTION 2.4 NOTICE OF MEETINGS.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, written notice of each meeting of stockholders shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote thereat, directed to his address as it appears upon
the books of the corporation; except that where the matter to be acted on is a
merger or consolidation of the corporation or a sale, lease or exchange of all
or substantially all of its assets, such notice shall be given not less than
twenty (20) nor more than sixty (60) days prior to such meeting. Such notice
shall state the place, date, and hour of the meeting and (a) in the case of a
special meeting, the
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general nature of the business to be transacted, and no other business may be
transacted, or (b) in the case of the annual meeting, those matters which the
Board of Directors, at the time of the mailing of the notice, intends to present
for action by the stockholders, and, subject to the provisions of this Section
2.4 and Section 2.9 hereof, any proper matter may be presented at the meeting
for such action. The notice of any meeting at which directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by the Board of Directors for election.
(b) If at any meeting action is proposed to be taken which, if
taken, would entitle stockholders fulfilling the requirements of section 262(d)
of the Delaware General Corporation Law to an appraisal of the fair value of
their shares, the notice of such meeting shall contain a statement of that
purpose and to that effect and shall be accompanied by a copy of that statutory
section.
(c) When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken unless the
adjournment is for more than thirty days, or unless after the adjournment a new
record date is fixed for the adjourned meeting, in which event a notice of the
adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting.
(d) Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, either before or after such meeting, and
to the extent permitted by law, will be waived by any stockholder by his
attendance thereat, in person or by proxy. Any stockholder so waiving notice of
such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at
the pleasure of the person who executed it or of his legal representatives or
assigns, except in those cases where an irrevocable proxy permitted by statute
has been given.
SECTION 2.5 QUORUM.
(a) At all meetings of stockholders, except where otherwise
provided by law, the Certificate of Incorporation, or these Bylaws, the
presence, in person or by proxy duly authorized, of the holders of a majority of
the outstanding shares of stock entitled to vote shall constitute a quorum for
the transaction of business. Shares, the voting of which at said meeting have
been enjoined, or which for any reason cannot be lawfully voted at such meeting,
shall not be counted to determine a quorum at said meeting. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. At such adjourned meeting at which
a quorum is present or represented any business may be transacted which might
have been transacted at the original meeting. The stockholders present at a duly
called or convened meeting, at which a quorum is present, may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
(b) Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, all action taken by the holders of a majority of
the voting power represented at any meeting at which a quorum is present shall
be valid and binding upon the corporation.
(c) Where a separate vote by a class or classes is required, a
majority of the outstanding shares of such class or classes, present in person
or represented by proxy, shall constitute a
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quorum entitled to take action with respect to that vote on that matter and the
affirmative vote of the majority of shares of such class or classes present in
person or represented by proxy at the meeting shall be the act of such class.
SECTION 2.6 VOTING RIGHTS.
(a) Except as otherwise provided by law, only persons in whose
names shares entitled to vote stand on the stock records of the corporation on
the record date for determining the stockholders entitled to vote at said
meeting shall be entitled to vote at such meeting. Shares standing in the names
of two or more persons shall be voted or represented in accordance with the
determination of the majority of such persons, or, if only one of such persons
is present in person or represented by proxy, such person shall have the right
to vote such shares and such shares shall be deemed to be represented for the
purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall have
the right to do so either in person or by an agent or agents authorized by a
written proxy executed by such person or his duly authorized agent, which proxy
shall be filed with the Secretary of the corporation at or before the meeting at
which it is to be used. Said proxy so appointed need not be a stockholder. No
proxy shall be voted on after three years from its date unless the proxy
provides for a longer period.
(c) Without limiting the manner in which a stockholder may
authorize another person or persons to act for him as proxy pursuant to
subsection (b) of this section, the following shall constitute a valid means by
which a stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing
another person or persons to act for him as proxy. Execution may be accomplished
by the stockholder or his authorized officer, director, employee or agent
signing such writing or causing his or her signature to be affixed to such
writing by any reasonable means including, but not limited to, by facsimile
signature.
(2) A stockholder may authorize another person or
persons to act for him as proxy by transmitting or authorizing the transmission
of a telegram, cablegram, or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation firm,
proxy support service organization or like agent duly authorized by the person
who will be the holder of the proxy to receive such transmission, provided that
any such telegram, cablegram or other means of electronic transmission must
either set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. Such authorization can be established by the
signature of the stockholder on the proxy, either in writing or by a signature
stamp or facsimile signature, or by a number or symbol from which the identity
of the stockholder can be determined, or by any other procedure deemed
appropriate by the inspectors or other persons making the determination as to
due authorization. If it is determined that such telegrams, cablegrams or other
electronic transmissions are valid, the inspectors or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied.
(d) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (c)
of this section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
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SECTION 2.7 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint or
retain other persons or entities to assist the inspectors in the performance of
the duties of the inspectors.
(c) The date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at a meeting shall
be announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in accordance
with Section 212(c)(2) of the Delaware General Corporation Law, ballots and the
regular books and records of the corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for the limited
purpose permitted herein, the inspectors at the time they make their
certification pursuant to subsection (b)(v) of this section shall specify the
precise information considered by them including the person or persons from whom
they obtained the information, when the information was obtained, the means by
which the information was obtained and the basis for the inspectors' belief that
such information is accurate and reliable.
SECTION 2.8 LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at said meeting, arranged in alphabetical order, showing the address of and
the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held and which place shall be specified in the notice of the meeting, or, if not
specified, at the place where said meeting is to be held, and the list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.9 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the
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meeting. To be properly brought before an annual meeting, business must be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, otherwise properly brought before the
meeting by or at the direction of the Board of Directors or otherwise properly
brought before the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation, not less than 45 days nor more than 75 days prior to the date on
which the corporation first mailed its proxy materials for the previous year's
annual meeting of stockholders (or the date on which the corporation mails its
proxy materials for the current year if during the prior year the corporation
did not hold an annual meeting or if the date of the annual meeting was changed
more than 30 days from the prior year). A stockholder's notice to the Secretary
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of the stockholder proposing
such business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at the annual meeting except in accordance with the procedures set
forth in this Section 2.9, provided, however, that nothing in this Section 2.9
shall be deemed to preclude discussion by any stockholder of any business
properly brought before the annual meeting in accordance with said procedure.
The Chairman of an annual meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 2.9, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Nothing in this Section 2.9 shall affect the right of a stockholder to request
inclusion of a proposal in the corporation's proxy statement to the extent that
such right is provided by an applicable rule of the Securities and Exchange
Commission.
SECTION 2.10 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF
DIRECTORS. In addition to any other applicable requirements, only persons who
are nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any stockholder of the corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 2.10. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation, not less than 45 days nor
more than 75 days prior to the date on which the corporation first mailed its
proxy materials for the previous year's annual meeting of stockholders (or the
date on which the corporation mails its proxy materials for the current year if
during the prior year the corporation did not hold an annual meeting or if the
date of the annual meeting was changed more than 30 days from the prior year).
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of the corporation which are beneficially
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owned by the person, and (iv) any other information relating to the person that
is required to be disclosed in solicitations for proxies for election of
directors pursuant to Rule 14a under the Securities Exchange Act of 1934; and
(b) as to the stockholder giving the notice, (i) the name and record address of
the stockholder, and (ii) the class and number of shares of the corporation
which are beneficially owned by the stockholder. The corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the corporation to determine the eligibility of such proposed nominee to
serve as a director of the corporation. No person shall be eligible for election
as a director of the corporation unless nominated in accordance with the
procedures set forth herein. These provisions shall not apply to nomination of
any persons entitled to be separately elected by holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
ARTICLE 3
DIRECTORS
SECTION 3.1 NUMBER AND TERM OF OFFICE. The number of directors which
shall constitute the whole of the Board of Directors shall be seven (7). Except
as provided in Section 3.3 of this Article III, the directors shall be elected
by a plurality vote of the shares represented in person or by proxy, at the
stockholders annual meeting in each year and entitled to vote on the election of
directors.
SECTION 3.2 POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by or under the direction of
the Board of Directors.
SECTION 3.3 VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director, and each director so elected shall hold office for
the unexpired portion of the term of the director whose place shall be vacant,
and until his successor shall have been duly elected and qualified. A vacancy in
the Board of Directors shall be deemed to exist under this section in the case
of the death, removal or resignation of any director, or if the stockholders
fail at any meeting of stockholders at which directors are to be elected
(including any meeting referred to in Section 3.4 below) to elect the number of
directors then constituting the whole Board.
SECTION 3.4 RESIGNATIONS AND REMOVALS.
(a) Any director may resign at any time by delivering his
written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made it shall be
deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective, and each director so
chosen shall hold office for the unexpired portion of the term of the director
whose place shall be vacated and until his successor shall have been duly
elected and qualified.
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(b) At a special meeting of stockholders called for the purpose
in the manner hereinabove provided, the Board of Directors, or any individual
director, may be removed from office, with or without cause, and a new director
or directors elected by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of directors.
SECTION 3.5 MEETINGS.
(a) The annual meeting of the Board of Directors shall be held
immediately after the annual stockholders' meeting and at the place where such
meeting is held or at the place announced by the Chairman at such meeting. No
notice of an annual meeting of the Board of Directors shall be necessary and
such meeting shall be held for the purpose of electing officers and transacting
such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings
of the Board of Directors shall be held in the office of the corporation
required to be maintained pursuant to Section 1.2 of Article 1 hereof. Regular
meetings of the Board of Directors may also be held at any place within or
without the State of Delaware which has been designated by resolutions of the
Board of Directors or the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at
any time and place within or without the State of Delaware whenever called by
the Chairman of the Board or, if there is no Chairman of the Board, by the Chief
Executive Officer, or by any of the directors.
(d) Written notice of the time and place of all regular and
special meetings of the Board of Directors shall be delivered personally to each
director or sent by telegram or facsimile at least 48 hours before the start of
the meeting, or sent by first class mail at least 120 hours before the start of
the meeting. Notice of any meeting may be waived in writing at any time before
or after the meeting and will be waived by any director by attendance thereat.
SECTION 3.6 QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a
majority of the exact number of directors fixed from time to time in accordance
with Section 3.1 of Article 3 of these Bylaws, but not less than one; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present
all questions and business shall be determined by a vote of a majority of the
directors present, unless a different vote be required by law, the Certificate
of Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee
thereof, may participate in a meeting by means of conference telephone or
similar communication equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors,
or any committee thereof, however called or noticed, or wherever held, shall be
as valid as though had at a
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meeting duly held after regular call and notice, if a quorum be present and if,
either before or after the meeting, each of the directors not present shall sign
a written waiver of notice, or a consent to holding such meeting, or an approval
of the minutes thereof. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
SECTION 3.7 ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or of such
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 3.8 FEES AND COMPENSATION. Directors and members of committees
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board of Directors.
SECTION 3.9 COMMITTEES.
(a) Executive Committee. The Board of Directors may, by
resolution passed by a majority of the whole Board, appoint an Executive
Committee of not less than one member, each of whom shall be a director. The
Executive Committee, to the extent permitted by law, shall have and may exercise
when the Board of Directors is not in session all powers of the Board in the
management of the business and affairs of the corporation, including, without
limitation, the power and authority to declare a dividend or to authorize the
issuance of stock, except such committee shall not have the power or authority
to amend the Certificate of Incorporation, to adopt an agreement or merger or
consolidation, to recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, to recommend
to the stockholders of the corporation a dissolution of the corporation or a
revocation of a dissolution, or to amend these Bylaws.
(b) Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, from time to time appoint such other
committees as may be permitted by law. Such other committees appointed by the
Board of Directors shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committee, but in no
event shall any such committee have the powers denied to the Executive Committee
in these Bylaws.
(c) Term. The members of all committees of the Board of
Directors shall serve a term coexistent with that of the Board of Directors
which shall have appointed such committee. The Board, subject to the provisions
of subsections (a) or (b) of this Section 3.9, may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee; provided, that no committee shall consist of less than one member.
The membership of a committee member shall terminate on the date of his death or
voluntary resignation, but the Board may at any time for any reason remove any
individual committee member and the Board may fill any committee vacancy created
by death, resignation, removal or increase in the number of members of the
committee. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
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(d) Meetings. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 3.9 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter; special meetings of
any such committee may be held at the principal office of the corporation
required to be maintained pursuant to Section 1.2 of Article 1 hereof; or at any
place which has been designated from time to time by resolution of such
committee or by written consent of all members thereof, and may be called by any
director who is a member of such committee, upon written notice to the members
of such committee of the time and place of such special meeting given in the
manner provided for the giving of written notice to members of the Board of
Directors of the time and place of special meetings of the Board of Directors.
Notice of any special meeting of any committee may be waived in writing at any
time after the meeting and will be waived by any director by attendance thereat.
A majority of the authorized number of members of any such committee shall
constitute a quorum for the transaction of business, and the act of a majority
of those present at any meeting at which a quorum is present shall be the act of
such committee.
ARTICLE 4
OFFICERS
SECTION 4.1 OFFICERS DESIGNATED. The officers of the corporation shall
be a Chairman of the Board of Directors and a Chief Executive Officer, one or
more Vice-Presidents, a Secretary, and a Treasurer. The order of the seniority
of the Vice Presidents shall be in the order of their nomination, unless
otherwise determined by the Board of Directors. The Board of Directors or the
Chairman of the Board or the Chief Executive Officer may also appoint one or
more assistant secretaries, assistant treasurers, and such other officers and
agents with such powers and duties as it or he shall deem necessary. The Board
of Directors may assign such additional titles to one or more of the officers as
they shall deem appropriate. Any one person may hold any number of offices of
the corporation at any one time unless specifically prohibited therefrom by law.
The salaries and other compensation of the officers of the corporation shall be
fixed by or in the manner designated by the Board of Directors.
SECTION 4.2 TENURE AND DUTIES OF OFFICERS.
(a) General. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. Nothing in these Bylaws shall be construed as
creating any kind of contractual right to employment with the corporation.
(b) Duties of the Chairman of the Board of Directors. The
Chairman of the Board of Directors (if there be such an officer appointed) shall
be the Chief Executive Officer of the corporation and, when present, shall
preside at all meetings of the stockholders and the Board of Directors. The
Chairman of the Board of Directors shall perform such other duties and have such
other powers as the Board of Directors shall designate from time to time.
(c) Duties of Chief Executive Officer. The Chief Executive
Officer shall preside at all meetings of the stockholders and at all meetings of
the Board of Directors, unless the
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Chairman of the Board of Directors has been appointed and is present. The Chief
Executive Officer shall perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) Duties of President and Vice-Presidents. The President, and
then the Vice-Presidents, in the order of their seniority, may assume and
perform the duties of the Chief Executive Officer in the absence or disability
of the Chief Executive Officer or whenever the office of the Chief Executive
Officer is vacant. The President and each Vice-President shall perform such
other duties and have such other powers as the Board of Directors or the Chief
Executive Officer shall designate from time to time.
(e) Duties of Secretary. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and any committee thereof, and
shall record all acts and proceedings thereof in the minute book of the
corporation. The Secretary shall give notice, in conformity with these Bylaws,
of all meetings of the stockholders, and of all meetings of the Board of
Directors and any committee thereof requiring notice. The Secretary shall
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The Chief Executive Officer may direct any
Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform such other duties and have such other powers as the Board of Directors
or the Chief Executive Officer shall designate from time to time.
(f) Duties of Treasurer. The Treasurer shall keep or cause to be
kept the books of account of the corporation in a thorough and proper manner,
and shall render statements of the financial affairs of the corporation in such
form and as often as required by the Board of Directors or the Chief Executive
Officer. The Treasurer, subject to the order of the Board of Directors, shall
have the custody of all funds and securities of the corporation. The Treasurer
shall perform all other duties commonly incident to such office and shall
perform such other duties and have such other powers as the Board of Directors
or the Chief Executive Officer shall designate from time to time. The Chief
Executive Officer may direct any Assistant Treasurer to assume and perform the
duties of the Treasurer in the absence or disability of the Treasurer, and each
Assistant Treasurer shall perform such other duties and have such other powers
as the Board of Directors or the Chief Executive Officer shall designate from
time to time.
ARTICLE 5
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 5.1 EXECUTION OF CORPORATE INSTRUMENTS.
(a) The Board of Directors may, in its discretion, determine the
method and designate the signatory officer or officers, or other person or
persons, to execute any corporate instrument or document, or to sign the
corporate name without limitation, except where otherwise provided by law, and
such execution or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of
Directors or otherwise required by law, formal contracts of the corporation,
promissory notes, deeds of trust, mortgages and other evidences of indebtedness
of the corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the corporation,
shall be executed, signed or endorsed by the Chairman of the Board (if there be
such an officer
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appointed) or by the Chief Executive Officer or President; such documents may
also be executed by any Vice-President and by the Secretary or Treasurer or any
Assistant Secretary or Assistant Treasurer. All other instruments and documents
requiring the corporate signature, but not requiring the corporate seal, may be
executed as aforesaid or in such other manner as may be directed by the Board of
Directors.
(c) All checks and drafts drawn on banks or other depositories
on funds to the credit of the corporation, or in special accounts of the
corporation, shall be signed by such person or persons as the Board of Directors
shall authorize so to do.
SECTION 5.2 VOTING OF SECURITIES OWNED BY CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors or, in the absence of such authorization,
by the Chairman of the Board (if there be such an officer appointed), or by the
Chief Executive Officer, President, or any Vice-President.
ARTICLE 6
SHARES OF STOCK
SECTION 6.1 FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by, or in the
name of the corporation by, the Chairman of the Board (if there be such an
officer appointed), or by the President or any Vice-President and by the
Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary,
certifying the number of shares owned by him in the corporation. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue. If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the Delaware General Corporation Law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 6.2 LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
indemnify the corporation in such manner as it shall require and/or to give the
corporation a surety
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bond in such form and amount as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost or destroyed.
SECTION 6.3 TRANSFERS. Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in person
or by attorney duly authorized, and upon the surrender of a certificate or
certificates for a like number of shares, properly endorsed.
SECTION 6.4 FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the date on which the meeting is held. A determination of stockholders
of record entitled notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by the Delaware General Corporation Law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 6.5 REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote
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as such owner, and shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as otherwise
provided by the laws of Delaware.
ARTICLE 7
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the corporation, other
than stock certificates, may be signed by the Chairman of the Board (if there be
such an officer appointed), or the Chief Executive Officer, President or any
Vice-President or such other person as may be authorized by the Board of
Directors and the corporate seal impressed thereon or a facsimile of such seal
imprinted thereon and attested by the signature of the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer; provided, however, that
where any such bond, debenture or other corporate security shall be
authenticated by the manual signature of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signature of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation,
or such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or before the bond,
debenture or other corporate security so signed or attested shall have been
delivered, such bond, debenture or other corporate security nevertheless may be
adopted by the corporation and issued and delivered as though the person who
signed the same or whose facsimile signature shall have been used thereon had
not ceased to be such officer of the corporation.
ARTICLE 8
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 8.1 RIGHT TO INDEMNIFICATION. Each person who was or is a party
or is threatened to be made a party to or is involved (as a party, witness, or
otherwise), in any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(hereinafter a "Proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director, officer, employee, or
agent of the corporation or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation or of a
partnership, joint venture, trust, or other enterprise, including service with
respect to employee benefit plans, whether the basis of the Proceeding is
alleged action in an official capacity as a director, officer, employee, or
agent or in any other capacity while serving as a director, officer, employee,
or agent (hereafter an "Agent"), shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended or interpreted (but, in the
case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the corporation to provide broader
indemnification rights than were permitted prior thereto) against all expenses,
liability, and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties, and amounts paid or to be paid in settlement, and any
interest, assessments, or other charges imposed thereon, and any federal, state,
local, or foreign taxes imposed on any Agent as a result of the actual or deemed
receipt of any payments under this Article) reasonably incurred or suffered
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by such person in connection with investigating, defending, being a witness in,
or participating in (including on appeal), or preparing for any of the foregoing
in, any Proceeding (hereinafter "Expenses"); provided, however, that except as
to actions to enforce indemnification rights pursuant to Section 8.3 of this
Article, the corporation shall indemnify any Agent seeking indemnification in
connection with a Proceeding (or part thereof) initiated by such person only if
the Proceeding (or part thereof) was authorized by the Board of Directors of the
corporation. The right to indemnification conferred in this Article shall be a
contract right.
SECTION 8.2 AUTHORITY TO ADVANCE EXPENSES. Expenses incurred by an
officer or director (acting in his capacity as such) in defending a Proceeding
shall be paid by the corporation in advance of the final disposition of such
Proceeding, provided, however, that if required by the Delaware General
Corporation Law, as amended, such Expenses shall be advanced only upon delivery
to the corporation of an undertaking by or on behalf of such director or officer
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this Article or
otherwise. Expenses incurred by other Agents of the corporation (or by the
directors or officers not acting in their capacity as such, including service
with respect to employee benefit plans) may be advanced upon such terms and
conditions as the Board of Directors deems appropriate. Any obligation to
reimburse the corporation for Expense advances shall be unsecured and no
interest shall be charged thereon.
SECTION 8.3 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section
8.1 or 8.2 of this Article is not paid in full by the corporation within 90 days
after a written claim has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense (including attorneys' fees) of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending a
Proceeding in advance of its final disposition where the required undertaking
has been tendered to the corporation) that the claimant has not met the
standards of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. The burden of proving such a defense shall be on the corporation.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper under the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant had not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that claimant has not met the applicable standard of conduct.
SECTION 8.4 PROVISIONS NONEXCLUSIVE. The rights conferred on any person
by this Article shall not be exclusive of any other rights that such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. To the extent that any provision of the
Certificate, agreement, or vote of the stockholders or disinterested directors
is inconsistent with these bylaws, the provision, agreement, or vote shall take
precedence.
SECTION 8.5 AUTHORITY TO INSURE. The corporation may purchase and
maintain insurance to protect itself and any Agent against any Expense, whether
or not the corporation would have the power to indemnify the Agent against such
Expense under applicable law or the provisions of this Article.
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SECTION 8.6 SURVIVAL OF RIGHTS. The rights provided by this Article
shall continue as to a person who has ceased to be an Agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
SECTION 8.7 SETTLEMENT OF CLAIMS. The corporation shall not be liable to
indemnify any Agent under this Article (a) for any amounts paid in settlement of
any action or claim effected without the corporation's written consent, which
consent shall not be unreasonably withheld; or (b) for any judicial award if the
corporation was not given a reasonable and timely opportunity, at its expense,
to participate in the defense of such action.
SECTION 8.8 EFFECT OF AMENDMENT. Any amendment, repeal, or modification
of this Article shall not adversely affect any right or protection of any Agent
existing at the time of such amendment, repeal, or modification.
SECTION 8.9 SUBROGATION. In the event of payment under this Article, the
corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Agent, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the corporation effectively to
bring suit to enforce such rights.
SECTION 8.10 NO DUPLICATION OF PAYMENTS. The corporation shall not be
liable under this Article to make any payment in connection with any claim made
against the Agent to the extent the Agent has otherwise actually received
payment (under any insurance policy, agreement, vote, or otherwise) of the
amounts otherwise indemnifiable hereunder.
ARTICLE 9
NOTICES
Whenever, under any provisions of these Bylaws, notice is required to be given
to any stockholder, the same shall be given in writing, timely and duly
deposited in the United States Mail, postage prepaid, and addressed to his last
known post office address as shown by the stock record of the corporation or its
transfer agent. Any notice required to be given to any director may be given by
the method hereinabove stated, or by telegram or other means of electronic
transmission, except that such notice other than one which is delivered
personally, shall be sent to such address or (in the case of facsimile
telecommunication) facsimile telephone number as such director shall have filed
in writing with the Secretary of the corporation, or, in the absence of such
filing, to the last known post office address of such director. If no address of
a stockholder or director be known, such notice may be sent to the office of the
corporation required to be maintained pursuant to Section 1.2 of Article 1
hereof. An affidavit of mailing, executed by a duly authorized and competent
employee of the corporation or its transfer agent appointed with respect to the
class of stock affected, specifying the name and address or the names and
addresses of the stockholder or stockholders, director or directors, to whom any
such notice or notices was or were given, and the time and method of giving the
same, shall be conclusive evidence of the statements therein contained. All
notices given by mail, as above provided, shall be deemed to have been given as
at the time of mailing and all notices given by telegram or other means of
electronic transmission shall be deemed to have been given as at the sending
time recorded by the telegraph company or other electronic transmission
equipment operator transmitting the same. It shall not be necessary that the
same method of giving be employed in respect of all directors, but one
permissible
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method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others. The period
or limitation of time within which any stockholder may exercise any option or
right, or enjoy any privilege or benefit, or be required to act, or within which
any director may exercise any power or right, or enjoy any privilege, pursuant
to any notice sent him in the manner above provided, shall not be affected or
extended in any manner by the failure of such a stockholder or such director to
receive such notice. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation, or of these
Bylaws, a waiver thereof in writing signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Whenever notice is required to be given, under any provision
of law or of the Certificate of Incorporation or Bylaws of the corporation, to
any person with whom communication is unlawful, the giving of such notice to
such person shall not be required and there shall be no duty to apply to any
governmental authority or agency for a license or permit to give such notice to
such person. Any action or meeting which shall be taken or held without notice
to any such person with whom communication is unlawful shall have the same force
and effect as if such notice had been duly given. In the event that the action
taken by the corporation is such as to require the filing of a certificate under
any provision of the Delaware General Corporation Law, the certificate shall
state, if such is the fact and if notice is required, that notice was given to
all persons entitled to receive notice except such persons with whom
communication is unlawful.
ARTICLE 10
AMENDMENTS
These Bylaws may be repealed, altered or amended or new Bylaws adopted at any
meeting of the stockholders, either annual or special, by the affirmative vote
of a majority of the stock entitled to vote at such meeting; provided, however,
that Sections 2.3, 2.9 or 2.10 may only be repealed, altered or amended by the
affirmative vote of 66-2/3% of the stock entitled to vote at such meeting. The
Board of Directors shall also have the authority to repeal, alter or amend these
Bylaws or adopt new Bylaws (including, without limitation, the amendment of any
Bylaws setting forth the number of directors who shall constitute the whole
Board of Directors) by unanimous written consent or at any annual, regular, or
special meeting by the affirmative vote of a majority of the whole number of
directors, subject to the power of the stockholders to change or repeal such
Bylaws and provided that the Board of Directors shall not make or alter any
Bylaws fixing the qualifications, classifications, or term of office of
directors and may not change or repeal Sections 2.3, 2.9 or 2.10.
<PAGE> 1
EXHIBIT 5.1
March 3, 2000
Saba Software, Inc.
2400 Bridge Parkway
Redwood Shores, CA 94065
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 initially filed
by Saba Software, Inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission on January 31, 2000 (Registration No.
333-95761) and Amendment No. 1 thereto filed on March 3, 2000 (collectively
the "Registration Statement"), relating to the registration under the Securities
Act of 1933, as amended, of up to 4,600,800 authorized but unissued shares of
the Company's Common Stock, $0.001 par value per share (the "Shares"), being
offered by the Company (including up to 600,000 shares that may be issued
upon exercise of the underwriters' over-allotment option). The Shares are to be
sold to the underwriters named in the Registration Statement for resale to the
public.
As counsel to the Company, we have examined the proceedings taken by the
Company in connection with the issuance and sale by the Company of up to
4,600,000 Shares.
We are of the opinion that the Shares to be offered and sold by the
Company have been duly authorized and, when issued and sold by the Company in
the manner described in the Registration Statement and in accordance with the
resolutions adopted by the Board of Directors of the Company, will be legally
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the prospectus constituting a part thereof and any amendments
thereto.
Very truly yours,
/s/ Morrison & Foerster LLP
<PAGE> 1
[DELOITTE & TOUCHE LETTERHEAD]
March 3, 2000
Securities and Exchange Commission
Mail Stop 11-3
450 5th Street, N.W.
Washington, D.C. 20549
Dear Sirs/Madams:
We have read and agree with the comments included under "Change in Accountants"
of the Registration Statement of Saba Software, Inc. on Form S-1 dated March 3,
2000.
Yours truly,
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
December 16, 1999, except for Note 12, as to which the date is January 28, 2000,
in the Registration Statement (Amendment No. 1 to Form S-1 No. 333-95761) and
related Prospectus of Saba Software, Inc. for the registration of 4,000,000
shares of its common stock.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
March 2, 2000
