<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 2000
REGISTRATION NO. 333-95761
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
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. [ ]
------------------------
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.
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<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 APRIL 6, 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 includes the sentence "Saba customers
include a wide spectrum of large, global organizations that represent a number
of industries, including:" above the following list: Automotive, Consumer,
Financial Services, Food and Beverage, Government, High Technology, Insurance,
Internet, Manufacturing, Professional Services, Telecommunications,
Telecommunications Equipment, Training Providers, Transportation and Utilities.
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 includes the sentence "Saba
learning providers from around the world publish their learning offerings in a
number of categories, including:" above the following list: Management, Core
Competencies, Technology, Sales, Marketing, Finance, Internet, Human Resources,
Media, Services and Support, Education and Learning, Natural Resources, Quality
Assurance and Health and Safety.
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 heading "Automotive" above the following
paragraph: "A leading automotive manufacturer has licensed the Saba Learning
Network Solution for more than 375,000 dealership personnel throughout its
worldwide dealership network. This company plans to use the products to align
dealer learning with the business goals that support its vision to become the
world's leading consumer company for automotive products and services. This
automotive manufacturer 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 heading "Telecommunications Equipment" above the following
paragraph: "A leading telecommunications equipment manufacturer has licensed the
Saba Learning Network Solution to deliver and track training for 25,000
employees globally. The company 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, this
company will provide learning to employees anytime, anywhere, over the
Internet."; and the heading "Air Transportation" above the following paragraph:
"An international association chose the Saba Learning Network Solution to help
meet its vision of becoming the leading provider of aviation training and
development in the world. This association intends to connect more than 30,000
people to learning annually. This association 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 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.
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
3
<PAGE> 5
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 offered in the concurrent
private placement to an entity
affiliated with Singapore
Telecommunications.................... 409,165 shares(1)
Common stock to be outstanding after the
offering and the concurrent private
placement............................. 42,905,772 shares
Use of proceeds from the offering and
the concurrent private placement........ 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 and the concurrent private placement is based on 38,496,607 shares
outstanding as of March 31, 2000 and excludes:
- 7,481,891 shares of our common stock subject to outstanding options and
warrants as of March 31, 2000; and
- 8,679,163 additional shares of our common stock available for future
grant or purchase under our stock plans as of March 31, 2000.
- ---------------
(1) Determined based on an assumed initial public offering price of $13.00 per
share.
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 $81,750
Working capital............................................. 23,955 76,315
Total assets................................................ 40,188 92,548
Long-term obligations, less current portion................. 2,615 2,615
Total stockholders' equity.................................. 24,961 77,321
</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 and in the concurrent private
placement, assuming an 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.
12
<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
14
<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.
15
<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 and the concurrent private placement, our executive
officers, directors and principal stockholders (i.e., greater than 5%
stockholders) will together beneficially own approximately 59.6% 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
significant corporate transactions. This concentration of
16
<PAGE> 18
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. We have not suffered any material consequences as a result
of a year 2000 problem.
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 and the concurrent private
placement, we will have outstanding 42,905,772 shares of common stock, assuming
no exercise of outstanding options or warrants after March 31, 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.................. 31,886,092
Periodically thereafter..................................... 7,019,680
</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.
17
<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 USE 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 $11.12, 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, and from the concurrent private placement of
409,165 shares of common stock, will be approximately $52.4 million, assuming an
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 $59.6 million.
The principal purposes of this offering and the concurrent private
placement 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 and in the concurrent private placement, assuming an
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,
41,191,153 shares issued and outstanding -- as
adjusted............................................... 17 41
Additional paid-in capital................................ 66,260 118,616
Deferred stock compensation............................... (10,743) (10,743)
Notes receivable from stockholders........................ (493) (493)
Accumulated deficit....................................... (30,100) (30,100)
-------- --------
Total stockholders' equity................................ 24,961 77,321
-------- --------
Total capitalization.............................. $ 27,576 $ 79,936
======== ========
</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 March 31, 2000, we increased the
number of shares of our common stock available for grant under our 1997 Stock
Incentive Plan by 2,200,000 shares, granted options to purchase 2,916,650 shares
of our common stock under our 1997 Stock Incentive Plan at a weighted average
exercise price of $6.64 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 1,714,619 shares of our common stock (including common
stock issued upon exercise of options and warrants to purchase 1,236,330 shares
of common stock outstanding at November 30, 1999) at a weighted average purchase
price of $0.92 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 and the
concurrent private placement, 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 $77.3 million, or
$1.88 per share. This represents an immediate increase in pro forma net tangible
book value of $1.20 per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $11.12 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.......... 1.20
-----
Pro forma net tangible book value per share after this
offering.................................................. 1.88
------
Dilution per share to new investors......................... $11.12
======
</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
and in the concurrent private placement:
<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 89.3% $ 51,784,000 47.6% $ 1.41
New investors................ 4,000,000 9.7 52,000,000 47.8 $ 13.00
Concurrent private placement
investor................... 409,165 1.0 5,000,000 4.6 $ 12.22
---------- ----- ------------ -----
Total.............. 41,191,153 100.0% $108,784,000 100.0%
========== ===== ============ =====
</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 March 31, 2000, we granted options to purchase 2,916,650
shares of our common stock under our 1997 Stock Incentive Plan at a weighted
average exercise price of $6.64 per share and issued 1,714,619 shares of our
common stock at a weighted average purchase price of $0.92 per share. The above
computations assume no exercise of warrants outstanding to purchase 84,581
shares, at a weighted-average exercise price of $2.93 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. As of
November 30, 1999, deferred revenues included approximately $3.1 million of
amounts recorded in accounts receivable and software license and support fees
collected from customers in advance of revenue recognition. We invoice customers
for license and support fees in accordance with individual contract terms.
Payment terms for license fees and first year support fees generally require
payment from the customer within 30 days of the effective date of the contract.
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.
26
<PAGE> 28
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. 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.
27
<PAGE> 29
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.
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 cash payment to a third party 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. The planned
development of the product framework is projected to take 12 to 24 months and is
currently intended to be completed during fiscal 2001. The total internal cost
is currently expected to range from $4 million to $6 million. Changes in market
conditions, resource allocations and internal initiatives could impact our
decision to continue development of the product framework. The development of
software products, including this product framework, involves substantial risk.
We may not be able to successfully complete the development of the product
framework in the projected timeframe, if at all, or at the expected cost. See
"Risk Factors -- Delays in releasing..." for a discussion of the risks and
uncertainties associated with developing new products.
Research and development expenses exclude $572,000 of amortization 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.
28
<PAGE> 30
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 amortization 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.
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
from five at November 30, 1998 to 24 at November 30, 1999, resulting in a
$637,000 increase in salary expense for the six months ended November 30, 1999
from the six months ended November 30, 1998. The increase was also attributable
to an increase in the amount of administrative and professional services fees,
including temporary staffing, legal and accounting fees. General and
administrative expenses exclude $1,382,000 of amortization 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
29
<PAGE> 31
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.
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;
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<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
$32.1 million under operating leases and $1.1 million under capital leases.
We currently anticipate that the net proceeds from this offering and the
concurrent private placement, 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
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<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 was a partner at
Morrison & Foerster LLP, an international law firm, from January 1995 until
March 2000. 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 March 31, 2000, we had reserved 10,815,550 shares of
common stock for the grant of stock options and other equity incentive awards
under the 1997 Incentive Plan. As of March 31, 2000, there were options to
purchase 7,373,380 shares of common stock outstanding under the 1997 Incentive
Plan with exercise prices ranging from $0.05 to $10.00 per share, 2,763,007
shares had been issued pursuant to the exercise of options or equity incentive
awards under the 1997 Incentive Plan, and 679,163 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 March 31, 2000 as adjusted to
reflect the sale of shares offered hereby and in the concurrent private
placement, 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 March 31, 2000 are deemed
outstanding. Percentage of beneficial ownership as of March 31, 2000 is based
upon 38,496,607 shares of common stock outstanding prior to this offering and
42,905,772 shares of common stock outstanding after this offering and the
concurrent private placement. 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 22.5% 20.5%
3000 Sand Hill Road, Building 4, Suite
280
Menlo Park, CA 94025
Michael Moritz(3).......................... 8,672,710 0 22.5 20.2
c/o Sequoia Capital
3000 Sand Hill Road, Building 4, Suite
280
Menlo Park, CA 94025
Bobby Yazdani(4)........................... 7,500,000 0 19.5 17.5
London Pacific Life & Annuity Company...... 2,631,284 0 6.8 6.1
3109 Poplarwood Court, Suite 108
Raleigh, NC 27604(5)
Entities affiliated with Crosslink Capital,
Inc.(6).................................. 2,605,613 0 6.8 6.1
555 California Street, Suite 2350
San Francisco, CA 94104
Kamyar Kaviani............................. 2,042,250 0 5.3 4.8
5301 Water Wheel Court
Rockville, MD 20855
Terry Carlitz.............................. 690,000 655,000 1.8 1.6
Stuart Jacobson(7)......................... 513,047 360,000 1.3 1.2
David Martin............................... 494,611 0 1.3 1.2
Joe Kiani(8)............................... 303,333 0 * *
Joseph Costello............................ 232,012 185,358 * *
Robert Cohn(9)............................. 412,608 114,400 1.1 1.0
Douglas Allred............................. 245,789 185,358 * *
All executive officers and directors as a
group (14 persons)(10)................... 20,386,778 2,570,116 52.8 47.4
</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 Crosslink
Crossover Fund II, 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 8,000 shares held by Mr. Jacobson's minor children and options to
purchase 17,500 shares of common stock exercisable within 60 days of March
31, 2000.
(8) Includes options to purchase 83,333 shares of common stock exercisable
within 60 days of March 31, 2000.
(9) 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.
(10) Includes options to purchase 102,500 shares of common stock exercisable
within 60 days of March 31, 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 affiliated 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, LLC 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, 167,147 shares purchased by Sequoia Capital
Franchise Partners and 13,109 shares purchased by CMS Partners, LLC.
(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, LLC, 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 $147,375 secured by the pledge of
491,250 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 AND DIRECTORS
We granted options to the following executive officers and director 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 directors, 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 March 31, 2000, there were 38,496,607 shares of common stock
outstanding held of record by approximately 148 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 March 31, 2000 there were warrants outstanding to purchase up to
108,511 shares, with per share exercise prices ranging from $0.70 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.
CONCURRENT PRIVATE PLACEMENT
In March 2000, we entered into a strategic alliance and stock purchase
agreement with SingTel Ventures (Cayman) Pte. Limited, an entity affiliated with
Singapore Telecommunications. Pursuant to this agreement, we have agreed to sell
an aggregate of $5.0 million of our common stock to SingTel Ventures (Cayman)
Pte. Limited at a per share price equal to 94% of the initial public offering
price. In addition, SingTel Ventures (Cayman) Pte. Limited has agreed not to
sell, transfer, encumber or otherwise dispose of any of the shares of common
stock acquired in the concurrent private placement
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<PAGE> 62
in a public or private sale for a period of one year following the initial
public offering. The shares sold to SingTel Ventures (Cayman) Pte. Limited may
be released from these restrictions by us and the underwriters during the 180
day period following the initial public offering and by us thereafter.
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 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
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<PAGE> 63
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 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.
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<PAGE> 64
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
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 ChaseMellon
Shareholder Services. Its address is 235 Montgomery Street, 23rd Floor, San
Francisco, California 94104, and its telephone number is (415) 743-1444.
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<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and the concurrent private placement, we
will have 42,905,772 shares of common stock outstanding based on shares
outstanding as of March 31, 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 38,905,772 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 31,886,029
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 429,058 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.
64
<PAGE> 66
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
65
<PAGE> 67
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.
A prospectus in electronic format will be made available on the web sites
maintained by one or more of the underwriters of this offering. The underwriters
may agree to allocate a number of shares to underwriters for sale to their
online brokerage account holders. Internet distributions will be allocated by
the lead managers to underwriters that may make Internet distributions on the
same basis as other allocations.
Saba estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately $1.0
million.
66
<PAGE> 68
Saba has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
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.
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.
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. Saba
invoices customers for license and support fees in accordance with individual
contract terms. Payment terms generally require payment of the license fees and
first year support fees from the customer 30 days from the effective date of the
contract.
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.
F-11
<PAGE> 80
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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
F-12
<PAGE> 81
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-13
<PAGE> 82
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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.
F-14
<PAGE> 83
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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
F-15
<PAGE> 84
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 30, 1999 (unaudited)...................... 5,640,425 0.13
==========
</TABLE>
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
F-16
<PAGE> 85
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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 1,115,550
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.
F-17
<PAGE> 86
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-18
<PAGE> 87
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 $9.3 million.
F-19
<PAGE> 88
SABA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $1.2 million value of the warrant,
determined using the Black-Scholes option pricing model, has been accounted for
as an increase and immediate reduction of additional paid-in capital. The
warrant expires on January 31, 2000.
F-20
<PAGE> 89
- ------------------------------------------------------
- ------------------------------------------------------
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>
Prospectus 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
Underwriting.......................... 65
Legal Matters......................... 67
Experts............................... 67
Change in Accountants................. 67
Additional Information................ 67
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> 90
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 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 of the fact that such
II-1
<PAGE> 91
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 such person's 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 its 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 March 31, 2000, 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 10,906,450 shares of the
Registrant's common stock, at exercise prices ranging from $0.05 to $10.00
with a weighted average exercise price of $1.84 per share.
2. During the period, the Registrant issued and sold an aggregate of
2,713,007 shares of its common stock to 69 employees, directors and
consultants for an aggregate amount of $181,247.38 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 2,894,147 shares of its common stock to 11 employees,
directors (including trusts affiliated with directors) and advisory board
members for an aggregate amount of $2,057,017.66.
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 $359,998.08.
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 and sold an aggregate of
4,636,068 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
$321,451.98. In addition, the Registrant issued a warrant for 23,930 shares
of its Common Stock for an aggregate exercise price equal to 80% or 90%
(subject to certain events) of the initial public offering price.
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> 92
10. During the period, the Registrant issued and sold an aggregate of
583,413 shares of its Common Stock for an aggregate amount of $318,451.88
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> 93
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 April 6, 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 April 6, 2000
- ----------------------------------------------------- Directors, President and
Bobby Yazdani Chief Executive Officer
(Principal Executive
Officer)
/s/ TERRY CARLITZ Chief Financial Officer and April 6, 2000
- ----------------------------------------------------- Director (Principal
Terry Carlitz Financial and Accounting
Officer)
/s/ DOUGLAS ALLRED* Director April 6, 2000
- -----------------------------------------------------
Douglas Allred
/s/ ROBERT COHN* Director April 6, 2000
- -----------------------------------------------------
Robert Cohn
/s/ JOSEPH COSTELLO* Director April 6, 2000
- -----------------------------------------------------
Joseph Costello
/s/ JOSEPH KIANI* Director April 6, 2000
- -----------------------------------------------------
Joseph Kiani
/s/ MICHAEL MORITZ* Director April 6, 2000
- -----------------------------------------------------
Michael Moritz
By: /s/ BOBBY YAZDANI
-------------------------------------------------
Bobby Yazdani
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 94
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* Form of 2000 Stock Incentive Plan.
10.4* Form of 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.
10.8 Stock Purchase and Master Strategic Relationship Agreement
dated March 31, 2000 between the Registrant and SingTel
Ventures (Cayman) Pte Limited.
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 filed.
<PAGE> 1
EXHIBIT 10.2
SABA SOFTWARE, INC.
AMENDED AND RESTATED 1997 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive Plan are
to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of the Committees
appointed to administer the Plan.
(b) "Applicable Laws" means the legal requirements relating to
the administration of stock incentive plans, if any, under applicable provisions
of federal securities laws, California corporate and securities laws, the Code,
the rules of any applicable stock exchange or national market system, and the
rules of any foreign jurisdiction applicable to Awards granted to residents
therein.
(c) "Award" means the grant of an Option, Restricted Stock, or
other right or benefit under the Plan.
(d) "Award Agreement" means the written agreement evidencing the
grant of an Award executed by the Company and the Grantee, including any
amendments thereto.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means any committee appointed by the Board to
administer the Plan.
(h) "Common Stock" means the common stock of the Company.
(i) "Company" means Saba Software, Inc., a Delaware corporation.
(j) "Consultant" means any person who is engaged by the Company
or Related Entity to render consulting or advisory services as an independent
contractor and is compensated for such services.
(k) "Continuous Status as an Employee, Director or Consultant"
means that the provision of services to the Company or a Related Entity in any
capacity of Employee, Director or Consultant, is not interrupted or terminated.
Continuous Status as an Employee, Director or Consultant shall not be considered
interrupted in the case of (i) any approved leave of absence, (ii) transfers
between locations of the Company or among the Company, any Related Entity, or
any successor, in any capacity of Employee, Director or Consultant, or (iii) any
change
1
<PAGE> 2
in status as long as the individual remains in the service of the Company or a
Related Entity in any capacity of Employee, Director or Consultant (except as
otherwise provided in the Award Agreement). For purposes of Incentive Stock
Options, no such leave may exceed ninety (90) days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract.
(l) "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock of
the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding securities
are transferred to a person or persons different from those who held such
securities immediately prior to such merger.
(m) "Director" means a member of the Board.
(n) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(p) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) Where there exists a public market for the Common
Stock, the Fair Market Value shall be (A) the closing price for a Share for the
last market trading day prior to the time of the determination (or, if no
closing price was reported on that date, on the last trading date on which a
closing price was reported) on the stock exchange determined by the
Administrator to be the primary market for the Common Stock or the Nasdaq
National Market, whichever is applicable or (B) if the Common Stock is not
traded on any such exchange or national market system, the average of the
closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the
day prior to the time of the determination (or, if no such prices were reported
on that date, on the last date on which such prices were reported), in each
case, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable; or
(ii) In the absence of an established market of the type
described in (i), above, for the Common Stock, the Fair Market Value thereof
shall be determined by the Administrator in good faith and in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.
2
<PAGE> 3
(q) "Grantee" means an Employee, Director or Consultant who
receives an Award under the Plan.
(r) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code
(s) "Non-Qualified Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(t) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(u) "Option" means a stock option granted pursuant to the Plan.
(v) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this Amended and Restated 1997 Stock Incentive
Plan.
(x) "Registration Date" means the closing of the first sale of
Common Stock to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
(y) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other entity in
which the Company, a Parent or a Subsidiary holds an ownership interest,
directly or indirectly.
(z) "Restricted Stock" means Shares issued under the Plan to the
Grantee for such consideration, if any, and subject to such restrictions on
transfer, rights of first refusal, repurchase provisions, forfeiture provisions,
and other terms and conditions as established by the Administrator.
(aa) "Share" means a share of the Common Stock.
(bb) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 11(a) below, the
maximum aggregate number of Shares which may be issued pursuant to all Awards
(including Incentive Stock Options) is 6,000,000 Shares. The Shares may be
authorized, but unissued, or reacquired Common Stock.
(b) If an Award expires or becomes unexercisable without having
been exercised in full, or if any unissued Shares are retained by the Company
upon exercise of an
3
<PAGE> 4
Award in order to satisfy the exercise price for such Award or any withholding
taxes due with respect to such Award, such unissued or retained Shares shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that actually have been issued under the Plan pursuant to an
Award shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
forfeited, or repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Administrator. With respect to grants of Awards to
Employees, Directors, Officers or Consultants, the Plan shall be administered by
(A) the Board or (B) a Committee (or a subcommittee of the Committee) designated
by the Board, which Committee shall be constituted in such a manner as to
satisfy Applicable Laws. Once appointed, such Committee shall continue to serve
in its designated capacity until otherwise directed by the Board.
(b) Powers of the Administrator. Subject to Applicable Laws and
the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and Consultants
to whom Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent Awards are
granted hereunder;
(iii) to determine the number of Shares or the amount of
other consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreement for use under
the Plan;
(v) to determine the terms and conditions of any Award
granted hereunder;
(vi) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of applicable foreign jurisdictions
and to afford Grantees favorable treatment under such laws; provided, however,
that no Award shall be granted under any such additional terms, conditions,
rules or procedures with terms or conditions which are inconsistent with the
provisions of the Plan;
(vii) to amend the terms of any outstanding Award
granted under the Plan, including a reduction in the exercise price of any Award
to reflect a reduction in the Fair Market Value of the Common Stock since the
grant date of the Award, provided that any amendment that would adversely affect
the Grantee's rights under an outstanding Award shall not be made without the
Grantee's written consent;
4
<PAGE> 5
(viii) to construe and interpret the terms of the Plan
and Awards granted pursuant to the Plan; and
(ix) to take such other action, not inconsistent with
the terms of the Plan, as the Administrator deems appropriate.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be conclusive and
binding on all persons.
5. Eligibility. Awards other than Incentive Stock Options may be granted
to Employees, Directors and Consultants. Incentive Stock Options may be granted
only to Employees of the Company, a Parent or a Subsidiary. An Employee,
Director or Consultant who has been granted an Award may, if otherwise eligible,
be granted additional Awards. Awards may be granted to such Employees, Directors
or Consultants who are residing in foreign jurisdictions as the Administrator
may determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized under the
Plan to award any type of arrangement to an Employee, Director or Consultant
that is not inconsistent with the provisions of the Plan and that by its terms
involves or might involve the issuance of (i) Shares, (ii) an Option, or similar
right with an exercise or conversion privilege at a fixed or variable price
related to the Common Stock and/or the passage of time, the occurrence of one or
more events, or the satisfaction of performance criteria or other conditions, or
(iii) any other security with the value derived from the value of the Common
Stock or securities issued by a Related Entity. Such awards include, without
limitation, Options, and sales or bonuses of Restricted Stock. An Award may
consist of one such security or benefit, or two or more of them in any
combination or alternative.
(b) Designation of Award. Each Award shall be designated in the
Award Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of Shares subject to Options designated as Incentive Stock Options which
become exercisable for the first time by a Grantee during any calendar year
(under all plans of the Company or any Parent or Subsidiary) exceeds $100,000,
such excess Options, to the extent of the Shares covered thereby in excess of
the foregoing limitation, shall be treated as Non-Qualified Stock Options. For
this purpose, Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the Shares shall be
determined as of the grant date of the relevant Option.
(c) Conditions of Award. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, payment
contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price,
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<PAGE> 6
earnings per share, total stockholder return, return on equity, return on
assets, return on investment, net operating income, cash flow, revenue, economic
value added, personal management objectives, or other measure of performance
selected by the Administrator. Partial achievement of the specified criteria may
result in a payment or vesting corresponding to the degree of achievement as
specified in the Award Agreement.
(d) Early Exercise. The Award may, but need not, include a
provision whereby the Grantee may elect at any time while an Employee, Director
or Consultant to exercise any part or all of the Award prior to full vesting of
the Award. Any unvested Shares received pursuant to such exercise may be subject
to a repurchase right in favor of the Company or to any other restriction the
Administrator determines to be appropriate.
(e) Term of Award. The term of each Award shall be the term
stated in the Award Agreement, provided, however, that the term shall be no more
than ten (10) years from the date of grant thereof. However, in the case of an
Incentive Stock Option granted to a Grantee who, at the time the Option is
granted, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the term of
the Incentive Stock Option shall be five (5) years from the date of grant
thereof or such shorter term as may be provided in the Award Agreement.
(f) Non-Transferability of Awards. Awards may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Grantee, only by the Grantee.
(g) Time of Granting Awards. The date of grant of an Award shall
for all purposes be the date on which the Administrator makes the determination
to grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee, Director or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant.
7. Award Exercise or Purchase Price, Consideration, Taxes and Reload
Options.
(a) Exercise or Purchase Price. The exercise or purchase price,
if any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of
the grant of such Incentive Stock Option owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be not less than one
hundred ten percent (110%) of the Fair Market Value per Share on the date of
grant.
(B) granted to any Employee other than an
Employee described in the preceding paragraph, the per Share exercise price
shall be not less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
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<PAGE> 7
(ii) In the case of a Non-Qualified Stock Option:
(A) granted to a person who, at the time of the
grant of such Option, Iowns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be not less than one hundred ten
percent (110%) of the Fair Market Value per Share on the date of grant.
(B) granted to any person other than a person
described in the preceding paragraph, the per Share exercise price shall be not
less than eighty-five percent (85%) of the Fair Market Value per Share on the
date of grant.
(iii) In the case of the sale of Shares:
(A) granted to a person who, at the time of the
grant of such Award, or at the time the purchase is consummated, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share purchase price
shall be not less than one hundred percent (100%) of the Fair Market Value per
share on the date of grant.
(B) granted to any person other than a person
described in the preceding paragraph, the per Share purchase price shall be not
less than eighty-five percent (85%) of the Fair Market Value per Share on the
date of grant.
(b) Consideration. Subject to Applicable Laws, the consideration
to be paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). In addition to any other types of consideration the Administrator may
determine, the Administrator is authorized to accept as consideration for Shares
issued under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such
recourse, interest, security, and redemption provisions as the Administrator
determines as appropriate;
(iv) if the exercise occurs on or after the Registration
Date, surrender of Shares or delivery of a properly executed form of attestation
of ownership of Shares as the Administrator may require (including withholding
of Shares otherwise deliverable upon exercise of the Award) which have a Fair
Market Value on the date of surrender or attestation equal to the aggregate
exercise price of the Shares as to which said Award shall be exercised (but only
to the extent that such exercise of the Award would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price
unless otherwise determined by the Administrator);
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<PAGE> 8
(v) if the exercise occurs on or after the Registration
Date, delivery of a properly executed exercise notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Award and delivery to the Company of the sale or
loan proceeds required to pay the exercise price; or
(vi) any combination of the foregoing methods of
payment.
(c) Taxes. No Shares shall be delivered under the Plan to any
Grantee or other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of any foreign, federal,
state, or local income and employment tax withholding obligations, including,
without limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive Stock
Option. Upon exercise of an Award the Company shall withhold or collect from
Grantee an amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or tax
withholding of an Option is satisfied by the Company or the Grantee's employer
withholding Shares otherwise deliverable to the Grantee, the Administrator may
issue the Grantee an additional Option, with terms identical to the Award
Agreement under which the Option was exercised, but at an exercise price as
determined by the Administrator in accordance with the Plan.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Award granted hereunder shall be exercisable at
such times and under such conditions as determined by the Administrator under
the terms of the Plan and specified in the Award Agreement but in the case of an
Option, in no case at a rate of less than 20% per year over five (5) years from
the date the Option is granted, subject to reasonable conditions such as
continued employment. However, in the case of an Option granted to an Officer,
Director or Consultant, the Award Agreement may provide that the Option may
become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established in the Award Agreement.
(ii) An Award shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance with
the terms of the Award by the person entitled to exercise the Award and full
payment for the Shares with respect to which the Award is exercised has been
received by the Company. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a stockholder shall exist with respect
to Shares subject to an Award, notwithstanding the exercise of an Option or
other Award. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in the Award Agreement or Section 11(a), below.
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<PAGE> 9
(b) Exercise of Award Following Termination of Employment,
Director or Consulting Relationship. In the event of termination of an Grantee's
Continuous Status as an Employee, Director or Consultant for any reason other
than disability or death (but not in the event of an Grantee's change of status
from Employee to Consultant or from Consultant to Employee), such Grantee may,
but only within three (3) months after the date of such termination (but in no
event later than the expiration date of the term of such Award as set forth in
the Award Agreement), exercise his or her Award to the extent that the Grantee
was entitled to exercise it at the date of such termination or to such other
extent as may be determined by the Administrator. The Grantee's Award Agreement
may provide that upon the termination of the Grantee's Continuous Status as an
Employee, Director or Consultant for "Cause," the Grantee's right to exercise
the Award shall terminate concurrently with the termination of Grantee's
Continuous Status as an Employee, Director or Consultant. The term "Cause" shall
be as defined in the Award Agreement. If the Grantee should die within three (3)
months after the date of such termination, the Grantee's estate or the person
who acquired the right to exercise the Award by bequest or inheritance may
exercise the Award to the extent that the Grantee was entitled to exercise it at
the date of such termination within twelve (12) months of the Grantee's date of
death, but in no event later than the expiration date of the term of such Award
as set forth in the Award Agreement. In the event of an Grantee's change of
status from Employee to Consultant, an Employee's Incentive Stock Option shall
convert automatically to a Non-Qualified Stock Option on the day three (3)
months and one day following such change of status. To the extent that the
Grantee is not entitled to exercise the Award at the date of termination, or if
the Grantee does not exercise such Award to the extent so entitled within the
time specified herein, the Award shall terminate.
(c) Disability of Grantee. In the event of termination of an
Grantee's Continuous Status as an Employee, Director or Consultant as a result
of his or her disability, Grantee may, but only within twelve (12) months from
the date of such termination (and in no event later than the expiration date of
the term of such Award as set forth in the Award Agreement), exercise the Award
to the extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option such Incentive Stock Option shall automatically convert to a
Non-Qualified Stock Option on the day three (3) months and one day following
such termination. To the extent that the Grantee is not entitled to exercise the
Award at the date of termination, or if Grantee does not exercise such Award to
the extent so entitled within the time specified herein, the Award shall
terminate.
(d) Death of Grantee. In the event of the death of an Grantee,
the Award may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Award as set forth in the Award Agreement), by the Grantee's estate or by a
person who acquired the right to exercise the Award by bequest or inheritance,
but only to the extent that the Grantee was entitled to exercise the Award at
the date of death. If, at the time of death, the Grantee was not entitled to
exercise his or her entire Award, the Shares covered by the unexercisable
portion of the Award shall immediately revert to the Plan. If, after death, the
Grantee's estate or a person who acquired the right to exercise the Award by
bequest or inheritance does not exercise the Award within the time specified
herein, the Award shall terminate.
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<PAGE> 10
(e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Award previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise of an
Award unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) As a condition to the exercise of an Award, the Company may
require the person exercising such Award to represent and warrant at the time of
any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
10. Repurchase Rights. If the provisions of an Award Agreement grant to
the Company the right to repurchase Shares upon termination of the Grantee's
Continuous Status as an Employee, Director or Consultant, the Award Agreement
shall provide that the repurchase price will be either:
(a) Not less than the Fair Market Value of the Shares to be
repurchased on the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, and the right to repurchase must be exercised
for cash or cancellation of purchase money indebtedness for the Shares within
ninety (90) days of the termination of the Grantee's Continuous Status as an
Employee, Director or Consultant (or in the case of Shares issued upon exercise
of Awards after the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, within ninety (90) days after the date of the
Award exercise), and the right terminates when the Company's securities become
publicly traded; or
(b) The original purchase price, provided that the right to
repurchase at the original purchase price lapses at the rate of at least twenty
percent (20%) of the Shares subject to the Award per year over five (5) years
from the date the Award is granted (without respect to the date the Award was
exercised or became exercisable), and the right to repurchase must be exercised
for cash or cancellation of purchase money indebtedness for the Shares within
ninety (90) days of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant (or in the case of Shares issued upon exercise
of Awards after the date of termination of the Grantee's Continuous Status as an
Employee, Director or Consultant, within ninety (90) days after the date of the
Award exercise).
(c) In addition to the restrictions set forth in (a) and (b)
above, the Shares held by an Officer, Director or Consultant may be subject to
additional or greater restrictions.
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<PAGE> 11
11. Adjustments Upon Changes in Capitalization or Corporate Transaction.
(a) Adjustments upon Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the number of Shares covered
by each outstanding Award, and the number of Shares which have been authorized
for issuance under the Plan but as to which no Awards have yet been granted or
which have been returned to the Plan, as well as the price per share of Common
Stock covered by each such outstanding Award, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other similar event resulting in
an increase or decrease in the number of issued shares of Common Stock. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason hereof shall be made with respect to, the
number or price of Shares subject to an Award.
(b) Corporate Transaction. Except as provided otherwise in an
individual Award Agreement, in the event of any Corporate Transaction, each
outstanding Award will terminate immediately prior to the specified effective
date of such Corporate Transaction, unless the Award is assumed or an equivalent
Award is substituted by the successor corporation or a Parent or Subsidiary of
such successor corporation. For the purposes of this subsection, the Award shall
be considered assumed or substituted for an equivalent Award if, following the
Corporate Transaction, the Award confers, for each Share subject to the Award
immediately prior to the Corporate Transaction, (i) the consideration (whether
stock, cash, or other securities or property) received in the Corporate
Transaction by holders of Common Stock for each Share subject to the Award held
on the effective date of the Corporate Transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares), or (ii) the right to purchase such
consideration in the case of an Option or similar Award; provided, however, that
if such consideration received in the Corporate Transaction was not solely
common stock of the successor corporation or its Parent or a Subsidiary, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise or exchange of the Award for
each Share subject to the Award to be solely common stock of the successor
corporation or its Parent or a Subsidiary equal in fair market value to the per
share consideration received by holders of Common Stock in the Corporate
Transaction.
12. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate the
Plan. To the extent necessary to comply with Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
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<PAGE> 12
(b) No Award may be granted during any suspension of the Plan or
after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan shall
not affect Awards already granted, and such Awards shall remain in full force
and effect as if the Plan had not been amended, suspended or terminated, unless
mutually agreed otherwise between the Grantee and the Administrator, which
agreement must be in writing and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
15. No Effect on Terms of Employment/Consulting. The Plan shall not
confer upon any Grantee any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way with
his or her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
16. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be obtained
in the degree and manner required under Applicable Laws. Any Award exercised
before stockholder approval is obtained shall be rescinded if stockholder
approval is not obtained within the time prescribed, and Shares issued on the
exercise of any such Award shall not be counted in determining whether
stockholder approval is obtained.
17. Information to Grantees. The Company shall provide to each Grantee,
during the period for which such Grantee has one or more Awards outstanding,
copies of financial statements at least annually.
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<PAGE> 13
SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN
NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address: NAME
ADDRESS
ADDRESS
You have been granted an option to purchase shares of Common Stock of
the Company, subject to the terms and conditions of the Plan and the Option
Agreement, as follows:
<TABLE>
<S> <C>
Grant Number 000XXX
Date of Grant DATE
Vesting Commencement Date DATE OF HIRE
Exercise Price per Share $0.XX
Total Number of Shares Granted XX,XXX
Total Exercise Price $X,XXX
Type of Option: X________Incentive Stock Option
_________Non-Qualified Stock Option
Term/Expiration Date: DATE (10 YEARS)
</TABLE>
Vesting Schedule:
Subject to other limitations set forth in the Option Agreement, the
Option may be exercised, in whole or in part, in accordance with the following
schedule:
25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 3/48 of the Shares subject to the Option
shall vest on each quarterly anniversary of the Vesting Commencement Date
thereafter.
During any authorized leave of absence, the vesting of the Option as
provided in this schedule shall cease after the leave of absence exceeds a
period of ninety (90) days. Vesting of the Option shall resume upon the
Optionee's termination of the leave of absence and return to service with the
Company.
In the event of the Optionee's change in status from Employee to
Consultant, vesting of the Option shall continue only to the extent determined
by the Administrator as of such change in status.
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<PAGE> 14
Termination Period:
Except in the event of termination of the Optionee's Continuous Status
as an Employee, Director or Consultant for "Cause" (as defined below), the
Option may be exercised within three (3) months from termination of the
Optionee's Continuous Status as an Employee, Director or Consultant or such
longer period as may be applicable upon death or disability of the Optionee as
provided in the Option Agreement. In the event of the Optionee's change in
status from Employee to Consultant or Consultant to Employee, the Option shall
remain in effect; provided, however, that in the event of a change in status
from Employee to Consultant, the Optionee's Incentive Stock Option shall cease
to be treated as an Incentive Stock Option and shall be treated as a
Non-Qualified Stock Option on the day three (3) months and one day following
such change in status. In no event shall the Option be exercised later than the
Term/Expiration Date as provided above.
In the event of termination of the Optionee's Continuous Status as an
Employee, Director or Consultant for "Cause," the Optionee's right to exercise
the Option shall terminate concurrently with the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant.
Definition of "Cause":
For purposes of the Option, termination of the Optionee's Continuous
Status as an Employee, Director or Consultant shall be for "Cause" as such term
is defined in the Optionee's employment agreement, or in the absence of such
definition, then as in the opinion of the Company, the Optionee: (i) acts in bad
faith and to the detriment of the Company; (ii) refuses or fails to act in
accordance with any specific direction or order of the Company; (iii) exhibits
in regard to his employment unfitness or unavailability for service,
unsatisfactory performance, misconduct, but not disability; (iv) exhibits
dishonesty, habitual neglect, or incompetence, but not disability; or (v) is
convicted of a crime involving dishonesty, breach of trust, or physical or
emotional harm to any person. At least 30 days prior to terminating the
Optionee's Continuous Status as an Employee, Director or Consultant pursuant to
(ii) or (iii) above, the Company shall provide the Optionee with notice of the
Company's intent to terminate, the Company's reason therefor, and an opportunity
for the Optionee to cure such defects in his service to the Company's
satisfaction. During this 30 day (or longer) period, the Optionee shall not be
entitled to exercise the Option, but the Option shall continue to vest in
accordance with the Vesting Schedule.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Notice of Stock Option Grant and agree that the Option is to be governed by the
terms and conditions of this Notice of Stock Option Grant, the Plan, and the
Option Agreement.
Saba Software, Inc.,
a Delaware corporation
By:
-------------------------------
Its: President & CEO
-------------------------------
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<PAGE> 15
THE OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). THE OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS NOTICE OF STOCK OPTION GRANT, THE OPTION AGREEMENT, NOR IN THE
COMPANY'S 1997 STOCK INCENTIVE PLAN, SHALL CONFER UPON THE OPTIONEE ANY RIGHT
WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR
SHALL IT INTERFERE IN ANY WAY WITH THE OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT
TO TERMINATE THE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR
WITHOUT CAUSE.
The Optionee acknowledges receipt of a copy of the Plan and the Option
Agreement, and represents that he is familiar with the terms and provisions
thereof, and hereby accepts the Option subject to all of the terms and
provisions thereof. The Optionee has reviewed this Notice of Stock Option Grant,
the Plan, and the Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing the Notice of Stock Option Grant
and fully understands all provisions of this Notice of Stock Option Grant, the
Plan, and the Option Agreement. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board or
Administrator upon any questions arising under this Notice of Stock Option
Grant, the Plan, and the Option Agreement. The Optionee further agrees to notify
the Company upon any change in the residence address indicated in this Notice of
Stock Option Grant.
Dated: Signed:
----------------------- ---------------------------------
Optionee
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<PAGE> 16
SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
1. Grant of Option. Saba Software, Inc., a Delaware corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Stock Option
Grant (the "Optionee"), an option (the "Option") to purchase the total number of
shares of Common Stock (the "Shares") set forth in the Notice of Stock Option
Grant, at the exercise price per share set forth in the Notice of Stock Option
Grant (the "Exercise Price") subject to the terms, definitions and provisions of
the Notice of Stock Option Grant and the Company's 1997 Stock Incentive Plan
(the "Plan") adopted by the Company, which are incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
If designated in the Notice of Stock Option Grant as an Incentive Stock
Option, the Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Section 422(d) of the Code, the Option shall be treated as
a Non-Qualified Stock Option.
2. Exercise of Option.
(a) Right to Exercise. The Option shall be exercisable during
its term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and with the applicable provisions of the Plan and this Option
Agreement. The Option shall be subject to the provisions of Section 11(b) of the
Plan relating to the exercisability or termination of the Option in the event of
a Corporate Transaction. No partial exercise of the Option may be for less than
the lessor of five percent (5%) of the total number of Shares subject to the
Option or the remaining number of Shares subject to the Option. In no event
shall the Company issue fractional Shares.
(b) Method of Exercise. The Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of which
the Option is being exercised, and such other provisions as may be required by
the Administrator. Such Exercise Notice shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company accompanied by payment of the Exercise Price. The Option shall be deemed
to be exercised upon receipt by the Company of such written notice accompanied
by the Exercise Price.
No Shares will be issued pursuant to the exercise of the Option
unless such issuance and such exercise shall comply with all Applicable Laws.
Assuming such compliance, for income tax purposes, the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
(c) Taxes. No Shares will be issued to the Optionee or other
person pursuant to the exercise of the Option until the Optionee or other person
has made arrangements acceptable to the Administrator for the satisfaction of
foreign, federal, state and local income and employment tax withholding
obligations.
3. Optionee's Representations. In the event the Shares purchasable
pursuant to the exercise of the Option have not been registered under the
Securities Act of 1933, as amended, at the time the Option is exercised, the
Optionee shall, if required by the Company, concurrently with the exercise of
all
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<PAGE> 17
or any portion the Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B.
4. Method of Payment. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee;
provided, however, that such exercise method does not then violate an Applicable
Law:
(a) cash;
(b) check;
(c) if the exercise occurs on or after the Registration Date,
surrender of Shares or delivery of a properly executed form of attestation of
ownership of Shares as the Administrator may require (including withholding of
Shares otherwise deliverable upon exercise of the Option) which have a Fair
Market Value on the date of surrender or attestation equal to the aggregate
Exercise Price of the Shares as to which the Option is being exercised (but only
to the extent that such exercise of the Option would not result in an accounting
compensation charge with respect to the Shares used to pay the exercise price);
or
(d) if the exercise occurs on or after the Registration Date,
delivery of a properly executed Exercise Notice together with such other
documentation as the Administrator and the broker, if applicable, shall require
to effect an exercise of the Option and delivery to the Company of the sale or
loan proceeds required to pay the Exercise Price.
5. Restrictions on Exercise. The Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company. In
addition, the Option may not be exercised if the issuance of the Shares subject
to the Option upon such exercise would constitute a violation of any Applicable
Laws.
6. Termination of Relationship. In the event the Optionee's Continuous
Status as an Employee, Director or Consultant terminates, the Optionee may, to
the extent otherwise so entitled at the date of such termination (the
"Termination Date"), exercise the Option during the Termination Period set out
in the Notice of Stock Option Grant. Except as provided in Sections 7 and 8,
below, to the extent that the Optionee was not entitled to exercise the Option
on the Termination Date, or if the Optionee does not exercise the Option within
the Termination Period, the Option shall terminate.
7. Disability of Optionee. In the event the Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of his or her
disability, the Optionee may, but only within twelve (12) months from the
Termination Date (and in no event later than the Term/Expiration Date), exercise
the Option to the extent otherwise entitled to exercise it on the Termination
Date; provided, however, that if such disability is not a "disability" as such
term is defined in Section 22(e)(3) of the Code and the Option is an Incentive
Stock Option, such Incentive Stock Option shall cease to be treated as an
Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on
the day three (3) months and one day following the Termination Date. To the
extent that the Optionee was not entitled to exercise the Option on the
Termination Date, or if the Optionee does not exercise the Option to the extent
so entitled within the time specified herein, the Option shall terminate.
8. Death of Optionee. In the event of the Optionee's death, the Option
may be exercised at any time within twelve (12) months following the date of
death (and in no event later than the Term/Expiration Date), by the Optionee's
estate or by a person who acquired the right to exercise the
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<PAGE> 18
Option by bequest or inheritance, but only to the extent the Optionee could
exercise the Option at the date of death. To the extent that the Optionee was
not entitled to exercise the Option on the date of death, or the Option is not
exercised to the extent so entitled within the time specified herein, the Option
shall terminate.
9. Non-Transferability of Option. The Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of the Optionee only by the Optionee. The
terms of the Option shall be binding upon the executors, administrators, heirs
and successors of the Optionee.
10. Term of Option. The Option may be exercised only within the term set
out in the Notice of Stock Option Grant.
11. Company's Right of First Refusal.
(a) Transfer Notice. Neither the Optionee nor a transferee
(either being sometimes referred to herein as the "Holder") shall sell,
hypothecate, encumber or otherwise transfer any Shares or any right or interest
therein without first obtaining the prior written consent of the Company. In the
event the Holder desires to accept a bona fide third-party offer for any or all
of the Shares the Holder shall provide the Company with written notice (the
"Transfer Notice") of:
(i) The Holder's intention to transfer;
(ii) The name of the proposed transferee;
(iii) The number of Shares to be transferred; and
(iv) The proposed transfer price or value and terms
thereof.
(b) First Refusal Exercise Notice. Within 45 days after receipt
of the Transfer Notice (the "Option Period") the Company and/or its assigns
shall have the right to purchase (the "Right of First Refusal") all, but not
less than all of the Shares which are described in the Transfer Notice (the
"Offered Shares") at the per share price or value and in accordance with the
terms stated in the Transfer Notice, which Right of First Refusal shall be
exercised by written notice (the "First Refusal Exercise Notice") to the Holder
setting forth the number of Offered Shares the Company and/or its assigns elects
to purchase, provided that the number equals all of the Offered Shares.
(c) Payment Terms. The Company shall consummate the purchase of
the Offered Shares on the terms set forth in the Transfer Notice within 15 days
after delivery of the First Refusal Exercise Notice; provided, however, that in
the event the Transfer Notice provides for the payment for the Offered Shares
other than in cash, the Company and/or its assigns shall have the right to pay
for the Offered Shares by the discounted cash equivalent of the consideration
described in the Transfer Notice as reasonably determined by the Administrator.
Upon payment for the Offered Shares to the Holder or into escrow for the benefit
of the Holder, the Company or its assigns shall become the legal and beneficial
owner of the Offered Shares and all rights and interest therein or related
thereto, and the Company shall have the right to transfer the Offered Shares to
its own name or its assigns without the further action by the Holder.
(d) Assignment. Whenever the Company shall have the right to
purchase Shares under this Right of First Refusal, the Company may designate and
assign one or more employees,
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<PAGE> 19
officers, directors or shareholders of the Company or other persons or
organizations, to exercise all or a part of the Company's Right of First
Refusal.
(e) Non-Exercise. If the Company and/or its assigns do not
collectively elect to exercise the Right of First Refusal within the specified
45-day period or such earlier time if the Company and/or its assigns notifies
the Holder that it will not exercise the Right of First Refusal, then the Holder
may transfer the Shares upon the terms and conditions stated in the Transfer
Notice, provided that:
(i) The transfer is made within 120 days of the date of
the Transfer Notice; and
(ii) The transferee agrees in writing that such Shares
shall be held subject to the provisions of this Right of First Refusal.
(f) Expiration of Transfer Period. Following such 120-day
period, no transfer of the Offered Shares and no change in the terms of the
transfer as stated in the Transfer Notice (including the name of the proposed
transferee) shall be permitted without a new written Transfer Notice prepared
and submitted in accordance with the requirements of this Right of First
Refusal.
(g) Exception for Certain Family Transfers. Anything to the
contrary contained in this section notwithstanding, the transfer of any or all
of the Shares during the Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's Immediate Family or a trust for the benefit of
the Optionee or the Optionee's Immediate Family shall be exempt from the
provisions of this Right of First Refusal. "Immediate Family" as used herein
shall mean spouse, domestic partner (as determined by the Administrator), child,
lineal descendant or antecedent, father, mother, brother or sister and the
lineal descendants of such individuals. In such case, the transferee or other
recipient shall receive and hold the Shares so transferred subject to the
provisions of this Right of First Refusal, and there shall be no further
transfer of such Shares except in accordance with the terms of this Right of
First Refusal.
(h) Termination of Right of First Refusal. The provisions of
this Right of First Refusal shall terminate as to all Shares upon the
Registration Date.
(i) Additional Shares or Substituted Securities. In the event of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class effected without the Company's receipt of consideration, any new,
substituted or additional securities or other property which is by reason of any
such transaction distributed with respect to the Shares shall be immediately
subject to the Right of First Refusal, but only to the extent the Shares are at
the time covered by such right.
(j) Corporate Transaction. Immediately prior to the consummation
of a Corporate Transaction, the Right of First Refusal shall automatically lapse
in its entirety, except to the extent the Right of First Refusal is to be
assigned to the successor corporation (or its parent company) in connection with
such Corporate Transaction, the right shall apply to the new capital stock or
other property received in exchange for the Shares in consummation of the
Corporate Transaction, but only to the extent the Shares are at the time covered
by such right.
12. Company's Repurchase Right.
(a) Grant of Repurchase Right. The Company is hereby granted the
right (the "Repurchase Right"), exercisable at any time (i) during the sixty
(60) day period following the Termination Date, (ii) during the sixty (60) day
period following an exercise of the Option that occurs
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<PAGE> 20
after the Termination Date, or (iii) during the sixty (60) day period
immediately prior to a Corporate Transaction, or the merger of the Company into
or with a corporation that is a member of a "controlled group" (within the
meaning of Section 267(f) of the Code) of which the Company is a member, to
repurchase all or (at the discretion of the Company and with the consent of the
Optionee) any portion of the Shares.
(b) Exercise of the Repurchase Right. The Repurchase Right shall
be exercisable by written notice delivered to each Holder of the Shares prior to
the expiration of the applicable sixty (60) day period specified above. The
notice shall indicate the number of Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of notice. On the date on which the repurchase is to be
effected, the Company and/or its assigns shall pay to the Holder in cash or cash
equivalents (including the cancellation of any purchase-money indebtedness) an
amount equal to the Fair Market Value on the Termination Date, if any, and if
none, on the date immediately prior to the day on which the repurchase is to be
effected, of the Shares which are to be repurchased from the Holder. Upon such
payment or into escrow for the benefit of the Holder, the Company and/or its
assigns shall become the legal and beneficial owner of the Shares being
repurchased and all rights and interest thereon or related thereto, and the
Company shall have the right to transfer to its own name or its assigns the
number of Shares being repurchased, without further action by the Holder.
(c) Assignment. Whenever the Company shall have the right to
purchase Shares under this Repurchase Right, the Company may designate and
assign one or more employees, officers, directors or shareholders of the Company
or other persons or organizations, to exercise all or a part of the Company's
Repurchase Right.
(d) Termination of the Repurchase Right. The Repurchase Right
shall terminate with respect to any Shares for which it is not timely exercised.
In addition, the Repurchase Right shall terminate, and cease to be exercisable,
with respect to all Shares upon the Registration Date.
(e) Additional Shares or Substituted Securities. In the event of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class effected without the Company's receipt of consideration, any new,
substituted or additional securities or other property (including money paid
other than as a regular cash dividend) which is by reason of any such
transaction distributed with respect to the Shares shall be immediately subject
to the Repurchase Right, but only to the extent the Shares are at the time
covered by such right. Appropriate adjustments to reflect the distribution of
such securities or property shall be made to the price per share to be paid upon
the exercise of the Repurchase Right in order to reflect the effect of any such
transaction upon the Company's capital structure.
(f) Corporate Transaction. Immediately prior to the consummation
of a Corporate Transaction, the Repurchase Right shall automatically lapse in
its entirety, except to the extent the Repurchase Right is to be assigned to the
successor corporation (or its parent company) in connection with such Corporate
Transaction, the right shall apply to the new capital stock or other property
(including cash paid other than as a regular cash dividend) received in exchange
for the Shares in consummation of the Corporate Transaction, but only to the
extent the Shares are at the time covered by such right. Appropriate adjustments
shall be made to the price per share payable upon exercise of the Repurchase
Right to reflect the effect of the Corporate Transaction upon the Company's
capital structure.
13. Stop-Transfer Notices. In order to ensure compliance with the
restrictions on transfer referred to in the legends placed upon certificates
evidencing ownership of the Shares, the Company may
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<PAGE> 21
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
14. Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Option Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
15. Tax Consequences. Set forth below is a brief summary as of the date
of this Option Agreement of some of the federal tax consequences of exercise of
the Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE
SHARES.
(a) Exercise of Incentive Stock Option. If the Option qualifies
as an Incentive Stock Option, there will be no regular federal income tax
liability upon the exercise of the Option, although the excess, if any, of the
Fair Market Value of the Shares on the date of exercise over the Exercise Price
will be treated as an adjustment to the alternative minimum tax for federal tax
purposes and may subject the Optionee to the alternative minimum tax in the year
of exercise.
(b) Exercise of Incentive Stock Option Following Disability. If
the Optionee's Continuous Status as an Employee, Director or Consultant
terminates as a result of disability that is not total and permanent disability
as defined in Section 22(e)(3) of the Code, to the extent permitted on the date
of termination, the Optionee must exercise an Incentive Stock Option within
three (3) months of such termination for the Incentive Stock Option to be
qualified as an Incentive Stock Option.
(c) Exercise of Non-Qualified Stock Option. There may be a
regular federal income tax liability upon the exercise of a Non-Qualified Stock
Option. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Shares on the date of exercise over the Exercise Price. If
the Optionee is an Employee or a former Employee, the Company will be required
to withhold from the Optionee's compensation or collect from the Optionee and
pay to the applicable taxing authorities an amount in cash equal to a percentage
of this compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(d) Disposition of Shares. In the case of a Non-Qualified Stock
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes and subject to tax at a maximum rate of 28%. For Shares held
more than 18 months, the maximum rate falls to 20%. If the Non-Qualified Stock
Option is exercised after December 31, 2000 and the Shares acquired upon such
exercise are held for more than five years, the maximum rate falls to 18%. In
the case of an Incentive Stock Option, if Shares transferred pursuant to the
Option are held for at least one year after receipt of the Shares and are
disposed of at least two years after the Date of Grant, any gain realized on
disposition of the Shares also will be treated as long-term capital gain for
federal income tax purposes and subject to the same tax rates and holding
periods that apply to Shares acquired upon exercise of a Non-Qualified Stock
Option. If Shares purchased under an Incentive Stock Option are disposed of
within such one-year or two-year periods, any gain realized on such disposition
will be treated as compensation income (taxable at ordinary income rates) to the
extent of the difference between the Exercise Price and the lesser of (i) the
Fair Market Value of the Shares on the date of exercise, or (ii) the sale price
of the Shares.
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<PAGE> 22
16. Lock-Up Agreement.
(a) Agreement. The Optionee, if requested by the Company and the
lead underwriter of any public offering of the Common Stock or other securities
of the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell,
contract to sell, grant any option to purchase, transfer the economic risk of
ownership in, make any short sale of, pledge or otherwise transfer or dispose of
any interest in any Common Stock or any securities convertible into or
exchangeable or exercisable for or any other rights to purchase or acquire
Common Stock (except Common Stock included in such public offering or acquired
on the public market after such offering) during the 180-day period following
the effective date of a registration statement of the Company filed under the
Securities Act of 1933, as amended, or such shorter period of time as the Lead
Underwriter shall specify. The Optionee further agrees to sign such documents as
may be requested by the Lead Underwriter to effect the foregoing and agrees that
the Company may impose stop-transfer instructions with respect to such Common
Stock subject until the end of such period. The Company and the Optionee
acknowledge that each Lead Underwriter of a public offering of the Company's
stock, during the period of such offering and for the 180-day period thereafter,
is an intended beneficiary of this Section 16.
(b) Permitted Transfers. Notwithstanding the foregoing, Section
16(a) shall not prohibit the Optionee from transferring any shares of Common
Stock or securities convertible into or exchangeable or exercisable for the
Company's Common Stock to the extent such transfer is not otherwise prohibited
by this Option Agreement, either during the Optionee's lifetime or on death by
will or intestacy to the Optionee's immediate family or to a trust the
beneficiaries of which are exclusively the Optionee and/or a member or members
of the Optionee's immediate family; provided, however, that prior to any such
transfer, each transferee shall execute an agreement pursuant to which each
transferee shall agree to receive and hold such securities subject to the
provisions of Section 16 hereof. For the purposes of this subsection, the term
"immediate family" shall mean spouse, domestic partner (as determined by the
Administrator), child, lineal descendant or antecedent, father, mother, brother
or sister and the lineal descendants of such individuals.
(c) No Amendment Without Consent of Underwriter. During the
period from identification as a Lead Underwriter in connection with any public
offering of the Company's Common Stock until the earlier of (i) the expiration
of the lock-up period specified in Section 16(a) in connection with such
offering or (ii) the abandonment of such offering by the Company and the Lead
Underwriter, the provisions of this Section 16 may not be amended or waived
except with the consent of the Lead Underwriter.
17. Entire Agreement: Governing Law. The Notice of Stock Option Grant,
the Plan and this Option Agreement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and the Optionee
with respect to the subject matter hereof, and may not be modified adversely to
the Optionee's interest except by means of a writing signed by the Company and
Optionee. These agreements are governed by California law except for that body
of law pertaining to conflict of laws.
18. Headings. The captions used in the Notice of Stock Option Grant and
this Option Agreement are inserted for convenience and shall not be deemed a
part of the Option for construction or interpretation.
19. Interpretation. Any dispute regarding the interpretation of the
Notice of Stock Option Grant, the Plan, and this Option Agreement shall be
submitted by the Optionee or by the Company forthwith to the Board or the
Administrator that administers the Plan, which shall review such dispute at its
next regular meeting. The resolution of such dispute by the Board or the
Administrator shall be final and binding on all persons.
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EXHIBIT A
SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN
EXERCISE NOTICE
Saba Software, Inc.
2400 Bridge Parkway
Redwood Shores, CA 94065-1166
Attention: Secretary
1. Exercise of Option. Effective as of today, ____________________,
________, the undersigned (the "Optionee") hereby elects to exercise the
Optionee's option to purchase ___________ shares of the Common Stock (the
"Shares") of Saba Software, Inc. (the "Company") under and pursuant to the
Company's 1997 Stock Incentive Plan (the "Plan") and the [ ] Incentive [ ]
Non-Qualified Stock Option Agreement and Notice of Stock Option Grant dated
______________, ________ (the "Option Agreement").
2. Representations of the Optionee. The Optionee acknowledges that the
Optionee has received, read and understood the Notice of Stock Option Grant, the
Plan and the Option Agreement and agrees to abide by and be bound by their terms
and conditions.
3. Rights as Shareholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 11(a) of the Plan.
The Optionee shall enjoy rights as a shareholder until such time as
the Optionee disposes of the Shares or the Company and/or its assignee(s)
exercises the Right of First Refusal or the Repurchase Right. Upon such
exercise, the Optionee shall have no further rights as a holder of the Shares so
purchased except the right to receive payment for the Shares so purchased in
accordance with the provisions of the Option Agreement, and the Optionee shall
forthwith cause the certificate(s) evidencing the Shares so purchased to be
surrendered to the Company for transfer or cancellation.
4. Delivery of Payment. The Optionee herewith delivers to the Company
the full Exercise Price for the Shares.
5. Tax Consultation. The Optionee understands that the Optionee may
suffer adverse tax consequences as a result of the Optionee's purchase or
disposition of the Shares. The Optionee represents that the Optionee has
consulted with any tax consultants the Optionee deems
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<PAGE> 24
advisable in connection with the purchase or disposition of the Shares and that
the Optionee is not relying on the Company for any tax advice.
6. Taxes. The Optionee agrees to satisfy all applicable federal, state
and local income and employment tax withholding obligations and herewith
delivers to the Company the full amount of such obligations or has made
arrangements acceptable to the Company to satisfy such obligations. In the case
of an Incentive Stock Option, the Optionee also agrees, as partial consideration
for the designation of the Option as an Incentive Stock Option, to notify the
Company in writing within thirty (30) days of any disposition of any shares
acquired by exercise of the Option if such disposition occurs within two (2)
years from the Grant Date or within one (1) year from the date the Shares were
transferred to the Optionee. If the Company is required to satisfy any federal,
state or local income or employment tax withholding obligations as a result of
such an early disposition, the Optionee agrees to satisfy the amount of such
withholding in a manner that the Administrator prescribes.
7. Restrictive Legends. The Optionee understands and agrees that the
Company shall cause the legends set forth below or legends substantially
equivalent thereto, to be placed upon any certificate(s) evidencing ownership of
the Shares together with any other legends that may be required by the Company
or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE
OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL AND A
REPURCHASE RIGHT HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET
FORTH IN THE OPTION AGREEMENT BETWEEN THE ISSUER AND THE
ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER SUCH TRANSFER
RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REPURCHASE RIGHT ARE
BINDING ON TRANSFEREES OF THESE SHARES.
8. Successors and Assigns. The Company may assign any of its rights
under this Exercise Notice to single or multiple assignees, and this agreement
shall inure to the benefit of the successors and assigns of the Company. Subject
to the restrictions on transfer herein set forth, this Exercise Notice shall be
binding upon the Optionee and his or her heirs, executors, administrators,
successors and assigns.
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9. Headings. The captions used in this Exercise Notice are inserted for
convenience and shall not be deemed a part of this agreement for construction or
interpretation.
10. Interpretation. Any dispute regarding the interpretation of this
Exercise Notice shall be submitted by the Optionee or by the Company forthwith
to the Company's Board of Directors or the Administrator that administers the
Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Board or Administrator shall be final and
binding on all persons.
11. Governing Law; Severability. This Exercise Notice shall be governed
by and construed in accordance with the laws of the State of California
excluding that body of law pertaining to conflicts of law. Should any provision
of this Exercise Notice be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
12. Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
13. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.
14. Entire Agreement. The Notice of Stock Option Grant, the Plan and the
Option Agreement are incorporated herein by reference and together with this
Exercise Notice constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and the Optionee with respect to the subject
matter hereof, and may not be modified adversely to the Optionee's interest
except by means of a writing signed by the Company and the Optionee.
Submitted by: Accepted by:
OPTIONEE: SABA SOFTWARE, INC.
By:
-------------------------------------
Its:
- --------------------------------- ------------------------------------
(Signature)
Address: Address:
- --------------------------------- 2400 Bridge Parkway
- --------------------------------- Redwood Shores, CA 94065-1166
Tel:
-----------------------------
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EXHIBIT B
SABA SOFTWARE, INC. 1997 STOCK INCENTIVE PLAN
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
----------------------------------------
COMPANY: SABA SOFTWARE, INC.
SECURITY: COMMON STOCK
NUMBER OF SHARES:
----------------------------------------
DATE:
----------------------------------------
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon among other things, the bona fide nature
of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company.
(c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public
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<PAGE> 27
offering subject to the satisfaction of certain conditions. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of the grant of the
Option to the Optionee, the exercise will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
----------------------------------------
Date: ,
---------------------- -----------
2
<PAGE> 28
AMENDMENT
TO
AMENDED AND RESTATED
1997 STOCK INCENTIVE PLAN
OF
SABA SOFTWARE, INC.,
A DELAWARE CORPORATION
--------------------------------------
January 28, 2000
The undersigned, Peter E. Williams III, hereby certifies that:
1. He is duly elected and acting Secretary of Saba Software, Inc., a
Delaware corporation (the "Corporation").
2. Section 3(a) of the Corporation's Amended and Restated 1997 Stock
Incentive Plan (the "Plan") is amended to read in its entirety as follows:
"(a) Subject to the provisions of Section 11(a), below, the maximum
aggregate number of Shares which may be issued pursuant to all Awards
(including Incentive Stock Options) is 9,815,550 Shares. The Shares
may be authorized, but unissued, or reacquired Common Stock."
Dated: January 28, 2000
/s/ PETER E. WILLIAMS
--------------------------------
Peter E. Williams III, Secretary
<PAGE> 29
AMENDMENT
TO
AMENDED AND RESTATED
1997 STOCK INCENTIVE PLAN
OF
SABA SOFTWARE, INC.,
A DELAWARE CORPORATION
-----------------------------------------------
March 31, 2000
The undersigned, Peter E. Williams III, hereby certifies that:
1. He is the duly elected and acting Secretary of Saba Software, Inc.,
a Delaware corporation (the "Corporation").
2. Section 3(a) of the Corporation's Amended and Restated 1997 Stock
Incentive Plan (the "Plan") is amended to read in its entirety as follows:
"(a) Subject to the provisions of Section 11(a), below, the
maximum aggregate number of Shares which may be issued pursuant to all
Awards (including Incentive Stock Options) is 10,815,550 Shares. The
Shares may be authorized, but unissued, or reacquired Common Stock."
Dated: March 31, 2000
/s/ PETER E. WILLIAMS
----------------------------------
Peter E. Williams III, Secretary
<PAGE> 1
EXHIBIT 10.8
STOCK PURCHASE AND
MASTER STRATEGIC RELATIONSHIP AGREEMENT
This Stock Purchase and Master Strategic Relationship Agreement (this
"Agreement") is entered into as of March 31, 2000, by and between Saba
Software, Inc., a Delaware corporation (the "Company"), and SingTel Ventures
(Cayman) Pte Limited, a corporation organized under the laws of Cayman Islands
(the "Purchaser").
WHEREAS, the Purchaser wishes to purchase from the Company, and the
Company wishes to issue and sell to the Purchaser certain shares of Common
Stock, par value $0.001 per share, of the Company (the "Common Stock");
WHEREAS, such sale and purchase of Common Stock shall occur immediately
following the closing of the Company's initial public offering (the "IPO").
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein, the parties hereto, intending to be legally bound, agree as follows:
1. AGREEMENT TO SELL AND PURCHASE SHARES; OTHER AGREEMENTS
1.1 SALE AND PURCHASE OF SHARES.
(a) Subject to the terms and conditions hereof, at the Closing, the
Company will issue and sell to the Purchaser, and the Purchaser will purchase
from the Company, shares of Common Stock equal in number to $5,000,000 divided
by the Per Share Price. The "Per Share Price" shall be equal to the initial
public offering price in the IPO as set forth on the cover of the Company's
final prospectus relating thereto multiplied by 94%.
(b) At the Closing, the Purchaser shall pay the purchase price (the
"Purchase Price") for the shares of Common Stock purchased hereunder (the
"Purchased Shares") by wire transfer of immediately available funds in U.S.
dollars to an account specified in writing by the Company prior to the Closing.
(c) No fractional shares shall be issued upon the sale of any Common
Stock to the Purchaser pursuant to this Agreement, and the number of shares of
Common Stock to be issued to the Purchaser shall be rounded to the nearest whole
share.
(d) All certificates representing the Purchased Shares shall bear
the following legend:
(i) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM. THE COMPANY MAY REQUIRE AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT THAT A PROPOSED TRANSFER OR SALE
IS IN COMPLIANCE WITH THE ACT. COPIES OF THE AGREEMENT COVERING
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<PAGE> 2
THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDERS OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY."
(ii) Any legend required by the blue sky or securities laws of
any state or jurisdiction to the extent such laws are applicable to the shares
represented by the certificate so legended.
(e) The certificates representing the Purchased Shares will be
subject to a stop transfer order with the Company's transfer agent that
restricts the transfer of the Purchased Shares except in compliance with this
Agreement.
1.2 CLOSING.
The closing of the purchase and sale of the Purchased Shares (the
"Closing") shall take place at the offices of Morrison & Foerster LLP, 755 Page
Mill Road, Palo Alto, California 94304, at 11:00 a.m. (California time) on the
date of and immediately following the closing of the IPO, or on such other date
or at such other place or time as the Company and the Purchaser may mutually
agree (such date, the "Closing Date").
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as of the date
of this Agreement as follows:
2.1 ORGANIZATION, GOOD STANDING, AND QUALIFICATION.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all requisite
corporate power and authority to carry on its business as now conducted and as
proposed to be conducted. The Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which the
nature of its business or the location of its properties requires such
qualification and in which the failure to so qualify would have a material
adverse effect on the Company or its financial condition.
2.2 CAPITALIZATION.
As of February 29, 2000, the authorized capital of the Company consists of
the following:
(a) 23,000,000 shares of Preferred Stock, $0.001 par value per share
("Preferred Stock") of which 749,996 shares have been designated Series A
Preferred Stock, all of which were issued and outstanding, 8,583,997 shares have
been designated Series B Preferred Stock, all of which were issued and
outstanding, 4,716,364 shares have been designated Series C Preferred Stock, of
which 4,636,068 were issued and outstanding, and 5,598,500 shares have been
designated Series D Preferred Stock, of which 5,598,479 were issued and
outstanding. The rights, privileges and preferences of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, and the
Series D Preferred Stock are as stated in the Company's
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<PAGE> 3
Amended and Restated Certificate of Incorporation. In connection with the
Company's IPO, all of the outstanding shares of Preferred Stock will convert
into an equal number of shares of Common Stock.
(b) 50,000,000 shares of common stock, $0.001 par value per share,
18,605,162 shares of which were issued and outstanding. In connection with the
Company's IPO, the Company will issue additional shares of Common Stock.
(c) Warrants to purchase 134,621 shares of Common Stock (the "Common
Warrants") and warrants to purchase 80,296 shares of Series C Preferred Stock
(the "Series C Warrants) were issued and outstanding.
(d) The Company has reserved 15,250,579 shares of common stock for
issuance to directors, employees or consultants under the Company's stock option
and stock benefit plans of which 6,072,854 shares of common stock were subject
to outstanding stock options as of February 29, 2000 (the "Outstanding
Options"). Except for the Warrants described above, the Outstanding Options, and
as contemplated in connection with the Company's IPO, there were, as of February
29, 2000, no outstanding options, warrants, rights (including conversion or
preemptive rights) or agreements, orally or in writing, for the purchase or
acquisition from the Company of any shares of its capital stock.
(e) All issued and outstanding shares of the Company's common stock
have been duly authorized and validly issued, are fully paid and nonassessable,
and were offered, issued and sold in compliance with all applicable state and
federal laws concerning the offer, sale and issuance of securities.
(f) Neither the offer nor the issuance or sale of the Purchased
Shares constitutes or will constitute an event, under any capital stock or
convertible security or any anti-dilution or similar provision of any agreement
or instrument to which the Company is a party or by which it is bound or
affected, which shall either increase the number of shares or units of capital
stock issuable upon conversion of any securities or upon exercise of any warrant
or right to subscribe to or purchase any stock or similar security, or decrease
the consideration per share or unit of capital stock to be received by the
Company upon such conversion or exercise.
2.3 SUBSIDIARIES.
The Company does not currently own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity that
would constitute a "significant subsidiary" (as defined in Rule 1-02(w) of
Regulation S-X promulgated under the Securities Act) as of the date hereof.
2.4 AUTHORIZATION.
All corporate action on the part of the Company, its officers, directors
and stockholders necessary for the authorization, execution and delivery of this
Agreement, the performance of all obligations of the Company hereunder and
thereunder and the authorization, issuance and delivery of the Purchased Shares
has been taken or will be taken prior to the Closing. The Agreement, when
executed and delivered, will be a valid and binding obligation of the Company
3
<PAGE> 4
enforceable in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; and (ii) general
principles of equity that restrict the availability of equitable remedies.
2.5 VALID ISSUANCE OF SECURITIES.
The Purchased Shares being issued hereunder, when issued, sold and
delivered in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully paid and nonassessable. Based in
part upon the representations of the Purchasers in this Agreement and subject to
the provisions of Section 2.6 below, the Purchased Shares will be issued in
compliance with all applicable United States federal and state securities laws.
The Purchased Shares shall be free of any liens or encumbrances, other than any
liens or encumbrances created by the Purchasers; provided, however, that the
Purchased Shares may be subject to restrictions on transfer under state, federal
and/or foreign securities laws. The Purchased Shares are not and will not be
subject to any preemptive rights, rights of first refusal, rights of first offer
or other similar rights that have not been properly waived or complied with.
2.6 GOVERNMENTAL CONSENTS.
No consent, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of the Company is required in
connection with the valid execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for the filing of
notices required by applicable Blue Sky laws and the filing of any notices
required by applicable foreign securities laws.
2.7 LITIGATION.
There is no action, suit, arbitration, proceeding or investigation pending
or currently threatened against the Company or its properties before any court,
arbitrator or governmental agency that, if determined adversely to the Company,
would have a material adverse effect on the Company or its financial condition,
nor is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions, suits, arbitration proceedings
or investigations pending or threatened (or any basis therefor known to the
Company) involving the prior employment of any of the Company's employees, their
use in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court of government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or that the Company
intends to initiate.
2.8 COMPLIANCE WITH OTHER INSTRUMENTS.
The Company is not in violation or default of any provisions of its
charter documents or in any material respect of any material instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound or, to the Company's knowledge, of any provision of federal, state or
foreign statute, rule or regulation. The execution, delivery and performance of
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<PAGE> 5
this Agreement and the consummation of the transactions contemplated hereby will
not result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event which results in the creation of any lien, charge or encumbrance upon any
of the properties or assets of the Company or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company, its business or operations
or any of its assets or properties.
2.9 DISCLOSURE.
The Company's registration statement on Form S-1 (file no. 333-95761) as
amended on the date declared effective by the Securities and Exchange Commission
(the "Commission") and the final prospectus on the form first filed with the
Commission pursuant to Rule 424(b) under the Act (the "Final Prospectus") do not
and will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein and necessary to make the statements
contained therein not misleading in light of the circumstances under which they
were made.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
3.1 ORGANIZATION AND GOOD STANDING.
The Purchaser is a corporation duly organized and validly existing under
the laws of Cayman Islands.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENTS.
The Purchaser has the requisite corporate power and authority to enter
into and to perform its obligations under this Agreement. The execution,
delivery and performance by the Purchaser of this Agreement and the consummation
or performance of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Purchaser. This Agreement
constitutes, or upon execution and delivery will constitute, the legal, valid
and binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights, and (ii) laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies.
3.3 NON-CONTRAVENTION; CONSENTS.
(a) Neither the execution and delivery by the Purchaser, nor the
consummation or performance by the Purchaser of any of the transactions
contemplated hereby to be consummated or performed by it, will directly or
indirectly (with or without notice or lapse of time): (i) violate any provision
of the Purchaser's certificate or articles of incorporation or bylaws or other
charter documents; (ii) constitute or result in a breach or default by the
Purchaser, or give rise to a right of termination on the part of any other
party, or result in the creation or imposition of any lien,
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<PAGE> 6
claim or encumbrance on any Purchaser assets, under any agreement or instrument
to which the Purchaser is a party or by which the Purchaser is bound.
(b) No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
governmental authority on the part of the Purchaser is required in connection
with the valid execution and delivery of this Agreement of the consummation of
the transactions contemplated hereby.
3.4 LITIGATION.
As of the date hereof, there are no suits, proceedings or investigations
pending or, to the knowledge of the Purchaser, threatened against the Purchaser,
which in any such case would materially adversely affect the Purchaser's ability
to perform its obligations under this Agreement.
3.5 BROKERS.
The Purchaser has not granted or become obligated to pay, or taken any
action that likely would result in any third party claiming to be entitled to
receive from the Company, any brokerage commission, finder's fee or similar
commission or fee in connection with any of the transactions contemplated
hereby.
3.6 INVESTMENT REPRESENTATIONS.
(a) The Purchaser understands that none of the Purchased Shares has
been registered under the Securities Act. The Purchaser also understands that
the Purchased Shares are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon the Purchaser's
representations contained in this Agreement, and that the Company is relying
upon the truth and accuracy of the Purchaser's representations, warranties,
acknowledgements and understandings.
(b) The Purchaser is acquiring the Purchased Shares for the
Purchaser's own account for investment only, and not with the current intention
of making a public distribution thereof.
(c) The Purchaser has substantial experience in evaluating and
investing in private placement transactions of securities in companies similar
to the Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests. The
Purchaser, by reason of its business or financial experience, has the capacity
to protect its own interests in connection with the transactions contemplated
hereby. The Purchaser is an "accredited investor" as that term is defined in
Rule 501(a) of Regulation D under the Act.
(d) The Purchaser acknowledges that the Purchased Shares must be
held indefinitely and that the Purchaser must bear the economic risk of this
investment indefinitely unless the Purchased Shares are subsequently registered
under the Securities Act or an exemption
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<PAGE> 7
from such registration is available. The Purchaser understands that the Company
has no present intention of registering the Purchased Shares. The Purchaser also
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow the Purchaser to transfer all or any portion of the
Purchased Shares under the circumstances, in the amounts or at the times the
Purchaser might propose.
(e) The Purchaser has been advised or is aware of the provisions of
Regulation S under the Securities Act and with the provisions of Rule 144 under
the Securities Act ("Rule 144"). The Purchaser further acknowledges that
Regulation S and Rule 144 permit only limited resale of shares purchased in a
private placement. In particular, any sale pursuant to Rule 144 is subject to
the satisfaction of certain conditions, including, among other things: (i) the
availability of certain current public information about the Company, (ii) the
resale occurring not less than one year after a party has purchased and paid for
the security to be sold, (iii) the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and (iv) the
number of shares being sold during any three-month period not exceeding
specified limitations.
(f) The Purchaser initiated discussions with the Company relating to
the purchase and sale contemplated by this Agreement on an unsolicited basis
prior to the date of this Agreement. The Purchaser did not receive any
information regarding such purchase and sale through any general solicitation or
general advertising within the meaning of Rule 502(c) under the Securities Act.
3.7 COMPANY DISCLOSURE DOCUMENTS.
(a) The Purchaser has received and reviewed a copy of the Company's
Registration Statement on Form S-1 (file no. 333-95761), as initially filed with
the Commission on January 31, 2000 and as amended through the date of this
Agreement (the "Registration Statement"), including, without limitation, the
language therein under the caption "Risk Factors."
(b) The Purchaser has been furnished with materials relating to the
Company and its proposed activities, including, without limitation, the
Registration Statement. Without limiting the Company's obligations with respect
to any representations or warranties made by the Company in this Agreement, the
Purchaser has been afforded the opportunity to obtain any additional information
deemed necessary by the Purchaser to verify the accuracy of any representations
made or information conveyed to the Purchaser. The Purchaser confirms that all
documents, records and books pertaining to its investment in Common Stock and
requested by the Purchaser have been made available or delivered to the
Purchaser. The Purchaser has had an opportunity to ask questions of and receive
answers from the Company, or from a person or persons acting on the Company's
behalf, concerning the terms and conditions of this investment.
4. CONDITIONS TO CLOSING
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<PAGE> 8
4.1 CONDITIONS TO THE PURCHASER'S OBLIGATIONS.
The Purchaser's obligations to purchase the Purchased Shares and to take
the other actions required to be taken by it at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by the Purchaser, in whole or in part):
(a) The representations and warranties of the Company contained in
this Agreement shall be true on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of the
Closing Date, except to the extent any such representations and warranties are
stated to be made as of a specific date, in which case they shall be true as of
such date, except in each case for any inaccuracies in such representations and
warranties as would not have a material adverse effect on the Company. In
addition, the Company shall have performed in all material respects all
obligations required pursuant to the terms of this Agreement to be performed or
observed by it on or prior to the Closing.
(b) On the Closing Date, the sale and issuance of the Purchased
Shares shall be legally permitted by all laws and regulations to which the
Purchaser and the Company are subject.
(c) The Company shall have obtained any and all consents, permits,
waivers and approvals necessary or appropriate for consummation of the
transactions contemplated hereby (except for such as may be properly obtained
subsequent to the Closing).
(d) There shall be no injunction, writ, preliminary restraining
order or other order in effect of any nature issued by a court or governmental
agency of competent jurisdiction directing that the transactions contemplated
hereby not be consummated in the manner provided for in this Agreement. No
action or proceeding shall have been instituted and remain pending before a
court or other governmental body of competent jurisdiction to restrain, prohibit
or otherwise challenge any of the transactions contemplated hereby (or seeking
material damages from the Purchaser or the Company as a result thereof), other
than any such action or proceeding which would not have a material adverse
effect on the Company or prevent the Company or the Purchaser from performing
their respective obligations hereunder.
(e) The IPO shall have closed.
(f) The Company shall have delivered to the Purchaser a certificate,
executed by an executive officer of the Company, dated the date of the Closing,
setting forth the Company's representation that the conditions in Section 4.1(a)
above shall have been satisfied.
4.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS.
The Company's obligations to sell the Purchased Shares and to take the
other actions required to be taken by the Company at the Closing is subject to
the satisfaction, at or prior to the Closing, of each of the following
conditions (any of which may be waived by the Company, in whole or in part):
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<PAGE> 9
(a) The representations and warranties of the Purchaser contained in
this Agreement shall be true in all material respects on and as of the Closing
with the same effect as though such representations and warranties had been made
on and as of the Closing Date, except to the extent any such representations and
warranties are stated to be made as of a specific date, in which case they shall
be true in all material respects as of such date, and the Purchaser shall have
performed in all material respects all obligations required pursuant to the
terms of this Agreement to be performed or observed by either of them on or
prior to the Closing.
(b) On the Closing Date, the sale and issuance of the Purchased
Shares shall be legally permitted by all laws and regulations to which the
Purchaser and the Company are subject.
(c) The Purchaser shall have obtained any and all consents, permits,
waivers and approvals necessary or appropriate for consummation of the
transactions contemplated hereby (except for such as may be properly obtained
subsequent to the Closing).
(d) There shall be no injunction, writ, preliminary restraining
order or other order in effect of any nature issued by a court or governmental
agency of competent jurisdiction directing that the transactions contemplated
hereby not be consummated in the manner provided for in this Agreement. No
action or proceeding shall have been instituted and remain pending before a
court or other governmental body of competent jurisdiction to restrain, prohibit
or otherwise challenge any of the transactions contemplated hereby (or seeking
material damages from the Purchaser or the Company as a result thereof), other
than any such action or proceeding which would not have a material adverse
effect on the Company or prevent the Company or the Purchaser from performing
their respective obligations hereunder.
(e) The IPO shall have closed.
5. COVENANTS OF THE PARTIES
5.1 FILINGS AND CONSENTS.
Each party hereto will cooperate with each other with respect to
obtaining, as promptly as practicable, and in any event prior to the Closing,
all necessary consents, approvals, authorizations and agreements of, and the
giving of all notices and making of all other filings with, any third parties,
including governmental authorities, necessary to authorize, approve or permit
the closing of the transactions contemplated hereby.
5.2 COVENANT TO SATISFY CONDITIONS.
Each party agrees to use all reasonable efforts to insure that the
conditions to the other party's obligations hereunder set forth in Section 4,
insofar as such matters are within the control of such party, are satisfied as
promptly as practicable, and in any event prior to the closing of the IPO,
provided, however, that notwithstanding anything herein to the contrary, the
Company shall
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<PAGE> 10
have the sole and absolute discretion as to when, and whether, to consummate or
close the IPO, and may choose to cease pursuit of the IPO or to postpone the IPO
until after the termination of this Agreement, all without any liability or
obligation whatsoever to the Purchaser.
5.3 FURTHER ASSURANCES.
Each party shall execute and deliver such additional instruments,
documents or other writings as may be reasonably requested by any other party,
before or after the Closing, in order to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
6. MARKET STANDOFF AGREEMENT
6.1 MARKET STANDOFF AGREEMENT
(a) The Purchaser hereby agrees that, for a period of one (1) year
after the date of the Final Prospectus, the Purchaser will not, and will not
publicly disclose any intention to, (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of Common Stock,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The provisions of this Section 6.1 may only be waived in writing by
the Company and Goldman, Sachs & Co. during the one hundred eighty (180) day
period after the date of the Final Prospectus and by the Company thereafter. The
restrictions in this Section 6.1 shall be binding on the Purchaser and the
respective successors, heirs, personal representatives and assigns of the
Purchaser.
7. TERMINATION
7.1 TERMINATION.
This Agreement may be terminated at any time prior to the Closing:
(a) by the written agreement of the Purchaser and the Company;
(b) by the Company or the Purchaser, if the closing of the IPO
shall not have occurred by May 31, 2000;
(c) by the Company in the event that the Company shall reasonably
determine that the transactions contemplated hereby will jeopardize the
Company's ability to close the IPO or impact the timing of the IPO, including,
without limitation, any determination by the Company that the timing of the IPO
will be impacted as the result of the Commission requiring the Company to
re-circulate a preliminary prospectus to disclose the transactions contemplated
hereby; and
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(d) by the Company or the Purchaser in the event any court or
governmental agency of competent jurisdiction shall have issued an order, decree
or ruling or taken any other action restricting, enjoining or otherwise
prohibiting the transactions contemplated hereby and such order, decree, ruling
or other action shall have become final and unappealable, and the parties hereto
hereby agree to use all reasonable efforts to prevent any such order, decree,
ruling or other action from becoming final and unappealable.
7.2 EFFECT OF TERMINATION.
Except for the obligations of Section 9 hereof and this Section 7.2, if
this Agreement shall be terminated pursuant to the preceding Section 7.1, all
obligations, representations and warranties of the parties hereto under this
Agreement shall terminate and there shall be no liability hereunder of any party
hereto to any other party hereto; provided, however, that nothing in this
Section 7.2 shall relieve any party of liability for breach of any warranty,
covenant or agreement herein that shall have accrued prior to the date of
termination.
8. SUCCESSORS AND ASSIGNS
8.1 SUCCESSORS AND ASSIGNS; REINCORPORATION.
(a) Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto. Except as
otherwise expressly provided herein, neither party may assign any of its rights
or obligations hereunder without the written consent of the other party hereto.
(b) In the event of a transfer of the rights and obligations of the
Purchaser under this Agreement, the Purchaser shall ensure that all the rights
and obligations of the Purchaser under this Agreement and the ownership of the
Purchased Shares are transferred to the said successor entity without any
dilution or adverse effect on the enforceability of such obligations.
9. MISCELLANEOUS
9.1 PRESS RELEASES AND ANNOUNCEMENTS.
All press releases and announcements concerning the transactions
contemplated hereby shall be mutually agreed to by the Company and the
Purchaser, except for any such disclosure required by law which, in the case of
such disclosure by the Company, shall, to the extent practicable under the
circumstances, be first discussed with the Purchaser and, in the case of such
disclosure by the Purchaser, shall, to the extent practicable under the
circumstances, be first discussed with the Company. Notwithstanding the
foregoing, Purchaser acknowledges that the Company intends to (i) file a copy of
this Agreement with the Commission as an exhibit to the Registration Statement
and (ii) describe in such Registration Statement, including, without limitation,
the Final Prospectus, a brief description of the transactions contemplated
hereby.
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9.2 INTERPRETATION.
(a) The various section headings are inserted for purposes of
reference only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
(b) Each party hereto acknowledges that it has been represented by
competent counsel and participated in the drafting of this Agreement, and agrees
that any applicable rule of construction to the effect that ambiguities are to
be resolved against the drafting party shall not be applied in connection with
the construction or interpretation of this Agreement.
(c) The original and controlling version of this Agreement shall be
the version using the English language. All translations of this Agreement into
other languages shall be for the convenience of the parties only, and shall not
control the meaning or application of this Agreement. All notices and other
communications required or permitted by this Agreement must be in English, and
the interpretation and application of such notices and other communications
shall be based solely upon the English language version thereof.
9.3 FEES AND EXPENSES.
Each party hereto shall be solely responsible for the payment of the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement, except to
the extent expressly set forth in this Agreement. Without limiting the
generality of the foregoing, the Purchaser shall pay all stamp and other taxes,
if any, which may be payable in respect of the issuance, sale and delivery to
the Purchaser or any transferee of Common Stock pursuant to the terms of this
Agreement, and shall save the Company harmless against any loss or liability
resulting from nonpayment or delay in the payment of any such tax.
9.4 GOVERNING LAW; JURISDICTION AND VENUE.
(a) This Agreement is to be construed in accordance with and
governed by the internal laws of the State of California without giving effect
to any choice of law rule that would cause the application of the laws of any
jurisdiction other than the internal laws of the State of California to the
rights and duties of the parties.
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement may be brought
or otherwise commenced in any state or federal court located in the County of
San Mateo, California. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in the County of San Mateo,
California (and each appellate court located in the State of California) in
connection with any such legal proceeding, including to enforce any settlement,
order or award;
(ii) agrees that each state and federal court located in the
County of San Mateo, California shall be deemed to be a convenient forum; and
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(iii) waives and agrees not to assert (by way of motion, as a
defense or otherwise), in any such legal proceeding commenced in any state or
federal court located in the County of San Mateo, California, any claim that
such party is not subject personally to the jurisdiction of such court, that
such legal proceeding has been brought in an inconvenient forum, that the venue
of such proceeding is improper or that this Agreement or the subject matter
hereof or thereof may not be enforced in or by such court.
(c) Each party hereto agrees to the entry of an order to enforce any
resolution, settlement, order or award made pursuant to this Section by the
state and federal courts located in the County of San Mateo, California and in
connection therewith hereby waives, and agrees not to assert by way of motion,
as a defense, or otherwise, any claim that such resolution, settlement, order or
award is inconsistent with or violative of the laws or public policy of the laws
of the State of California or any other jurisdiction.
9.5 SPECIFIC ENFORCEMENT.
The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific intent or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent or
cure breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they may be entitled by law or equity.
9.6 SURVIVAL.
The representations and warranties of the parties hereunder shall
terminate upon the Closing and thereafter shall terminate and be of no force or
effect.
9.7 NO THIRD PARTY BENEFICIARIES.
This Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns and are not for the benefit of, nor
may any provision hereof or thereof be enforced by, any other Person.
9.8 ENTIRE AGREEMENT.
This Agreement and the other documents delivered expressly hereby,
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
9.9 SEVERABILITY.
The provisions of this Agreement shall be severable, and any invalidity,
unenforceability or illegality of any provision or provisions of this Agreement
shall not affect any other provision
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or provisions of this Agreement, and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.
9.10 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the mutual
written consent of the Company and the Purchaser.
(b) No failure to exercise and no delay in exercising any right,
power or privilege granted under this Agreement shall operate as a waiver of
such right, power or privilege. No single or partial exercise of any right,
power or privilege granted under this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies provided in this Agreement are cumulative and are not
exclusive of any rights or remedies provided by law.
9.11 RELATIONSHIP OF THE PARTIES.
For all purposes of this Agreement, each of the parties hereto and their
respective Affiliates shall be deemed to be independent entities and, anything
in this Agreement to the contrary notwithstanding, nothing herein shall be
deemed to constitute the parties hereto or any of their respective affiliates as
partners, joint venturers, co-owners, an association or any entity separate and
apart from each party itself, nor shall this Agreement make any party hereto an
employee or agent, legal or otherwise, of the other parties for any purposes
whatsoever. This Agreement does not create or constitute, and shall not be
construed as creating or constituting, a voting trust agreement under the
Delaware General Corporation Law or any other applicable corporation law. None
of the parties to this Agreement is authorized to make any statements or
representations on behalf of any other party or in any way to obligate any other
party, except as expressly authorized in writing by the other parties. Anything
in this Agreement to the contrary notwithstanding, no party hereto or thereto
shall assume nor shall be liable for any liabilities or obligations of the other
parties, whether past, present or future.
9.12 NOTICES.
All notices required or permitted hereunder shall be in writing and shall
be deemed effectively given: (i) upon personal delivery to the party to be
notified; (ii) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient, if not, then on the next business day; (iii)
seven (7) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iv) two (2) days after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the parties
hereto at the respective addresses set forth below, or as notified by such party
from time to time at least ten (10) days prior to the effectiveness of such
notice:
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If to the Purchaser: SingTel Ventures (Cayman) Pte Limited
31 Exeter Road, Comcentre, #18-00
Singapore 239732
Mr. Andrew Buay
Director, Corporate Development
If to the Company: Saba Software, Inc.
2400 Bridge Parkway
Redwood Shores, California 94065
Attention: Peter E. Williams III, Esq.
Facsimile: (650) 581-2545
with a copy to: Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304
Attention: Chip Lion, Esq.
Facsimile: (650) 494-0792
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9.13 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth in the first paragraph hereof.
PURCHASER: SingTel Ventures (Cayman) Pte Limited
By: /s/ CHUA SOCK KOONG
--------------------------------
Name: Chua Sock Koong
Title: Director
COMPANY: Saba Software, Inc.
By: /s/ PETER E. WILLIAMS III
--------------------------------
Name: Peter E. Williams III
Title: Vice President, Corporate
Development, and
General Counsel
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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. 4 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
April 5, 2000
